10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 26, 2020
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the transition period from to

Commission file number: 0-16088

CPS TECHNOLOGIES CORP.
(Exact Name of Registrant as Specified in its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	04-2832509 (I.R.S. Employer Identification No.)
111 South Worcester Street Norton, MA (Address of principal executive offices)	02766-2102 (Zip Code)

508-222-0614

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class                                               Trading Symbol(s)              Name of each exchange on which registered
Common Stock, $0.01 par value                             CPSH                                            NASDAQ Capital Markets

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.[ ] Yes [X] No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller reporting company [X]

Emerging growth company[ ]

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

[ ]Yes  [X] No 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act
[ ] Yes [X] No

The aggregate market value of the voting Common Stock held by non-affiliates of the Registrant was $15 million based on the average of the reported closing bid and asked prices for the Common Stock as of the last business day of the registrant’s most recently completed second fiscal quarter as reported on the NASDAQ Capital Market.

Number of shares of Common Stock outstanding as of March 5, 2021: 14,352,542 shares.

Documents incorporated by reference.

Part I

Item 1. Business.

CPS Technologies Corp. (the ‘Company’ or ‘CPS’) provides advanced material solutions to the transportation, automotive, energy, computing/internet, telecommunications, aerospace and defense markets.  CPS products are important elements in electrifying the green economy.

Our primary material solution is metal matrix composites (MMCs).  We design, manufacture and sell custom metal matrix composite components to the performance and reliability of systems in the end markets in which we participate. 

The Company is an important participant in the growing movement towards alternative energy and green lifestyles. 

The Company’s products are used in high-speed trains, mass transit, hybrid and electric cars, wind-turbines for electricity generation, routers, switches and fiber optic components for the internet backbone.  The Company’s products are used in high reliability communications and power modules for avionics and satellite applications such as the current generation of GPS satellites.  The Company also produces housings and heatspreaders for high-performance microprocessors, graphics processing chips, and application-specific integrated circuits. All of these applications involve electrical energy use or energy generation; the Company’s products allow higher performance and improved energy efficiency.

Using its proprietary MMC technology, the Company also produces light-weight vehicle armor, particularly for extreme environments and heavy threat levels.

Metal matrix composites (MMCs) are a class of materials consisting of a combination of metals and ceramics.  Compared to conventional materials, MMCs provide superior thermal conductivity, improved thermal expansion matching, greater stiffness and lighter weight.  These factors, in particular the lighter weight, are among the reasons CPS parts are on the last two Mars Rovers as well as many satellites.

CPS is a fully qualified manufacturer for many of the world’s largest electronics OEMs.

CPS management believes our business model of providing advanced material solutions to a portfolio of high growth end markets in various stages of the technology adoption lifecycle provides CPS with the opportunity for sustained growth and a diversified customer base. We believe we have validated this model as we are now supplying customers at all stages of the technology adoption lifecycle.

Our products are manufactured by proprietary processes we have developed including the QuicksetTM Injection Molding Process (‘Quickset Process’) and the QuickCastTM Pressure Infiltration Process (‘QuickCast Process’).

CPS was incorporated in Massachusetts in 1984 as Ceramics Process Systems Corporation and reincorporated in Delaware in April 1987 through a merger into a wholly-owned Delaware subsidiary organized for purposes of the reincorporation. In July 1987, CPS completed our initial public offering of 1.5 million shares of our Common Stock. In March 2007, the Company changed its name from Ceramics Process Systems Corporation to CPS Technologies Corp..

CPS website is http://www.alsic.com.

Overview of Markets and Products

Electronics Markets Overview

The electronics world can be divided into power processing and signal processing.  Power processing consists of converting the electrical power provided by the power source into the appropriate voltage and amperage needed for the device using the power.  Signal processing consists of the myriad ways digital and analog signals are used in computing, communications, etc. 

In both power processing and signal processing end-user demand continues to motivate the electronics industry to produce products which:

- operate with lower losses and/or at higher speeds;
- are smaller in size; and
- operate with higher reliability.

While these three requirements result in products of ever-increasing performance, these requirements also create a fundamental challenge for the designer to manage the heat generated by the system operating at higher speeds and/or higher power. Smaller assemblies further concentrate the heat and increase the difficulty of removing it.

This challenge is found at each level in an electronic assembly: at the integrated circuit level speeds are increasing and line widths are decreasing; at the circuit board level higher density devices are placed closer together on circuit boards; and at the system level higher density circuit boards are being assembled closer together.

The designer must resolve the thermal management issues or the system will fail. For every 10 degree Celsius rise in temperature above a threshold level, the reliability of a integrated circuit is decreased by approximately half. In addition, heat usually causes changes in parameters which degrade the performance of both active and passive electronic components.

To resolve thermal management issues the designer is primarily concerned with two properties of the materials which comprise the system: 1) thermal conductivity, which is the rate at which heat moves through materials, and 2) thermal expansion rate (Coefficient of Thermal Expansion or CTE) which is the rate at which materials expand or contract as temperature changes. The designer must ensure that the temperature of an electronic assembly stays within a range in which the differences in the expansion rates of the materials in the assembly do not cause a failure from breaking, delaminating, etc.

CPS combines at the microstructural level a ceramic with a metal to produce a metal matrix composite which has the thermal conductivity needed to remove heat, and a thermal expansion rate which is sufficiently close to other components in the assembly to ensure the assembly is reliable. The ceramic is silicon carbide (SiC), the metal is aluminum (Al), and the composite is aluminum silicon carbide (AlSiC), a metal-matrix composite. CPS can adjust the thermal expansion rate of AlSiC components to match the specific application by modifying the amount of SiC compared to the amount of Al in the component.  The Company also has the capability of encapsulating Pyrolytic Graphite inserts to enhance the thermal conductivity of the AlSiC composite.

CPS produces products made of AlSiC in the shapes and configurations required for each application, for example, in the form of lids, substrates, housings, etc. Every product is made to a customer’s blueprint. The CPS process technology allows most products to be made to net shape, requiring no or little final machining.

Although the Company’s focus today is on AlSiC components, it believes its proprietary Quickset- Quickcast process technology can be used to produce other metal-matrix composites to meet future market needs.

An important development in power processing is the emergence of wide-band gap semiconductors, particularly SiC semiconductors.  SiC chips are more efficient than Si chips and are being used more frequently in power applications.  Modules using SiC chips run at higher temperatures, increasing the need for improved thermal management, need which the Company’s products meet.

Armor and Structural Markets Overview

Vehicle armor has traditionally been steel panels.   As threat levels have increased the amount of steel required to provide ballistic protection has reached a point where the weight degrades the vehicle’s performance.  The U.S. military has increasingly used ceramic armor in weight sensitive applications.  However, ceramic armor has several limitations, including limited multi-hit capability.   By embedding ceramic armor tiles in a metal matrix, these problems are overcome; the result is vehicle armor that is light-weight, has excellent ballistic protection, and environmental durability. 

The Company’s HybridTech Armor panels are particularly well suited for extreme environments – the panels don’t degrade in salt spray, or near heat, for example, and for high threat levels wherein steel does not provide the needed level of protection.  The Company believes its armor panels will increasingly be used in these applications.

Structural applications perform primarily a mechanical rather than electrical function. In any mechanical assembly with moving parts the stiffness and weight of moving parts can have a significant impact on the performance and energy efficiency of the assembly. In particular, in equipment with reciprocating components increasing the stiffness and reducing the weight of reciprocating components improves the performance and energy efficiency of the equipment.

Today many mechanical components are made of steel because steel has the stiffness required for the particular application. AlSiC has approximately the same stiffness as steel, but is only one-third the weight of steel. AlSiC is higher cost than steel. However, we believe there are many mechanical applications where the customer will pay the higher cost for AlSiC because of significant improvements in performance resulting from the superior stiffness-to-weight ratio of AlSiC.

Examples of structural applications for which we have developed and supplied components include robotic arms for semiconductor manufacturing equipment, and stiffeners for satellites. 

Specific Markets and Products

Motor Controller Applications (Insulated Gate Bipolar Transistor ("IGBT") Applications)

The electrification of the economy – particularly the use of electric motors and power modules to control electric motors of all sizes - is growing. This growth is the result of several factors including emerging high-power applications which demand power controllers such as trains, subways and certain industrial equipment, and cost declines in power modules which increasingly make variable speed drives cost effective. Power semiconductors are a very significant portion of the cost of variable speed drives, and the cost of the module housing and thermal management system are also significant; declines in the costs of all these components is driving increased use of variable speed drives.

We provide baseplates and heat spreaders on which power semiconductors are mounted to produce modules for motor control. The power semiconductors are typically IGBTs and these applications are often referred to as IGBT applications. Our AlSiC baseplates have sufficient thermal conductivity to allow for removal of heat through the baseplate and have a thermal expansion rate sufficiently similar to the other components in the assembly to ensure reliability over time as the assembly thermally cycles. We believe this market will continue to grow as the use of power modules penetrates additional motor applications, and as electric motors themselves penetrate new applications such as the hybrid  and electric vehicles.

Today our primary products for IGBT applications are used in electric trains, subway cars, wind turbines and hybrid and electric vehicles.

Major automobile companies around the world are introducing hybrid electric vehicles (HEVs) and electric vehicle (EVs) at an increasing rate. This focus on more energy efficient vehicles is being driven by concerns about climate change. There are many varieties of HEVs and EVs, but all HEVs and EVs contain an electric motor and contain one or more motor controller modules. The Company provides baseplates on which motor controller modules are assembled; these baseplates are lighter weight and provide greater reliability than baseplates made from more conventional materials.

The Company is working with multiple tier one and tier two suppliers to the automobile industry on several new designs for future introduction. The Company believes the HEV and EV markets will be the source of significant and long-term growth for the Company.

Lids and Heat Spreaders for High-Performance Microprocessors, Application-Specific Integrated Circuits and Other Integrated Circuits ("Flip-chip Applications")

Increases in speed, circuit density, and the number of connections in graphics processors (GPUs), microprocessor chips (CPUs) and application-specific integrated circuits (ASICs) are accelerating a transition in the way in which these circuits are packaged. Packages provide mechanical protection to the integrated circuit (IC), enable the IC to be connected to other circuits via pins, solder bumps or other connectors, and allow attachment of a heat sink or fan to ensure the IC does not overheat. In the past most high-performance ICs were electrically connected to the package by fine wires in a process known as wire bonding. Today, most high-performance semiconductors are connected to the package by placing metal bumps on the connection points of the die, turning the die upside down in the package, and directly connecting the bumps on the die with corresponding bumps on the package base by reflowing the bumps. This is referred to as a "flip-chip package". Flip chip packages allow for connection of a larger number of leads in a smaller space, and can provide other electrical performance advantages compared to wire bonded packages.

In many flip chip configurations a lid or heat spreader is placed over the die to protect the die from mechanical damage and to facilitate the removal of heat from the die. Often a heat sink or fan is then attached to the lid. For a high-density die the package designer must ensure that the lid has sufficient thermal conductivity to remove heat from the die and that all components of the package assembly - the die itself, the package base, and the package lid - are made from materials with sufficiently similar thermal expansion rates to ensure the assembly will not break apart over time as it thermally cycles.

Our composite material, AlSiC, has been developed to meet these two needs: it is engineered to have sufficient thermal conductivity to allow the heat generated by the die to be removed through the lid, and it is engineered to expand upon heating at a rate similar to other materials used in the package assembly in order to ensure reliability of the package over time as it thermally cycles. We produce lids made of AlSiC for high performance microprocessors and application-specific integrated circuits used in servers, internet switches and other applications.

Most participants in the semiconductor industry believe the densities of ICs will continue to increase following the well-known "Moore’s Law". As IC densities increase, generally so does the IC size, and the amount of heat generated by the IC. We believe the need for thermal management will continue to grow rapidly.

Customers

We sell primarily to major microelectronics systems houses in the United States, Europe and Asia. Our customers typically purchase prototype and evaluation quantities of our products over a one to three year period before purchasing production volumes.

In 2020, our three largest customers accounted for 36%, 21%, and 16% of revenues, respectively. In 2020, approximately 87% of our revenues were derived from commercial applications and 13% from defense-related applications.

Availability of Raw Materials

We use a variety of raw materials from numerous domestic and foreign suppliers. These materials are primarily aluminum ingots, ceramic powders and chemicals. The raw materials we use are available from domestic and foreign sources and none is believed to be scarce or restricted for national security reasons.  We use no conflict metals.

Patents and Trade Secrets

As of December 26, 2020, the Company had 11 United States patents.  In addition the Company had several international patents covering the same subject matter as the U.S. patents. Licensees of these patents have rights to use certain patents as defined in their respective license agreements.

We intend to continue to apply for domestic and foreign patent protection in appropriate cases. In other cases, we believe we are better served by reliance on trade secret protection. In all cases, we seek protection for our technological developments to preserve our competitive position.

Backlog and Contracts

Over 90% of the Company's product sales are custom in that they are based on customers’ drawings and the large majority of these sales are "designed in" and are sold over multiple years. Major customers typically give the Company a non-binding forecast of demand for a one-year period and then negotiate a pricing agreement with the Company valid for that one-year period. Each week customers then issue releases or authorizations to ship under the pricing agreements. At any point in time the contractually binding backlog represented by the releases in hand does not necessarily reflect underlying demand. Given this situation, the Company does not believe backlog data are meaningful.

Competition

We have developed and expect to continue to develop products for a number of different end markets and we will encounter competition from different producers of metal-matrix composites and other competing materials.

We believe that the principal competitive factors in our end markets today include technical competence, product performance, quality, reliability, price, delivery performance, corporate reputation, and strength of sales and marketing resources. We believe our proprietary processes, reputation, and the price at which we can offer products for sale will enable us to compete successfully in the many electronics end markets.

Our primary direct competitor in metal matrix composites is Denka, a large chemical company based in Japan.  We see manufacturers in China seeking to penetrate our markets. We believe they offer their products at lower prices but have generally not yet been to be able to provide the delivery, performance, quality and reliability required by the market.

Government Regulation

We produce non-nuclear, non-medical hazardous waste in our development and manufacturing operations. The disposal of such waste is governed by state and federal regulations. Various customers, vendors, and collaborative development agreement partners of CPS may reside abroad, thereby possibly requiring export and import of raw materials, intermediate products, and finished products, as well as potential technology transfer abroad under collaborative development agreements. These types of activities are regulated by bureaus within the Departments of Commerce, State and Treasury.

Employees

As of December 26, 2020, we had 104 permanent full-time employees. 95 were engaged in manufacturing and engineering and 9 in sales and administration, including finance, HR and general management.

None of our employees are covered by a collective bargaining agreement. We consider our relations with our employees to be excellent.

Item 1A. Risk Factors.

Smaller reporting companies are not required to provide the information required by this item.

Item 1B. Unresolved Staff Comments.

Smaller reporting companies are not required to provide the information required by this item.

Item 2. Properties

As of December 26, 2020, all our manufacturing, engineering, sales and administrative operations were located in leased facilities in Norton, Massachusetts and Attleboro, Massachusetts.

The Company completed a move out of the Attleboro facility on December 31,2020 and now has fully consolidated operations in the Norton facility,

In February 2021, the Company extended the lease for the Norton facility through February 2026. The leased facilities comprise approximately 38 thousand square feet. The lease is a triple net lease wherein the Company is responsible for payment of all real estate taxes, operating costs and utilities.  The Company also has an option to buy the property and a first right of refusal during the term of the lease.  Annual rental payments continue at $152 thousand.

Item 3. Legal Proceedings

We are not a party to any litigation which could have a material adverse effect on us or on our business.

Item 4. Mine Safety Disclosures

Not applicable

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities.

CPS Technologies Corp. shares have traded on The Nasdaq Capital Market, under the symbol “CPSH”. On December 26, 2020, we had approximately 2,000 shareholders. We have never paid cash dividends on our Common Stock. We currently plan to reinvest our earnings, if any, for use in the business and do not intend to pay cash dividends in the foreseeable future. Future dividend policy will depend, among other factors, upon our earnings and financial condition.

Item 6. Selected Financial Data

Smaller reporting companies are not required to provide the information required by this item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This document contains forward-looking statements, based on numerous assumptions, subject to risks and uncertainties. Although we believe that the forward-looking statements are reasonable, we do not and cannot give any assurance that our beliefs and expectations will prove to be correct. Many factors could significantly affect our operations and cause our actual results to be substantially different from our expectations. Those factors include, but are not limited to: (i) general economic and business conditions; (ii) customer acceptance of our products; (iii) materials and manufacturing costs; (iv) the financial condition of customers, competitors and suppliers; (v) technological developments; (vi) increased competition; (vii) changes in capital market conditions; (viii) governmental and business conditions in countries where our products are manufactured and sold; (ix) changes in trade regulations; (x) the effect of acquisition activity; (xi) changes in our plans, strategies, objectives, expectations or intentions; and (xii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission. Actual results might differ materially from results suggested by any forward-looking statements in this report. We do not have an obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of future events or otherwise.

Overview

The Company’s products contribute to the electrification of the green economy.  The products we provide include baseplates for motor controllers used in high-speed electric trains, subway cars, wind turbines, and hybrid and electric vehicles.  We provide baseplates and housings used in radar, satellite and avionics applications.  We provide lids and heatspreaders used with high performance integrated circuits for in internet switches and routers.   

We provide baseplates and housings used in modules built with Wide Band Gap Semiconductors like SiC and GaN. CPS also assembles housings and packages for hybrid circuits. These housings and packages may include MMC components; they may include components made of more traditional materials such as aluminum, copper-tungsten, etc.

CPS’s products are custom rather than catalog items. They are made to customers’ designs and are used as components in systems built and sold by our customers. At any point in time our product mix will consist of some products with on-going production demand, and some products which are in the prototyping or evaluation stages at our customers. The Company seeks to have a portfolio of products which include products in every stage of the technology adoption lifecycle at our customers. CPS’ growth is dependent upon the level of demand for those products already in production, as well as its success in achieving new "design wins" for future products.

As a manufacturer of highly technical and custom products, the Company incurs fixed costs needed to support the business, but which do not vary significantly with changes in sales volume. These costs include the fixed costs of applications engineering, tooling design and fabrication, process engineering, etc. Accordingly, particularly given our current size, changes in sales volume generally result in even greater changes in financial performance on a percentage basis as fixed costs are spread over a larger or smaller base. Sales volume is therefore a key financial metric used by management.

The Company believes the underlying demand for metal matrix composites is growing as the electronics and other industries seek higher performance, higher reliability, and reduced costs. CPS believes that the Company is well positioned to offer our solutions to current and new customers as these demands grow. In 2020 the Company’s top three customers accounted for 73% of revenue and the remaining 27% of revenue was derived from 61 other customers. In 2019 the top three customers accounted for 70% of revenue and the remaining 30% of revenue was derived from approximately 60 customers.

COVID-19 Pandemic

As a provider of essential services products and services, CPS has been open and operating throughout the novel coronavirus pandemic. To date most of our customers remain open and operational. In the second half of 2020 we saw significant increased volatility on the part of some of our customers, while for others it has been business as usual. We expect that this volatility will continue for at least the next several quarters. Unexpected significant reductions in demand by our largest customer led to a reduction in third and fourth quarter revenue. As these reductions were originally unexpected, by both CPS and our customer, inventory at various stages of production was built to meet expected demand, remains in inventory. This inventory was somewhat reduced in Q4, but will likely continue to remain somewhat inflated over the next quarter or two until it reaches equilibrium with current demand. 

CPS continues to follow CDC and OSHA guidance in our workplace. Employees’ temperatures are taken at the beginning of each shift, shifts have been staggered to reduce employee overlap, workstations have been rearranged to ensure social distancing, all employees are using facemasks, etc. The pandemic has had very little impact on our ability to produce and ship customer orders.

Application of Critical Accounting Policies

Financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, the Company is required to make certain estimates, judgments and assumptions that it believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. CPS’s significant accounting policies are presented within Note 2 to the financial statements; the significant accounting policies which management believes are most critical to aid in fully understanding and evaluating its reported financial results include the following:

a)Allowance for doubtful accounts

The Company performs ongoing monitoring of the status of its receivables based on the payment history and the credit worthiness of our customers, as determined by a review of their current credit information. Management continuously monitors collections and payments from customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been low and within expectations, there is no guarantee that we will continue to experience the same credit loss rates as in the past. Although the Company’s major customers are large and have a favorable payment history, a significant change in the liquidity or financial position of one of them could have a material adverse impact on the collectability of accounts receivable and future operating results. To further mitigate the potential for credit losses the Company has acquired a credit insurance policy covering most of our sales to non-US accounts.

b)Inventory valuation

The Company has a build-to-order business model and manufactures product to ship against specific purchase orders; occasionally CPS manufactures product in advance of anticipated purchase orders to level load production or prepare for a ramp-up in demand. In addition, 100% of the Company’s products are custom, meaning they are produced to a customer’s design and generally cannot be used for any other purpose. Purchase orders generally have cancellation provisions which vary from customer to customer, but which can result occasionally in CPS producing product which the customer is not obligated to purchase. However, once a product has gone into production, most customer orders are recurring and order cancellations are rare. The Company’s general obsolescence policy is to write off obsolete inventory when there has been no activity on a particular part for a twelve month period and there are no pending customer orders.

In some cases, customers place blanket purchase orders and request the Company to maintain inventory sufficient to respond quickly upon receiving a shipment request. The Company manufactures to specifications and the products typically have a life which extends over several years and does not deteriorate over time. Therefore, the risk of obsolescence due to the passage of time, per se, is minimal. However, in order to more efficiently schedule production or to meet agreements with customers to have inventory in the pipeline, the Company occasionally manufactures products in advance of purchase orders. In these instances, the Company bears the risk that it will be left with product manufactured to specification for which there are no customer purchase orders. The Company scrutinizes its inventory and, in the absence of pending orders or strong evidence of future sales, establishes an obsolescence reserve when there has been no activity on a particular part for a twelve month period.

In determining inventory cost, the Company uses the first-in, first-out method and states inventory at the lower of cost or net realizable value. Virtually, all of the Company’s inventory is customer specific; as a result, if a customer’s order is cancelled, it is unlikely that CPS would be able to sell that inventory to another customer. Likewise, if the Company chooses to manufacture product in advance of anticipated purchase orders and those orders do not materialize, it is unlikely that it would be able to sell that inventory to another customer. The value of CPS’s work in process and finished goods is based on the assumption that specific customers will take delivery of specific items of inventory. The Company has not experienced losses to date as a result of customer cancellations and has not established a reserve for such cancellations.

The Company typically buys ‘lots’ of components for its hermetic packaging products. Often all the components in a lot are not necessary to complete the order. Annually the company reviews this unused material and establishes an obsolescence reserve for the amount it does not expect to use over the next three years.

c)Valuation of deferred tax assets

Deferred tax assets and liabilities are based on the net tax effects of tax credits, operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company considers many factors in assessing whether or not a valuation allowance for its Deferred Tax Asset is warranted and has concluded that it is more likely than not that a portion or all of the Deferred Tax Asset will not be used before they expire. As a result a valuation reserve has been established as of December 28, 2019 and December 26, 2020.

At December 26, 2020 the Company’s Deferred Tax Asset and other temporary differences will require taxable income of approximately $15 million and reversals of existing temporary differences to fully utilize the Deferred Tax Asset, assuming a statutory corporate tax rate of 21%.

Results of Operations (all $ in millions unless noted)

Results of Operations for the year 2020 (“2020”) compared with the year 2019 (“2019”):

Total revenue was $20.9 million in 2020, a 3% decrease compared with total revenue of $21.4 million in 2019. This decrease was due primarily to a decrease in the sales from our largest customer because of the impact of the Covid-19 pandemic on their business.  Our second and third largest customers showed increased sales, but not enough to offset the reduction from the largest customer.  Much of our largest customer’s sales go to railroad companies who experienced significant reductions in ridership due to the pandemic.

Gross margin in 2020 totaled $4.2 million or 20% of sales.  This compares with $2.5 million, or 12% of sales, generated during 2019. The improvement in margin was primarily due to price increases which were fully in effect throughout 2020.

Selling, general and administrative (SG&A) expenses were $3.3 million during 2020, an increase of 3% compared with SG&A expenses of $3.1 million incurred during 2019.  The primary reason for this increase was increased professional fees, including costs incurred during our search for a Chief Operating Officer.  This search was concluded in 2020; our new Chief Operating Officer began work on January 4, 2021.

The Company generated operating income of $0.9 million in 2020, compared with an operating loss of $0.6 in 2019. This improvement was due primarily to the price increases, as discussed above; secondarily to operating efficiencies.  The net income in 2020 totaled $0.9 versus a net loss of $0.6 in 2019. 

Significant Fourth Quarter Activity in 2020:

Revenues totaled $4.2 million in the fourth quarter of 2020 versus $5.4 million in the fourth quarter of 2019, a decrease of 24%.  This decrease was due primarily to a decrease in the sales of baseplates with our two largest customers.  Both of these customers were negatively affected in the fourth quarter by Covid-19, although one showed growth for the year, but was down in the fourth quarter.

Gross margin decreased in the fourth quarter of 2020 compared with the fourth quarter of 2019 to $0.5 million from $1.0 million.  This decrease was directly associated with the decrease in revenue.

SG&A expenses totaled $0.8 million during the quarter, an increase of 29% compared to $0.6 million in the same quarter of 2019.  The primary reason for this increase was increased professional fees, including costs incurred during our search for a Chief Operating Officer. 

Primarily as a result of the revenue decrease, the Company recorded an operating loss of $0.3 million in the fourth quarter of 2020 compared to a income of $0.4 million in the fourth quarter of 2019.

The Company recorded a net loss of $0.2 million in the fourth quarter of 2020 compared to a net earnings of $0.4 million in the fourth quarter of 2019. The operating loss in the fourth quarter of 2020 was reduced due to the sales of equipment as a result of the closing of the Attleboro facility.

Liquidity and Capital Resources (all $ in millions unless noted)

The Company’s cash and cash equivalents at December 26, 2020 totaled $0.2 compared with cash and cash equivalents at December 28, 2019 of $0.1.  The Company’s net cash (cash and equivalents offset by borrowings under its line of credit) increased to $0.2 at December 26, 2020 from negative $1.1 at December 28, 2019.  The increase was primarily due to the Company’s profitability for the year.

Accounts receivable at December 26, 2020 totaled $2.9 compared to $4.1 at December 28, 2019. Days Sales Outstanding (DSO) decreased to 62 days at the end of 2020 compared to 67 days at the end of Q4 2019. This change was due in large part to the fact that sales were more front-end loaded in the quarter in 2020 and, as a result, a higher percentage of sales were collected during the quarter.  The accounts receivable balances at December 26, 2020, and December 28, 2019 were both net of an allowance for doubtful accounts of $10 thousand.

Inventories increased to $3.7 at December 26, 2020 from $3.1 at December 28, 2019. The inventory turnover in the most recent four quarters ending was 4.5 times, down from 6.2 times averaged during the four quarters of 2019 (each based on a 5 point average).  The majority of our inventory is for our two largest customers, both of whom significantly decreased their projected purchases in the fourth quarter of 2020.

The Company had no inventory on consignment at any customers at the end of 2019 or 2020. At December 26, 2020 and December 28, 2019 inventory of, $1.6 and $1.2, respectively, was located at vendor locations pursuant to inventory agreements.

The Company funded its operations from its profit in 2020. The Company expects it will continue to be able to fund its operations during 2021 from existing cash balances, the existing credit facility and profits.

The Company continues to sell to a limited number of customers and the loss of any one of these customers or vendors could cause the Company to require additional external financing. Failure to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the Company’s ability to achieve its business objectives.

Contractual Obligations

In September 2019, the Company entered into revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million.  The agreement includes a demand note allowing the Lender to call the loan at any time.  The Company may terminate the agreement without a termination fee after 3 years.  The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 650 basis points. BDC requires that the total earnings before taxes for 2020 be at least $749 thousand, which was achieved.  BDC also required a $201 thousand earnings before taxes for the fourth quarter of 2020. A blanket waiver of compliance was issued by BDC for this and any other 2020 activity.  At December 26, 2020 the Company had $0 borrowings under this LOC and its borrowing base at the time would have permitted an additional $2.2 to have been borrowed.

In March 2020, the company acquired a scanning acoustic microscope for a price of $208 thousand.  The full amount was financed through a 5 year note payable with a financing company.  The note is collateralized by the microscope and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a rate of 6.47%

In July 2020 CPS placed into service a piece of manufacturing equipment which it financed with the machine’s vendor.  The equipment cost of $40 thousand will be paid at the rate of $2 thousand per month over 2 years with an interest rate of 1.9%. 

As of December 26, 2020 the Company had $61 thousand of construction in progress and no outstanding commitments to purchase production equipment.

During 2020 our leasing arrangements consisted of the Norton, MA and Attleboro, MA facility leases. The Norton facility lease expires in February 2021 and is a triple net lease wherein the Company is responsible for payment of all real estate taxes, operating costs and utilities.  In January 2021 the company entered into an amendment to the lease, extending its term for five years to February 2026. The Company also has an option to buy the property and a first right of refusal during the term of the lease. Annual rental payments continue at $152 thousand. The Attleboro lease expired December 31, 2020 and has not been renewed. 

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Inflation

Inflation had no material effect on the results of operations or financial condition during the last few years. There can be no assurance however, that inflation will not affect our operations or business in the future.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Smaller reporting companies are not required to provide the information required by this item.

Item 8. Financial Statements and Supplementary Data

See Index to the Company’s Financial Statements and the accompanying notes which are filed as part of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as such item is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 26, 2020.

Changes in Internal Control over Financial Reporting

There were no material changes in the Company’s internal control over financial reporting during fiscal 2020.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 26, 2020. In making this assessment, management used the criteria set forth in the "Internal Control Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013). Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 26, 2020.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Item 9B. Other Information

The Company had no information required to be disclosed in a report on Form 8-K during the fourth quarter of the year covered by this Form 10-K that has not been so reported.

Part III

Item 10.      Directors, Executive Officer and Corporate Governance

The information required by this Item 10 is incorporated herein by reference to our Definitive Proxy Statement, under the captions “Members of the Board of Directors, Nominees and Executive Officers,” “Certain Relationships and Related Person Transactions; Legal Proceedings,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Code of Conduct” and “Corporate Governance” and with respect to our 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2020 fiscal year.

The Company has adopted the CPS Code of Conduct, which applies to all directors, officers (including the principal executive officer, principal financial officer and treasurer) and employees.  A copy of this code can be found on the Company’s website at www.alsic.com/investor-relations.

Item 11.      Executive Compensation

The information required by this Item 11 is incorporated herein by reference to our Definitive Proxy Statement, under the captions “Compensation” and “Compensation Discussion and Analysis” with respect to our 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2020 fiscal year.

Item 12.      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item 12 is incorporated herein by reference to our Definitive Proxy Statement, under the caption “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” with respect to our 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2020 fiscal year.

Item 13.      Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 is incorporated herein by reference to our Definitive Proxy Statement, under the captions “Certain Relationships and Related Person Transactions; Legal Proceedings” and “Corporate Governance” with respect to our 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2020 fiscal year.

Item 14.      Principal Accountant Fees and Services

The information required by this Item 14 is incorporated herein by reference to our Definitive Proxy Statement, under the caption “Accounting Matters” with respect to our 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2020 fiscal year.

Part IV

Item 15.            Exhibits, Financial Statement Schedules.
(a) Documents filed as part of this Form 10-K.

1. Financial Statements
The financial statements filed as part of this Form 10-K are listed on the Index to Financial Statements of this Form 10-K.

2. Exhibits
The exhibits to this Form 10-K are listed on the Exhibit Index of this Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CPS TECHNOLOGIES CORP.
By:	/s/ Grant C. Bennett President and Chief Executive Officer March 16, 2021

Pursuant to the Requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Grant C. Bennett	President  and Chief Executive Officer	March 16, 2021
Grant C. Bennett
/s/ Charles K. Griffith Jr.	Chief Financial Officer	March 16, 2021
Charles K. Griffith Jr.
/s/ Francis J. Hughes, Jr.	Director	March 16, 2021
Francis J. Hughes
/s/ Daniel C. Snow	Director	March 16, 2021
Daniel C. Snow
/s/ Thomas M. Culligan	Director	March 16, 2021
Thomas M. Culligan
/s/ Ralph M. Norwood	Director	March 16, 2021
Ralph M. Norwood

CPS TECHNOLOGIES CORP.
EXHIBIT INDEX

Exhibit No.	Description
3.1*	Restated Certificate of Incorporation of the Company, as amended, is incorporated herein by reference to Exhibit 3 to the Company’s Registration Statement on Form 8-A (File No. 0-16088)
3.2*	By-laws of the Company, as amended, are incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 33-14616)(the ‘1987 S-1Registration Statement’)
3.3*	Certificate of Amendment of Restated Certificate of Incorporation of the Company dated May 14, 2014
3.4*	Certificate of Ownership and Merger Merging CPS Superconductor Corporation into Ceramics Process Systems Corporation dated March 15, 2007
4.1*	Specimen certificate for shares of Common Stock of the Company is incorporated herein by reference to Exhibit 4 to the 1987 S-1 Registration Statement
4.2*	Description of Capital Stock contained in the Restated Certificate of Incorporation of the Company, as amended, filed as Exhibit 3.1
4.3	Amendment dated May 12, 2020 to Credit and Security Agreement by and between CPS Technologies Corp. and The Massachusetts Business Development Corporation dated September 25, 2019
4.5	CNC Associates, Inc. Notification of Approval of Financing dated May 26, 2020.
4.6	Credit and Security Agreement by and between CPS Technologies Corp. and The Massachusetts Business Development September 25, 2019
10.2*	Amendment No. 1 dated November 7, 2008 to Standard Form Commercial Lease by and between Gifford Investments, Inc.(lessor) and Ceramics Process Systems Corporation dated July 19, 2006
10.5*(1)	Retirement Savings Plan, effective September 1, 1987 is incorporated by reference to Exhibit 10.35 to the Company’s 1989 S-1 Registration Statement
10.6*	Amendment No. 2 dated May 7, 2009 to Standard Form Commercial Lease by and between Gifford Investments, Inc.(lessor) and Ceramics Process Systems dated July 19, 2006.
10.7*	Third Amendment dated January 6, 2015 to Standard Form Commercial Lease by and between Gifford Investments, Inc.(lessor) and CPS Technologies Corp. dated July 19, 2006
10.8*	Fourth Amendment dated February 28, 2018 to Standard Form Commercial Lease by and between Gifford Investments, Inc. and CPS Technologies Corp. dated July 19, 2006
10.9*	Fifth Amendment dated January 25, 2021 to Standard Form Commercial Lease by and between Gifford Investments, Inc. and CPS Technologies Corp. dated July 19, 2006
10.21*	1999 Stock Incentive Plan adopted by the Company’s Board of Directors on January 22, 1999
10.22*	2009 Stock Incentive Plan ("2009 Plan") on December 10, 2009.
10.23*(1)	2020 Stock Incentive Plan (“2020 Plan”) on March 3, 2020
10.24*(1)	Amended and Restated 2009 Stock Incentive Plan
10.26*(1)	Form of Stock Option Agreement for 2020 Equity Incentive Plan and Amended and Restated 2009 Stock Option Plan
23.1	Consent of Wolf & Company, P.C.
31.1	Certification Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Incorporated herein by reference.

(1) Management Contract or compensatory plan or arrangement filed as an exhibit to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.

INDEX TO FINANCIAL STATEMENTS
OF
CPS TECHNOLOGIES CORP.

Report of Independent Registered Public Accounting Firm

Balance Sheets as of December 26, 2020 and December 28, 2019

Statements of Operations for the years ended December 26, 2020 and December 28, 2019

Statements of Stockholders’ Equity for the years ended December 26, 2020 and December 28, 2019

Statements of Cash Flows for the years ended December 26, 2020 and December 28, 2019

Notes to Financial Statements

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of CPS Technologies Corp.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of CPS Technologies Corp. (the "Company") as of December 26, 2020 and December 28, 2019, the related statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 26, 2020, 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 26, 2020 and December 28, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 26, 2020, 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 audit 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 statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ Wolf & Company, P.C.

Boston, Massachusetts

March 16, 2021

We have served as the Company's auditor since 2005.

CPS TECHNOLOGIES CORP.
BALANCE SHEETS

		December 26,		December 28,
		2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	195,203	$	133,965
Accounts receivable-trade, net		2,914,800		4,086,945
Inventories		3,709,471		3,099,824
Prepaid expenses and other current assets		71,506		147,786
Total current assets		6,890,980		7,468,520
Property and equipment:
Production equipment		10,265,471		9,649,169
Furniture and office equipment		568,846		508,423
Leasehold improvements		951,384		934,195
Total cost		11,785,701		11,091,787
Accumulated depreciation
and amortization		(10,558,816)		(10,110,663)
Construction in progress		61,062		255,754
Net property and equipment		1,287,947		1,236,878
Right-of-use lease asset (note 4, leases)		25,000		171,000
Deferred taxes, net		117,000		147,873
Total assets	$	8,320,927	$	9,024,271

(continued)

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
BALANCE SHEETS

		December 26,		December 28,
		2020		2019
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Borrowings against line of credit	$	—		1,249,588
Notes payable, current portion		58,134		—
Accounts payable		909,291		1,436,417
Accrued expenses		804,091		815,166
Deferred revenue		12,177		21,110
Lease liability, current portion		25,000		148,000
Total current liabilities		1,808,693		3,670,281
Notes payable less current portion		154,570		—
Long term lease liability		—		23,000
Total liabilities		1,963,263		3,693,281
Commitments & Contingencies
Stockholders’ Equity:
Common stock, $0.01 par value,
authorized 20,000,000 shares;
issued 13,746,242 and 13,427,492 shares;
outstanding 13,313,790 and 13,207,436;
at December 26, 2020 and December 28, 2019, respectively		137,462		134,275
Additional paid-in capital		36,688,894		36,094,201
Accumulated deficit		(29,472,369)		(30,380,433)
Less cost of 432,452 and 220,056 common shares repurchased
at December 26, 2020 and December 28, 2019, respectively		(996,323)		(517,053)
Total stockholders’ equity		6,357,664		5,330,990
Total liabilities and stockholders’ equity	$	8,320,927	$	9,024,271

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 26, 2020 AND DECEMBER 28, 2019

		2020		2019
Product sales	$	20,872,611	$	21,468,414
Cost of product sales		16,702,848		18,928,173
Gross margin		4,169,763		2,540,241
Selling, general, and
Administrative expenses		3,255,527		3,137,440
Income (loss) from operations		914,236		(597,199)
Other income (expense)		(14,720)		(35,547)
Income (loss) before income tax		899,516		(632,746)
Income tax provision (benefit)		(8,548)		5,456
Net income (loss)	$	908,064	$	(638,202)
Net income (loss) per
basic common share	$	0.07	$	(0.05)
Weighted average number of
basic common shares
outstanding		13,251,521		13,207,097
Net income (loss) per
diluted common share	$	0.07	$	(0.05)
Weighted average number of
diluted common shares
outstanding		13,348,582		13,207,097

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 26, 2020 AND DECEMBER 28, 2019

	Common stock
					Additional							Stock-
	Number of		Par		Paid-in		Accumulated			Stock		holders’
	shares issued		Value		capital		deficit			repurchased		equity
Balance at
December 29, 2018	13,425,992	$	134,260	$	35,960,545	$	(29,742,231)		$	(517,053)	$	5,835,521
Share-based
compensation expense	—		—		131,421		—			—		131,421
Issuance of Common Stock	1,500		15		2,235		—			—		2,250
Net (loss)	—		—		—		(638,202)			—		(638,202)
Balance at
December 28, 2019	13,427,492	$	134,275		36,094,201	$	(30,380,433	)	$	(517,053)	$	5,330,990
Share-based
compensation expense	—		—		117,842		—			—		117,842
Issuance of common
stock	500		5		763		—			—		768
Employee option exercises	318,250		3,182		476,088		—			(479,270)		—
Net income	—		—		—		908,064			—		908,064
Balance at
December 26, 2020	13,746,242	$	137,462		36,688,894	$	(29,472,369)		$	(996,323)	$	6,357,664

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 26, 2020 AND DECEMBER 28, 2019

		2020		2019
Cash flows from operating activities:
Net income (loss)	$	908,064	$	(638,202)
Adjustments to reconcile net income (loss)
to cash provided (used) by operating
activities:
Share-based compensation		117,842		133,671
Depreciation and amortization		530,420		525,783
Deferred taxes		30,873		38,874
Gain on sale of property and equipment		(11,000)		(6,946)
Changes in operating assets and liabilities:
Accounts receivable – trade		1,172,145		(1,033,854)
Inventories		(609,647)		93,109
Prepaid expenses and other current assets		76,280		8,552
Accounts payable		(527,126)		(243,846)
Accrued expenses		(11,075)		(160,149)
Deferred revenue		(8,933)		21,110
Net cash provided (used) by operating activities		1,667,843		(1,261,898)
Cash flows from investing activities:
Purchases of property and equipment		(322,991)		(489,475)
Proceeds from sale of property and equipment		11,000		6,946
Net cash used by
investing activities		(311,991)		(482,529)
Cash flows from financing activities:
Net borrowings (repayments) on line of credit		(1,249,588)		1,249,588
Proceeds from employee stock options		768		—
Payment on notes payable		(45,794)		—
Net cash provided by financing activities		(1,294,614)		1,249,588
Net increase (decrease) in cash and cash equivalents		61,238		(494,839)
Cash and cash equivalents at beginning of year		133,965		628,804
Cash and cash equivalents at end of year	$	195,203	$	133,965
Supplemental cash flow information:
Cash paid (refunded) for income taxes	$	(8,548)	$	(67,311)
Cash paid for interest	$	104,488	$	44,113
Supplemental disclosures of non-cash activity:
Net exercise of stock options	$	479,270		—
Issuance of long term debt to finance equipment purchases	$	247,807		—

See accompanying notes to financial statements.

CPS Technologies Corp.
Years Ended December 26, 2020 and December 28, 2019
Notes to Financial Statements

(1) Nature of Business

CPS Technologies Corp. (the ‘Company’ or ‘CPS’) provides advanced material solutions to the transportation, automotive, energy, computing/internet, telecommunications, aerospace, defense and oil and gas end markets.

Our primary material solution is metal matrix composites.  We design, manufacture and sell custom metal matrix composite components which improve the performance and reliability of systems in these end markets.

(2) Summary of Significant Accounting Policies

(2)(a) Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.

(2)(b) Accounts Receivable

The Company reports its accounts receivable at the invoiced amount less an allowance for doubtful accounts. The Company’s management provides appropriate provisions for uncollectible accounts based upon factors surrounding the credit risk and activity of specific customers, historical trends, economic conditions and other information. Adjustments to the allowance are charged to operations in the period in which information becomes available that may affect the allowance.   The Company maintains an allowance for doubtful accounts of $10,000 as of December 26, 2020 and December 28, 2019.

(2)(c) Inventories

Inventories are stated at the lower of cost, as determined under the first-in, first-out method (FIFO), or net realizable value. A reserve for obsolete inventories is based on factors regarding the sales and usage of such inventories, including inventories manufactured for specific customers. The Company’s general obsolescence policy is to write off obsolete inventory when there has been no activity on a particular part for a twelve month period and there are no pending customer orders.

(2)(d) Property and Equipment

Property and equipment are stated at cost. Depreciation of equipment is calculated on a straight-line basis over the estimated useful life, generally five years for production equipment and three to five years for furniture and office equipment. Leasehold improvements are depreciated over the shorter of the lease term or their useful life. Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from their respective accounts. Any gains or losses on the disposition of property and equipment are included in the results of operations in the period in which they occur.

(2)(e) Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. Recoverability is assessed based on estimated undiscounted future cash flows. As of December 26, 2020 and December 28, 2019, the Company believes that there has been no impairment of its long-lived assets.

(2)(f) Revenue Recognition

Revenue is recognized in accordance with the five-step method under Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers.”

Identifying the Contract with the Customer

The Company identifies contracts with customers as agreements that create enforceable rights and obligations.  In the case of a few large customers the Company has executed long-term Master Sales Agreements (“MSA”).  These are umbrella agreements which typically define the terms and conditions under which a customer can order goods from CPS.  These in themselves do not constitute a contract as no products are committed to be transferred and the customer has no obligation to make payments.

The Company contract is only enforceable once both parties have approved it, and is usually in the form of a written purchase order from a customer combined with acknowledgement from the Company.

In cases without an MSA, the customer submits a blueprint for a product, the Company provides a quote and the customer responds with a purchase order.   In these cases the Company’s acceptance of the purchase order constitutes an enforceable contract.

Identifying the Performance Obligations in the Contract

For each contract, the Company considers the promise to transfer products, each of which are distinct, to be the identified performance obligations.

Shipping and handling activities for which the Company is responsible are not a separate promised service but instead are activities to fulfill the entity’s promise to transfer goods. Shipping and handling fees will be recognized at the same time as the related performance obligations are satisfied.

The Company provides an assurance-type warranty.  This guarantees that the product functions as promised and meets specifications.  Under its terms and conditions the Company offers a 30 day warranty and replaces defective or non-conforming products.  The expense of replacement is recorded at the time the Company agrees to replace a defective or non-conforming product.  This assurance type warranty is not considered to be a distinct performance obligation.

Determining the Transaction Price

The Company determines the transaction price as the amount of consideration specified in the contract that it expects to receive in exchange for transferring promised goods to the customer. Amounts collected from customers for sales value added and other taxes are excluded from the transaction prices. Product sales are recorded net of trade discounts and sales returns.

If a contract includes a variable amount, such as a rebate, then the Company estimates the transaction price using either the expected value or the most likely amount of consideration to be received, depending upon the specific facts and circumstances. The Company includes estimated variable consideration in the transaction price only to the extent it is probable that a significant reversal of revenue will not occur when the uncertainty is resolved. The Company updates its estimate of variable consideration at the end of each reporting period to reflect changes in facts and circumstances. As of December 26, 2020 there are no contracts with variable consideration.

When credit is granted to customers, payment is typically due 30 to 90 days from billing and accordingly our contracts with customers do not include a significant financing component.

Allocating the Transaction Price to the Performance Obligations

In virtually all cases the transaction price is tied to a specific product in the contract obviating the need for any allocation.

Recognizing Revenue When (or as) the Performance Obligations are Satisfied

The Company recognizes revenue at the point in time when it transfers control of the promised goods or services to the customer, which typically occurs once the product has shipped or has been delivered to the customer. Occasionally, for the purpose of ensuring a steady flow of product, the Company ships products on consignment. In these instances, delivery is deemed to have occurred when the customer pulls inventory out of the warehouse for use in their production, or upon a specified period of time as agreed upon by both parties.  As of December 26, 2020 there are no products on consignment.

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. The costs are recorded within, selling, general and administrative expenses.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less

(2)(g) Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in affect when the differences reverse. A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 26, 2020 and December 28, 2019, the Company has no accruals for interest or penalties related to income tax matters. The Company does not have any uncertain tax positions at December 26, 2020 or December 28, 2019 which required accrual or disclosure.

(2)(h) Net Income (Loss) Per Common Share

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock option and stock purchase rights. Common stock equivalents are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.

(2)(i) Reclassification

Certain amounts in prior year’s financial statements have been reclassified to conform to the current year’s presentation.

(2)(j) Recent Accounting Pronouncements

In the normal course of business, management evaluates all the new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”). Based upon this review, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s financial statements.

(2)(k) Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amounts of revenues and expenses recorded during the reporting period. Such estimates are adjusted by management periodically as a result of existing or anticipated economic changes which effect, or may effect, the Company’s financial statements. Actual results could differ from these estimates.

(2)(l) Fiscal Year-End

The Company’s fiscal year end is the last Saturday in December which could result in a 52 or 53 week year. Fiscal years 2020 and 2019 each consisted of 52 weeks.

(2)(m) Share-Based Payments

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period). The Company provides an estimate of forfeitures at initial grant date, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted.

(2)(n) Segment Reporting

The Company views its operations and manages its business as one segment. The Company produces and sells advanced material solutions, primarily metal matrix composites, to assemblers of high density electronics and other specialty components and subassemblies. The Company also assembles housings and packages for hybrid circuits, selling to the same customers mentioned above. These customers represent a single market or segment with similar stringent and well-defined requirements. The Company’s customers, in turn, sell the components and subassemblies which incorporate the products into many different end markets, however, these end markets are two to three levels removed from the Company. The Company makes operating decisions and assesses financial performance only for the Company as a whole and does not make operating decisions or assess financial performance by the end markets which ultimately use the products.

(3) Inventories

As of December 26, 2020 and December 28, 2019 inventories consisted of the following:

		2020		2019
Raw materials	$	752,760	$	778,409
Work in process		2,800,226		1,898,916
Finished goods		592,640		871,861
Gross Inventory		4,145,626		3,549,186
Reserve for obsolescence		(436,155)		(449,362)
Total	$	3,709,471	$	3,099,824

(4) Leases

The Company had two real estate leases in 2020—one expiring in February 2021 and one expiring December 2020. The latter lease was not renewed.  CPS also has a few other leases for equipment which are minor in nature and are generally short-term in duration. None of these equipment leases have been capitalized as the Company elected an accounting policy for short-term leases, which allows lessees to avoid recognizing right-of-use assets and liabilities for leases with terms of 12 months or fewer.

The real estate lease expiring in 2021 (the “Norton facility lease’) is included as a right-of-use lease asset and corresponding lease liability on the balance sheet. This asset and liability are based on the present value of remaining lease payments over the remaining lease term using the Company’s incremental borrowing rate at date of adoption of the lease guidance. The Company does not separate lease components from non-lease components.  The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Norton facility lease comprises approximately 38 thousand square feet. The lease is a triple net lease wherein the Company is responsible for payment of all real estate taxes, operating costs and utilities.  The Company also has an option to buy the property and a first right of refusal during the term of the lease.  Annual rental payments are $152 thousand through maturity.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating leases as of December 26, 2020

(Dollars in Thousands)		December 26, 2020
Maturity of capitalized lease payments		Lease payments
2021		25
Total undiscounted operating lease payments	$	25
Less: Imputed interest		—
Present value of operating lease liability	$	25

Balance Sheet Classification
Current lease liability	$	25
Long-term lease liability		—
Total operating lease liability	$	25
Other Information
Weighted-average remaining lease term for capitalized operating leases		2 months
Weighted-average discount rate for capitalized operating leases		6.5%

Cash Flows

Cash paid for the amounts included in the present value of operating lease liabilities was $152 thousand during 2020 and is included in operating cash flows.

Operating Lease Costs

Operating lease cost was $152 thousand during 2020. This cost is related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The company does not have any finance leases that qualify for capitalization.

Subsequent to year end, the Company renewed the Norton facility lease for an additional 5 years.  Estimated monthly payments under the terms of the renewed lease, which is not reflected in the 2020 lease asset or liability escalate from approximately $12 thousand to $16 thousand over the lease term

(5) Share-Based Compensation Plans

The Company adopted the 2020 Equity Incentive Plan ("2020 Plan") on March 3, 2020. Under the terms of the 2020 Plan all of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted options, restricted stock awards, or other stock-based awards. Some outstanding options are nonstatutory stock options; some are incentive stock options.  All options granted are exercisable at the fair market value of the stock on the date of grant, and expire ten years from the date of grant. The options granted to employees generally vest in equal annual installments over a five-year period. The options granted to directors generally vest immediately on date of grant.

Under the 2020 Plan a total of 1,500,000 shares of common stock are available for issuance, of which 1,386,000 shares remain available for grant as of December 26, 2020.

A summary of stock option activity as of December 26, 2020 and changes during the year then ended is presented below:

			Weighted	Weighted
			Average	Remaining		Aggregate
			Exercise	Contractual		Intrinsic
	Shares		Price	Life (years)		Value
Outstanding at
beginning of year	1,794,105	$	1.73
Granted	119,000	$	1.49
Exercised	(318,250)	$	1.51
Forfeited	(77,000)	$	1.41
Expired	(226,355)	$	1.52
Outstanding at
end of year	1,251,500	$	1.82	5.08	$	753,320
Options exercisable
at year-end	992,600	$	1.90	4.38	$	557,052

No options were exercised during fiscal 2019 and 199,500 options were granted during fiscal 2019.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following table presents the annualized weighted average values of the significant assumptions used to estimate the fair values of the options granted during 2020 and 2019:

		2020		2019
Risk-free interest rate		.84%- .91%		2.48%
Expected life in years		6-7		6.1
Expected volatility		54%		54%
Expected dividend yield		0		0
Weighted average fair value of grants	$	.78	$	.79

All options are granted with an exercise price equal to the fair market value of the underlying common stock on the date of grant.

The Company recognized $117,842 and $133,671 as stock based compensation expense in 2020 and 2019, respectively.  As of December 26, 2020, there was $146,017 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plan; that cost is expected to be recognized over a weighted average period of 2.05 years.

(6) Accrued Expenses

Accrued expenses at December 26, 2020 and December 28, 2019 consist of the following:

		2020		2019
Accrued legal and accounting	$	71,671	$	62,725
Accrued payroll and related costs		626,063		518,015
Accrued other		106,357		234,426
	$	804,091	$	815,166

(7) Revolving Line of Credit

In September 2019, the Company entered into a revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million.  The agreement includes a demand note allowing the Lender to call the loan at any time.  The Company may terminate the agreement without a termination fee after 3 years.  In May of 2020 this credit line was increased to $3.0 million. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 650 basis points.  The Company is subject to certain financial and non-financial covenants, all of which have been waived by BDC for 2020.  At December 26, 2020 the Company had $0 borrowings under this LOC and its borrowing base at the time would have permitted an additional $2.2 to have been borrowed.   Total Interest Expense for 2020 was $104 thousand.

(8) Notes Payable

In March 2020, the company acquired a Sonoscan ultrasound microscope for a price of $208 thousand.  The full amount was financed through a 5 year note payable with Crest Capital Corporation.  The note is collateralized by the microscope and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a rate of 6.47%.

In July 2020 CPS placed into service a piece of manufacturing equipment which it financed with the machine’s vendor.  The equipment cost of $40 thousand will be paid at the rate of $2 thousand per month over 2 years, resulting in an implied interest rate of 1.90%. 

The aggregate maturities of the notes payable based on the payment terms of the agreement are as follows:

Remaining in:		Payments due by period
FY 2021	$	58,114
FY 2022	$	55,906
FY 2023	$	43,837
FY 2024	$	46,757
FY 2025	$	8,090
Total		212,704

Total interest expense on notes payable during 2020 was $10,816.

(9) Income Taxes

Components of income tax expense (benefit) for each year are as follows:

		2020		2019
Current:
Federal	$	(39,877)	$	(33,874)
State		456		456
Current income tax provision (benefit):		(39,421)		(33,418)
Deferred:
Federal		33,873		(6,387)
State		(3,000)		45,261
Deferred income tax provision (benefit), net		30,873		38,874
Total	$	(8,548)	$	5,456

Deferred tax assets as of December 26, 2020 and December 28, 2019 are as follows:

		December 26, 2020		December 28, 2019
Deferred Tax Assets:
Net operating loss
carryforwards	$	746,397	$	884,508
Stock compensation		540,281		543,614
Credit carryforwards		1,288,897		1,317,445
Inventory		116,153		316,943
Accrued liabilities		22,140		18,920
Depreciation		250,093		237,449
Other		2,732		2,732
Gross deferred tax assets		2,966,693		3,321,611
Valuation allowance		(2,849,693)		(3,173,738)
Net deferred tax assets	$	117,000	$	147,873

At December 26, 2020 and December 28, 2019 the Company had net operating loss carryforwards of approximately $2,754,601 and $3,278,463, respectively, available to offset future income for U.S. Federal income tax purposes. These net operating loss carryforwards occurred over several years, which begin to expire in the year ended 12/31/2036.

The Company established a valuation reserve as it is judged more likely than not that all or a portion of the tax credits will not be used before they expire. This decision was initially reached in 2018 after giving greater weight to its losses over the last three years compared with its forecast of the future.

A summary of the change in the deferred tax asset is as follows:

		2020		2019
Gross deferred tax balance at beginning of year	$	3,321,611	$	3,150,155
Deferred tax benefit (provision)		(354,918)		171,456
Valuation allowance		(2,849,693)		(3,173,738)
Balance at end of year, net	$	117,000	$	147,873

Income tax expense is different from the amounts computed by applying the U.S. federal statutory income tax rate of 21 percent to pretax income as a result of the following:

		2020		2019
Tax at statutory rate	$	188,899	$	(125,527)
State tax, net
of federal benefit		360		360
Net operating loss and
credit carryforwards		33,873		153,204
Valuation allowance		(324,045)		210,836
Other		92,365		(233,417)
Total	$	(8,548)	$	5,456

The Company’s income tax filings are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit under the applicable statutes of limitations for the years 2017 through 2020.

(10) Retirement Savings Plan

The Company sponsors a Retirement Savings Plan (the ‘Plan’) under the provisions of Section 401 of the Internal Revenue Code. Employees, as defined in the Plan, are eligible to participate in the Plan after 30 days of employment. Under the terms of the Plan, the Company may match employee contributions under such method as described in the Plan and as determined each year by the Board of Directors. During 2020 the Company matched ½% of each of the first 2% of employee contributions amounting to $64 thousand.  In 2019 the Company did not offer a 401k match.

(11) Concentrations of Credit Risk, Significant Customers and Geographic Information

Financial instruments which subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade accounts receivable. The Company maintains such cash deposits in a high credit quality financial institution.

The Company extends credit to customers who consist principally of microelectronics systems companies in the United States, Europe and Asia. The Company generally does not require collateral or other security as a condition of sale rather relying on credit approval, balance limitation and monitoring procedures to control credit risk of trade accounts receivable. Management conducts on-going credit evaluations of its customers, and historically the Company has not experienced any significant credit-related losses with respect to its trade accounts receivable.

Revenues from significant customers as a percentage of total revenues in 2020 and 2019 were as follows:

	Percent of Total Revenues
Significant Customer		2020	2019
A		36%	43%
B		21%	14%
C		16%	13%

As of December 26, 2020, the Company had trade accounts receivable due from these three customers that accounted for 70% of total trade accounts receivable as of that date. No other customer balances constitute 10% or more of accounts receivable at December 26, 2020. To further mitigate the potential for credit losses the Company has acquired a credit insurance policy covering most of our sales to non-US accounts.  Management believes that any credit risks have been properly provided for in the accompanying financial statements.

The Company’s revenue was derived from the following countries in 2020 and 2019:

	Percent of Total Revenues
Country		2020	2019
United States of America		23%	25%
Germany		36%	44%
Other		41%	31%

Many of the Company’s customers based in the United States conduct design, purchasing and payable functions in the United States, but manufacture overseas. Revenue generated from shipments made to customers’ locations outside the United States accounted for 77% and 75% of total revenue in 2020 and 2019, respectively.

All of the Company’s long-lived assets and operations are located in the United States.

(12) Net Income (Loss) Per Share

The following reconciles the basic and diluted net income (loss) per share calculations.

		Dec. 26,		Dec. 28,
		2020		2019
Basic EPS Computation:
Numerator:
Net income (loss)	$	908,064	$	(638,202)
Denominator:
Weighted average
Common shares
Outstanding		13,251,521		13,207,097
Basic EPS	$	0.07	$	(0.05)
Diluted EPS Computation:
Numerator:
Net income (loss)	$	908,064	$	(638,202)
Denominator:
Weighted average
Common shares
Outstanding		13,251,521		13,207,097
Dilutive effect of stock options		97,061		—
Total shares		13,348,582		13,207,097
Diluted net income (loss) per share	$	0.07	$	(0.05)

EX-3

RESTATED CERTIFICATE OF INCORPORATION

OF

CERAMICS PROCESS SYSTEMS CORPORATION,

a Delaware corporation

Incorporated April 13, 1987

Pursuant to Sections 242 and 245 of the General Corporation Laws of the State

of Delaware.

The undersigned, Clayton M. Christensen and Peter B. Tarr, are President and Secretary, respectively, of Ceramics Process Systems Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation "). The Corporation's Certificate of incorporation was initially filed in the Office of the Secretary of the State of Delaware on April 13, 1987. The undersigned, as President and Secretary, respectively, of the Corporation, do hereby certify that (a) the Board of Directors duly adopted a resolution pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware proposing this Restated Certificate of Incorporation which deletes from Article FIFTH the name and mailing address of the sole incorporator and which incorporates amendments: (i) eliminating from Article FOURTH all outstanding series of Preferred Stock from the authorized capital stock of the Corporation, and (ii) restating Article FIFTH in its entirety to require that all stockholder actions be taken at a meeting of stockholders rather than by written action, and declaring the adoption of said Restated Certificate of Incorporation to be advisable; and ( b) the stockholders of the Corporation duly approved this Restated Certificate of Incorporation by written consent in accordance with Sections 228 and 242 of the General Corporation Law of the State of Delaware, and written notice of such consent has been given to all stockholders who have not consented in writing to this Restated Certificate of Incorporation

FIRST. The name of the Corporation is: Ceramics Process Systems Corporation,

SECOND. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.

THIRD. The nature of the business or purposes to be conducted or promoted by the Corporation is as follows:

To develop commercial ceramics production processes and to manufacture and market ceramics and related materials.

To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware,

FOURTH. The total number of shares and the par value, if any, of each class of stock which the Corporation is authorized to issue is (i)15,000,000 shares of Common Stock, par value $0.01 per share ("Common Stock"), and (ii) 5,000,000 shares of Preferred Stock, par value $0.01 per share ("Preferred Stock")

The following is a description of the preferences, voting powers, qualifications, and special or relative rights or privileges as to each class of capital stock, and any series thereof, of the Corporation:

Section 1. Common Stock
(a) Voting Rights. Except as otherwise provided for herein, the holders of shares of Common Stock shall be entitled to one vote for each share so held with respect to all matters voted on by the stockholders of the Corporation.

(b)       Liquidation Rights. Subject to the prior and superior right, if any, of the Preferred Stock, upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of Common Stock shall be entitled to receive the remaining funds, if any. Such funds shall be paid to the holders of Common Stock on the basis of the number of shares of Common Stock held by each of them.

(c)       Dividends. Subject to the prior and superior right, if any, of the Preferred Stock, dividends may be paid on the Common Stock as and when declared by the Board of Directors.

Section 2. Preferred Stock

Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Any shares of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided.

Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of Delaware. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law.

FIFTH. Stockholders of the Corporation may not take any action by written consent in lieu of a meeting. Notwithstanding any other provision of law, this Certificate of Incorporation or the By-Laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least eighty percent (80%) of the votes which all the stockholders would be entitled to cast at any annual election of director or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article.

SIXTH. In furtherance of and not in limitation of powers conferred by statute, it is further provided:

1. Election of directors need not be by written ballot.

2. The Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation.

SEVENTH. Except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be liable for any breach of fiduciary duty. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

EIGHTH. Indemnification Provisions.

Section 1. Actions, Suits or Proceedings Other than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was or has agreed to become a director or officer of the Corporation or a Subsidiary of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation or a Subsidiary of the Corporation as a director, officer, employee or trustee of another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to hereafter as an "Indemnitee") , or by reason of any action alleged to have been taken or omitted such capacity, against costs, charges, expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation or a Subsidiary of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation or a Subsidiary of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 5, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation.

Section 2. Actions or Suits by or in. the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was or has agreed to become a director or officer of the Corporation or a Subsidiary of the Corporation, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges and expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection with the defense or settlement of such action or suit and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation or a Subsidiary of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation or a Subsidiary of the Corporation, unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such costs, charges and expenses which the Court of Chancery or such other court shall deem proper.

Section 3. Indemnification for Costs, Charges and Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, including, without limitation, the dismissal of an action with prejudice or the settlement of an action without admission of liability, in defense of any action, suit or proceeding referred to in Sections 1 or 2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all costs, charges and expense (including attorneys' fees) actually and reasonably incurred by him. or on his behalf in connection therewith.

Section 4. Notification and Defense of Claim. As a condition precedent to his right to be indemnified, the Indemnitee must give to the Corporation notice in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to an action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to such Indemnitee, After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this paragraph. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled to assume the defense of any claim brought by or on behalf of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in (ii) above.

Section 5. Advances of Costs, Charges and Expenses. In the event that the Corporation does not assume the defense pursuant to Section 4 of this Article of any action, suit, proceeding or investigation about which the Corporation receives notice under this Article, any costs, charges and expenses(including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter, provided, however, that the payment of such costs, charges and expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that such Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article.

Section 6. Procedure for Indemnification. Any indemnification or advancement of expenses pursuant to Sections l, 3 or 5 of this Article shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Sections 1 or 2 a determination is made within such 60—day period by the Board of Directors of the Corporation by a majority vote of a quorum of disinterested directors that such Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or 2, as the case may be. In the event no quorum of disinterested directors is obtainable, the Board of Directors shall promptly direct that independent legal counsel shall determine, based on facts known to such counsel at such time, whether such Indemnitee met the applicable standard of conduct set forth in such paragraphs; and, in such event, indemnification shall be made to the Indemnitee unless within 60 days after receipt by the Corporation of the request by such Indemnitee for indemnification, such independent legal counsel in a written opinion determines that the Indemnitee has not met the applicable standard of conduct. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above. Such Indemnitee's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation.

Section 7. Subsequent Amendment. No amendment, termination or

repeal of this Article or of relevant provisions of the Delaware General Corporation Law or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of, or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.

Section 8. Other Rights. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification may be entitled under any law (common or statutory), agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to a person who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification tights and procedures different from those set forth herein. In addition, the Corporation, acting through its Board of Directors, may grant indemnification rights to other employees or agents of the Corporation and such rights may be equivalent to or greater or less than those set forth in this Article.

Section 9. Partial Indemnification. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the costs, charges, expenses, judgments or fines actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such costs, charges, expenses, judgments or fines to which such Indemnitee is entitled.

Section 10. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law,

Section 11. Merger, Consolidation, etc. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, or if substantially all of the assets or stock of the Corporation is acquired by any other corporation, or in the event of any other similar reorganization involving the Corporation, the Board of Directors of the Corporation or the board of directors of any corporation assuming the obligations of the Corporation shall assume the obligations of the Corporation under this Article, with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger, consolidation, acquisition or reorganization.

Section 12. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any costs, charges, expenses (including attorneys' fees) , judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law.

Section 13. Definitions. Terms used herein and defined i r. Section 145(h) and Section 145 ( i ) of the Delaware General Corporation Law shall have the respective meanings assigned to such terms in such Section 145 (h) and Section 145 (i) .

Section 14. Subsequent Legislation. If the Delaware General Corporation Law is amended after adoption of this Article to further expand the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

NINTH. Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for the Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agrees to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

TENTH. The stockholder vote required to approve Business Combinations (hereinafter defined) shall be as set forth in this Article TENTH.

Section 1. Higher Vote for Business Combinations. In addition to any affirmative vote required by law, the By-Laws of the Corporation or this Certificate of Incorporation, and except as otherwise expressly provided in Section 3 of this Article TENTH:

(a)       Any merger or consolidation of the Corporation or any Subsidiary with (i) any Interested Stockholder or (ii) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Stockholder; or

(b)       Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder of all or a Substantial Part of the assets of the Corporation or any Subsidiary thereof; or

(c)       The issuance, exchange or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder in exchange for cash, securities or other consideration (or a combination thereof) having an aggregate Fair Market Value equal to or in excess of a Substantial Part of the assets of the Corporation; or

(d) The adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or

(e)       Any reclassification of securities ( including any reverse stock split) , or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or

(f) Any agreement, contract or other arrangement with an Interested Stockholder (or in which the Interested Stockholder has an interest other than proportionately as a stockholder) providing for any one or more of the actions specified in subsections (a) to (e) of this Section 1.

Any action specified in subsections (a) to (e) shall require the affirmative vote of the holders of at least eighty percent (80%) of the votes which all stockholders would be entitled to cast at any annual election of Directors (the "Voting Stock"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required or that a lesser percentage may be specified by law or in any agreement with any national securities exchange or otherwise.

Section 2. Definition of "Business Combination". The term "Business Combination" as used in this Article TENTH shall mean any transaction which is referred to in any one or more of subsections (a) through (f) of Section l.

Section 3. When Higher Vote Is Not Required. The provisions of Section 1 of this Article TENTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law and any other provision of this Certificate of Incorporation or the By-Laws, if the condition specified in either of the following subsections (a) or (b) are met:

(a) Approval by Disinterested Directors. The Business Combination shall have been approved by a majority of the Disinterested Directors.

(b) Price and Procedure Requirements. All of the following eight conditions shall have been met:

(i) The transaction constituting the Business Combination shall provide that the holders of Common Stock receive, in exchange for their stock, per share consideration (consisting of the cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash) at least equal to the highest of the following:

A. If applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of Common Stock in connection with the acquisition by the Interested Stockholder of shares of Common Stock which were acquired ( 1) within the two—year period immediately prior to the initial day in which public trading of the Common Stock occurs following the first public announcement of the proposed Business Combination (the "Announcement Date") or (2) in the transaction in which it became an Interested Stockholder, whichever is higher; or

B.       The Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher.

All per share prices shall be adjusted to reflect fairly any intervening stock split, reverse stock split, stock dividend, recapitalization, reorganization or similar event affecting the Common Stock.

(ii) If the transaction constituting the Business Combination shall also provide that the holders of any class of outstanding Voting Stock, other than Common Stock, if any, are to receive consideration in exchange for their stock, the per share consideration (consisting of the cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash) shall be at least equal to the highest of the following ( it being intended that the requirements of this subsection (b) (ii) shall be required to be met with respect to every class of outstanding Voting Stock, whether or not the Interested Stockholder beneficially owns any shares of a particular class of Voting Stock) :

A. If applicable, the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of such class of the beneficial ownership of which it acquired (1) within the two-year period immediately prior to the Announcement Date or (2) in the transaction in which it became an Interested Stockholder, whichever is higher;
B. If applicable, the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, regardless of whether the Business Combination to be consummated constitutes such an event; or

C. The Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.

All per share prices shall be adjusted to reflect fairly any intervening stock split, reverse stock split, stock dividends, recapitalization, reorganization or similar event affecting the Common Stock or any class of Voting Stock,

(iii) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as was previously paid by or on behalf of the Interested Stockholder in connection with its direct or indirect acquisition of beneficial ownership of shares of such class of Voting Stock. If the Interested Stockholder beneficially owns shares of any class of Voting Stock which were acquired with varying forms of consideration, the form of consideration to be received by holders of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock beneficially owned by it prior to the Announcement Date.

(iv) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (A) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date- -11 -therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock; and (B) there shall have been (1) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock) except as approved by a majority of the Disinterested Directors, and (2) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split ) recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors.

(v) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

(vi) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed by the Interested Stockholder to all stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions) .

(vii)       Such Interested Stockholder shall not have made any major change in the Corporation's business or equity capital structure without the approval of a majority of the Disinterested Directors.

(viii)       After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination, such Interested Stockholder shall not have become the beneficial owner of any additional shares of Voting Stock.

Section 4, Certain Definitions. For the purposes of this Article TENTH:

(a)       The term "person" shall mean any individual, firm, corporation or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Voting Stock of the Corporation,

(b)       The term "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which:

(i) Is at such time the beneficial owner, directly or indirectly, of shares of the Corporation having more than ten per cent (10%) of the voting power of the then outstanding Voting Stock; or

(ii) At any time within the two-year period immediately prior to such time (but in no event shall such period extend prior to March 26, 1987) was the beneficial owner, directly or indirectly, of shares of the Corporation having more than ten per cent (10%) of the voting power of the then outstanding Voting Stock, or

(iii) Is at any time an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within- the two-year period immediately prior to such time beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933

(c) A person shall be a "beneficial owner" of any shares of Voting Stock: (i) Which are beneficially owned, directly or indirectly, by such person or any of its Affiliates or Associates;

(ii) Which such person or any of its Affiliates or Associates has (A) the right to acquire (whether or not such right is exercisable immediately) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise or (B) the right to vote pursuant to any agreement, arrangement or understanding; or

(iii) Which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock.

(d)       For the purposes of determining whether a person is an Interested Stockholder pursuant to subsection 4 (b) , the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by an Interested Stockholder through application of subsection 4 ( c) but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon the exercise of cc r. version rights, exchange rights, warrants or options or caner wise.

(e)       "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on March 26, 1987 (the term registrant in said Rule 12b-2 meaning, in this case, the Corporation).

(f)       "Beneficially owned" shall have the meaning ascribed to such term in Rule 13d—3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on March 26, 1987.

(g) "Disinterested Director" means any member of the Board of Directors of the Corporation who is unaffiliated with, and not a representative of, the Interested Stockholder and was a member of the Board of Directors on March 26, 1987 or prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Disinterested Director who is unaffiliated with, and not a representative of, the Interested Stockholder and is recommended or elected to succeed a Disinterested Director by a majority of the Disinterested Directors then on the Board of Directors.

(h) "Fair Market Value" means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange Listed Stocks or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed or, if such stock is not listed on any such exchange, the highest closing sale price or the highest closing bid quotation, respectively, with respect to a share of such stock during the 30-day period preceding the date in question on the National Market System or the National Association of Securities Dealers, Inc. Automated Quotations System, as the case may be, or any system then in use or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board of Directors in good faith.

(i) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly. or indirectly, by the Corporation.

(j) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash " as used in subsection 3 (b) of this Article TENTH shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such Shares.

(k)       "Substantial Part" of the Corporation shall mean more than ten per cent (10%) of the fair market value of the total assets of the Corporation as of the end of its most recent fiscal quarter ending prior to the time the determination is made,

Section 5. Power of the Board of Directors. The Disinterested Directors shall have the power and duty to determine for purposes of this Article TENTH, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article TENTH, including, without 1 irritation, (a) whether a person is an Interested Stockholder, ( b) the number of shares of Voting Stock beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another, (d) whether the requirements of subsection 3 (b) have been met with respect to any Business Combination and (e) whether the assets which are the subject of any Business Combination equal or exceed, or whether the consideration to •be received from the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination equals or exceeds, a Substantial Part of the assets of the Corporation. Any such determination made in good faith shall be binding and conclusive.

Section 6. No Effect on Fiduciary Obligation. Nothing contained in this Article TENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

Section 7. Consideration. Consideration for shares to be paid to any stockholder pursuant to this Article TENTH shall be the minimum consideration payable to the stockholder and shall not limit a stockholder's right under any provision of law or otherwise to receive greater consideration for any shares of the Corporation,

Section 8. Fiduciary Duty of Directors. The fact that any Business Combination complies with the provisions of Section 3 of this Article TENTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the stockholders of the Corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board of Directors or any member thereof with respect to evaluations of or actions and responses taken with respect to such Business Combination,

Section 9. Amendments to Article. Notwithstanding any other provisions of law, this Certificate of Incorporation or the By-Laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least eighty percent (80%) of the votes which all the stockholders would be entitled to cast at any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article.

ELEVENTH. Notwithstanding any other provisions of law, the Certificate of Incorporation or the By-Laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least eighty percent (80%) of the votes which all the stockholders would be entitled to cast at any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, Articles SEVENTH, EIGHTH, TENTH and ELEVENTH. Except as otherwise provided herein, the corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute (subject to the requirements of Article ELEVENTH of this Certificate of Incorporation), and all rights conferred upon stockholders herein are granted subject to this reservation.

EXECUTED at Boston, Massachusetts, as of the 23rd day of July,1987.

/s/ Clayton M. Christensen

Clayton M. Christensen

President

/s/ Peter B. Tarr

ATTEST: Peter B. Tarr, Secretary

CERAMICS PROCESS SYSTEMS CORPORATION

Certificate of Secretary

The undersigned, the duly qualified and elected Secretary of Ceramics Process Systems Corporation, a Delaware corporation (the "Company"), does hereby certify that attached to this Certificate as EXHIBIT A is a true, correct and complete copy of the Restated Certificate of Incorporation of the Company as in effect on the date hereof.

IN WITNESS WHEREOF, I have hereunto affixed my signature and the seal of the Company on this 9th day of November 1988.

(Corporate Seal)

/s/Peter B. Tarr

Peter B. Tarr

Secretary

EX-3

BY-LAWS

OF

CERAMICS PROCESS SYSTEMS CORPORATION

ARTICLE 1 –Stockholders

1.1 Place of Meetinqs. All meetings of stockholders shall be held at such place within or without the State of Delaware as may be designated from time .to. time by the Board of Directors or the President or, if not go designated, at the registered office of the corporation.

1.2 Annual Meeting. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on the second Thursday in April each year, at a time fixed by the Board of Directors or the President. If this date shall fall upon a legal holiday at the place of the meeting, then such meeting same be held on the next succeeding business day at the same hour. If no annual meeting is held in accordance with the foregoing provisions, the Board of Directors shall cause the meeting to be held as soon thereafter as convenient. If no annual meeting is held in accordance with the foregoing provisions,. a special. meeting may be held in lieu of the annual meeting, and any action taken at that special meeting shall have the same effect as if it had been taken at the annual meeting, and in such case. all references to these By-Laws to the annual meeting of the stockholders shall be deemed to refer to such special meeting.

1.3 Special Meetinqs. Special meetings of stockholders may be called at any time by the President or by the Board of Directors. Business transacted at any special meeting of stockholders shall be limited .to matters relating to the purpose or purposes stated in the notice of meeting.

1.4 Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting, The notices of all meetings shall state the place, date and hour of the meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the' stockholder at his address as it appears on the records of the corporation.

1.5 Voting List. The officer who has charge of the stock ledger of the corporation shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shaves registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, at a place within the city where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting and may be inspected by any stockholder who is present.

1.6 Quorum. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business.

1.7 Adjournments. Any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these By-Laws by the stockholders present or represented at the meeting and entitled to vote, although less than a quorum, or, if no stockholder is present, by any officer entitled to preside at or to act as Secretary of such meeting. It shall not be necessary to notify any stockholder of any adjournment of less than 30 days if the time and place of the adjourned meeting are announced at the meeting at which adjournment is taken, unless after the adjournment a new record date is fixed tor the adjourned meeting. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting.

1.8 Voting and Proxies. Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided in the Certificate of Incorporation. Each stockholder of record entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may vote or express such consent or dissent in person or may authorize another person or persons to vote or act for him by written proxy executed by the stockholder or his authorized agent and delivered to the Secretary of the corporation. No such proxy shall be voted or acted upon after three years from the date of its execution, unless the proxy expressly provides for a longer period.

1.9 Action at Meeting. When a quorum is present at any meeting, the holders of a majority of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter) shall decide any matter to be voted upon by the stockholders at such meeting, except when a different vote is required by express provision of law, the Certificate of Incorporation or these By-Laws. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election.

1.10 Action without Meeting. Any action required or permitted to be taken at any annual or special meeting of stockholders of the corporation may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which ail shares entitled to vote on such action were present and voted. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

1.11 Procedure for Introducing Business at Meetings. Except as otherwise provided by law, at any annual or special meeting of stockholders only such business shall be conducted as shall have been properly brought before the meeting. In order to be properly brought before the meeting, such business must have been either (A) specified in the written notice of the meeting (or any supplement thereto) given to stockholders of record on the record date for such meeting by or at the direction of the Board of Directors, (B) brought before the meeting at the direction of the Board of Directors or the Chairman of the meeting or (C) specified in a written notice given by or on behalf of a stockholder of record on the record date for such meeting entitled to vote thereat or a duly authorized proxy for such stockholder, in accordance with all of the following requirements. A notice referred to in clause (C) hereof must be delivered personally to or mailed to and received at the principal executive office of the Corporation, addressed to the attention of the secretary, not more than ten ( 10) days after the date of the initial notice referred to in Clause A hereof, in the case of business to be brought before a special meeting of stockholders, and not less than thirty (30) days prior to the first anniversary date of the initial notice referred to in Clause (A) hereof to the previous year's annual meeting, in the case of business to be brought before an annual meeting of stockholders, provided, however , that such notice shall not be required to be given more than fifty (50) days prior to an annual meeting of stockholders. Such notice referred to in clause (C) hereof shall set forth (i) a full description of each such item of business proposed to be brought before the meeting, (ii) the name and address of the person proposing to bring such business before the meeting, and (iii) the class and number of shares held of record, held beneficially and represented by proxy by such person as of the record date for the meeting (if such date has then been made publicly available) and as of the date of such notice. No business shall be brought before any meeting of stockholders of the Corporation otherwise than as provided in this section.

Notwithstanding the foregoing provisions, the Board of Directors shall not be obligated to include information as to any nominee for director in any proxy statement or other communication sent to stockholders.

The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that any proposed item of business was not brought before the meeting in accordance with the foregoing procedure and if he should so determine, he shall so declare to the meeting and the defective item of business shall be disregarded.

1.12 Appointment of Judges of Election. In advance of any meeting of stockholders, the Board of Directors may appoint judges of election, who need not be stockholders, to act at such meeting or any adjournment thereof. If judges of election are not so appointed, the Chairman of any such meeting may and, on the request of any stockholder or his proxy shall, make such appointment at the meeting. The number of judges shall be one or three as shall be determined by the Board of Directors, except that, if appointed at the meeting on the request of one or more

stockholders or proxies, the holders of a majority of the shares of the Corporation present and entitled to vote shall determine whether one or three judges are to be appointed. No person who is a candidate for office shall act as a judge.

In case any person appointed as a judge fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the Board of Directors in advance of the convening of the meeting or at the meeting by the officer or person acting as Chairman.

The judges of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes, determine the result, and do such other acts as may be proper to conduct the election or vote with fairness to all stockholders, The judges of election shall perform their duties impartially, in good faith, to the best of their ability, and as expeditiously as is practical. If there be three judges of election, the decision, act or certificate of a majority shall be effective in all respects as to the decision, act or certificate of all.

On request of the Chairman of the meeting or of any stockholder or his proxy, the judges shall make a report in writing of any challenge or question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated therein.

ARTICLE 2 — Directors

2.1 General Powers. The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation except as otherwise provided by law, the Certificate of Incorporation or these By-laws. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law may exercise the powers of the full Board until the vacancy is filled.

2.2       Number; Election and Qualification. The number of directors which shall constitute the whole Board of Directors shall be determined by resolution of the stockholders or the Board of Directors, but in no event shall be less than one. The number of directors may be decreased at any time and from time to time either by the stockholders or by a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more directors. The directors shall be elected at the annual meeting of stockholders by such stockholders as have the right to vote on such election, Directors need not be stockholders of the corporation.

2.3 Enlargement of the Board. The number of directors may be increased at any time and from time to time by the stockholders or by a majority of the directors then in office.

2.4 Tenure. Each director shall hold office until the next annual meeting and until his successor is elected and qualified, or until his earlier death, resignation or removal.

2. 5 Vacancies. Unless and until filled by the stockholders, any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next annual meeting of stockholders and until his successor is elected and qualified, or until his earlier death, resignation or removal.

2.6 Resignation. Any director may resign by delivering his written resignation to the corporation at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

2.7 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders.

2.8 Special Meetings. Special meetings of the Board of Directors may be held at any time and place, within or without the State of Delaware, designated in a call by the Chairman of the Board, President, two or more directors, or by one director in the event that there is only a single director in office.

2.9 Notice of Special Meetings. Notice of any special meeting of directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting. Notice shall be duly given to each director (i) by giving notice to such director in person or by telephone at least 48 hours in advance of the meeting, (ii) by sending a telegram or telex, or delivering written notice by hand, to his last known business or home address at least 48 hours in advance of the meeting, or (iii) by mailing written notice to his last known business or home address at least 72 hours in advance of the meeting, A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting.

2.10 Meetings by Telephone Conference Calls. Directors or any members of any committee designated by the directors may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting

2.11 Quorum. A majority of the total number of the whole Board of Directors shall constitute a quorum at all meetings of the Board of Directors. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each such director so disqualified; provided, however, that in no case shall less than one-third (1/3) of the number so fixed constitute a quorum, In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present.

2.12 Action at Meetinq. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, the Certificate of Incorporation or these By-Laws.

2.13       Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting, if all members of the Board or committee, as the case may be consent to the action in writing, and the written consents are filed with the minutes of proceedings of the Board or committee.

2.14 Removal. Any one or more or all of the directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except that the directors elected by the holders of a particular class or series of stock may be removed without cause only by vote of the holders of a majority of the outstanding shares of such class or series.

2.15 Committees The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, In the absence of disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of the General Corporation Law of the State of Delaware, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Each such committee shall keep minutes and make such reports as the Board of Directors may from time-to-time request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these By-Laws for the Board of Directors.

2.16 Compensation of Directors. Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary corporations in any other capacity and receiving compensation for such service.

ARTICLE 3 - Officers

3.1 Enumeration. The officers of the corporation shall consist of a President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, including a Chairman of the Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries, The Board of Directors may appoint such other officers as it may deem appropriate.

3.2 Election. The President, Treasurer and Secretary shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Other officers may be appointed by the Board of Directors at such meeting or at any other meeting.

3.3 Qualification. No officer need be a stockholder. Any two or more offices may be held by the same person.

3.4 Tenure. Except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws, each officer shall hold office until his successor is elected and qualified, unless a different term is specified in the vote choosing or appointing him, or until his earlier death, resignation or removal.

3.5 Resignation and Removal. Any officer may resign by delivering his written resignation to the corporation at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

Any officer may be removed at any time, with or without cause, by vote of a majority of the entire number of directors then in office.

Except as the Board of Directors may otherwise determiner no officer who resigns or is removed shall have any right to any compensation as an officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise, unless such compensation is expressly provided in a duly authorized written agreement with the corporation.

3.6 Vacancies. The Board of Directors may fill any vacancy occurring for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of President, Treasurer and Secretary. Each such successor shall hold office for the unexpired term of his predecessor and until his successor is elected and qualified, or until his earlier death, resignation or removal.

3.7 Chairman of the Board and Vice Chairman of the Board. The Board of Directors may appoint a Chairman of the Board and may designate the Chairman of the Board as Chief Executive Officer. If the Board of Directors appoints a Chairman of the Board, he shall perform such duties and possess such powers as are assigned to him by the Board of Directors. If the Board of Directors appoints a Vice Chairman of the Board, he shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties and possess such other powers as may from time to time be vested in him by the Board of Directors.

3.8 President. The President shall be the Chief Operating Officer of the corporation. Unless the Board of Directors has designated the Chairman of the Board as Chief Executive Officer, the President shall also be the Chief Executive Officer of the corporation, The President shall, subject to the direction of the Board of Directors, have general charge and supervision of the business of the corporation. Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the stockholders, if he is a director, at all meetings of the Board of Directors. The President shall perform such other duties and shall have such other powers as the Board of Directors may from time to time prescribe.

3.9 Vice Presidents. Any Vice President shall perform such duties and possess such powers as the Board of Directors or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.

3.10 Secretary and Assistant Secretaries. The Secretary shall perform such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the secretary, including without limitation the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to attend all meetings of stockholders and the Board of Directors and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents.

Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the President or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary, (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.

In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting.

3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of Directors or the President. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the corporation, to deposit funds of the corporation in depositories selected in accordance with these By-Laws, to disburse such funds as ordered by the Board of Directors, to make proper accounts of such funds, and to render as required by the Board of Directors statements of all such transactions and of the financial condition of the corporation.

The Assistant Treasurers shall perform such duties and possess such powers as the Board of Directors, the President or the Treasurer may from time to time prescribe. In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer.

3.12 Salaries. Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors.

ARTICLE 4 — Capital Stock

4.1 Issuance of Stock. Unless otherwise voted by the stockholders and subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any unissued balance of the authorized capital stock of the corporation held in its treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine.

4.2 Certificates of Stock. Every holder of stock of the corporation shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, certifying the number and class of shares owned by him in the corporation. Each such certificate shall be signed by, or in the name of the corporation by, the Chairman or Vice Chairman, if any, of the Board of Directors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation. Any or all of the signatures on the certificate may be a facsimile.

Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the By-Laws, applicable securities laws or any agreement among any number of shareholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.

4.3 Transfers. Except as otherwise established by rules and regulations adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws.

4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, upon such terms and conditions as the Board of Directors may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the Board of Directors may require for the protection of the corporation or any transfer agent or registrar.

4.5 Record Date. The Board of Directors may fix in advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or to express consent (or dissent) to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action. Such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action to which such record date relates.

If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

ARTICLE 5 — General Provisions

5.1 Fiscal Year. Except as from time to time otherwise designated by the Board of Directors, the fiscal year of the corporation shall begin on the first day of January in each year and end on the last day of December in each year.

5.2 Corporate Seal. The corporate seal shall be in such form as shall be approved by the Board of Directors.

5.3 Waiver of Notice. Whenever any notice whatsoever is required to be given by law, by the Certificate of Incorporation or by these By-Laws, a waiver of such notice either in writing signed by the person entitled to such notice or such person's duly authorized attorney, or by telegraph, cable or any other available method, whether before, at or after the time stated in such waiver or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice.

5.4 Votinq of Securities. Except as the directors may otherwise designate, the President or Treasurer may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for this corporation (with or without power of substitution) at, any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation.

5.5 Evidence of Authority. A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action.

5.6 Certificate of Incorporation. All references in these By-Laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the corporation, as amended and in effect from time to time.

5.7 Transactions with Interested Parties. No contract or transaction between the corporation and one or more of the directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or a committee of the Board of Directors which authorizes the contract or transaction or solely because his or their votes are counted for such purpose, if:

(l) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum;

(2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or

(3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board Of Directors, a committee of the Board of Directors, or the stockholders.

Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

5.8 Severability. Any determination that any provision of these By-Laws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these By-Laws.

5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require.

ARTICLE 6 – Amendments

6.1 By the Board of Directors. These By-Laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present.

6.2 By the Stockholders. These By-Laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at any regular meeting of stockholders, or at any special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such special meeting.

CERAMICS PROCESS SYSTEMS CORPORATION

AMENDMENT TO BY-LAWS

(Adopted by the Board of Directors on June 9, 1988)

RESOLVED:

That the By-laws of the Corporation be and hereby are amended by deleting in its entirety Section 1.10 entitled "Action Without a Meeting," and by renumbering the Section entitled "Procedure for Introducing Business at Meeting" as Section 1.10 and the Section entitled "Appointment of Judges of Election" as Section 1.11.

EX-3

CERTIFICATE OF AMENDMENT

OF

RESTATED CERTIFICATE OF INCORPORATION

OF

CPS TECHNOLOGIES CORP.

(Pursuant to Section 242 of the General Corporation Law of the State of Delaware)

CPS Technologies Corp. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify as follows:

l. That at a meeting of the Board of Directors of the Corporation, resolutions were adopted recommending an amendment of the Corporation's Restated Certificate of Incorporation (as amended to date) and directing that such amendment be considered at the next annual meeting of the stockholders of the Corporation. The text of the proposed amendment is as follows:

Article FOURTH of the Certificate of Incorporation of the Corporation shall be amended by deleting the first paragraph of Article FOURTH thereof in its entirety and substituting therefor the following:

"FOURTH. The total number of shares and the par value, if any, of each class of stock which the Corporation is authorized to issue is (i) 20,000,000 shares of Common Stock, par value $0.01 per share ("Common Stock") and (ii) 5,000,000 shares of Preferred Stock, par value $0.01 per share ("Preferred Stock).

2.That said amendment, having been duly proposed and recommended by the Board of Directors of the Corporation, was considered by the stockholders of the Corporation at the annual meeting of stockholders, duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware.

3.That said amendment was duly adopted, by the holders of a majority of the outstanding stock of each class of stock of the Corporation entitled to vote thereon, in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

The undersigned President of the Corporation hereby makes this certificate, declaring and certifying that the facts stated herein are true, and accordingly has hereunto set his hand this 14th day May, 2014.

CPS TECHNOLOGIES CORP.

By: /s/ Grant C, Bennett

Grant C. Bennett, President

EX-3

CERTIFICATE OF OWNERSHIP AND MERGER

MERGING

CPS Superconductor Corporation

(a Delaware corporation)

INTO

Ceramics Process Systems Corporation

(a Delaware corporation)

Pursuant to Section 253 of the General Corporation Law of the State of Delaware, Ceramics Process Systems Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify:

FIRST: That the Corporation was incorporated on the April 13, 1987, pursuant to the General Corporation Law of the State of Delaware.

SECOND: That the Corporation owns all of the outstanding shares of each class of the stock of CPS Superconductor Corporation, a corporation incorporated on the April 7, 1988 pursuant to the General Corporation Law of the State of Delaware (the "Subsidiary").

THIRD: That on February 7, 2007, the Board of Directors of the Corporation, acting by written consent in accordance with Section 141 (f) of the General Corporation Law of the State of Delaware, duly adopted the following resolutions and determined to merge the Subsidiary into the Corporation and change the Corporation's corporate name to "CPS Technologies Corp." on the conditions set forth in such resolutions:

RESOLVED:	That the Corporation shall, pursuant to Section 253 of the General Corporation Law of the State of Delaware, merge into itself its wholly owned subsidiary, CPS Superconductor Corporation, a Delaware corporation (the "Subsidiary"), with the Corporation as the surviving corporation, and shall assume all of the Subsidiary's liabilities and obligations (the "Merger"); and that upon the effectiveness of the Merger, the Corporation's corporate name shall be changed to "CPS Technologies Corp”.
RESOLVED:	That the President, Chief Executive Officer and Treasurer of the Corporation (the "Authorized Officer") is authorized and directed to prepare, execute and file with the Secretary of State of the State of Delaware a Certificate of Ownership and Merger setting forth a copy of the preceding resolution and this resolution, the filing thereof to be conclusive evidence of the authorization therefor by the Board.
RESOLVED:	That, notwithstanding approval of the Certificate of Ownership and Merger by the Board, the Authorized Officer may, at any time prior to the filing of the Certificate of Ownership and Merger with the Secretary of State of the State of Delaware, abandon the filing of the Certificate of Ownership and Merger without further action by the Board.
RESOLVED:	That upon effectiveness of said Merger, the name of the Corporation shall be changed to "CPS Technologies Corp." and Article First of the Restated Certificate of Incorporation of the Corporation shall be amended to read as follows: FIRST. The name of the Corporation is: “CPS Technologies Corp."
RESOLVED:	That the Authorized Officer be, and hereby is, authorized, for and on behalf of the Corporation and in its name, to execute, acknowledge, seal and deliver all such instruments, agreements and other documents, and to do all such acts and things, as he, in his sole discretion, shall deem necessary, desirable or appropriate in order to consummate the transactions described in and contemplated by the foregoing resolutions, or to carry out the intent and purpose of the foregoing resolutions, including, but not limited to notifying the appropriate officials in the various jurisdictions in which the Corporation is qualified to do business as a foreign corporation as to the change in the corporate name of the Corporation in connection with the Merger.
RESOLVED:	That all actions, preparations, executions, deliveries and filings of all agreements, instruments, documents and certificates in the name of and on the behalf of the Corporation, under its corporate seal or otherwise, and all fees and expenses incurred or paid by the Authorized Officer as he has deemed necessary, proper or advisable to carry out the intent and effectuate the purposes of the foregoing resolutions prior to the date hereof are hereby authorized, approved, adopted, ratified and confirmed in all respects.

FOURTH: That the Merger of Subsidiary into the Corporation be effective upon the filing of a Certificate of Ownership and Merger with the Secretary of State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its authorized officer this 15th day of March 2007.

CERAMICS PROCESS SYSTEMS CORPORATION

By /s/ Grant C. Bennett

Name: Grant C. Bennett

Title: President, Chief Executive

Officer and Treasurer

EX-10

STANDARD FORM COMMERCIAL LEASE

1.Parties. GIFFORD INVESTMENTS, INC., a Massachusetts corporation, having an address at 111 South Worcester Street, Norton, Massachusetts 02712 (the “Lessor”) does hereby lease to CERAMICS PROCESS SYSTEMS CORPORATION, a Massachusetts corporation, having an address at 111 South Worcester Street, Norton, Massachusetts 02712 (the “Lessee”), and Lessee hereby leases the premises described in Section 2.

2.Leased Premises. Approximately 37,520 square feet of rentable space, located on approximately seven (7) acres of land (the “Property”), which shall include all buildings (the main building, building #4 and the garage, but shall exclude Lessor’s remediation system in building #4), driveways for access and egress, and parking areas located at 111 South Worcester Street, Norton, Massachusetts (the “Leased Premises”).

3.Term. The term of this Lease shall be for ten (10) years, commencing as of March 1, 2006 and ending on February 29, 2016 (the “Term”).

4.Rent. The Lessee shall pay to the Lessor fixed rent in accordance with the Rent Schedule, attached hereto as Schedule A, payable in advance in monthly installments and subject to proration in the case of any partial calendar month. All rent shall be payable without offset or deduction, except as set forth herein.

5.Real Estate Taxes. Lessee shall pay to the Town of Norton, as additional rent hereunder, all real estate taxes with respect to the Leased Premises and Property that may occur in each year of the Term of this Lease, and proportionately for any part of a fiscal year. If the Lessee or Lessor obtains an abatement of any such real estate taxes, such abatement shall be refunded to Lessee. Lessor shall inform the tax assessor’s office that all real estate tax bills for the Leased Premises and Property shall be sent directly to Lessee, it being understood that Lessor shall bear any late fees and interest charges due and payable as a result of Lessor’s failure to timely provide Lessee with such real estate tax bills if not mailed directly to Lessee by the Town of Norton. Lessee shall provide Lessor with proof of payment of real estate taxes annually.

6.Operating Costs. As additional rent hereunder, Lessee shall pay all costs and expenses incurred in connection with the operation and maintenance of the Leased Premises and Property, including without limitation insurance premiums, license fees, janitorial service, landscaping and snow removal, employee compensation and fringe benefits, equipment and materials, utility costs, repairs, maintenance, security and any capital expenditure (reasonably amortized with interest) incurred in order to reduce other operating expenses or comply with any governmental requirement. Operating expenses shall not include the cost of Landlord’s Work or the replacement work as described in Section 34 hereof, the cost of Lessor’s pollution legal liability insurance, or the costs of any environmental remediation which is solely the responsibility of the Lessor.

7.Utilities. The Lessee shall pay, as they become due, all bills for electricity and other utilities (whether they are used for furnishing heat or other purposes) that are furnished to the Leased Premises and presently separately metered, and all bills for fuel furnished to the Leased Premises exclusively. Lessor and Lessee acknowledge and agree that all utility bills for the Leased Premises shall be for the account of the Lessee. Notwithstanding the foregoing, Lessee shall have no obligation with respect to utilities associated with Lessor’s remediation of the Groundwater Contamination, as described in Section 30 hereof.

Lessor shall have no obligation to provide utilities or equipment other than the utilities and equipment within the Leased Premises as of the date of execution of this Lease. In the event Lessee requires additional utilities or equipment, the installation and maintenance thereof shall be Lessee’s sole obligation, provided that such installation shall be subject to the written consent of Lessor, which consent shall not be unreasonably withheld or delayed.

8.Use of Leased Premises. The Lessee may use the Leased Premises for any lawful business purpose.

9.Compliance with Laws. The Lessee acknowledges that no trade or occupation shall be conducted in the Leased Premises or use made thereof which will be unlawful, improper, noisy or offensive, or contrary to any law or any municipal by-law or ordinance in force in the city or town in which the Leased Premises are situated. Without limiting the generality of the foregoing (a) except as permitted by law, the Lessee shall not bring or permit to be brought or kept in or on the Leased Premises or elsewhere on the Lessor’s property any hazardous, toxic, inflammable, combustible or explosive fluid, material, chemical or substance, including without limitation any item defined as hazardous pursuant to Chapter 21E of the Massachusetts General Laws; and (b) the Lessee shall be responsible for compliance with requirements imposed by the Americans with Disabilities Act relative to the layout of the Leased Premises and any work performed by the Lessee therein.

10.Fire Insurance. The Lessee shall not permit any use of the Leased Premises which will make voidable any insurance on the Property, or on the contents of the Property or which shall be contrary to any law or regulation from time to time established by the New England Fire Insurance Rating Association, or any similar body succeeding to its powers.

11.Maintenance.

A.       Lessee’s Obligations. The Lessee agrees to maintain the Leased Premises in good condition, damage by fire and other casualty only excepted, and whenever necessary, to replace plate glass and other glass therein. The Lessee shall not permit the Leased Premises to be overloaded, damaged, stripped, or defaced, nor suffer any waste. Lessee shall, at Lessee’s sole cost and expense, contract to have the septic system pumped two (2) times per year during the term of the Lease.

B.       Lessor’s Obligations. The Lessor agrees to maintain the structure of the buildings (roof, exterior walls, foundation and floor) of which the Leased Premises are a part in the same condition as they are at the commencement of the Term or as they may be put in during the Term, reasonable wear and tear, damage by fire and other casualty excepted, unless such maintenance is required because of the negligence of Lessee or those for whose conduct the Lessee is legally responsible.

12.Alterations – Additions. The Lessee may make non-structural alterations or additions to the Leased Premises without Lessor’s consent. Lessee may make structural alterations provided the Lessor consents thereto in writing, which consent shall not be unreasonably withheld or delayed. All such allowed alterations shall be at Lessee’s expense and shall be in quality at least equal to the present construction. Lessee shall not permit any mechanics’ liens, or similar liens, to remain upon the Leased Premises for labor and material furnished to Lessee, or claimed to have been furnished to Lessee, in connection with work of any character performed, or claimed to have been performed, at the direction of Lessee and shall cause any such lien to be released of record forthwith without cost to Lessor. Any alterations or improvements made by the Lessee shall become the property of the Lessor at the termination of occupancy as provided herein.

13.Assignment – Subleasing. The Lessee shall not assign or sublet the whole or any part of the Leased Premises without Lessor’s prior written consent, which consent shall not be unreasonably withheld or delayed. Notwithstanding such consent, Lessee shall remain liable to Lessor for the payment of all rent and for the full performance of the covenants and conditions of this Lease.

14.Subordination. This Lease shall be subject and subordinate to any and all mortgages, deeds of trust and other instruments in the nature of a mortgage, now or at any time hereafter, a lien or liens on the Property. Lessee shall, when requested, promptly execute and deliver such written instruments as shall be necessary to show the subordination of this Lease to said mortgages, deeds of trust or other such instruments in the nature of a mortgage; provided that such lender enters into a non-disturbance agreement with Lessee at the same time.

15.Lessor’s Access. The Lessor or agents of the Lessor may, at reasonable times, enter to view the Leased Premises and may remove placards and signs not approved and affixed as herein provided, and make repairs and alterations as Lessor should elect to do and may show the Leased Premises to others, and at any time within three (3) months before the expiration of the Term, may affix to any suitable part of the Leased Premises a notice for letting or selling the Leased Premises or Property and keep the same so affixed without hindrance or molestation.

16.Indemnification and Liability. Except with respect to existing site contamination, or as a result of Lessor’s failure to perform its obligations under the Lease, Lessee shall save the Lessor harmless from all loss and damage occasioned by anything occurring in or around the buildings, driveways and parking areas located on the Leased Premises unless caused by the negligence or misconduct of the Lessor, and from all loss and damage wherever occurring occasioned by any omission, fault, neglect or other misconduct of the Lessee. The removal of snow and ice from the sidewalks bordering upon the Leased Premises shall be Lessee’s responsibility, and at Lessee’s sole cost and expense.

17.Lessee’s Liability Insurance. The Lessee shall maintain with respect to the Leased Premises and the Property comprehensive public liability insurance in the amount of $1,000,000 per occurrence with property damage insurance in limits of the full replacement cost of the improvements from responsible companies qualified to do business in Massachusetts and in good standing therein insuring the Lessor as well as Lessee against injury to persons or damage to property as provided. Lessee shall also carry i) Worker’s Compensation insurance, and ii) automobile liability insurance on all owned, non-owned and hired vehicles used in connection with the Leased Premises, in amounts and limits as Lessee shall reasonably determine. The Lessee shall deposit with the Lessor certificates for such insurance at or prior to the commencement of the Term, and thereafter within thirty (30) days prior to the expiration of any such policies. All such insurance certificates shall provide that such policies shall not be cancelled without at least ten (10) days prior written notice to each assured named therein.

18.Fire, Casualty—Eminent Domain. Should a substantial portion of the Leased Premises or Property be substantially damaged by fire or other casualty, or be taken by eminent domain, the Lessor or Lessee may elect to terminate this Lease. When such fire, casualty, or taking renders the Leased Premises substantially unsuitable for Lessee’s intended use, a just and proportionate abatement of rent shall be made, and the Lessee may also elect to terminate this lease if:

(a)       The Lessor fails to give written notice within thirty (30) days of its intention to restore the Leased Premises, or

(b)       The Lessor fails to restore the Leased Premises to a condition substantially suitable for Lessee’s intended use within ninety (90) days of said fire, casualty or taking.

The Lessor reserves, and the Lessee grants to the Lessor, all rights which the Lessee may have for damages or injury to the Leased Premises for any taking by eminent domain, except for damage to the Lessee’s fixtures, property, or equipment, and Lessee’s moving expenses.

19.Default and Bankruptcy. In the event that:

(a)       The Lessee shall default in the payment of any installment of rent or other sum herein specified and such default shall continue for ten (10) days after written notice thereof; or

(b)       The Lessee shall default in the observance or performance of any other of the Lessee’s covenants, agreements, or obligations hereunder and such default shall not be corrected within thirty (30) days after written notice thereof; provided, however, that if the default that is complained of is of such a nature that the same cannot be rectified or cured within such thirty (30) day period, then Lessee shall not be in default if Lessee, within such thirty (30) day period, shall have commenced to cure and shall continue thereafter with due diligence to cause such cure to be completed; or

(c)       The Lessee shall be declared bankrupt or insolvent according to law, or, if any assignment shall be made of Lessee’s property for the benefit of creditors ((a), (b), and (c), or any of them, are sometimes referred to as “Events of Default”),

then the Lessor shall have the right thereafter, while such default continues, to re-enter and take complete possession of the Leased Premises, to declare the Term ended, and remove the Lessee’s effects, without prejudice to any remedies which might be otherwise used for arrears of rent or other default. The Lessee shall indemnify the Lessor against all loss of rent and other payments which the Lessor may incur by reason of such termination during the residue of the Term. If the Lessee shall default, after reasonable notice thereof, in the observance or performance of any conditions or covenants on Lessee’s part to be observed or performed under or by virtue of any of the provisions in any section of this Lease, the Lessor, without being under any obligation to do so and without thereby waiving such default, may remedy such default for the account and at the expense of the Lessee. If the Lessor makes any expenditures or incurs any obligations for the payment of money in connection therewith, including but not limited to, reasonable attorney’s fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations insured, with interest at the rate of prime plus one percent (1%) per annum and costs, shall be paid to the Lessor by the Lessee as additional rent.

20.Notice. Any notice from the Lessor to the Lessee relating to the Leased Premises or to the occupancy thereof, shall be deemed duly served if sent by registered or certified mail, return receipt requested, postage prepaid; by hand delivery; or by overnight courier service to the Lessee at the address provided in Section 1. Any notice from the Lessee to the Lessor relating to the Leased Premises or to the occupancy thereof, shall be deemed duly served, if sent by registered or certified mail, return receipt requested, postage prepaid; by hand delivery; or by overnight courier service addressed to the Lessor at such address as the Lessor may from time to time advise in writing. All rent notices shall be paid and sent to the Lessor at the address listed in Section 1.

21.Surrender. The Lessee shall at the expiration or other termination of this Lease remove all Lessee’s goods and effects from the Leased Premises, (including, without hereby limiting the generality of the foregoing, all signs and lettering affixed or painted by the Lessee, either inside or outside the Leased Premises). Lessee shall deliver to the Lessor the Leased Premises and all keys, locks thereto, and other fixtures connected therewith and all alterations and additions made to or upon the Leased Premises, in good condition, damage by fire or other casualty only excepted. In the event of the Lessee’s failure to remove any of Lessee’s property from the Leased Premises, Lessor is hereby authorized, without liability to Lessee for loss or damage thereto, and at the sole risk of Lessee, to remove and store any of the property at Lessee’s expense, or to retain same under Lessor’s control or to sell at a public or private sale, without notice any and all of the property not so removed and to apply the net proceeds of such sale to the payment of any sum due hereunder, or to destroy such property.

22.Brokerage. Lessor and Lessee each represents to the other that it has not dealt with any broker or agent in connection with this Lease. Each party hereby indemnifies and holds harmless the other party from all loss, cost and expense (including reasonable attorneys’ fees) arising out of a breach of its representation set forth in this Section 22.

23.Conditions of Premises. Except as may be otherwise expressly set forth herein, the Lessee shall accept the Leased Premises “as is” in its condition as of the commencement of the Term of this Lease, and the Lessor shall, except as otherwise set forth herein, be obligated to perform no work whatsoever in order to prepare the Leased Premises for occupancy by the Lessee.

24.Force Majeure. In the event that the Lessor or Lessee is prevented or delayed from making any repairs or performing any other covenant hereunder by reason of any cause reasonably beyond the control of the Lessor or Lessee, respectively, such party shall not be liable therefore nor, except as expressly otherwise provided in case of casualty or taking, shall the Lessee be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim by the Lessee that such failure constitutes actual or constructive eviction from the Leased Premises or any part thereof.

25.Late Charge. If rent or any other sum payable hereunder remains outstanding for a period of ten (10) days, the Lessee shall, upon demand, pay to the Lessor a late charge equal to one and one-half percent (1.5%) of the amount due.

26.Liability of Owner. No owner of the Property shall be liable hereunder except for breaches of the Lessor’s obligations occurring during the period of such ownership. The obligations of the Lessor shall be binding upon the Lessor’s interest in the Property, but not upon other assets of the Lessor, and no individual partner, agent, trustee, stockholder, officer, director, employee or beneficiary of the Lessor shall be personally liable for performance of the Lessor’s obligations hereunder.

27.File Storage. Lessor shall have the right to store a reasonable quantity of files on the Leased Premises in a location designated by Lessee.

28.Occupancy. Lessor and Lessee acknowledge and agree that within fifteen (15) days of the execution of this Lease, Lessor shall provide Lessee with total site occupancy of the Leased Premises.

29.Lessee Representations and Warranties. Lessee hereby represents and warrants to Lessor that it shall not use Trichloroethylene or Perchloroethylene or any related derivatives on the Leased Premises or Property without the express written consent of Lessor.

30.Groundwater Remediation. Lessor shall be responsible for conducting groundwater remediation on the Property as a result of Lessor’s prior contamination of the Property (the “Groundwater Contamination”). Lessee acknowledges that Lessor has installed a groundwater remediation system on the Property in order to treat the existing Groundwater Contamination. In connection therewith, Lessor and Lessee agree that Lessor shall have access to the Leased Premises at all times, for the purpose of monitoring and maintaining such groundwater remediation system. Lessor hereby represents and warrants to Lessee that Lessor is solely responsible for the existing Groundwater Contamination, and Lessor hereby agrees to defend, indemnify and hold Lessee harmless from and against any and all liabilities, claims, demands, losses, costs and expenses, including attorneys’ fees, arising in connection with or relating in any way to the existing Groundwater Contamination. Lessor shall confirm to Lessee as to the “Remedy Operation Status” (as defined in the Massachusetts Contingency Plan) relating to the Groundwater Contamination at least annually, and provide all relevant information to Lessee within thirty (30) days of the receipt or generation of such information by Lessor.

31.Other Environmental Matters. Lessor and Lessee acknowledge that pursuant to a Phase I Environmental Site Assessment dated October 26, 2005, prepared by Goldman Environmental Consultants, Inc., several environmental conditions with respect to the Property were revealed, including, without limitation, (i) the existence of contaminated dry wells in the garage, and (ii) the possible existence of underground gas tanks as shown on the “Sanborn Fire Insurance Maps” which underground gas tanks Lessor believes have been removed (the “Environmental Matters”). Lessor hereby represents and warrants to Lessee that Lessor is solely responsible for the Environmental Matters, and Lessor hereby agrees to defend, indemnify and hold Lessee harmless from and against any and all liabilities, claims, demands, losses, costs and expenses, including attorneys’ fees, arising in connection with or relating in any way to the Environmental Matters.

32.Lessor’s Indemnity. Lessor hereby agrees to defend, indemnify and hold Lessee harmless from and against any and all liabilities, claims, demands, losses, costs and expenses, including attorneys’ fees, incurred in connection with or relating in any way to the presence of hazardous or toxic materials or oil as of the date hereof in or on the Leased Premises or Property.

33.Landlord’s Work.

(a)Roof. Lessor, at Lessor’s sole cost and expense, shall replace those portions of the roof which are in need of replacement, in the specific locations as shown on Schedule B, attached hereto, on or before the dates listed in Schedule B.

(b)Parking Lot. Lessor, at Lessor’s sole cost and expense, shall replace the portion of the parking lot which is in need of replacement, in the specific location as shown on Schedule C, attached hereto, on or before September 1, 2007.

(c)Septic System. Lessor, at Lessor’s sole cost and expense, shall, as needed, replace those portions of the septic system which are in need of replacement. Subsections (a)-(c) above shall be referred to herein as “Landlord’s Work”.

(d)In the event that other portions of the roof, parking lot, and septic system, not referenced in Schedule B, Schedule C or Schedule D, respectively, shall require replacement rather than maintenance or repair during the Term of the Lease, such replacement shall be the responsibility of Lessor, at Lessor’s sole cost and expense.

34.Lessor Default. Lessor shall be deemed to be in default of this Lease if Lessor shall be in default in the prompt and full performance of any of its promises, covenants or agreements contained in this Lease and such default in performance continues for more than thirty (30) days after written notice thereof from Lessee to Lessor specifying the particulars of such default or breach of performance; provided, however, that if the default complained of is of such a nature that the same cannot be rectified or cured within such thirty (30) day period, then such default shall be deemed to be rectified or cured if Lessor, within such thirty (30) day period, shall have commenced such cure and shall continue thereafter with due diligence to cause such cure to be completed.

35.Lessee’s Option to Purchase. Lessee shall have the option to purchase the Leased Premises and the Property (the “Option”) from Lessor at anytime during the Term of the Lease. The purchase price shall be the Fair Market Value of the Leased Premises and Property, as hereinafter defined, but not less than $1,100,000, and shall be paid by Lessee to Lessor at the time of closing. If Lessee exercises the Option, Lessor and Lessee shall attempt to agree upon the Fair Market Value using their best good-faith efforts. If Lessor and Lessee fail to reach an agreement within thirty (30) days following Lessee’s exercise of the Option (the “Outside Agreement Date”), then each party shall make a separate determination of the Fair Market Value which shall be submitted to each other and to arbitration in accordance with the following items (i) through (vii).

(i)       Lessor and Lessee shall each appoint, within ten (10) business days of the Outside Agreement Date, one arbitrator who shall by profession be a current real estate broker or appraiser of comparable properties in the immediate vicinity of the Leased Premises, and who has been active in such field over the last five (5) years. The determination of the arbitrators shall be limited solely to the issue of whether Lessor’s or Lessee’s submitted Fair Market Value is the closest to the actual Fair Market Value as determined by the arbitrators.

(ii)       The two arbitrators so appointed shall within five (5) business days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two arbitrators.

(iii)       The three arbitrators shall within fifteen (15) days of the appointment of the third arbitrator reach a decision as to whether the parties shall use Lessor’s or Lessee’s submitted Fair Market Value, and shall notify Lessor and Lessee thereof.

(iv)       The decision of the majority of the three arbitrators shall be binding upon Lessor and Lessee.

(v)       If either Lessor or Lessee fails to appoint an arbitrator within ten (10) business days after the applicable Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Lessor and Lessee thereof, and such arbitrator’s decision shall be binding upon Lessor and Lessee.

(vi)       If the two arbitrators fail to agree upon and appoint a third arbitrator, or both parties fail to appoint an arbitrator, then the appointment of the third arbitrator or any arbitrator shall be dismissed and the matter to be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instruction set forth in this Section 36.

(vii)       The cost of arbitration shall be paid by Lessor and Lessee equally.

36.Lessee’s Right of First Offer. Before Lessor may sell or in any manner transfer the Property (each, a "Transfer"), Lessor must first offer to sell or transfer the Property to Lessee, by giving written notice ("Lessor’s Offer") of the material business terms and conditions on which Lessor is willing to Transfer the Property, which notice shall set forth all of the proposed material business terms and provisions of the Transfer, including the purchase price, terms of payment, and such additional information as reasonably may be needed by Lessee to obtain a full understanding of the terms of the proposed Transfer. Notwithstanding the preceding sentence, this Section 37 shall not be construed as a prohibition against or limitation on Lessor’s right to make a collateral or actual assignment of the rents, grant a mortgage or assign its interest in this Lease to a lessor under a superior lease, in each event in connection with any financing arrangement it might enter into in connection with the Leased Premises or Property. Lessee will have thirty (30) days after the date of receipt of Lessor’s Offer within which to notify Lessor that Lessee accepts Lessor’s Offer on the terms and conditions therein contained. If Lessee accepts Lessor’s Offer, the closing of such sale to Lessee will take place pursuant to the terms of Lessor’s Offer. If Lessee does not accept Lessor’s Offer in writing within the aforementioned thirty (30) day period, Lessor may make the Transfer described in Lessor’s Offer to any other person at a price not less than ninety-five percent (95%) of that contained in Lessor’s Offer, and on all the other terms and conditions as set forth in Lessor’s Offer, within one hundred eighty days (180) days after notice of Lessor’s Offer was given to Lessee. At the end of such one hundred eighty (180) day period, the right of Lessor to make a Transfer free from the right of first offer hereby granted will terminate, and the provisions of this Section 37 will apply to any subsequent proposed Transfer by Lessor. This right of first offer will expire contemporaneously with the expiration or earlier termination of this Lease. As used herein, the word "Transfer" shall be deemed to include any transaction whereby Lessor contributes all or any portion of the Leased Premises, or Lessor’s interest in either this Lease or the Leased Premises, to a partnership, corporation, limited liability company, trust or other entity, in exchange for an interest in such entity, except the word “Transfer” shall not include any transaction whereby Lessor conveys all or any portion of the Leased Premises (subject to this Lease), to any entity directly or indirectly owned and controlled by Donald Roach, his wife, children or grandchildren.

IN WITNESS WHEREOF, the parties hereunto set their hands and seals this 19th day of May, 2006.

LESSOR:

GIFFORD INVESTMENTS, INC., a Massachusetts corporation

By: /s/ Donald A. Roach

Name: Donald A. Roach

Title: for Gifford Investments

LESSEE:

CERAMICS PROCESS SYSTEMS CORPORATION, a Massachusetts corporation

By: /s/ Grant C. Bennett

Name: Grant C. Bennett

Title: President

Schedule A

Rental Rate

Rental Period	Annual Rent	Monthly Rent
March 1, 2006 – February 28, 2007	$99,999.96	$8,333.33 per month
March 1, 2007 – February 28, 2008	$110,000.04	$9,166.67 per month
March 1, 2008 – February 28, 2009	$114,999.96	$9,583.33 per month
March 1, 2009 – February 28, 2010	$120,000.00	$10,000.00 per month
March 1, 2010 – February 28, 2011	$120,000.00	$10,000.00 per month
March 1, 2011 – February 28, 2012	$129,999.96	$10,833.33 per month
March 1, 2012 – February 28, 2013	$140,000.04	$11,666.67 per month
March 1, 2013 – February 28, 2014	$140,000.04	$11,666.67 per month
March 1, 2014 – February 28, 2015	$150,000.00	$12,500.00 per month
March 1, 2015 – February 28, 2016	$150,000.00	$12,500.00 per month

Schedule B

Roof Replacement

Per the attached McGarrahan Roofing Company letter of May 4, 2006, and the attached drawing, the status of the roof is as follows:

ROOF AREA PER DRAWING	STATUS AS OF LEASE SIGNING	LESSOR’S RESPONSIBILITY
Area 1	New as of 2005; estimated remaining life of 18 years
Area 2	Needs replacement	Replace roof by September 1, 2006.  Estimated life after replacement is 20 years.
Area 3	Estimated remaining life of eight (8) years with some maintenance required.	Evaluate condition in May 2014, replace if needed
Area 4	Estimate remaining life of ten (10) years with some maintenance required.	Evaluate condition in May 2016, replace if needed
Building 4	Estimated remaining life of ten (10) years with some maintenance required.	Evaluate condition in May 2014, replace if needed
Garage	TBD	TBD

All maintenance to the roof shall be performed by McGarrahan Roofing Company, and if they are unable to effect such repairs, an alternative contractor may be employed subjection to the prior approval of the Lessor. All repairs are to be “tar and gravel” consistent with the existing roof.

Schedule C

Parking Lot Replacement

Lessor shall replace by September 1, 2007 the parking area east of the main building, north of the former propane tank storage area and north to a line drawn from the north face of the building (see diagram), an area of approximately 24,000 square feet.

EX-10

AMENDMENT #1

TO STANDARD FORM COMMERCIAL LEASE

BETWEEN GIFFORD INVESTMENTS, INC., AND

CERAMICS PROCESS SYSTEMS CORPORATION

COMMENCING ON MARCH 1, 2006

In Schedule C, the words “by September 1, 2007” are hereby replaced with “between June 1, 2009 and September 30, 2009”

LESSOR:

Gifford Investments, Inc.

By: /s/ Donald A. Roach

Date: November 7, 2008

LESSEE:

CPS Technologies Corporation

By: /s/ Grant C. Bennett

Date: November 7, 2008

EX-10

AMENDMENT # 2

TO STANDARD FORM COMMERCIAL LEASE

BETWEEN GIFFORD INVESTMENTS, INC., AND

CERAMICS PROCESS SYSTEMS CORPORATION

COMMENCING ON MARCH 1, 2006

Amendment #1 to said Lease is hereby cancelled.

In Schedule C, the words “by September 1, 2007” are hereby replaced with “by September 30, 2010”.

Lessor hereby agrees to pay for all repairs to Area 3 of the roof (see Schedule B) until Lessor replaces Area 3 of the roof.

LESSOR:

Gifford Investments, Inc.

By: /s/ Donald A. Roach

Date: May 7, 2009

LESSEE:

CPS Technologies Corporation

By: /s/ Grant C. Bennett

Date: April 23, 2009

EX-10

THIRD AMENDMENT
TO
STANDARD FORM COMMERCIAL LEASE
FROM
GIFFORD INVESTMENTS, INC.
(Landlord)
TO
CPS TECHNOLOGIES CORPORATION
(Tenant)

As of November 28, 2014

THIRD AMENDMENT

TO

STANDARD FORM COMMERCIAL LEASE

This Third Amendment to Standard Form Commercial Lease (this “Amendment”) is made and entered into as of the 28^th day of November, 2014, by and between GIFFORD INVESTMENTS, INC., a Massachusetts corporation with an address at 250 Rumstick Road, Barrington, Rhode Island 02806 (hereinafter referred to as the “Landlord”), and CPS TECHNOLOGIES CORPORATION, a Massachusetts corporation with its principal place of business located at 111 South Worcester Street, Norton, Massachusetts 02712 (formerly known as Ceramics Process Systems Corporation) (hereinafter referred to as the “Tenant”).

W I T N E S S E T H:

WHEREAS, Landlord and Tenant executed and delivered that certain Standard Form Commercial Lease dated July 19, 2006 and amended November 7, 2008 and May 7, 2009 (the “Lease”) for certain premises consisting of approximately seven (7) acres of land improved with buildings including a main building, a building designated as “building #4 and a garage, located at 111 South Worcester Street, Norton, Massachusetts, which buildings contain approximately 37,520 square feet of rentable space (the “Leased Space”), as more specifically described in the Lease;

WHEREAS, Landlord and Tenant desire to amend the Lease to extend the term of the Lease, to increase the space subject to lease, and to reflect the agreement of the parties for certain improvements to be made to the Leased Premises and the payment for such improvements, all as more specifically provided in this Amendment.

NOW, THEREFORE, in consideration of the mutual promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

Effect of Amendment

1.1 Amendment. The Lease is hereby amended by this Third Amendment to Standard Form Commercial Lease and the Lease is only amended to the extent expressly set forth herein, and the Lease as hereby amended in hereby ratified and confirmed to be in full force and effect.

ARTICLE II

Defined Terms and Interpretation

2.1 Definitions. Terms used in this Amendment and not herein defined shall have the same meanings given to such terms in the Lease, unless and to the extent such defined terms have been herein modified or redefined.

ARTICLE III

Amendments

3.1 Amendment of Section 2, Leased Premises. Section 2 of the Lease is hereby amended to provide that the rentable square feet of the Leased Premises shall be increased by 572 rentable square feet, bringing the rentable square feet of the Leased Premises to 38,092 square feet, and reflecting the addition to the Leased Premises of certain space located in building #4, which additional space is more specifically set forth on Third Amendment Schedule A attached hereto and incorporated herein by reference (the “Expansion Space”). Tenant may occupy the Expansion Space for its business purposes as soon as Landlord has made such space ready for Tenant by the decontamination, de-energizing, and disconnecting of certain environmental remediation equipment located within the Expansion Space. Once Landlord has performed the aforesaid work and the equipment is made ready for dismantling by Tenant, Tenant shall remove such equipment from the Expansion Space and properly dispose of such equipment, at Tenant’s sole cost and expense. Tenant shall also repair at its expense the two large circular holes in the roof left by the stripping towers. Tenant shall coordinate the aforesaid removal and repairs in consultation with Landlord’s environmental consultant, SAGE Environmental. Despite Tenant’s use of the Expansion Space for its business purposes following Tenant’s removal of such equipment, Tenant shall not be required to pay rental for the Expansion Space until the first day of the month in which the “ Rent Credit Payment Commencement Date” occurs, as defined in Section 3.4 and as more specifically provided in Section 3.4 hereof.

Notwithstanding anything to the contrary contained in this Section 3.1, Landlord shall allow to remain in the Expansion Space certain groundwater electrical appurtenances and extraction piping and trenching, which runs under the floor of the Expansion Space, covered with steel plates, along the walls of the Expansion Space or stubs to the floor surface in certain areas of the Expansion Space (the “Remaining Equipment”) and Tenant hereby agrees to such Remaining Equipment being located in the Expansion Space as aforesaid. Tenant shall not prevent, block, delay, or hinder Landlord from access to the Remaining Equipment when Landlord deems necessary. It is Landlord’s understanding and expectation that it shall seldom have need to access the Remaining Equipment during the Term of this Lease.

3.2 Amendment of Section 3, Term. Section 3 of the Lease is hereby amended to provide that Tenant shall have three (3) individual options (the “Renewal Options”) to extend the term of the Lease for three (3) additional one (1) year terms, the first extended term commencing March 1, 2016 and ending February 28, 2017 (the “First Extended Term”), the second extended term commencing March 1, 2017 and ending February 28, 2018 (the “Second Amended Term”), and the third extended term commencing March 1, 2018 and ending February 28, 2019 (the “Third Extended Term”). Tenant hereby exercises its Renewal Option to extend the term of the Lease for the First Extended Term, the Lease term is so extended, and the Lease as so extended shall expire February 28, 2017.

Provided that Tenant is not in default under the Lease beyond any applicable notice and cure periods, either at the time of the exercise of the subsequent Renewal Options contained herein or at the period of time the extended terms provided for herein commences, Tenant shall have the right to further extend the term of this Lease, subject to all of the terms and conditions contained herein (except for the right to extend contained in this section) for two (2) additional one (1) year extended terms, the Second Extended Term immediately following the expiration of the First Extended Term and the Third Extended Term immediately following the Second Extended Term (each, an “Extended Term”). Tenant shall provide written notice to Landlord of the exercise of its Renewal Option to so extend the term of the Lease for an additional Extended Term i.e. Second Extended Term or Third Extended Term, as the case may be) not less than 180 days prior to the expiration of the then-current term (the “Renewal Notice”). Tenant’s Renewal Notice shall be effective to extend the term of the Lease without further documentation, provided that at any time after Tenant has exercised its Renewal Option, Landlord and Tenant, upon request of either, shall sign and acknowledge a memorandum evidencing Tenant’s exercise of the Renewal Option and stating the date to which the Extended Term will extend. For purposes of this Lease, the word “Term” shall mean the Initial Term and any Extended Term. If Tenant extends the First Extended Term pursuant to its Renewal Option set forth herein for the Second Extended Term, it shall have no obligation to exercise its Renewal Option to extend for the Third Extended Term.

3.3 Amendment of Section 4, Rent. Section 4 and Schedule A of the Lease is hereby amended to provide that the Annual Rent for the Leased Premises shall be increased by Two Thousand Four Hundred Dollars ($2,400), or $200 per month, commencing upon the first day of the month in which the “Rent Credit Payment Commencement Date” occurs, as that term is hereinafter defined, and that from and after the first day of the month in which the “ Rent Credit Payment Commencement Date” occurs, the Annual Rent shall be $152,400.00 and the Monthly Rent shall be $12,700.00, whether during the First Extended Term, the Second Extended Term, or the Third Extended Term.

3.4 Installation of Fire Sprinkler System. The Lease is hereby amended to provide that Tenant shall design and install a wet-pipe automatic fire sprinkler system (the “Sprinkler System”) in the main building of the Leased Premises, which design, installation and operation of the Sprinkler System shall be pursuant to and in accordance with the Massachusetts State Building Code and any applicable federal, state and local laws, rules and regulations. Tenant shall pay for all costs of design and installation of the Sprinkler System, including without limitation, the costs of engineering, materials, equipment, labor, installation, testing, inspection and permitting (the “Sprinkler System Costs”). The Sprinkler System, including all related controls, apparatus, wiring, and appurtenances shall be deemed to be fixtures attached to and forming a part of the Leased Premises and shall be deemed to be the property of the Landlord, provided, however, the Sprinkler System shall be available for Tenant’s use during the Term of the Lease, including without limitation any extended Term. Tenant shall be solely obligated, at its cost and expense, to maintain and repair the Sprinkler System during the Term of this Lease. Notwithstanding anything to the contrary contained in this Section 3.4 of this Amendment, as an inducement to Tenant to pay for and install the Sprinkler System and to consider a longer term lease of the Leased Space, Landlord agrees to give to Tenant a credit against Annual Rent as more specifically provided herein (the “Rent Credit”) of up to Ninety-Four Thousand Dollars ($94,000.00) of the Sprinkler System Costs incurred by Tenant for the Sprinkler System, as more specifically provided herein, subject to certain terms and conditions, but in no event shall Landlord provide an aggregate Rent Credit to Tenant in an amount more than 67% of the Sprinkler System Costs incurred by Tenant. The Landlord shall not provide the Rent Credit unless the following conditions (the “Rent Credit Preconditions”) have occurred:

1The Sprinkler System has been fully and completely installed as evidenced by (i) a certification from Tenant’s engineer supervising the installation of the Sprinkler System and (ii) the issuance of a certification from the local or state fire marshal that the system has been inspected and tested and is in compliance with the State Building Code and is operational, with no further work or correction required; and

2The Sprinkler System has been paid for in full by Tenant as evidenced by a receipt from Tenant’s general contractor installing the Sprinkler System and final lien releases from all contractors, subcontractors and materialmen and suppliers providing labor, materials or services for the Sprinkler System.

Upon the fifteenth day of the first month following the month in which the Tenant has demonstrated to the reasonable satisfaction of the Landlord the Rent Credit Preconditions have been met (the “Rent Credit Payment Commencement Date”), Landlord shall make monthly Rent Credit payments to the Tenant (the “Rent Credit Payments”), which payments shall be made on or before the fifteenth day of each month. It is anticipated that the Rent Credit Payment Commencement Date shall occur in the second quarter of 2015. During calendar year 2015, the Rent Credit Payments shall be in the amount of Two Thousand Six Hundred Dollars ($2,600.00) per month for each month for which a payment is due. During Calendar Year 2016, the Rent Credit Payments shall be in the amount of Four Thousand Five Hundred Fifty Dollars ($4,550.00) per month for each month for which a payment is due. During January and February, 2017, the Rent Credit Payments shall be in the amount of Eight Thousand Dollars ($8,000.00) per month or such amount as is required to pay the remainder of the up to Ninety-Four Thousand Dollar aggregate Rent Credit Payments herein provided for, assuming there has been no uncured default by Tenant under the Lease. Notwithstanding anything to the contrary contained herein, in the event that Tenant is in uncured default under the Lease beyond any applicable grace or cure period, including without limitation the failure to make payments of Annual Rent as and when due under the Lease, Landlord shall have no obligation to make any further Rent Credit Payments, it being understood that the payments provided by Landlord to Tenant hereunder are credit payments against monthly Annual Rent payments actually made and are conditional upon Tenant not being in default under the Lease, and any such uncured default beyond any applicable grace or cure period shall relieve Landlord of its agreement to pay any further Rent Credit Payments as provided in this Section 3.4.

ARTICLE IV Miscellaneous

4.1 Brokerage. Landlord and Tenant each represents and warrants to the other that it has not dealt with any real estate broker, finder or agent in connection with this Amendment or its negotiation or any other party which could claim a brokerage commission or finder’s fee. Each party shall indemnify the other and hold it harmless from any cost, expense, or liability (including costs of suit and reasonable attorney’s fees) for any compensation, commission or fees claimed by any real estate broker, finder or agent in connection with this Lease or its negotiation by reason of any act of the indemnifying party.

4.2 All Agreements; No Representations. This Third Amendment to Standard Form Commercial Lease contains all of the agreements of the parties with respect to the subject matter hereof and supersedes all prior dealings between them with respect to such subject matter. Each party acknowledges that the other has made no representations or warranties of any kind except as may be specifically set forth in this Amendment.

4.3 Confidentiality. Landlord and Tenant shall maintain the terms and conditions of this Third Amendment to Standard Form Commercial Lease Agreement as confidential and shall not disclose any such terms and conditions to any third parties for any purposes, provided, however, the parties shall be entitled to disclose such information as required by law, and to their business, accounting and legal advisors to the extent necessary and appropriate for such advisors to render advice and for a party hereto to receive such advice. Any party so disclosing such information in breach of this Section 4.3 shall be liable to the other party and the non-breaching party shall have all rights and remedies in equity and at law against the breaching party for such improper disclosure, including without limitation damages.

[Signatures on following page]

IN WITNESS WHEREOF, the parties have entered into this Third Amendment to Standard Form Lease as of the 28th day of November, 2014.

Landlord Gifford Investments, Inc.

By: /s/ Nancy G. Roach

Its: President

Tenant CPS Technologies Corporation

By: /s/ Grant C. Bennett

Its: President

THIRD AMENDMENT SCHEDULE A

EX-10

FOURTH AMENDMENT

TO

STANDARD FORM COMMERCIAL LEASE

FROM

GIFFORD INVESTMENTS, INC.

(Landlord)

TO

CPS TECHNOLOGIES CORP.

(Tenant)

As of February 28, 2018

FOURTH AMENDMENT

TO

STANDARD FORM COMMERCIAL LEASE

This Fourth Amendment to Standard Form Commercial Lease (this "Amendment") is made and entered into as of the 28th day of February 2018, by and between GIFFORD INVESTMENTS, INC., a Massachusetts corporation with an address at 250 Rumstick Road, Barrington, Rhode Island 02806 (hereinafter referred to as the "Landlord"), and CPS TECHNOLOGIES CORP. (a/k/a CPS TECHNOLOGIES CORPORATION), a Delaware corporation with its principal place of business located at 111 South Worcester Street, Norton, Massachusetts 02712 (formerly known as and successor in interest to Ceramics Process Systems Corporation) (hereinafter referred to as the "Tenant").

WITNESSETH:

WHEREAS, Landlord and Tenant executed and delivered that certain Standard Form Commercial Lease dated July 19, 2006, as amended November 7, 2008, May 7, 2009, and January 6, 2015 (the "Lease"), for certain premises consisting of approximately seven (7) acres of land improved with buildings including a main building, a building designated as “building #4” and a garage, located at 111 South Worcester Street, Norton, Massachusetts, which buildings contain approximately 38,092 square feet of rentable space (the "Leased Space"), as more specifically described in the Lease;

WHEREAS, Landlord and Tenant desire to again amend the Lease to, among other things, extend the term of the Lease, as more specifically provided in this Amendment.

NOW, THEREFORE, in consideration of the mutual promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

Effect of Amendment

1.1 Amendment. The Lease is hereby amended by this Amendment and the Lease is only amended to the extent expressly set forth herein, and the Lease as hereby amended is hereby ratified and confirmed to be in full force and effect.

ARTICLE II

Defined Terms and Interpretation

2.1 Definitions. Terms used in this Amendment and not herein defined shall have the same meanings given to such terms in the Lease (as last amended), unless and to the extent such defined terms have been herein modified or redefined.

ARTICLE III

Amendments

3.1 Amendment of Section 3 Term. Section 3 of the Lease is hereby amended by giving

Tenant one additional individual option (the “Additional Renewal Option”) to extend the term of the Lease for one additional two (2) year term, such extended term commencing on March 1, 2019 and ending on February 28, 2021 (the “Fourth Extended Term”). Landlord and Tenant agree and acknowledge that Tenant is hereby deemed to have duly and timely exercised its Renewal Option to extend the term of the Lease for both the Second Extended Term (also known as the Second Amended Term) and the Third Extended Term and the Lease is hereby deemed to have been so extended. In addition, Tenant hereby irrevocably exercises its Additional Renewal Option to further extend the term of the Lease for the Fourth Extended Term and the parties agree and acknowledge that the Lease term is so extended and therefore the Lease as so extended shall expire on February 28, 2021. Landlord and Tenant further agree and acknowledge that the foregoing extensions are deemed to have been exercised in accordance with any and all applicable notice requirements under the Lease.

3.2 Amendment of Section 4, Rent. Section 4 and Schedule A of the Lease is hereby amended to provide that the Annual Rent for the Leased Premises during the Fourth Extended Term shall be $152,400.00 and the Monthly Rent shall be $12,700.00.

ARTICLE IV

Acknowledgment of Satisfaction of Certain Obligations

4.1 Tenant hereby agrees and acknowledges that all of Landlord’s obligations set forth under Section 33(a) of the Lease (entitled “Roof”) have been fully satisfied and fulfilled by Landlord in all respects.

4.2 Tenant hereby agrees and acknowledges that all of Landlord’s obligations set forth under Section 33(b) of the Lease (entitled “Parking Lot”) have been fully satisfied and fulfilled by Landlord in all respects.

4.3 Tenant hereby agrees and acknowledges that all of Landlord’s obligations set forth under Amendment #2 to the Lease dated May 7, 2009, with respect to payment of repairs to and replacement of the roof have been fully satisfied and fulfilled by Landlord in all respects.

4.4 Tenant hereby agrees and acknowledges that all of Landlord’s obligations set forth under Section 3.1 of the Third Amendment to the Lease dated as of January 6, 2015 (the “Third

Amendment”) (entitled “Amendment of Section 2, Leased Premises”) have been fully satisfied and fulfilled by Landlord in all respects.

4.5 Landlord hereby agrees and acknowledges that all of Tenant’s obligations set forth under Section 3.1 of the Third Amendment (entitled “Amendment of Section 2, Leased

Premises”) have been fully satisfied and fulfilled by Tenant in all respects.

4.6 Tenant hereby agrees and acknowledges that all of Landlord’s obligations set forth under Section 3.4 of the Third Amendment (entitled “Installation of Fire Sprinkler System”), including but not limited to any payment obligations, have been fully satisfied and fulfilled by Landlord in all respects.

4.7 Landlord hereby agrees and acknowledges that all of Tenant’s obligations set forth under Section 3.4 of the Third Amendment (entitled “Installation of Fire Sprinkler System”) have been fully satisfied and fulfilled by Tenant in all respects.

ARTICLE V

Miscellaneous

5.1 Brokerage. Landlord and Tenant each represents and warrants to the other that it has not dealt with any real estate broker, finder or agent in connection with this Amendment or its negotiation or any other party which could claim a brokerage commission or finder's fee. Each party shall indemnify the other and hold it harmless from any cost, expense, or liability (including costs of suit and reasonable attorney's fees) for any compensation, commission or fees claimed by any real estate broker, finder or agent in connection with this Lease or its negotiation by reason of any act of the indemnifying party.

5.2 No Representations. Each party acknowledges that the other has made no representations or warranties of any kind except as may be specifically set forth in this Amendment.

5.3 Confidentiality. Landlord and Tenant shall maintain the terms and conditions of this Amendment as confidential and shall not disclose any such terms and conditions to any third parties for any purposes, provided, however, the parties shall be entitled to disclose such information as required by law, and to their business, accounting and legal advisors to the extent necessary and appropriate for such advisors to render advice and for a party hereto to receive such advice. Any party so disclosing such information in breach of this Section 5.3 shall be liable to the other party and the non-breaching party shall have all rights and remedies in equity and at law against the breaching party for such improper disclosure, including without limitation damages.

5.4 In the event of a conflict between the terms of this Amendment and the terms of the Lease, the terms of this Amendment shall govern. This Amendment is being delivered in and is intended to be performed in the Commonwealth of Massachusetts and shall be construed and enforced in accordance with the laws of that state. Other than as specifically stated herein, all other provisions of the Lease are hereby ratified and confirmed and remain in full force and effect.

IN WITNESS WHEREOF, the parties have entered into this Fourth Amendment to Standard Form Commercial Lease as of the 28th day of February 2018.

Landlord: Gifford Investments, Inc.

By: /s/ Nancy G. Roach

Its President

Tenant: CPS Technologies Corp.

By: /s/ Grant C. Bennett

Its President

EX-10

FIFTH AMENDMENT

TO

STANDARD FORM COMMERCIAL LEASE

This Fifth Amendment to Standard Form Commercial Lease (this “Fifth Amendment”) is made and entered into as of the 25^th day of January, 2021, by and between GIFFORD INVESTMENTS, INC., a Massachusetts corporation with an address at 250 Rumstick Road, Barrington, Rhode Island 02806 (hereinafter referred to as the “Lessor”) and CPS TECHNOLOGIES CORP., a Delaware corporation with its principal place of business located at 111 South Worcester Street, Norton, Massachusetts 02766 (f/k/a Ceramics Process Systems Corporation)(hereinafter referred to as the “Lessee”).

WHEREAS, Lessor and Lessee entered into that certain Standard Form Commercial Lease dated July 19, 2006 (the “Original Lease”), as amended by that certain Amendment #1 to Standard Form Commercial Lease dated November 7, 2008 (the “First Amendment”), that certain Amendment #2 to Standard Form Commercial Lease dated May 7, 2009 (the “Second Amendment”), that certain Third Amendment to Standard Form Commercial Lease dated January 6, 2015 (the “Third Amendment”), and that certain Fourth Amendment to Standard Form Commercial Lease dated February 28, 2018 (the “Fourth Amendment”)(the Original Lease, as so amended by the First Amendment, the Second Amendment, the Third Amendment and the Fourth Amendment hereinafter collectively referred to as the “Lease”) for certain premises presently consisting of an aggregate 38,902 square feet of space (the “Leased Premises”) located on approximately seven acres of land improved with buildings including a main building, a building designated as “building #4” and a garage located at 111 South Worcester Street, Norton, Massachusetts, as more fully described in the Lease; and

WHEREAS, Lessor and Lessee again desire to amend the Lease to, among other things, extend the term of the Lease, as more specifically provided in this Fifth Amendment.

NOW, THEREFORE, in consideration of the foregoing and the mutual promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Effect of Amendment; Conflicts. The Lease is hereby amended by this Fifth Amendment, and the Lease is only amended to the extent expressly set forth herein. Except as otherwise expressly provided herein, all other provisions of the Lease shall remain in full force and effect and are hereby ratified and affirmed. In the event of a conflict between the terms of this Fifth Amendment and the terms of the Lease, the terms of this Fifth Amendment shall govern.

2.Defined Terms and Interpretation. Capitalized terms used in this Fifth Amendment without definition shall have the meanings assigned to such term in the Lease, unless and then only to the extent such defined terms have been modified or redefined in this Fifth Amendment.

3.Amendments.

a.Amendment of Section 3 - Term.

i.Section 3 of the Lease, as amended to date, is hereby amended to provide Lessee one additional individual option (the “Additional Option”) to extend the term of the Lease for an additional five (5) year term, such extended term commencing on March 1, 2021 and ending on February 28, 2026 (the “Fifth Extended Term”). Lessor and Lessee agree and acknowledge that Lessee is hereby deemed to have duly and timely exercised its Renewal Option to extend the term of the Lease for each of the Second Extended Term (also known as the Second Amended Term), the Third Extended Term and the Fourth Extended Term, and the Lease is hereby deemed to have been so extended. In addition, Lessee hereby irrevocably exercises its Additional Option to further extend the term of the Lease for the Fifth Extended Term and the parties agree and acknowledge that the Lease term is so extended and the Lease term, as so extended, shall expire on February 28, 2026. Lessor and Lessee further agree and acknowledge that the foregoing extensions are deemed to have been exercised in accordance with any and all applicable notice requirements under the Lease.

ii.Subject to the conditions set forth herein, Section 3 of the Lease is further amended to provide Lessee three individual options (each, a “Renewal Option”) to extend the term of the Lease for three additional two year terms (each, an “Extended Term”), the first extended term to commence March 1, 2026 and expire on February 28, 2028, the second extended term to commence March 1, 2028 and expire February 28, 2030, and the third extended term to commence March 1, 2030 and expire February 28, 2032. Lessor and Lessee agree and acknowledge that Lessee shall only have the right to exercise any such Renewal Option for an Extended Term if Lessee is not in default under the Lease beyond any applicable notice and cure periods, either at the time of exercise of any Renewal Option or at the period of time the Extended Terms provided for herein commence. Lessee shall provide written notice to Lessor of its election to exercise a Renewal Option to extend the term of the Lease for one or more additional Extended Terms not less than 180 days prior to the expiration of the then-current term (the “Renewal Notice”). Lessee’s Renewal Notice shall be effective to extend the term of the Lease without further documentation, provided that at any time after Lessee has exercised a Renewal Option, Lessor and Lessee, upon request of either, shall sign and acknowledge a memorandum evidencing Lessee’s exercise of a Renewal Option and stating the date as to which such Extended Term will expire. For purposes hereof, the term “Term” shall mean the Initial Term and any Extended Term. Lessee’s exercise of a Renewal Option for any Extended Term shall not obligate it to exercise a Renewal Option for any subsequent Extended Term, and Lessee’s failure to exercise a Renewal Option for any such Extended Term shall result in the expiration of the Lease unless otherwise mutually agreed in writing by the parties.

b.Amendment of Section 4 - Rent. Section 4 and Schedule A of the Lease, as amended to date, are hereby amended to provide that the Annual Rent and Monthly Rent for the Leased Premises shall be as follows:

Rental Period	Annual Rent	Monthly Rent
March 1, 2021 – February 28, 2022	$152,400	$12,700
March 1, 2022 – February 28, 2023	$162,000	$13,500
March 1, 2023 – February 29, 2024	$162,000	$13,500
March 1, 2024 – February 28, 2025	$165,240	$13,770
March 1, 2025 – February 28, 2026	$165,240	$13,770
March 1, 2026 – February 28, 2027	$168,545	$14,045.42
March 1, 2027 – February 29, 2028	$168,545	$14,045.42
March 1, 2028 – February 28, 2029	$171,916	$14,326.33
March 1, 2029 – February 28, 2030	$171,916	$14,326.33
March 1, 2030 – February 28, 2031	$175,354	$14,612.83
March 1, 2031 – February 29, 2032	$173,354	$14,612.83

4.Miscellaneous.

a.Brokerage. Each of Lessor and Lessee represents and warrants to the other that it has not engaged or otherwise dealt with any real estate broker, finder or agent in connection with this Fifth Amendment or its negotiation or any other party that could claim a brokerage commission or finder’s fee. Each party shall indemnify the other and hold it harmless from any cost, expense or liability (including costs of suit and reasonable attorney’s fees) for any compensation, commission or fees claimed by any real estate broker, finder or agent in connection with this Fifth Amendment or the negotiation hereof by reason of any act of the indemnifying party.

b.No Representations. Each party acknowledges that the other has made no representations or warranties of any kind except be specifically set forth in this Fifth Amendment.

c.Confidentiality. Lessor and Lessee shall maintain the terms and conditions of this Fifth Amendment as confidential and shall not disclose the terms and conditions to any third parties for any purposes, provided, however, that the parties shall be entitled to disclose such information as required by law (including applicable securities laws), and to their business, accounting and legal advisors to the extent necessary and appropriate for such advisors to render advice and for a party hereto to receive such advice. Any party disclosing such information in breach of this Section 4(c) shall be liable to the other party, and the non-breaching party shall have all rights and remedies in equity and at law against the breaching party for such improper disclosure, including without limitation damages.

d.General. This Fifth Amendment shall bind and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and permitted assigns. Should any provision which constitutes a part of this Fifth Amendment be held null, illegal, or unenforceable, the validity, legality and enforceability of all other provisions of this Fifth Amendment or the Lease shall in no way be prejudiced or affected. This Fifth Amendment is being delivered and is intended to be performed in the Commonwealth of Massachusetts and shall be construed and enforced in accordance with the laws of such jurisdiction.

e.Execution. This Fifth Amendment may be executed in counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Fifth Amendment by facsimile or any other electronic transmission shall be effective as delivery of a manually executed counterpart hereof.

(Signatures appear on following page.)

IT WITNESS WHEREOF, the parties hereto have entered into this Fifth Amendment to Standard Form Commercial Lease as of the date first above written.

LESSOR:

Gifford Investments, Inc.

By:       /s/ Deborah Roach

Name: Deborah Roach

Title: Agent for Gifford

LESSEE:

CPS Technologies Corp.

By:       /s/ Grant C. Bennett

Name: Grant C. Bennett

Title: President

EX-10

CPS TECHNOLOGIES CORP.

2020 EQUITY INCENTIVE PLAN

1.Purpose.

The purpose of this 2020 Equity Incentive Plan (the “Plan”) of CPS Technologies Corp., a Delaware corporation (the “Company”), is to advance the interests of the Company’s stockholders 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 better align the interests of such persons with those of the Company’s stockholders. Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended (the “Code”).

2.Eligibility.

Subject to the terms and conditions of the Plan, all of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted options (incentive and non-statutory), stock appreciation rights (“SARs”), restricted stock, restricted stock units and other stock-based awards (each, an “Award”) under the Plan. Each person who is granted an Award under the Plan is deemed a “Participant.”

3.Administration and Delegation.

(a)Administration of, and Determination of Awards under, the Plan by Board of Directors.

(1)The Plan will be administered by the Board of Directors of the Company (the “Board”). The Board shall have the power and authority to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable, all in accordance with the Plan, applicable law and the Company’s organizational documents. The Board may construe and interpret the terms of the Plan and any Award agreements entered into under the Plan. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. All decisions, determinations and interpretations by the Board shall be made in the Board’s sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award.

(2)Subject to the Plan and applicable law, the Board shall have full power and authority to grant Awards under the Plan, including with respect thereto to (i) determine the Participants to whom Awards shall be granted; (ii) determine the timing, size and type of Awards; (iii) determine the terms, conditions and restrictions applicable to Awards in a manner consistent with the Plan, including but not limited to price, method of payment, vesting, exercisability and termination; (iv) establish Fair Market Value; and (v) subject to the provisions of Section 10(f) hereof, amend, modify or adjust the terms and conditions of any outstanding Award.

(b)Appointment of Committees. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (each, a “Committee”), each of which Committee shall be constituted in accordance with applicable law, including the Exchange Act (as defined in (c) below) and the rules and regulations of any national securities exchange on which the securities of the Company are listed from time to time. All references in the Plan to the “Board” shall mean the Board or a Committee of the Board or the officers referred to in Section 3(c) to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee or officers.

(c)Delegation to Officers. To the extent permitted by applicable law, the Board may delegate to one or more officers of the Company the power to grant Options and other Awards that constitute rights under Delaware law (subject to any limitations under the Plan) to employees or officers of the Company or any of its present or future subsidiary corporations and to exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the terms of the Awards to be granted by such officers (including the exercise price of the Awards, which may include a formula by which the exercise price will be determined) and the maximum number of shares subject to such Awards that the officers may grant; and provided further, however, that no officer shall be authorized to grant Awards to any “executive officer” of the Company (as defined by Rule 3b-7 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or to any “officer” of the Company (as defined by Rule 16a-1 under the Exchange Act). The Board may not delegate authority under this Section 3(c) to grant restricted stock, unless Delaware law then permits such delegation.

4.Stock Available for Awards.

(a)Number of Shares; Share Counting.

(1)Authorized Number of Shares. Subject to adjustment under Section 9, Awards may be made under the Plan for up to One Million Five Hundred Thousand (1,500,000) shares of common stock, $0.01 par value per share, of the Company (the “Common Stock”), and the shares of Common Stock that may be issued pursuant to Incentive Stock Options (as defined below) shall not exceed in the aggregate 1,500,000 shares of Common Stock. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

(2)Share Counting. For purposes of counting the number of shares available for the grant of Awards under the Plan (i) all shares of Common Stock covered by independent SARs shall be counted against the number of shares available for the grant of Awards; provided, however, that independent SARs that may be settled only in cash shall not be so counted; (ii) if any Award (A) expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) or (B) results in any Common Stock not being issued (including as a result of an independent SAR that was settleable either in cash or in stock actually being settled in cash), the unused Common Stock covered by such Award shall again be available for the grant of Awards; provided, however, in the case of independent SARs, that the full number of shares subject to any stock-settled SAR shall be counted against the shares available under the Plan in proportion to the portion of the SAR actually exercised regardless of the number of shares actually used to settle such SAR upon exercise; (iii) shares of Common Stock delivered (either by actual delivery, attestation, or net exercise) to the Company by a Participant to (A) purchase shares of Common Stock upon the exercise of an Award or (B) satisfy tax withholding obligations (including shares retained from the Award creating the tax obligation) shall not be added back to the number of shares available for the future grant of Awards; and (iv) shares of Common Stock repurchased by the Company on the open market using the proceeds from the exercise of an Award shall not increase the number of shares available for future grant of Awards.

(b)Substitute Awards. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Awards in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Awards may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Awards contained in the Plan. Substitute Awards shall not count against the overall share limit set forth in Section 4(a)(1).

5.Stock Options.

(a)General. Subject to the terms and conditions of the Plan and applicable law, the Board may grant incentive stock options and nonstatutory stock options to purchase Common Stock (each, an “Option”) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option, and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. The Board shall designate Options as either incentive stock options or nonstatutory stock options. An option that is intended to be an incentive stock option and which meets the requirements of Section 422 of the Code shall be designated an “Incentive Stock Option” or “ISO”, which ISOs may only be granted to employees of the Company, any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Code, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code. An Option that is not intended to be an incentive stock option as defined in Section 422 of the Code or otherwise that does not qualify as an incentive stock option shall be designated a “Nonstatutory Stock Option” or “NSO.” Any Option or portion thereof that does not qualify as an ISO shall be, and shall be treated as, an NSO.

(b)Exercise Price. The Board shall establish the exercise price of each Option and specify the exercise price in the applicable option agreement. The exercise price shall be not less than one hundred percent (100%) of the Fair Market Value (as defined below) of a share of Common Stock on the date the Option is granted; provided that, if the Board approves the grant of an Option with an exercise price to be determined on a future date, the exercise price shall be not less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on such future date. If any Participant to whom an Incentive Stock Option is to be granted under the Plan is, at the time of the grant of such Incentive Stock Option, the owner of stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code), then the Option exercise price per share subject to such ISO shall not be less than one hundred ten percent (110%) of the Fair Market Value of a share of Common Stock at the time of grant.

(c)Date of Grant; Duration of Options. The date of grant of each Option shall be the date the Board votes to approve such Award, and shall be specified in the applicable option agreement. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement; provided, however, that no Option will be granted with a term in excess of, or be exercisable after, ten (10) years following the date of grant, and provided, further, that no ISO shall be exercisable later than the fifth anniversary date of its date of grant if the Participant at the time of such grant owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company.

(d)Exercise of Options. Options 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 Company, together with payment in full as specified in Section 5(e) for the number of shares for which the Option is exercised. Shares of Common Stock subject to the Option will be delivered by the Company as soon as practicable following exercise. If an Option is designated as an Incentive Stock Option, the Participant shall give prompt notice to the Company of any disposition or other transfer of any shares of Common Stock acquired from the Option if such disposition or transfer is made (i) within two (2) years from the grant date with respect to such Option or (ii) within one (1) year after the transfer of such shares to the Participant (other than any such disposition made in connection with a Reorganization Event). Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Participant in such disposition or other transfer.

(e)Payment Upon Exercise. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:

(1)in cash or its equivalent, or by check, payable to the order of the Company;

(2)except as may otherwise be provided in the applicable option agreement, by (i) 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 (ii) 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 sufficient to pay the exercise price and any required tax withholding;

(3)to the extent provided for in the applicable option agreement or approved by the Board, 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 defined below), provided (i) such method of payment is then permitted under applicable law, (ii) 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 Board in its discretion and (iii) such Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements;

(4)to the extent provided for in the applicable Option agreement or approved by the Board in its sole discretion, by delivery of a notice of “net exercise” to the Company, as a result of which the Participant would receive the number of shares of Common Stock underlying the Option so exercised reduced by the number of shares of Common Stock equal to the aggregate exercise price of the Option divided by the Fair Market Value on the date of exercise;

(5)to the extent permitted by applicable law and provided for in the applicable Option agreement or approved by the Board, in its sole discretion, by payment of such other lawful consideration as the Board may determine; or

(6)by any combination of the above permitted forms of payment.

In no event shall (i) a Participant be entitled to pay the exercise price of an Option with a promissory note, or (ii) the Company make a loan to a Participant to permit such Participant to exercise any Option.

(f)Fair Market Value. “Fair Market Value” of a share of Common Stock for purposes of the Plan will be determined as follows:

(1) if the Common Stock trades on a national securities exchange, the closing sale price (for the primary trading session) on the Composite Tape, as reported by The Wall Street Journal, on the date of grant; or

(2) if the Common Stock does not trade on any such exchange, the average of the closing bid and asked prices as reported by an automated quotation system on the date of grant; or

(3) if the Common Stock is not publicly traded, the Board will determine the Fair Market Value for purposes of the Plan using any measure of value it determines to be appropriate (including, as it considers appropriate, relying on appraisals) in good faith in a manner consistent with the valuation principles under Code Section 409A, except as the Board or Committee may expressly determine otherwise.

For any date that is not a trading day, the Fair Market Value of a share of Common Stock for such date will be determined by using the closing sale price or average of the bid and asked prices, as appropriate, for the immediately preceding trading day and with the timing in the formulas above adjusted accordingly. The Board can substitute a particular time of day or other measure of “closing sale price” or “bid and asked prices” if appropriate because of exchange or market procedures or can, in its sole discretion, use weighted averages either on a daily basis or such longer period as complies with Code Section 409A.

The Board has sole discretion to determine the Fair Market Value for purposes of this Plan, subject to applicable law, and all Awards are conditioned on a Participant’s agreement that the Board’s determination is conclusive and binding even though others might make a different determination.

(g)       Termination of Employment or Consulting Arrangement. Subject to subsection (h) below with respect to ISOs, each option agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s employment or consulting arrangement with the Company. Such provisions shall be determined in the sole discretion of the Board, shall be included in the option agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Section 5, and may reflect distinctions based on the reasons for termination of employment.

(h)       Special Provisions for ISOs. The following provisions shall apply with respect to the grant of Incentive Stock Options to employees:

(1)       For as long as the Code shall so provide, Options granted to any Participant under the Plan which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such Options, in the aggregate, become exercisable for the first time in any one (1) calendar year for shares of Common Stock with an aggregate Fair Market Value (determined as of the respective date or dates of grant) of more than $100,000 (or such other maximum limit imposed from time to time under Code Section 422), but rather Options in excess of such limit shall be treated as NSOs. In such an event, the determination of which Options shall remain ISOs and which shall be treated as NSOs shall be based on the order in which such Options were granted. All other terms and conditions of such Options that are deemed to be NSOs shall remain unchanged.

(2)       No Incentive Stock Option may be exercised unless, at the time of such exercise, the Participant is, and has been continuously since the date of grant of his or her Option, an employee of the Company, except that:

(i)       an Incentive Stock Option may be exercised within the period of three (3) months after the date the Participant ceases to be an employee of the Company (or within such lesser period as may be specified in the applicable Award agreement) if and only to the extent that the Incentive Stock Option was exercisable at the date of employment termination, provided that the option agreement with respect to such Option may designate a longer exercise period, and any exercise after such three-month period shall be treated as the exercise of a NSO under the Plan;

(ii)       if the Participant dies while an employee of the Company, or within three (3) months after the Participant ceases to be an employee, the Incentive Stock Option may be exercised by the person to whom it is transferred by will or the laws of descent and distribution within the period of one (1) year after the date of death (or within such lesser period as may be specified in the applicable option agreement) if and only to the extent that the ISO was exercisable at the date of death; and

(iii)       if the Participant becomes disabled (within the meaning of Section 22(e)(3) or any successor section of the Code) while an employee of the Company, the Incentive Stock Option may be exercised within the period of one (1) year after the date the Participant ceases to be an employee because of such disability (or within such lesser period as may be specified in the applicable option agreement) if and only to the extent that the ISO was exercisable at the date of employment termination.

(i)Restrictions on Share Transferability. The Board may impose such restrictions on any shares acquired pursuant to the exercise of an Option granted under this Section 5 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.

6.Stock Appreciation Rights.

(a)General. The Board may grant Awards consisting of SARs entitling the holder, upon exercise, to receive an amount of Common Stock or cash or a combination thereof (such form to be determined by the Board) determined by reference to appreciation, from and after the date of grant, in the Fair Market Value of a share of Common Stock over the measurement price established pursuant to Section 6(c). The date as of which such appreciation is determined shall be the exercise date.

(b)Grants. SARs may be granted in tandem with, or independently of, Options granted under the Plan.

(1)Tandem Awards. When SARs are expressly granted in tandem with Options, (i) the SAR will be exercisable only at such time or times, and to the extent, that the related Option is exercisable (except to the extent designated by the Board in connection with a Reorganization Event) and will be exercisable in accordance with the procedure required for exercise of the related Option; (ii) the SAR will terminate and no longer be exercisable upon the termination or exercise of the related Option, except to the extent designated by the Board in connection with a Reorganization Event and except that a SAR granted with respect to less than the full number of shares covered by an Option will not be reduced until the number of shares as to which the related Option has been exercised or has terminated exceeds the number of shares not covered by the SAR; (iii) the Option will terminate and no longer be exercisable upon the exercise of the related SAR; and (iv) the SAR will be transferable only with the related Option.

(2)Independent SARs. A SAR not expressly granted in tandem with an Option will become exercisable at such time or times, and on such conditions, as the Board may specify in the SAR Award.

(c)Measurement Price. The Board shall establish the measurement price of each SAR and specify it in the applicable SAR agreement. The measurement price shall not be less than one hundred percent (100%) of the Fair Market Value on the date the SAR is granted; provided that if the Board approves the grant of a SAR with a measurement price to be determined on a future date, the measurement price shall be not less than one hundred percent (100%) of the Fair Market Value on such future date.

(d)Duration of SARs. Each SAR shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable SAR agreement; provided, however, that no SAR will be granted with a term in excess of ten (10) years.

(e)Exercise of SARs. SARs 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 Company, together with any other documents required by the Board.

7.Restricted Stock; Restricted Stock Units.

(a)General. The Board may grant Awards entitling recipients to acquire shares of Common Stock (“Restricted Stock”), subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award. Instead of granting Awards for Restricted Stock, the Board may grant Awards entitling the recipient to receive shares of Common Stock or cash to be delivered at the time such Award vests (“Restricted Stock Units”). Restricted Stock and Restricted Stock Units are each referred to herein as a “Restricted Stock Award”.

(b)Terms and Conditions for All Restricted Stock Awards. The Board shall determine the terms and conditions of a Restricted Stock Award, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.

(c)Additional Provisions Relating to Restricted Stock.

(1)Dividends. Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such shares, unless otherwise provided by the Board. Unless otherwise provided by the Board, if any dividends or distributions are paid in shares, or consist of a dividend or distribution to holders of Common Stock other than an ordinary cash dividend, the shares, cash or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid. Each dividend payment will be made no later than the end of the calendar year in which the dividends are paid to shareholders of that class of stock or, if later, the 15th day of the third month following the date the dividends are paid to shareholders of that class of stock.

(2)Stock Certificates. The Company may require that any stock certificates issued in respect of shares of Restricted Stock shall be deposited in escrow by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction period(s), the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant’s death (the “Designated Beneficiary”). In the absence of an effective designation by a Participant, “Designated Beneficiary” shall mean the Participant’s estate.

(d)Additional Provisions Relating to Restricted Stock Units.

(1)Settlement. Upon the vesting of and/or lapsing of any other restrictions (i.e., settlement) with respect to each Restricted Stock Unit, the Participant shall be entitled to receive from the Company one share of Common Stock or an amount of cash equal to the Fair Market Value of one share of Common Stock, as provided in the applicable Award agreement. The Board may, in its discretion, provide that settlement of Restricted Stock Units shall be deferred, on a mandatory basis or at the election of the Participant, in a manner that complies with Code Section 409A.

(2)Voting Rights. A Participant shall have no voting rights with respect to any Restricted Stock Units.

(3)Dividend Equivalents. To the extent provided by the Board, in its sole discretion, a grant of Restricted Stock Units may provide Participants with the right to receive an amount equal to any dividends or other distributions declared and paid on an equal number of outstanding shares of Common Stock (“Dividend Equivalents”). Dividend Equivalents may be paid currently or credited to an account for the Participants, may be settled in cash and/or shares of Common Stock, and may be subject to the same restrictions on transfer and forfeitability as the Restricted Stock Units with respect to which paid, as determined by the Board in its sole discretion, subject in each case to such terms and conditions as the Board shall establish, in each case to be set forth in the applicable Award agreement.

8.Other Stock-Based Awards.

(a)General. Other Awards of shares of Common Stock, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other property, may be granted hereunder to Participants (“Other Stock-Based-Awards”), including without limitation Awards entitling recipients to receive shares of Common Stock to be delivered in the future. Such Other Stock-Based Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock-Based Awards may be paid in shares of Common Stock or cash, as the Board shall determine.

(b)Terms and Conditions. Subject to the provisions of the Plan, the Board shall determine the terms and conditions of each Other Stock-Based Award, including any purchase price applicable thereto.

9.Adjustments for Changes in Common Stock and Certain Other Events.

(a)Changes in Capitalization. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under the Plan, (ii) the share counting rules set forth in Section 4(a), (iii) the number and class of securities and exercise price per share of each outstanding Option, (iv) the share- and per-share provisions and the measurement price of each SAR, (v) the number of shares, and the repurchase price per share, subject to each outstanding Restricted Stock Award and (vi) the share- and per-share-related provisions and the purchase price, if any, of each outstanding Other Stock-Based Award, shall be equitably adjusted by the Company (or substituted Awards may be made, if applicable) in the manner determined by the Board. Without limiting the generality of the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to an outstanding Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then a Participant who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.

(b)Reorganization Events.

(1)Definition. A “Reorganization Event” shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (b) any transfer or disposition of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange or other transaction or (c) any liquidation or dissolution of the Company.

(2)Consequences of a Reorganization Event on Awards Other than Restricted Stock Awards. In connection with a Reorganization Event, the Board may take any one or more of the following actions as to all or any (or any portion of) outstanding Awards other than Restricted Stock Awards on such terms as the Board determines: (i) provide that Awards shall be assumed, or substantially equivalent Awards shall be substituted, by the acquiring or succeeding entity (or an affiliate thereof), (ii) upon written notice to a Participant, provide that the Participant’s unexercised Awards will terminate immediately prior to the consummation of such Reorganization Event unless exercised by the Participant within a specified period following the date of such notice, (iii) provide that outstanding Awards shall become exercisable, realizable, or deliverable, or restrictions applicable to an Award shall lapse, in whole or in part prior to or upon such Reorganization Event, (iv) in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share surrendered in the Reorganization Event (the “Acquisition Price”), make or provide for a cash payment to a Participant equal to the excess, if any, of (A) the Acquisition Price times the number of shares of Common Stock subject to the Participant’s Awards (to the extent the exercise price does not exceed the Acquisition Price) over (B) the aggregate exercise price of all such outstanding Awards and any applicable tax withholdings, in exchange for the termination of such Awards, (v) provide that, in connection with a liquidation or dissolution of the Company, Awards shall convert into the right to receive liquidation proceeds (if applicable, net of the exercise price thereof and any applicable tax withholdings) and (vi) any combination of the foregoing. In taking any of the actions permitted under this Section 9(b), the Board shall not be obligated by the Plan to treat all Awards, all Awards held by a Participant, or all Awards of the same type, identically.

For purposes of clause (i) above, an Option shall be considered assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding entity (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding entity, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding entity (or an affiliate thereof) equivalent in value (as determined by the Board) to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.

(3)Consequences of a Reorganization Event on Restricted Stock Awards. Upon the occurrence of a Reorganization Event other than a liquidation or dissolution of the Company, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company’s successor and shall, unless the Board determines otherwise, apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award; provided, however, that the Board may provide for termination or deemed satisfaction of such repurchase or other rights under the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, either initially or by amendment. Upon the occurrence of a Reorganization Event involving the liquidation or dissolution of the Company, except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, all restrictions and conditions on all Restricted Stock Awards then outstanding shall automatically be deemed terminated or satisfied.

10.General Provisions Applicable to Awards.

(a)Transferability of Awards.

(1)Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, and, during the life of the Participant, shall be exercisable only by the Participant; provided, however, that the Board may permit or provide in an Award for the gratuitous transfer of the Award by the Participant to or for the benefit of any immediate family member, family trust or other entity established for the benefit of the Participant and/or an immediate family member thereof if, with respect to such proposed transferee, the Company would be eligible to use a Form S-8 for the registration of the sale of the Common Stock subject to such Award under the Securities Act of 1933, as amended; provided, further, that the Company shall not be required to recognize any such transfer until such time as the Participant and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument in form and substance satisfactory to the Company confirming that such transferee shall be bound by all of the terms and conditions of the Award. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

(2)Notwithstanding anything contained in subsection (1) above to the contrary, no ISO granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or the Participant’s legal representative (to the extent permitted under Section 422 of the Code).

(b)Documentation. Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan. Each Award agreement relating to the grant of Options shall specify whether the Option is intended to be an ISO within the meaning of Section 422 of the Code, or an NSO whose grant is not intended to fall under the provisions of Section 422 of the Code. In the event of a conflict between any Option Award agreement and the Plan, the Plan shall control, and in no event shall the Board have the power to grant an Option or execute an Option Award agreement that is contrary to the provisions of the Plan.

(c)Board Discretion. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.

(d)Termination of Status. The Board shall determine the effect on an Award of the disability, death, termination or other cessation of employment, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award.

(e)Withholding. The Participant must satisfy all applicable federal, state, and local or other income and employment tax withholding obligations before the Company will deliver stock certificates or otherwise recognize ownership of Common Stock under an Award. The Company may decide to satisfy the withholding obligations through additional withholding on salary or wages. If the Company elects not to or cannot withhold from other compensation, the Participant must pay the Company the full amount, if any, required for withholding or have a broker tender to the Company cash equal to the withholding obligations. Payment of withholding obligations is due before the Company will issue any shares on exercise or release from forfeiture of an Award or, if the Company so requires, at the same time as payment of the exercise price unless the Company determines otherwise. If provided for in an Award or approved by the Board in its sole discretion, a Participant may satisfy such tax obligations in whole or in part by delivery (either by actual delivery or attestation) of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided, however, except as otherwise provided by the Board, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). Shares used to satisfy tax withholding requirements cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.

(f)Amendment of Award. The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type and changing the date of exercise or realization. The Participant’s consent to such action shall be required unless (i) the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant’s rights under the Plan or (ii) the change is permitted under Section 9 hereof.

(g)Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

(h)Acceleration. The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.

11.Miscellaneous.

(a)No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award.

(b)No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares.

(c)Effective Date and Term of Plan; Stockholder Approval. The Plan shall become effective on the date the Plan is approved by the Company’s Board of Directors (the “Effective Date”); provided, however, that the Plan is subject to approval by the vote of stockholders at a duly held stockholders’ meeting (or a written consent in lieu thereof in accordance with applicable law) within twelve (12) months of the date of adoption of the Plan by the Board of Directors. Awards may be granted under the Plan prior to such approval, but any such Award shall become effective as of the date of grant only upon such approval and, accordingly, no such Award may be exercisable prior to such approval. In the event that the stockholders do not approve the Plan within such 12-month period, the Plan and all Awards then outstanding shall expire and be of no force or effect. Unless sooner terminated as provided elsewhere herein, the Plan shall remain in effect until all shares subject to the Plan shall have been purchased or acquired according to the Plan’s provisions; provided, that no Awards shall be granted under the Plan after the expiration of ten (10) years from the earlier of (i) the Effective Date, or (ii) the date the Plan was approved by the Company’s stockholders, but Awards previously granted may extend beyond that date and shall continue to have force and effect in accordance with the instruments evidencing such Awards.

(d)Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code or other applicable law, including the rules and regulations of any national securities exchange on which the Company’s securities are then listed. Unless otherwise specified in the amendment, any amendment to the Plan adopted in accordance with this Section 12(d) shall apply to, and be binding on the holders of, all Awards outstanding under the Plan at the time the amendment is adopted, provided the Board determines that such amendment does not materially and adversely affect the rights of Participants under the Plan.

(e)Authorization of Sub-Plans. The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable securities or tax laws of various jurisdictions. The Board shall establish such sub-plans by adopting supplements to the Plan containing (i) such limitations on the Board’s discretion under the Plan as the Board deems necessary or desirable or (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted by the Board shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction which is not the subject of such supplement.

(f)Non U.S. Employees. Awards may be granted to Participants who are non-U.S. citizens or residents employed outside the United States, or both, on such terms and conditions different from those applicable to Awards to Participants employed in the United States as may, in the judgment of the Board, be necessary or desirable in order to recognize differences in local law or tax policy. The Board also may impose conditions on the exercise or vesting of Awards in order to minimize the Board’s obligation with respect to tax equalization for Participants on assignments outside their home country. The Board may approve such supplements to or amendments, restatements or alternative versions of the Plan as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan.

(g)Section 409A of the Code.

(1)Compliance with Section 409A of the Code. The Plan and all Awards granted hereunder will be interpreted to the greatest extent possible in a manner that makes the Plan and such Awards exempt from Section 409A of the Code and the rules, regulations and other guidance promulgated thereunder (collectively, “Section 409A”), or, to the extent not so exempt, in compliance with Section 409A. Accordingly, this Plan and all Awards shall be read and interpreted to the extent necessary to be exempt from or comply with Section 409A. Notwithstanding the foregoing, neither the Company nor any of the Company’s or its affiliates’ respective stockholders, members, unitholders, subsidiaries, successors, assigns, trustees, directors, officers, limited or general partners, managers, joint venturers, employees, or any of the agents or advisors of any of the foregoing, including any successors and assigns of any of the foregoing, make any representations that the payments and benefits provided under this Plan or any Award are exempt from, or comply with, Section 409A, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by a Participant on account of non-compliance with Section 409A.

(2)Six-Month Delay Applicable to Specified Employees. Except as provided in individual Award agreements initially or by amendment, if and to the extent any portion of any payment, compensation or other benefit provided to a Participant in connection with his or her employment termination is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the Participant is a specified employee as defined in Section 409A(a)(2)(B)(i) of the Code, as determined by the Company in accordance with its procedures, by which determination the Participant (through accepting the Award) agrees that he or she is bound, such portion of the payment, compensation or other benefit shall not be paid before the day that is six months plus one day after the date of “separation from service” (as determined under Code Section 409A) (the “New Payment Date”), except as Code Section 409A may then permit. The aggregate of any payments that otherwise would have been paid to the Participant during the period between the date of separation from service and the New Payment Date shall be paid to the Participant in a lump sum on such New Payment Date, and any remaining payments will be paid on their original schedule.

(h)Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, other employee, or agent of the Company will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan, nor will such individual be personally liable with respect to the Plan because of any contract or other instrument he or she executes in his or her capacity as a director, officer, other employee, or agent of the Company. The Company will indemnify and hold harmless each director, officer, other employee, or agent of the Company to whom any duty or power relating to the administration or interpretation of the Plan or grant of any Award has been or will be delegated, against any loss, cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim with the Board’s approval) that may be imposed on or incurred by such person arising out of any act or omission to act concerning this Plan unless arising out of such person’s own fraud or bad faith.

(i)Section 16 Persons. It is intended that the provisions of the Plan and any Award granted hereunder to a person subject to the reporting requirements of Section 16(a) of the Exchange Act shall comply in all respects with the terms and conditions of Rule 16b-3 promulgated under the Exchange Act or any successor provisions thereto. Any agreement granting Awards shall contain such provisions as are necessary or appropriate to assure such compliance. To the extent that any provision hereof is found not to be in compliance with such Rule, such provision shall be deemed to be modified so as to be in compliance with such Rule or, if such modification is not possible, shall be deemed to be null and void, as it relates to a recipient subject to Section 16(a) of the Exchange Act.

(j)Reservation of Shares. The Company shall at all times during the term of the Plan reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of the Plan and outstanding Awards under the Plan.

(k)Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state.

EX-10

CPS TECHNOLOGIES CORPORATION

AMENDED AND RESTATED

2009 STOCK INCENTIVE PLAN

1. Purpose

The purpose of this Amended and Restated 2009 Stock Incentive Plan (the “Plan”) of CPS Technologies Corporation, a Delaware corporation (the “Company”), is to advance the interests of the Company’s stockholders 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 better align the interests of such persons with those of the Company’s stockholders. Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations thereunder (the “Code”).

2. Eligibility

Subject to the terms and conditions of the Plan, all of the Company’s employees, officers, and directors are eligible to be granted options (incentive and non-statutory), stock appreciation rights (“SARs”), restricted stock, restricted stock units and other stock-based awards (each, an “Award”) under the Plan. Consultants and advisors to the Company (as such terms are defined and interpreted for purposes of Form S-8 (or any successor form)) are also eligible to be granted Awards. Each person who is granted an Award under the Plan is deemed a “Participant.”

3. Administration and Delegation

(a) Administration by Board of Directors. The Plan will be administered by the Board of Directors of the Company (the “Board”). The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may construe and interpret the terms of the Plan and any Award agreements entered into under the Plan. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board’s sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award.

(b) Appointment of Committees. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a “Committee”). All references in the Plan to the “Board” shall mean the Board or a Committee of the Board or the officers referred to in Section 3(c) to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee or officers.

(c) Delegation to Officers. To the extent permitted by applicable law, the Board may delegate to one or more officers of the Company the power to grant Options and other Awards that constitute rights under Delaware law (subject to any limitations under the Plan) to employees or officers of the Company or any of its present or future subsidiary corporations and to exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the terms of the Awards to be granted by such officers (including the exercise price of the Awards, which may include a formula by which the exercise price will be determined) and the maximum number of shares subject to such Awards

that the officers may grant; provided further, however, that no officer shall be authorized to grant Awards to any “executive officer” of the Company (as defined by Rule 3b-7 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or to any “officer” of the Company (as defined by Rule 16a-1 under the Exchange Act). The Board may not delegate authority under this Section 3(c) to grant restricted stock, unless Delaware law then permits such delegation.

4. Stock Available for Awards

(a) Number of Shares; Share Counting.

(1) Authorized Number of Shares. Subject to adjustment under Section 9, Awards may be made under the Plan for up to 3,000,000 shares of common stock, $0.01 par value per share, of the Company (the “Common Stock”). Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

(2) Share Counting. For purposes of counting the number of shares available for the grant of Awards under the Plan (i) all shares of Common Stock covered by independent SARs shall be counted against the number of shares available for the grant of Awards; provided, however, that independent SARs that may be settled only in cash shall not be so counted; (ii) if any Award (A) expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) or (B) results in any Common Stock not being issued (including as a result of an independent SAR that was settleable either in cash or in stock actually being settled in cash), the unused Common Stock covered by such Award shall again be available for the grant of Awards; provided, however, in the case of independent SARs, that the full number of shares subject to any stock-settled SAR shall be counted against the shares available under the Plan in proportion to the portion of the SAR actually exercised regardless of the number of shares actually used to settle such SAR upon exercise; (iii) shares of Common Stock delivered (either by actual delivery, attestation, or net exercise) to the Company by a Participant to (A) purchase shares of Common Stock upon the exercise of an Award or (B) satisfy tax withholding obligations (including shares retained from the Award creating the tax obligation) shall not be added back to the number of shares available for the future grant of Awards; and (iv) shares of Common Stock repurchased by the Company on the open market using the proceeds from the exercise of an Award shall not increase the number of shares available for future grant of Awards.

(b) Substitute Awards. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Awards in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Awards may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Awards contained in the Plan. Substitute Awards shall not count against the overall share limit set forth in Section 4(a)(1).

5. Stock Options

(a) General. Subject to the terms and conditions of the Plan, the Board may grant incentive stock options and nonstatutory stock options to purchase Common Stock (each, an “Option”) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option, and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. The Board shall designate Options as either incentive stock options or nonstatutory stock options. An option that is intended to be an incentive stock option and which meets the requirements of Section 422 of

the Code shall be designated an “Incentive Stock Option” or “ISO”, which ISOs may only be granted to employees of the Company and its subsidiaries. An Option that is not intended to be an incentive stock option as defined in Section 422 of the Code or otherwise that does not qualify as an incentive stock option shall be designated a “Nonstatutory Stock Option” or “NSO.” Any Option or portion thereof that does not qualify as an ISO shall be, and shall be treated as, an NSO.

(b) Exercise Price. The Board shall establish the exercise price of each Option and specify the exercise price in the applicable option agreement. The exercise price shall be not less than 100% of the Fair Market Value (as defined below) on the date the Option is granted; provided that if the Board approves the grant of an Option with an exercise price to be determined on a future date, the exercise price shall be not less than 100% of the Fair Market Value on such future date. If any Participant to whom an Incentive Stock Option is to be granted under the Plan is, at the time of the grant of such Incentive Stock Option, the owner of stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code), then the Option exercise price per share subject to such ISO shall not be less than one hundred ten percent (110%) of the Fair Market Value of a share of Common Stock at the time of grant.

(c) Duration of Options. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement; provided, however, that no Option will be granted with a term in excess of, or be exercisable after, 10 years following the date of grant and provided, further, that no Option shall be exercisable later than the fifth anniversary date of its date of grant for an ISO granted to a Participant who at the time of such grant owns stock possessing more than ten percent (10%) or more of the total combined voting power of all classes of stock of the Company.

(d) Exercise of Options. Options 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 Company, together with payment in full as specified in Section 5(e) for the number of shares for which the Option is exercised. Shares of Common Stock subject to the Option will be delivered by the Company as soon as practicable following exercise.

(e) Payment Upon Exercise. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:

(1) in cash or by check, payable to the order of the Company;

(2) except as may otherwise be provided in the applicable option agreement, by (i) 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 (ii) 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 sufficient to pay the exercise price and any required tax withholding;

(3)to the extent provided for in the applicable option agreement or approved by the Board, 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 defined below), provided (i) such method of payment is then permitted under applicable law, (ii) 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 Board in its discretion and (iii) such Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements;

(4) to the extent provided for in the applicable Option agreement or approved by the Board in its sole discretion, by delivery of a notice of “net exercise” to the Company, as a result of which the Participant would receive the number of shares of Common Stock underlying the Option so exercised reduced by the number of shares of Common Stock equal to the aggregate exercise price of the Option divided by the Fair Market Value on the date of exercise;

(5) to the extent permitted by applicable law and provided for in the applicable Option agreement or approved by the Board, in its sole discretion, by payment of such other lawful consideration as the Board may determine; or

(6) by any combination of the above permitted forms of payment.

(f) Fair Market Value. “Fair Market Value” of a share of Common Stock for purposes of the Plan will be determined as follows:

(1) if the Common Stock trades on a national securities exchange, the closing sale price (for the primary trading session) on the date of grant; or

(2) if the Common Stock does not trade on any such exchange, the average of the closing bid and asked prices as reported by an authorized OTCBB market data vendor as listed on the OTCBB website (otcbb.com) on the date of grant; or

(3) if the Common Stock is not publicly traded, the Board will determine the Fair Market Value for purposes of the Plan using any measure of value it determines to be appropriate (including, as it considers appropriate, relying on appraisals) in a manner consistent with the valuation principles under Code Section 409A, except as the Board or Committee may expressly determine otherwise.

For any date that is not a trading day, the Fair Market Value of a share of Common Stock for such date will be determined by using the closing sale price or average of the bid and asked prices, as appropriate, for the immediately preceding trading day and with the timing in the formulas above adjusted accordingly. The Board can substitute a particular time of day or other measure of “closing sale price” or “bid and asked prices” if appropriate because of exchange or market procedures or can, in its sole discretion, use weighted averages either on a daily basis or such longer period as complies with Code Section 409A.

The Board has sole discretion to determine the Fair Market Value for purposes of this Plan, and all Awards are conditioned on the participants’ agreement that the Board’s determination is conclusive and binding even though others might make a different determination.

(g) Termination of Employment or Consulting Arrangement. Subject to subsection (h) below with respect to ISOs, each option agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s employment or consulting arrangement with the Company. Such provisions shall be determined in the sole discretion of the Board, shall be included in the option agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Section 5, and may reflect distinctions based on the reasons for termination of employment.

(h) Special Provisions for ISOs. The following provisions shall apply with respect to the grant of Incentive Stock Options to employees:

(1) For as long as the Code shall so provide, Options granted to any Participant under the Plan which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such Options, in the aggregate, become exercisable for the first time in any one (1) calendar year for shares of Common Stock with an aggregate Fair Market Value (determined as of the respective date or dates of grant) of more than $100,000 (or such other maximum limit imposed from time to time under Code Section 422), but rather Options in excess of such limit shall be treated as NSOs. In such an event, the determination of which Options shall remain ISOs and which shall be treated as NSOs shall be based on the order in which such Options were granted. All other terms and conditions of such Options that are deemed to be NSOs shall remain unchanged.

(2) No Incentive Stock Option may be exercised unless, at the time of such exercise, the Participant is, and has been continuously since the date of grant of his or her Option, an employee of the Company, except that:

(i) an Incentive Stock Option may be exercised within the period of three (3) months after the date the Participant ceases to be an employee of the Company (or within such lesser period as may be specified in the applicable Award agreement) if and only to the extent that the Incentive Stock Option was exercisable at the date of employment termination, provided that the option agreement with respect to such Option may designate a longer exercise period, and any exercise after such three-month period shall be treated as the exercise of a NSO under the Plan;

(ii) if the Participant dies while an employee of the Company, or within three (3) months after the Participant ceases to be an employee, the Incentive Stock Option may be exercised by the person to whom it is transferred by will or the laws of descent and distribution within the period of one year after the date of death (or within such lesser period as may be specified in the applicable option agreement) if and only to the extent that the ISO was exercisable at the date of death; and

(iii) if the Participant becomes disabled (within the meaning of Section 22(e)(3) or any successor section of the Code) while an employee of the Company, the Incentive Stock Option may be exercised within the period of one (1) year after the date the Participant ceases to be an employee because of such disability (or within such lesser period as may be specified in the applicable option agreement) if and only to the extent that the ISO was exercisable at the date of employment termination.

6. Stock Appreciation Rights

(a) General. The Board may grant Awards consisting of SARs entitling the holder, upon exercise, to receive an amount of Common Stock or cash or a combination thereof (such form to be determined by the Board) determined by reference to appreciation, from and after the date of grant, in the Fair Market Value of a share of Common Stock over the measurement price established pursuant to Section 6(c). The date as of which such appreciation is determined shall be the exercise date.

(b) Grants. SARs may be granted in tandem with, or independently of, Options granted under the Plan.

(1) Tandem Awards. When SARs are expressly granted in tandem with Options, (i) the SAR will be exercisable only at such time or times, and to the extent, that the related Option is exercisable (except to the extent designated by the Board in connection with a Reorganization Event) and will be exercisable in accordance with the procedure required for exercise of the related Option; (ii) the SAR will terminate and no longer be exercisable upon the termination or exercise of the related Option, except to the extent designated by the Board in connection with a Reorganization Event and except that a SAR granted with respect to less than the full number of shares covered by an Option will not be reduced until the number of shares as to which the related Option has been exercised or has terminated exceeds the number of shares not covered by the SAR; (iii) the Option will terminate and no longer be exercisable upon the exercise of the related SAR; and (iv) the SAR will be transferable only with the related Option.

(2) Independent SARs. A SAR not expressly granted in tandem with an Option will become exercisable at such time or times, and on such conditions, as the Board may specify in the SAR Award.

(c) Measurement Price. The Board shall establish the measurement price of each SAR and specify it in the applicable SAR agreement. The measurement price shall not be less than 100% of the Fair Market Value on the date the SAR is granted; provided that if the Board approves the grant of a SAR with a measurement price to be determined on a future date, the measurement price shall be not less than 100% of the Fair Market Value on such future date.

(d) Duration of SARs. Each SAR shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable SAR agreement; provided, however, that no SAR will be granted with a term in excess of 10 years.

(e) Exercise of SARs. SARs 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 Company, together with any other documents required by the Board.

7. Restricted Stock; Restricted Stock Units

(a) General. The Board may grant Awards entitling recipients to acquire shares of Common Stock (“Restricted Stock”), subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award. Instead of granting Awards for Restricted Stock, the Board may grant Awards entitling the recipient to receive shares of Common Stock or cash to be delivered at the time such Award vests (“Restricted Stock Units”) (Restricted Stock and Restricted Stock Units are each referred to herein as a “Restricted Stock Award”).

(b) Terms and Conditions for All Restricted Stock Awards. The Board shall determine the terms and conditions of a Restricted Stock Award, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.

(c) Additional Provisions Relating to Restricted Stock.

(1) Dividends. Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such shares, unless otherwise provided by the Board. Unless otherwise provided by the Board, if any dividends or distributions are paid in shares, or consist of a dividend or distribution to holders of Common Stock other than an ordinary cash dividend, the shares,

cash or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid. Each dividend payment will be made no later than the end of the calendar year in which the dividends are paid to shareholders of that class of stock or, if later, the 15th day of the third month following the date the dividends are paid to shareholders of that class of stock.

(2) Stock Certificates. The Company may require that any stock certificates issued in respect of shares of Restricted Stock shall be deposited in escrow by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant’s death (the “Designated Beneficiary”). In the absence of an effective designation by a Participant, “Designated Beneficiary” shall mean the Participant’s estate.

(d) Additional Provisions Relating to Restricted Stock Units.

(1) Settlement. Upon the vesting of and/or lapsing of any other restrictions (i.e., settlement) with respect to each Restricted Stock Unit, the Participant shall be entitled to receive from the Company one share of Common Stock or an amount of cash equal to the Fair Market Value of one share of Common Stock, as provided in the applicable Award agreement. The Board may, in its discretion, provide that settlement of Restricted Stock Units shall be deferred, on a mandatory basis or at the election of the Participant in a manner that complies with Code Section 409A.

(2) Voting Rights. A Participant shall have no voting rights with respect to any Restricted Stock Units.

(3) Dividend Equivalents. To the extent provided by the Board, in its sole discretion, a grant of Restricted Stock Units may provide Participants with the right to receive an amount equal to any dividends or other distributions declared and paid on an equal number of outstanding shares of Common Stock (“Dividend Equivalents”). Dividend Equivalents may be paid currently or credited to an account for the Participants, may be settled in cash and/or shares of Common Stock and may be subject to the same restrictions on transfer and forfeitability as the Restricted Stock Units with respect to which paid, as determined by the Board in its sole discretion, subject in each case to such terms and conditions as the Board shall establish, in each case to be set forth in the applicable Award agreement.

8. Other Stock-Based Awards

(a) General. Other Awards of shares of Common Stock, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other property, may be granted hereunder to Participants (“Other Stock-Based-Awards”), including without limitation Awards entitling recipients to receive shares of Common Stock to be delivered in the future. Such Other Stock-Based Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock-Based Awards may be paid in shares of Common Stock or cash, as the Board shall determine.

(b) Terms and Conditions. Subject to the provisions of the Plan, the Board shall determine the terms and conditions of each Other Stock-Based Award, including any purchase price applicable thereto.

9. Adjustments for Changes in Common Stock and Certain Other Events

(a) Changes in Capitalization. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under the Plan, (ii) share counting rules set forth in Sections 4(a), (iii) the number and class of securities and exercise price per share of each outstanding Option, (iv) the share- and per-share provisions and the measurement price of each SAR, (v) the number of shares subject to and the repurchase price per share subject to each outstanding Restricted Stock Award and (vi) the share- and per-share-related provisions and the purchase price, if any, of each outstanding Other Stock-Based Award, shall be equitably adjusted by the Company (or substituted Awards may be made, if applicable) in the manner determined by the Board. Without limiting the generality of the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to an outstanding Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.

(b) Reorganization Events.

(1) Definition. A “Reorganization Event” shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (b) any transfer or disposition of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange or other transaction or (c) any liquidation or dissolution of the Company.

(2) Consequences of a Reorganization Event on Awards Other than Restricted Stock Awards. In connection with a Reorganization Event, the Board may take any one or more of the following actions as to all or any (or any portion of) outstanding Awards other than Restricted Stock Awards on such terms as the Board determines: (i) provide that Awards shall be assumed, or substantially equivalent Awards shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice to a Participant, provide that the Participant’s unexercised Awards will terminate immediately prior to the consummation of such Reorganization Event unless exercised by the Participant within a specified period following the date of such notice, (iii) provide that outstanding Awards shall become exercisable, realizable, or deliverable, or restrictions applicable to an Award shall lapse, in whole or in part prior to or upon such Reorganization Event, (iv) in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share surrendered in the Reorganization Event (the “Acquisition Price”), make or provide for a cash payment to a Participant equal to the excess, if any, of (A) the Acquisition Price times the number of shares of Common Stock subject to the Participant’s Awards (to the extent the exercise price does not exceed the Acquisition Price) over (B) the aggregate exercise price of all such outstanding Awards and any applicable tax withholdings, in exchange for the termination of such Awards, (v) provide that, in connection with a liquidation or dissolution of the Company, Awards shall convert into the right to receive liquidation proceeds (if applicable, net of the exercise price thereof and any applicable tax withholdings) and (vi) any combination of the foregoing. In taking any of the actions permitted under this Section 9(b), the Board shall not be obligated by the Plan to treat all Awards, all Awards held by a Participant, or all Awards of the same type, identically.

For purposes of clause (i) above, an Option shall be considered assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in value (as determined by the Board) to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.

(3) Consequences of a Reorganization Event on Restricted Stock Awards. Upon the occurrence of a Reorganization Event other than a liquidation or dissolution of the Company, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company’s successor and shall, unless the Board determines otherwise, apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award; provided, however, that the Board may provide for termination or deemed satisfaction of such repurchase or other rights under the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, either initially or by amendment. Upon the occurrence of a Reorganization Event involving the liquidation or dissolution of the Company, except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, all restrictions and conditions on all Restricted Stock Awards then outstanding shall automatically be deemed terminated or satisfied.

10. General Provisions Applicable to Awards

(a) Transferability of Awards.

(1) Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, and, during the life of the Participant, shall be exercisable only by the Participant; provided, however, that the Board may permit or provide in an Award for the gratuitous transfer of the Award by the Participant to or for the benefit of any immediate family member, family trust or other entity established for the benefit of the Participant and/or an immediate family member thereof if, with respect to such proposed transferee, the Company would be eligible to use a Form S-8 for the registration of the sale of the Common Stock subject to such Award under the Securities Act of 1933, as amended; provided, further, that the Company shall not be required to recognize any such transfer until such time as the Participant and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument in form and substance satisfactory to the Company confirming that such transferee shall be bound by all of the terms and conditions of the Award. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

(2) Notwithstanding anything contained in subsection (1) above to the contrary, no ISO granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or

hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant or the Participant’s legal representative (to the extent permitted under Section 422 of the Code).

(b) Documentation. Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan. Each Award agreement relating to the grant of Options shall specify whether the Option is intended to be an ISO within the meaning of Section 422 of the Code, or an NSO whose grant is not intended to fall under the provisions of Section 422 of the Code. In the event of a conflict between any Option Award agreement and the Plan, the Plan shall control, and in no event shall the Board have the power to grant an Option or execute an Option Award agreement that is contrary to the provisions of the Plan.

(c) Board Discretion. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.

(d) Termination of Status. The Board shall determine the effect on an Award of the disability, death, termination or other cessation of employment, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award.

(e) Withholding. The Participant must satisfy all applicable federal, state, and local or other income and employment tax withholding obligations before the Company will deliver stock certificates or otherwise recognize ownership of Common Stock under an Award. The Company may decide to satisfy the withholding obligations through additional withholding on salary or wages. If the Company elects not to or cannot withhold from other compensation, the Participant must pay the Company the full amount, if any, required for withholding or have a broker tender to the Company cash equal to the withholding obligations. Payment of withholding obligations is due before the Company will issue any shares on exercise or release from forfeiture of an Award or, if the Company so requires, at the same time as payment of the exercise price unless the Company determines otherwise. If provided for in an Award or approved by the Board in its sole discretion, a Participant may satisfy such tax obligations in whole or in part by delivery (either by actual delivery or attestation) of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided, however, except as otherwise provided by the Board, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). Shares used to satisfy tax withholding requirements cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.

(f) Amendment of Award. The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type and changing the date of exercise or realization. The Participant’s consent to such action shall be required unless (i) the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant’s rights under the Plan or (ii) the change is permitted under Section 9 hereof.

(g) Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered

under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

(h) Acceleration. The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.

11. Miscellaneous

(a) No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award.

(b) No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares.

(c) Effective Date and Term of Plan. The Plan shall become effective on the date the Plan is approved by the Company’s Board of Directors (the “Effective Date”). No Awards shall be granted under the Plan after the expiration of 10 years from the Effective Date, but Awards previously granted may extend beyond that date.

(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time provided that to the extent required by Section 162(m), no Award granted to a Participant that is intended to comply with Section 162(m) after the date of such amendment shall become exercisable, realizable or vested, as applicable to such Award, unless and until the Company’s stockholders approve such amendment if required by Section 162(m) (including the vote required under Section 162(m)). Unless otherwise specified in the amendment, any amendment to the Plan adopted in accordance with this Section 12(d) shall apply to, and be binding on the holders of, all Awards outstanding under the Plan at the time the amendment is adopted, provided the Board determines that such amendment does not materially and adversely affect the rights of Participants under the Plan.

(e) Authorization of Sub-Plans. The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable securities or tax laws of various jurisdictions. The Board shall establish such sub-plans by adopting supplements to the Plan containing (i) such limitations on the Board’s discretion under the Plan as the Board deems necessary or desirable or (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted by the Board shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction which is not the subject of such supplement.

(f) Non U.S. Employees. Awards may be granted to Participants who are non-U.S. citizens or residents employed outside the United States, or both, on such terms and conditions different from

those applicable to Awards to Participants employed in the United States as may, in the judgment of the Board, be necessary or desirable in order to recognize differences in local law or tax policy. The Board also may impose conditions on the exercise or vesting of Awards in order to minimize the Board’s obligation with respect to tax equalization for Participants on assignments outside their home country. The Board may approve such supplements to or amendments, restatements or alternative versions of the Plan as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan.

(g) Compliance with Section 409A of the Code. Except as provided in individual Award agreements initially or by amendment, if and to the extent any portion of any payment, compensation or other benefit provided to a Participant in connection with his or her employment termination is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code and the Participant is a specified employee as defined in Section 409A(a)(2)(B)(i) of the Code, as determined by the Company in accordance with its procedures, by which determination the Participant (through accepting the Award) agrees that he or she is bound, such portion of the payment, compensation or other benefit shall not be paid before the day that is six months plus one day after the date of “separation from service” (as determined under Code Section 409A) (the “New Payment Date”), except as Code Section 409A may then permit. The aggregate of any payments that otherwise would have been paid to the Participant during the period between the date of separation from service and the New Payment Date shall be paid to the Participant in a lump sum on such New Payment Date, and any remaining payments will be paid on their original schedule.

The Company makes no representations or warranty and shall have no liability to the Participant or any other person if any provisions of or payments, compensation or other benefits under the Plan are determined to constitute nonqualified deferred compensation subject to Code Section 409A but do not satisfy the conditions of that section.

(h) Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, other employee, or agent of the Company will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan, nor will such individual be personally liable with respect to the Plan because of any contract or other instrument he or she executes in his or her capacity as a director, officer, other employee, or agent of the Company. The Company will indemnify and hold harmless each director, officer, other employee, or agent of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been or will be delegated, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim with the Board’s approval) arising out of any act or omission to act concerning this Plan unless arising out of such person’s own fraud or bad faith.

(i) Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state.

EX-10

CPS Technologies Corp.

STOCK OPTION AGREEMENT

CPS Technologies Corp. (the “Company”) hereby grants the following stock option pursuant to its 2020 Equity Incentive Plan. The terms and conditions attached hereto are also a part hereof.

Notice of Grant

Name of optionee (the “Participant”):

Grant Date:

Incentive Stock Option ¨ or Non-statutory Stock Option   ¨

Number of shares of the Company’s Common Stock subject to this option (“Shares”):

Option exercise price per Share:¹

Number, if any, of Shares that vest immediately on the grant date:

Shares that are subject to vesting schedule:

Vesting Start Date:

Final Exercise Date: ²

Vesting Schedule:

Vesting Date:	Number of Options that Vest:
All vesting is dependent on the Participant remaining an Eligible Participant, as provided herein.

This option satisfies in full all commitments that the Company has to the Participant with respect to the issuance of stock, stock options or other equity securities.

	CPS Technologies Corp.
Signature of Participant
	By:
Street Address		Name of Officer
		Title:
City/State/Zip Code

¹ This must be at least 100% of the Grant Date Fair Market Value (as defined in the Plan) of the Common Stock on the date of grant (110% in the case of a Participant that owns more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary (a “10% Shareholder”)) for the option to qualify as an incentive stock option (an “ISO”) under Section 422 of the Code.

² The Final Exercise Date must be no more than 10 years (5 years in the case of a 10% Shareholder) from the date of grant for the option to qualify as an ISO. The correct approach to calculate the final exercise date is to use the day immediately prior to the date ten years out from the date of the stock option award grant (5 years in the case of a 10% stockholder).

CPS Technologies Corp.

Stock Option Agreement

Incorporated Terms and Conditions

1.    Grant of Option.

This agreement evidences the grant by the Company, on the grant date (the “Grant Date”) set forth in the Notice of Grant that forms part of this agreement (the “Notice of Grant”), to the Participant of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2020 Equity Incentive Plan (the “Plan”), the number of Shares set forth in the Notice of Grant of common stock, $0.01 par value per share, of the Company (“Common Stock”), at the exercise price per Share set forth in the Notice of Grant. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on the Final Exercise Date set forth in the Notice of Grant (the “Final Exercise Date”).

The option evidenced by this agreement is intended to be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”) to the maximum extent permitted by law, solely to the extent designated as an incentive stock option in the Notice of Grant. Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2.    Vesting Schedule.

This option will become exercisable (“vest”) in accordance with the vesting schedule set forth in the Notice of Grant.

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 hereof or the Plan.

3.    Exercise of Option.

(a)    Form of Exercise. Each election to exercise this option shall be in writing, in the form of the Stock Option Exercise Notice attached as Annex A, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, or in such other form (which may be electronic) as is approved by the Company, together with payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

(b)    Continuous Relationship with the Company Required. Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee, director or officer of, or consultant or advisor to, the Company or any other entity the employees, officers, directors, consultants, or advisors of which are eligible to receive option grants under the Plan (an “Eligible Participant”).

(c)    Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Final Exercise Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date, violates the restrictive covenants (including, without limitation, the non-competition, non-solicitation, or confidentiality provisions) of any employment contract, any non-competition, non-solicitation, confidentiality or assignment agreement to which the Participant is a party, or any other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon such violation.

(d)    Exercise Period Upon Death or Disability. If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date.

(e)    Termination for Cause. If, prior to the Final Exercise Date, the Participant’s employment or other relationship with the Company is terminated by the Company for Cause (as defined in below), the right to exercise this option shall terminate immediately upon the effective date of such termination of employment or other relationship. If, prior to the Final Exercise Date, the Participant is given notice by the Company of the termination of his or her employment or other relationship by the Company for Cause, and the effective date of such employment or other relationship termination is subsequent to the date of delivery of such notice, the right to exercise this option shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Participant’s employment or other relationship shall not be terminated for Cause as provided in such notice or (ii) the effective date of such termination of employment or other relationship (in which case the right to exercise this option shall, pursuant to the preceding sentence, terminate upon the effective date of such termination of employment or other relationship). If the Participant is party to an employment, consulting or severance agreement with the Company which agreement, plan or arrangement contains a definition of “cause” for termination of employment, “Cause” shall have the meaning ascribed to such term in such agreement, plan or arrangement. Otherwise, “Cause” shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant’s employment shall be considered to have been terminated for Cause if the Company determines, within 30 days after the Participant’s resignation, that termination for Cause was warranted.

4.    Tax Matters.

(a)    Withholding. No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

(b)    Disqualifying Disposition. If this option is an incentive stock option and the Participant disposes of Shares acquired upon exercise of this option within two years from the Grant Date or one year after such Shares were acquired pursuant to exercise of this option, the Participant shall notify the Company in writing of such disposition.

5.    Transfer Restrictions; Clawback.

(a)    This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

(b)    In accepting this option, the Participant agrees to be bound by any clawback policy that the Company has in place or may adopt in the future.

6.    Provisions of the Plan.

This option is subject to the provisions of the Plan (including the provisions relating to amendments to the Plan), a copy of which is furnished to the Participant with this option.

[Remainder of Page Intentionally Left Blank]

- 4 -

ANNEX A

CPS Technologies Corp.

Stock Option Exercise Notice

CPS Technologies Corp.

Attn: Chief Financial Officer

111 South Worcester Street

Norton, MA 02766

Dear Sir or Madam:

I,                                       (the “Participant”), hereby irrevocably exercise the right to purchase                  shares of the Common Stock, $0.01 par value per share (the “Shares”), of CPS Technologies Corp. (the “Company”) at $         per share pursuant to the Company’s 2020 Equity Incentive Plan and a stock option agreement with the Company dated                      (the “Option Agreement”). Enclosed herewith is a payment of $        , the aggregate purchase price for the Shares. The certificate for the Shares should be registered in my name as it appears below or, if so indicated below, jointly in my name and the name of the person designated below, with right of survivorship.

Dated:

Signature

Print Name:

Address:

Name and address of persons in whose name the Shares are to be jointly registered (if applicable):

- 5 -

EX-4

CREDIT AND SECURITY AGREEMENT

BY AND BETWEEN

CPS TECHNOLOGIES CORP.

AND

THE MASSACHUSETTS BUSINESS DEVELOPMENT CORPORATION

SEPTEMBER 25, 2019

CREDIT AND SECURITY AGREEMENT

Dated as of September 25, 2019

CPS Technologies Corp., a Delaware corporation (the "Borrower"), and The Massachusetts Business Development Corporation (the "Lender") hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly provided, the following terms shall have the meanings assigned to them in this section or in the section referenced after such term:

"Accounts" shall have the meaning given it under the UCC.

"Adjustment Date" means the first day of each month or, if the Adjustment Date is not a Business Day, on the Business Day immediately preceding the first day of each calendar month.

"Advance" means a Revolving Advance.

"Affiliate" or "Affiliates" means any Person controlled by, controlling or under common control with the Borrower, including any Subsidiary of the Borrower. For purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

"Agreement" means this Credit and Security Agreement.

"Availability Block" means Five Hundred Thousand ($500,000.00) Dollars. The Availability Block shall be eliminated if the Borrower is in compliance with Section 6.2 for the fiscal year ending December 3l, 2019, and upon mutual acceptance of the Borrower's budget for the fiscal year ending December 31, 2020, by the Borrower and the Bank.

"Availability" means the amount, if any, by which the Borrowing Base exceeds the sum of (a) the outstanding principal balance of the Revolving Note, and (b) any letters of credit guaranteed by the Lender ("Guaranteed Letters of Credit").

"Borrowing Base" means at any time the lesser of:

(a)       The Maximum Line Amount; or

(b)       Subject to change from time to time in the Lender’s sole discretion, the sum of:

(i) up to eighty (80%) percent of the unpaid face amount of Eligible Accounts, or such other percentage thereof as may from time to time be fixed by Lender upon notice to Borrower, minus

(ii) one hundred (100%) percent of the aggregate amount then undrawn on all Guaranteed Letters of Credit (if any), less

(iii) the Availability Block, less

(iv) The Borrowing Base Reserve.

The advance rate against Eligible Accounts shall be reduced by one (1) percentage point for each percentage point by which Dilution is in excess of two (2%) percent.

"Borrowing Base Reserve" means, as of any date of determination, such amounts (expressed as either a specified amount or as a percentage of a specified category or item) as the Lender may from time to time establish and adjust in reducing Availability (a) to reflect events, conditions, contingencies or risks which, as determined by the Lender in its reasonable discretion, do or are reasonable likely to affect (i) the Collateral or its value in any material respect, (ii) the assets, business or prospects of the Borrower in any material respect, or (iii) the security interests and other rights of the Lender in the Collateral (including the enforceability, perfection and priority thereof), or (b) to reflect the Lender’s judgment that any collateral report or financial information furnished by or on behalf of the Borrower to the Lender is or may have been incomplete, inaccurate or misleading in any material respect, or (c) in respect of any state of facts that the Lender determines in its reasonable discretion constitutes a Default or an Event of Default.

"Business Day" means a day on which the Federal Reserve Bank of Boston is open for business.

"Capital Expenditures" means for a period, any expenditure of money during such period for the lease, purchase or construction of assets, or for improvements or additions thereto, which are capitalized on the Borrower’s balance sheet.

"Collateral" means all of the Borrower’s right, title and interest in and to all Accounts, chattel paper and electronic chattel paper, deposit accounts, documents, Equipment, General Intangibles, goods, instruments, Inventory, Investment Property, letter-of-credit rights, letters of credit, and any items in any lockbox; together with (a) all substitutions and replacements for and products of any of the foregoing; (b) in the case of all goods, all accessions; (c) all accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in connection with any goods; (d) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods; (e) all collateral subject to the Lien of any Security Document; (f) any money, or other assets of the Borrower that now or hereafter come into the possession, custody, or control of the Lender; (g) proceeds of any and all of the foregoing; (h) books and records of the Borrower, including all mail or electronic mail addressed to the Borrower; and (i) all of the foregoing, whether now owned or existing or hereafter acquired or arising or in which the Borrower now has or hereafter acquires any rights.

"Constituent Documents" means with respect to any Person, as applicable, such Person’s certificate of incorporation, articles of incorporation, by-laws, certificate of formation, articles of organization, limited liability company agreement, management agreement, operating agreement, shareholder agreement, partnership agreement or similar document or agreement governing such Person’s existence, organization or management or concerning disposition of ownership interests of such Person or voting rights among such Person’s owners.

"Credit Facility" means the discretionary credit facility under which Revolving Advances may be made available to the Borrower by the Lender under Article II.

"Cut-off Time" means 11:00 a.m. Boston, Massachusetts time.

"Default" means an event that, with giving of notice or passage of time or both, would constitute an Event of Default.

"Default Period" means any period of time beginning on the day a Default or Event of Default occurs and ending on the date identified by the Lender in writing as the date that such Default or Event of Default has been cured or waived.

"Default Rate" means an annual interest rate in effect during a Default Period or following the Termination Date, which interest rate shall be equal to three (3%) percent over the applicable Floating Rate, as such rate may change from time to time.

"Dilution" means, as of any date of determination, a percentage, based upon the year-to-date period ending on the date of determination, that is the result of dividing (a) actual bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items with respect to the Accounts as determined by Lender in its reasonable discretion during such period, by (b) Borrower’s gross sales during such period (excluding non-recurring items) plus the amount of clause (a).

"Director" means a director if the Borrower is a corporation, a member or manager if the Borrower is a limited liability company, or a general partner if the Borrower is a partnership.

"Earnings Before Taxes" means earnings before taxes, excluding extraordinary gains and losses. As used in this definition, non-recurring items include, but are not limited to, gain or loss related to the sale of a capital asset, income of a Subsidiary under the concept of pooling in accounting, income from minority interests under the equity method of accounting, the write-up of assets, the forgiveness of indebtedness income, litigation gain or loss, casualty loss and income from the sale of a business.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

"ERISA Affiliate" means any trade or business (whether or not incorporated) that is a member of a group which includes the Borrower and which is treated as a single employer under Section 414 of the IRC.

"Eligible Accounts" means all unpaid Accounts arising from the sale or lease of goods or the performance of services, net of any credits, but excluding any such Accounts having any of the following characteristics:

(a) That portion of Accounts unpaid ninety (90) days or more after the invoice date, except for Asea, Brown, Boveri LTD. ("ABB"), for which Accounts shall not exceed one hundred twenty (120) days from the invoice date;

(b) That portion of Accounts related to goods or services with respect to which the Borrower has received written notice of a claim or dispute, which are subject to a claim of offset or a contra account, or which reflect a reasonable reserve for warranty claims or returns, as determined by the Borrower consistent with past practices;

(c) That portion of Accounts not yet earned by the final delivery of goods or rendition of services, as applicable, by the Borrower to the customer, including progress billings, and that portion of Accounts for which an invoice has not been sent to the applicable account debtor;

(d) Accounts constituting (i) proceeds of copyrightable material unless such copyrightable material shall have been registered with the United States Copyright Office, or (ii) proceeds of patentable inventions unless such patentable inventions have been registered with the United States Patent and Trademark Office;

(e) Accounts owed by any unit of government, whether foreign or domestic (provided, however, that there shall be included in Eligible Accounts that portion of Accounts owed by such units of government for which the Borrower has provided evidence satisfactory to the Lender that (i) the Lender has a first priority perfected security interest, and (ii) such Accounts may be enforced by the Lender directly against such unit of government under all applicable laws);

(f) Accounts denominated in any currency other than United States dollars;

(g) Accounts owed by an account debtor located outside the United States or Canada which are not (i) backed by a bank letter of credit naming the Lender as beneficiary or assigned to the Lender, in the Lender’s possession or control, and with respect to which a control agreement concerning the letter-of-credit rights is in effect, and acceptable to the Lender in all respects, in its sole discretion, or (ii) covered by a foreign receivables insurance policy acceptable to the Lender in its sole discretion;

(h) Accounts owed by an account debtor that is insolvent, the subject of bankruptcy proceedings or has gone out of business;

(i) Accounts owed by an Owner, Subsidiary, Affiliate, Officer or employee of the Borrower;

(j) Accounts not subject to a duly perfected security interest in the Lender’s favor or which are subject to any Lien in favor of any Person other than the Lender;

(k) That portion of Accounts that has been restructured, extended, amended or modified;

(l) That portion of Accounts that constitutes advertising, finance charges, service charges or sales or excise taxes;

(m) Accounts owed by an account debtor, other than Infineon and ABB, regardless of whether otherwise eligible, to the extent that the aggregate balance of such Accounts exceeds fifteen (15%) percent of the aggregate amount of all Eligible Accounts;

(n) Accounts owed by an account debtor, regardless of whether otherwise eligible, if twenty-five (25%) percent or more of the total amount of Accounts due from such debtor is ineligible under clauses (a), (b), or (j) above; and

(o) Accounts, or portions thereof, otherwise deemed ineligible by the Lender in its sole reasonable discretion.

"Environmental Law" means any federal, state, local or other governmental statute, regulation, law or ordinance dealing with the protection of human health and the environment.

"Equipment" means all of the Borrower’s equipment, as such term is defined in the UCC, whether now owned or hereafter acquired, including all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and record keeping equipment, parts, tools, supplies, and including specifically the goods described in any equipment schedule or list herewith or hereafter furnished to the Lender by the Borrower.

"Event of Default" has the meaning set forth in Section 7.1.

"Financial Covenants" means the covenants set forth in Section 6.2.

"Floating Rate" means with respect to Revolving Advances evidenced by the Revolving Note, the aggregate of (x) the LIBOR Lending Rate, plus (y) six and one-half of one (6.50%) percent.

"Funding Date" has the meaning set forth in Section 2.1.

"GAAP" means U.S. generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described in Section 5.6.

"General Intangibles" shall have the meaning given it under the UCC.

"Guarantor(s)" means any Person now or in the future who agrees to guaranty the Indebtedness.

"Guaranty" means each unconditional continuing guaranty executed by a Guarantor in favor of the Lender.

"Hazardous Substances" means pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and fractions thereof, and all other chemicals, wastes, substances and materials listed in, regulated by or identified in any Environmental Law.

"Indebtedness" is used herein in its most comprehensive sense and means any and all advances, debts, obligations and liabilities of the Borrower to the Lender, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, including under any swap, derivative, foreign exchange, hedge, deposit, treasury management or other similar transaction or arrangement at any time entered into by the Borrower with the Lender, and whether the Borrower may be liable individually or jointly with others, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable.

"Indemnified Liabilities" is defined in Section 8.6

"Indemnitees" is defined in Section 8.6.

"IRC" means the Internal Revenue Code of 1986, as amended from time to time.

"Infringement" or "Infringing" when used with respect to Intellectual Property Rights means any infringement or other violation of Intellectual Property Rights.

"Intellectual Property Rights" means all actual or prospective rights arising in connection with any intellectual property or other proprietary rights, including all rights arising in connection with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade names or mask works.

"Interest Payment Date" is defined in Section 2.5(a).

"Inventory" shall have the meaning given it under the UCC.

"Investment Property" shall have the meaning given it under the UCC.

"Letter of Credit" means a definite undertaking that satisfies the requirements of Section 5-104 of the UCC by an issuer to a beneficiary at the request or for the account of the Borrower.

"LIBOR Lending Rate" means the one-month LIBOR rate published in The Wall Street Journal under the heading "Money Rates" on the Adjustment Date (or if such source or rate is not available, such alternate source as may be determined by the Lender). Any change in the LIBOR Lending Rate shall become effective, without notice or demand, on each Adjustment Date.

"Lien" means any security interest, mortgage, deed of trust, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument or device, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or subsequently acquired and whether arising by agreement or operation of law.

"Loan Documents" means this Agreement, the Note, each Guaranty, each Subordination Agreement and the Security Documents, together with every other agreement, note, document, contract or instrument to which the Borrower now or in the future is a party and which is required by the Lender.

"Maximum Line Amount" means Two Million Five Hundred Thousand ($2,500,000.00) Dollars.

"Minimum Interest Charge" is defined in Section 2.3(b).

"Multiemployer Plan" means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which the Borrower or any ERISA Affiliate contributes or is obligated to contribute.

"Note" means the Revolving Note, as the same may hereafter be amended, supplemented or restated from time to time.

"Officer" means with respect to the Borrower, an executive officer if the Borrower is a corporation, a manager if the Borrower is a limited liability company, or a partner if the Borrower is a partnership.

"OFAC" is defined in Section 6.12(c).

"Overadvance" means the amount, if any, by which (a) the outstanding principal balance of the Revolving Note, plus (b) the aggregate face amount of any issued and outstanding Guaranteed Letters of Credit, is in excess of the then-existing Borrowing Base.

"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) maintained for employees of the Borrower or any ERISA Affiliate and covered by Title IV of ERISA.

"Permitted Lien" and "Permitted Liens" are defined in Section 6.3(a).

"Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained for employees of the Borrower or any ERISA Affiliate.

"Premises" means all locations where the Borrower conducts its business or has any rights of possession, including the locations legally described in Exhibit B attached hereto.

"Reportable Event" means a reportable event (as defined in Section 4043 of ERISA), other than an event for which the thirty (30) day notice requirement under ERISA has been waived in regulations issued by the Pension Benefit Guaranty Corporation.

"Revolving Advance" is defined in Section 2.1.

"Revolving Note" means the Borrower’s revolving promissory note, payable to the order of the Lender in substantially the form of Exhibit A hereto, as same may be renewed and amended from time to time, and all replacements thereto.

"Security Documents" means this Agreement and any other document delivered to the Lender from time to time to secure the Indebtedness.

"Security Interest" is defined in Section 3.1.

"Subordinated Creditors" means any Person now or in the future who agrees to subordinate indebtedness of Borrower held by that Person to the payment of the Indebtedness.

"Subordination Agreement" means a subordination agreement executed by a Subordinated Creditor in favor of the Lender and acknowledged by the Borrower (together with any other subordination agreement that may be accepted by the Lender from time to time, the "Subordination Agreements").

"Subsidiary" means any Person of which more than fifty (50%) percent of the outstanding ownership interests having general voting power under ordinary circumstances to elect a majority of the board of directors or the equivalent of such Person, regardless of whether or not at the time ownership interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency, is at the time directly or indirectly owned by the Borrower, by the Borrower and one or more other Subsidiaries, or by one or more other Subsidiaries.

"Termination Date" means the earliest of (a) the date the Borrower terminates the Credit Facility, or (b) the date the Lender demands payment of the Indebtedness.

"UCC" means the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts.

"United States Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy" or any other federal bankruptcy law.

Section 1.2 Other Definitional Terms; Rules of Interpretation. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP. All terms defined in the UCC and not otherwise defined herein have the meanings assigned to them in the UCC. References to Articles, sections, subsections, Exhibits, Schedules and the like, are to Articles, sections and subsections of, or Exhibits or Schedules attached to, this Agreement unless otherwise expressly provided. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. Unless the context in which used herein otherwise clearly requires, “or” has the inclusive meaning represented by the phrase “and/or”. Defined terms include in the singular number the plural and in the plural number the singular. Reference to any agreement (including the Loan Documents), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof (and, if applicable, in accordance with the terms hereof and the other Loan Documents), except where otherwise explicitly provided, and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor. Reference to any law, rule, regulation, order, decree, requirement, policy, guideline, directive or interpretation means as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect on the determination date, including rules and regulations promulgated thereunder.

ARTICLE II

AMOUNT AND TERMS OF THE CREDIT FACILITY

Section 2.1 Revolving Advances. The Lender may, in its sole discretion, subject to the terms and conditions of this Agreement, make advances ("Revolving Advances") to the Borrower from time to time from the date that all of the conditions set forth in Section 4.1 are satisfied (the "Funding Date") to and until (but not including) the Termination Date in an amount not in excess of the Maximum Line Amount. The Lender shall not consider any request for a Revolving Advance to the extent that the amount of the requested Revolving Advance exceeds Availability. The Borrower’s obligation to pay the Revolving Advances shall be evidenced by the Revolving Note, shall be secured by the Collateral and shall be payable ON DEMAND. Within the limits set forth in this Section 2.1, the Borrower may request Revolving Advances and request additional Revolving Advances.

Section 2.2 Procedures for Requesting Advances. The Borrower shall comply with the following procedures in requesting Revolving Advances:

(a)       Time for Requests. The Borrower shall request each Advance not later than the Cut-off Time on the Business Day on which the Advance is to be made. Each request that conforms to the terms of this Agreement shall be effective upon receipt by the Lender, shall be in writing or by telephone transmission, and shall be confirmed in writing by the Borrower if so requested by the Lender, by (i) an Officer of the Borrower; or (ii) a Person designated as the Borrower’s agent by an Officer of the Borrower in a writing delivered to the Lender; or (iii) a Person whom the Lender reasonably believes to be an Officer of the Borrower or such a designated agent. The Borrower shall repay all Advances actually made by the Lender and received by the Borrower even if the Lender does not receive such confirmation and even if the Person requesting an Advance was not in fact authorized to do so. Any request for an Advance, whether written or telephonic, shall be deemed to be a representation by the Borrower that the conditions set forth in Section 4.2 have been satisfied as of the time of the request.

(b)       Disbursement. Upon fulfillment of the applicable conditions set forth in Article IV and the Lender’s determination to make the Advance, the Lender shall disburse the proceeds of the requested Advance by crediting the same to the Borrower’s demand deposit account maintained with Rockland Trust unless the Lender and the Borrower shall agree in writing to another manner of disbursement.

Section 2.3 Interest; Minimum Interest Charge; Default Interest Rate; Application of Payments; Participations; Usury.

(a)       Interest. Except as provided in Sections 2.3(c) and 2.3(e), the principal amount of each Advance shall bear interest at the Floating Rate.

(b)       Minimum Interest Charge. Notwithstanding any other terms of this Agreement to the contrary, the Borrower shall pay to the Lender interest of not less than Two Thousand Five Hundred ($2,500.00) Dollars per calendar month (the "Minimum Interest Charge") during the term of this Agreement, and the Borrower shall pay any deficiency between the Minimum Interest Charge and the amount of interest otherwise calculated under Section 2.3(a) on the first day of each month. When calculating this deficiency, the Default Rate, if applicable, shall be disregarded and any interest that accrues on a payment following its receipt on those days specified in Section 2.6 shall be excluded in determining the total amount of interest otherwise calculated under Section 2.3(a).

(c)       Default Interest Rate. At any time during any Default Period or following the Termination Date, in the Lender’s sole discretion and without waiving any of its other rights or remedies, the principal of the Revolving Note shall bear interest at the Default Rate or such lesser rate as the Lender may determine, effective as of the first day of the fiscal month in which any Default Period begins through the last day of such Default Period, or any shorter time period that the Lender may determine. The decision of the Lender to impose a rate that is less than the Default Rate or to not impose the Default Rate for the entire duration of the Default Period shall be made by the Lender in its sole discretion and shall not be a waiver of any of its other rights and remedies, including its right to retroactively impose the full Default Rate for the entirety of any such Default Period or following the Termination Date.

(d)       Participations. If any Person shall acquire a participation in the Advances, the Borrower shall be obligated to the Lender to pay the full amount of all interest calculated under this Section 2.3, along with all other fees, charges and other amounts due under this Agreement, regardless if such Person elects to accept interest with respect to its participation at a lower rate than that calculated under this Section 2.3, or otherwise elects to accept less than its prorata share of such fees, charges and other amounts due under this Agreement.

(e)       Usury. At no time during this Agreement or any other Loan Document shall any interest rate be put into effect that would result in a rate greater than the highest rate permitted by law. Notwithstanding anything to the contrary contained in any Loan Document, all agreements which either now are or which shall become agreements between the Borrower and the Lender are hereby limited so that in no contingency or event whatsoever shall the total liability for payments in the nature of interest, additional interest and other charges exceed the applicable limits imposed by any applicable usury laws. If any payments in the nature of interest, additional interest and other charges made under any Loan Document are held to be in excess of the limits imposed by any applicable usury laws, it is agreed that any such amount held to be in excess shall be considered payment of principal hereunder, and the indebtedness evidenced hereby shall be reduced by such amount so that the total liability for payments in the nature of interest, additional interest and other charges shall not exceed the applicable limits imposed by any applicable usury laws, in compliance with the desires of the Borrower and the Lender. This provision shall never be superseded or waived and shall control every other provision of the Loan Documents and all agreements between the Borrower and the Lender, or their successors and assigns.

Section 2.4 Fees.

(a)       Origination Fee. The Borrower shall pay the Lender a fully earned and non-refundable origination fee of Twenty-Five Thousand ($25,000.00) Dollars, due and payable in equal monthly installments on the first day of each month commencing on the first day of the first month next succeeding the date of execution of this Agreement.

(b)       Collateral Exam Fees. The Borrower shall pay the Lender reasonable fees in connection with any collateral exams, audits or inspections conducted by or on behalf of the Lender of any Collateral or the Borrower’s operations or business at the rates established from time to time by the Lender as its collateral exam fees (which fees are currently $850.00 per day per collateral examiner), together with all actual reasonable out-of-pocket costs and expenses incurred in conducting any such collateral examination or inspection.

(c)       Termination Fees. If the Credit Facility is terminated by the Lender during a Default Period that begins prior to the third anniversary of the Funding Date, or if the Borrower requests that the Lender terminate on a date prior to the third anniversary of the Funding Date, then the Borrower shall pay to the Lender a termination fee in an amount equal to a percentage of the Maximum Line Amount as follows: (i) three (3%) percent if the termination occurs on or before the first anniversary of the Funding Date; (ii) two (2%) percent if the termination occurs after the first anniversary of the Funding Date, but on or before the second anniversary of the Funding Date; and (iii) one (1%) percent if the termination occurs after the second anniversary of the Funding Date but on or before the third anniversary of the Funding Date.

(d)       Automated Clearing House ("ACH") Fee. Borrower shall pay to Lender a fee in the amount of Two Hundred ($200.00) Dollars per month for incoming ACH transfers for the account of the Borrower.

(e)       Wire and ACH Transfer Fees. Borrower agrees to pay to the Lender a fee in the amount of Twenty-Five ($25.00) Dollars for each wire transfer or ACH transfer initiated by or for the account of the Borrower.

(f)       [Reserved]

(g)       Collateral Monitoring Fee. Borrower shall pay to Lender a non-refundable collateral monitoring fee in the amount of Two Hundred Fifty and 00/100 ($250.00) Dollars per month, payable on the first day of each month commencing on the first day of the first month following the Funding Date.

(h)       Overadvance Fees. The Borrower shall pay an Overadvance fee in the amount of Five Hundred ($500.00) Dollars for each day or portion thereof during which an Overadvance exists, regardless of how the Overadvance arises or whether or not the Overadvance has been agreed to in advance by the Lender. The acceptance of payment of an Overadvance fee by the Lender shall not be deemed to constitute either consent to the Overadvance or a waiver of the resulting Event of Default, unless the Lender specifically consents to the Overadvance in writing and waives the Event of Default on whatever conditions the Lender deems appropriate.

(i) Other Fees and Charges; Payment of Fees. The Lender may from time to time impose additional fees and charges as consideration for Advances made in excess of Availability or for other events that constitute an Event of Default or a Default hereunder, including fees and charges for the administration of Collateral by the Lender, and fees and charges for the late delivery of reports, which may be assessed in the Lender’s sole discretion on notice to the Borrower on either an daily, periodic, or flat fee basis, and in lieu of or in addition to imposing interest at the Default Rate.

Section 2.5 Time for Interest Payments; Payment on Non-Business Days; Computation of Interest and Fees.

(a)       Time For Interest Payments. Accrued and unpaid interest shall be due and payable on the first day of each month and on the Termination Date (each an "Interest Payment Date"), or if any such day is not a Business Day, on the next succeeding Business Day. Interest will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of advance to the Interest Payment Date. If an Interest Payment Date is not a Business Day, payment shall be made on the next succeeding Business Day.

(b)       Payment on Non-Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest on the Advances hereunder, as the case may be.

(c)       Computation of Interest and Fees. Interest accruing on the outstanding principal balance of the Advances hereunder outstanding from time to time shall be computed on the basis of actual number of days elapsed in a year of three hundred sixty (360) days.

Section 2.6 Collections. Borrower will immediately, upon receipt of all checks, drafts, cash and other remittances in payment of any Inventory sold or in payment or on account of Borrower's accounts, contracts, contract rights, notes, bills, drafts, acceptances, general intangibles, choses in action and all other forms of obligations, deliver the same to Lender accompanied by a remittance report in form specified by Lender. Said proceeds shall be delivered to Lender in the same form received except for the endorsement of Borrower where necessary to permit collection of items, which endorsement Borrower agrees to make. Lender will credit (conditional upon final collection) all such payments against the principal or interest of any loans secured hereby; provided, however, for the purpose of computing interest, any items requiring clearance or payment shall not be considered to have been credited against any loans secured hereby until three Business Days after receipt by Lender of any such items. The order and method of such application shall be in the sole discretion of Lender and any portion of such funds which Lender elects not to so apply shall be paid over from time to time by Lender to Borrower. Lender will at all times have the right to require Borrower (a) to enter into a lockbox arrangement with Lender for the collection of such remittances and payments and to instruct all account debtors to pay such remittances and payments to the lockbox, or (b) to deposit such remittances and payments at a financial institution which has agreed to accept drafts drawn on it by Lender under a written depository transfer agreement with Lender and to block Borrower's account and waive its rights as against such account.

Section 2.7 Discretionary Nature of this Facility; Termination by the Lender. This Agreement contains the terms and conditions upon which the Lender presently expects to make Advances to the Borrower. Each Advance shall be in the Lender’s sole discretion, and the Lender need not show that an adverse change has occurred in the Borrower’s condition, financial or otherwise, or that any of the conditions of Article IV have not been met, in order to refuse to make any requested Advance or to demand payment of the Indebtedness. The Lender may at any time terminate the Credit Facility whereupon the Lender shall no longer consider requests for Advances under this Agreement. Unless terminated by the Lender at any time or by the Borrower, the Credit Facility shall remain in effect as the same may be amended from time to time.

Section 2.8 Mandatory Prepayment. Without notice or demand, if the sum of the outstanding principal balance of the Revolving Advances plus the Guaranteed Letters of Credit shall at any time exceed the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances to the extent necessary to eliminate such excess. Any voluntary or mandatory prepayment received by the Lender under this Agreement may be applied to the Indebtedness, in such order and in such amounts as the Lender in its sole discretion may determine from time to time.

Section 2.9 Revolving Advances to Pay Indebtedness. Notwithstanding the terms of Section 2.1, the Lender may, in its discretion at any time or from time to time, without the Borrower’s request and even if the conditions set forth in Section 4.2 would not be satisfied, make a Revolving Advance in an amount equal to the portion of the Indebtedness from time to time due and payable.

Section 2.10 Use of Proceeds. The Borrower shall use the proceeds of Advances for ordinary working capital purposes.

Section 2.11 Liability Records. The Lender may maintain from time to time, at its discretion, records as to the Indebtedness. All entries made on any such record shall be presumed correct until the Borrower establishes the contrary. Upon the Lender’s demand, the Borrower will admit and certify in writing the exact principal balance of the Indebtedness that the Borrower then asserts to be outstanding. Any billing statement or accounting rendered by the Lender shall be conclusive and fully binding on the Borrower unless the Borrower gives the Lender specific written notice of exception within sixty (60) days after receipt.

ARTICLE III

SECURITY INTEREST; OCCUPANCY; SETOFF

Section 3.1 Grant of Security Interest. The Borrower hereby pledges, assigns and grants to the Lender, a lien and security interest (collectively referred to as the "Security Interest") in the Collateral, as security for the payment and performance of (a) all present and future Indebtedness of the Borrower to the Lender; (b) all obligations of the Borrower and rights of the Lender under this Agreement; and (c) all present and future obligations of the Borrower to the Lender of other kinds. Upon request by the Lender, the Borrower will grant the Lender a security interest in all commercial tort claims that the Borrower may have against any Person.

Section 3.2 Notification of Account Debtors and Other Obligors. The Lender may at any time a Default Period then exists notify any account debtor or other Person obligated to pay the amount due that such right to payment has been assigned or transferred to the Lender for security and shall be paid directly to the Lender. The Borrower will join in giving such notice if the Lender so requests. At any time after the Borrower or the Lender gives such notice to an account debtor or other obligor, the Lender may, but need not, in the Lender’s name or in the Borrower’s name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such right to payment, or grant any extension to, make any reasonable compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor. The Lender may, in the Lender’s name or in the Borrower’s name, as the Borrower’s agent and attorney-in-fact, notify the United States Postal Service to change the address for delivery of the Borrower’s mail to any address designated by the Lender, otherwise intercept the Borrower’s mail, and receive, open and dispose of the Borrower’s mail, applying all Collateral as permitted under this Agreement and holding all other mail for the Borrower’s account or forwarding such mail to the Borrower’s last known address.

Section 3.3 Assignment of Insurance. As additional security for the payment and performance of the Indebtedness, in the event of an Event of Default the Lender may require that the Borrower assign to the Lender any and all monies (including proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of the Borrower with respect to, any and all policies of insurance now or at any time hereafter covering the Collateral or any evidence thereof or any business records or valuable papers pertaining thereto, and the Borrower shall direct the issuer of any such policy to pay all such monies directly to the Lender. At any time a Default Period exists, the Lender may (but need not), in the Lender’s name or in the Borrower’s name, execute and deliver proof of claim, receive all such monies, endorse checks and other instruments representing payment of such monies, and adjust, litigate, compromise or release any claim against the issuer of any such policy. Any monies received as payment for any loss under any insurance policy mentioned above (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid over to the Lender to be applied to the payment of the Indebtedness or shall be disbursed to the Borrower for application to the cost of repairs, replacements, or restorations. Any such repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed prior to such damage or destruction.

Section 3.4 Occupancy.

(a)       The Borrower hereby irrevocably grants to the Lender the right to take exclusive possession of the Premises at any time during a Default Period without notice or consent, subject in all cases to all rights of the owner and landlord of such Premises.

(b)       During such occupancy as permitted by Section 3.4(a), the Lender may use the Premises only to hold, process, manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of goods that are Collateral and for other purposes that the Lender may in good faith deem to be related and necessary for the repayment of the Indebtedness.

(c)       The Lender’s right to occupy the Premises shall cease and terminate upon the earlier of (i) payment in full and discharge of all Indebtedness and termination of the Credit Facility, and (ii) final sale or disposition of all goods constituting Collateral and delivery of all such goods to purchasers.

(d)       The Lender shall not be obligated to pay or account for any rent or other compensation for the possession, occupancy or use of any of the Premises; provided, however, that if the Lender does pay or account for any rent or other compensation for the possession, occupancy or use of any of the Premises, the Borrower shall reimburse the Lender promptly for the full amount thereof. In addition, the Borrower will pay, or reimburse the Lender for, all taxes, fees, duties, imposts, charges and expenses at any time incurred by or imposed upon the Lender by reason of the execution, delivery, existence, recordation, performance or enforcement of this Agreement or the provisions of this Section 3.4.

Section 3.5 License. Without limiting the generality of any other Security Document, the Borrower hereby grants to the Lender a non-exclusive, worldwide, limited, royalty-free license to use or otherwise exploit all Intellectual Property Rights of the Borrower solely for the purpose of: (a) completing the manufacture of any in-process materials during any Default Period so that such materials become saleable Inventory, all in accordance with the same quality standards previously adopted by the Borrower for its own manufacturing and subject to the Borrower’s reasonable exercise of quality control; and (b) selling, leasing or otherwise disposing of any or all Collateral during any Default Period. Any limited license granted hereby shall terminate immediately and without any action of the parties upon payment and satisfaction of the Indebtedness of the Borrower to the Lender.

Section 3.6 Financing Statement. The Borrower authorizes the Lender to file from time to time, such financing statements against collateral described as “all personal property” or “all assets” or describing specific items of collateral including commercial tort claims as the Lender deems necessary or useful to perfect the Security Interest. All financing statements filed before the date hereof to perfect the Security Interest were authorized by the Borrower and are hereby re-authorized. A carbon, photographic or other reproduction of this Agreement or of any financing statements signed by the Borrower is sufficient as a financing statement and may be filed as a financing statement in any state to perfect the security interests granted hereby. For this purpose, the Borrower represents and warrants that the following information is true and correct:

Name and address of Borrower: CPS Technologies Corp.

111 South Worcester Street

Norton, Massachusetts 02766

Attn: Chuck Griffith, CFO

Federal Employer Identification No.: 04-2832509

Organizational Identification No.: 203374543

Name and address of Lender: The Massachusetts Business

Development Corporation

500 Edgewater Drive

Wakefield, Massachusetts 01880

Attn: Stanley J. Horsman

Director of Business Finance

Section 3.7 Setoff. The Lender may at any time or from time to time, at its sole discretion and without demand and without notice to anyone, setoff any liability owed to the Borrower by the Lender, whether or not due, against any Indebtedness, whether or not due. In addition, each other Person holding a participating interest in any Indebtedness shall have the right to appropriate or setoff any deposit or other liability then owed by such Person to the Borrower, whether or not due, and apply the same to the payment of said participating interest, as fully as if such Person had lent directly to the Borrower the amount of such participating interest.

Section 3.8 Collateral. This Agreement does not contemplate a sale of accounts, contract rights or chattel paper, and, as provided by law, the Borrower is entitled to any surplus and shall remain liable for any deficiency. The Lender’s duty of care with respect to Collateral in its possession (as imposed by law) shall be deemed fulfilled if it exercises reasonable care in physically keeping such Collateral, or in the case of Collateral in the custody or possession of a bailee or other third Person, exercises reasonable care in the selection of the bailee or other third Person, and the Lender need not otherwise preserve, protect, insure or care for any Collateral. The Lender shall not be obligated to preserve any rights the Borrower may have against prior parties, to realize on the Collateral at all or in any particular manner or order or to apply any cash proceeds of the Collateral in any particular order of application. The Lender has no obligation to clean up or otherwise prepare the Collateral for sale. The Borrower waives any right it may have to require the Lender to pursue any third Person for any of the Indebtedness.

ARTICLE IV

CONDITIONS OF WILLINGNESS TO CONSIDER LENDING

Section 4.1 Conditions Precedent to Lender’s Willingness to Consider Making the Initial Advances and Guaranteed Letters of Credit. The Lender’s willingness to consider making the initial Advances or to guarantee any letter of credit shall be subject to the condition precedent that the Lender shall have received all of the following, each properly executed by the appropriate party and in form and substance reasonably satisfactory to the Lender:

(a)       This Agreement.

(b)       The Note.

(c)       A true and correct copy of any and all leases pursuant to which the Borrower is leasing the Premises, together with a landlord’s disclaimer and consent with respect to each such lease.

(d)       A true and correct copy of any and all mortgages pursuant to which the Borrower has mortgaged the Premises, together with a mortgagee’s disclaimer and consent with respect to each such mortgage.

(e)       An acknowledgment and waiver of Liens from each warehouse in which the Borrower is storing Inventory.

(f)       A true and correct copy of any and all agreements pursuant to which the Borrower’s property is in the possession of any Person other than the Borrower, together with, (i) an acknowledgment and waiver of Liens from each subcontractor who has possession of the Borrower’s goods from time to time, (ii) UCC financing statements sufficient to protect the Borrower’s and the Lender’s interests in such goods, and (iii) UCC searches showing that no other secured party has filed a financing statement covering such Person’s property other than the Borrower, or if there exists any such secured party, evidence that each such secured party has received notice from the Borrower and the Lender sufficient to protect the Borrower’s and the Lender’s interests in the Borrower’s goods from any claim by such secured party.

(g)       [Reserved]

(h)       Control agreements with each bank at which the Borrower maintains deposit accounts.

(i)       [Reserved]

(j)       Current searches of appropriate filing offices showing that (i) no Liens have been filed and remain in effect against the Borrower except Permitted Liens or Liens held by Persons who have agreed in writing that upon receipt of proceeds of the initial Advances, they will satisfy, release or terminate such Liens in a manner satisfactory to the Lender, and (ii) the Lender has duly filed all financing statements necessary to perfect the Security Interest, to the extent the Security Interest is capable of being perfected by filing.

(k)       A certificate of the Borrower’s Secretary or Assistant Secretary certifying that attached to such certificate are (i) the resolutions of the Borrower’s Directors and, if required, Owners, authorizing the execution, delivery and performance of the Loan Documents, (ii) true, correct and complete copies of the Borrower’s Constituent Documents, and (iii) examples of the signatures of the Borrower’s Officers or agents authorized to execute and deliver the Loan Documents and other instruments, agreements and certificates, including Advance requests, on the Borrower’s behalf.

(l)       A current certificate issued by the Secretary of State of Delaware certifying as to the good standing of the Borrower in the State of Delaware.

(m)       Evidence that the Borrower is duly licensed or qualified to transact business in all jurisdictions where the failure to be so licensed or qualified would result in a material adverse effect on the business, properties, assets or operations of the Borrower.

(n)       Certificates of the insurance required hereunder, with all hazard insurance containing a Lender’s loss payable endorsement in the Lender’s favor and with all liability insurance naming the Lender as an additional insured.

(o)       The Support Agreement of Grant C. Bennett.

(q)       Payment of the fees and commissions due under Section 2.4 through the date of the initial Advance or Letter of Credit and expenses incurred by the Lender through such date and required to be paid by the Borrower under Section 8.5, including all legal expenses incurred through the date of this Agreement.

(r)       Evidence that after making the initial Revolving Advance, satisfying all obligations owed to the Borrower’s prior lender, satisfying all trade payables older than sixty (60) days from invoice date, book overdrafts and closing costs, Availability shall be not less than Two Hundred Thousand ($200,000.00) Dollars.

(s)       A Customer Identification Information form and such other forms and verification as the Lender may need to comply with the U.S.A. Patriot Act.

(u)       Such other documents as the Lender in its sole reasonable discretion may require.

Section 4.2 Conditions Precedent to All Advances and Guaranteed Letters of Credit. The Lender will not consider any request for an Advance or for a Guaranteed Letter of Credit unless:

(a)       the representations and warranties contained in Article V are correct on and as of the date of such Advance or issuance of a Letter of Credit as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date; and

(b)       no event has occurred and is continuing, or would result from such Advance or issuance of a Letter of Credit which constitutes a Default or an Event of Default.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lender as follows:

Section 5.1 Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Federal Employer Identification Number and Organizational Identification Number. The Borrower is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business in all jurisdictions where the failure to be so licensed or qualified would result in a material adverse effect on the business, properties, assets or operations of the Borrower. The Borrower has all requisite power and authority to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents. During its existence, the Borrower has done business solely under the names set forth in Schedule 5.1. The Borrower’s chief executive office and principal place of business is located at the address set forth in Schedule 5.1, and all of the Borrower’s records relating to its business or the Collateral are kept at that location. All Inventory and Equipment is located at that location or at one of the other locations listed in Schedule 5.1. The Borrower’s federal employer identification number and organization identification number are correctly set forth in Section 3.6.

Section 5.2 [Reserved]

Section 5.3 Authorization of Borrowing; No Conflict as to Law or Agreements. The execution, delivery and performance by the Borrower of the Loan Documents and the borrowings from time to time hereunder have been duly authorized by all necessary corporate action and do not and will not (a) require any consent or approval of the Borrower’s Owners; (b) require any authorization, consent or approval by, or registration, declaration or filing with, or notice to, any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any third party, except such authorization, consent, approval, registration, declaration, filing or notice as has been obtained, accomplished or given prior to the date hereof; (c) violate any provision of any law, rule or regulation (including Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to the Borrower or of the Borrower’s Constituent Documents, which such violation would result in a material adverse effect on the business, properties, assets or operations of the Borrower; (d) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (e) result in, or require, the creation or imposition of any Lien (other than the Security Interest) upon or with respect to any of the properties now owned or hereafter acquired by the Borrower.

Section 5.4 Legal Agreements. This Agreement constitutes and, upon due execution by the Borrower, the other Loan Documents will constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and/or as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

Section 5.5 Subsidiaries. The Borrower has no Subsidiaries.

Section 5.6 Financial Condition; No Adverse Change. The Borrower has furnished to the Lender audited financial statements for its fiscal year ended December 29th, 2018 and unaudited financial statements for the fiscal-year-to-date period ended June 29, 2019, and those statements fairly present in all material respects the Borrower’s financial condition on the dates thereof and the results of its operations and cash flows for the periods then ended and were prepared in accordance with GAAP (except in the case of unaudited interim financial statements, which are subject to year-end adjustments).  Since the date of the most recent financial statements, there has been no material adverse change in the Borrower’s business, properties or condition (financial or otherwise) which has had a material adverse effect.

Section 5.7 Litigation. Except as set forth in Schedule 5.7 hereto, there are no actions, suits or proceedings pending or, to the Borrower’s knowledge, threatened against or affecting the Borrower or the properties of the Borrower before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Borrower, would have a material adverse effect on the financial condition, properties or operations of the Borrower.

Section 5.8 Regulation U. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.

Section 5.9 Taxes. The Borrower has paid or caused to be paid to the proper authorities when due (taking into account all properly requested extensions) all federal, state and local taxes required to be paid by it. The Borrower has filed all federal, state and local tax returns which to the knowledge of the Officers of the Borrower are required to be filed, and the Borrower has paid or caused to be paid to the respective taxing authorities all taxes as shown as due on said returns or on any assessment received by the Borrower to the extent such taxes have become due.

Section 5.10 Titles and Liens. The Borrower has good and absolute title to all Collateral free and clear of all Liens other than Permitted Liens. No financing statement naming the Borrower as debtor is on file in any office except to perfect only Permitted Liens.

Section 5.11 Except as disclosed to the Lender in writing prior to the date hereof, neither the Borrower nor any ERISA Affiliate (a) maintains or has maintained any Pension Plan, (b) contributes or has contributed to any Multiemployer Plan, or (c) provides or has provided post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required under Section 601 of ERISA, Section 4980B of the IRC or applicable state law). Neither the Borrower nor any ERISA Affiliate has received any written notice or has any knowledge to the effect that it is not in compliance with any of the requirements of ERISA, the IRC or applicable state law with respect to any Plan. To the knowledge of the Borrower, no Reportable Event exists in connection with any Pension Plan. Each Plan which is intended to qualify under the IRC is so qualified, and no fact or circumstance exists which may have an adverse effect on the Plan’s tax-qualified status. Neither the Borrower nor any ERISA Affiliate has (i) any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether or not waived, (ii) any liability under Section 4201 or 4243 of ERISA for any withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan or (iii) any liability or knowledge of any facts or circumstances which is reasonably likely to result in any liability to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the Department of Labor or any participant in connection with any Plan (other than routine claims for benefits under the Plan).

Section 5.12 Default. The Borrower is in compliance with all provisions of all agreements, instruments, decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which is reasonably likely to have a material adverse effect.

Section 5.13 Environmental Matters.

(a)       Except as disclosed on Schedule 5.13, to the knowledge of the Borrower, there are not present in, on or under the Premises any Hazardous Substances in such form or quantity as to create any material liability or obligation for either the Borrower or the Lender under the common law of any jurisdiction or under any Environmental Law, and no Hazardous Substances have ever been stored, buried, spilled, leaked, discharged, emitted or released in, on or under the Premises in such a way as to create any such material liability.

(b)       Except as disclosed on Schedule 5.13, the Borrower has not disposed of Hazardous Substances in such a manner as to create any material liability under any Environmental Law.

(c)       Except as disclosed on Schedule 5.13, there have not existed in the past, nor to the knowledge of the Borrower are there any threatened or impending requests, claims, notices, investigations, demands, administrative proceedings, hearings or litigation relating in any way to the Premises or the Borrower, alleging material liability under, violation of, or noncompliance with any Environmental Law or any license, permit or other authorization issued pursuant thereto.

(d)       Except as disclosed on Schedule 5.13, the Borrower’s businesses are and have in the past always been conducted in accordance with all Environmental Laws and all licenses, permits and other authorizations required pursuant to any Environmental Law and necessary for the lawful and efficient operation of such businesses are in the Borrower’s possession in all material respects, and are in full force and effect, nor has the Borrower been denied insurance on grounds related to potential environmental liability. No permit required under any Environmental Law is scheduled to expire within 12 months and there is no threat that any such permit will be withdrawn, terminated, limited or materially changed.

(e)       Except as disclosed on Schedule 5.13, the Premises are not and never have been listed on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System or any similar federal, state or local list, schedule, log, inventory or database.

(f)       The Borrower has delivered to the Lender all environmental assessments, audits, reports, permits, licenses and other documents describing or relating in any way to the Premises or the Borrower’s businesses in the Borrower’s possession or under its control.

Section 5.14 Submissions to Lender. All financial and other information provided to the Lender by or on behalf of the Borrower in connection with the Borrower’s request for the credit facilities contemplated hereby is (a) true and correct in all material respects, and (b) does not omit any material fact necessary to make such information not misleading [and, (c) as to projections, valuations or proforma financial statements, present a good faith opinion as to such projections, valuations and proforma condition and results].

Section 5.15 Financing Statements. The Borrower has authorized the filing of financing statements to record the Security Interest and the other security interests created by the Security Documents. None of the Collateral is or will become a fixture on real estate, unless a sufficient fixture filing is in effect with respect thereto.

Section 5.16 Rights to Payment. To the knowledge of the Borrower, each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or, in the case of all future Collateral, will be when arising or issued) represents a valid, and genuine obligation, subject to no defense, setoff or counterclaim, of the account debtor or other obligor named therein or in the Borrower’s records pertaining thereto as being obligated to pay such obligation.

ARTICLE VI

COVENANTS

So long as the Indebtedness shall remain unpaid, or the Credit Facility shall remain outstanding, the Borrower will comply with the following requirements, unless the Lender shall otherwise consent in writing:

Section 6.1 Reporting Requirements. The Borrower will deliver, or cause to be delivered, to the Lender each of the following, which shall be in form and detail reasonably acceptable to the Lender:

(a)       Annual Financial Statements. As soon as available, and in any event within ninety (90)  days after the end of each fiscal year of the Borrower, the Borrower’s audited financial statements as included or to be included in the Borrower's Annual Report on Form 10-K filed with the SEC (as defined below) for such fiscal year, which annual financial statements shall include the Borrower’s balance sheet as at the end of such fiscal year and the related statements of the Borrower’s income and cash flows for the fiscal year then ended, prepared in accordance with GAAP, together with [(i) copies of all management letters prepared by such accountants; (ii) a report signed by such accountants stating that in making the investigations necessary for said opinion they obtained no knowledge, except as specifically stated, of any Default or Event of Default and all relevant facts in reasonable detail to evidence, and the computations as to, whether or not the Borrower is in compliance with the Financial Covenants; (iii) a certificate of the Borrower’s chief financial officer stating that such financial statements have been prepared in accordance with GAAP, fairly represent the Borrower’s financial position and the results of its operations, and whether or not such Officer has knowledge of the occurrence of any Default or Event of Default and, if so, stating in reasonable detail the facts with respect thereto; and (iv) a copy of the Borrower's Form 10-K filing with the United States Securities and Exchange Commission ("SEC").

(b)       Quarterly Financial Statements. As soon as available and in any event (i) within fifteen (15) days after the end of each fiscal quarter, the Borrower's draft internal financial statements, and (ii) within forty-five (45)  days after the end of each fiscal quarter, the Borrower’s unaudited financial statements as included or to be included in the Borrower’s Quarterly Report on Form 10-Q filed with the SEC for such fiscal quarter, stating in comparative form the figures for the corresponding date and periods in the previous year, all prepared in accordance with GAAP, subject to year-end audit adjustments and which fairly represent the Borrower’s financial position and the results of its operations for the periods presented, together with all Form 10-Q filings with the SEC.

(c)       Collateral Reports. Within fifteen (15) days after the end of each month or more frequently if the Lender so requires upon reasonable notice, the Borrower’s accounts receivable and its accounts payable and a calculation of the Borrower’s Accounts and Eligible Accounts as at the end of such month or shorter time period.

(d)       Projections. No later than thirty (30) days prior to the beginning of each fiscal year, the projected balance sheets, income statements, statements of cash flow and projected Availability for each quarter of the succeeding fiscal year, each in reasonable detail. Such items will be certified by the Borrower’s chief financial officer as being the most accurate projections available when delivered and [identical] to the projections used by the Borrower for internal planning purposes and be delivered with a statement of underlying assumptions and such supporting schedules and information as the Lender may in its discretion reasonably require.

(e)       Supplemental Reports. Daily, the "daily collateral reports", receivables schedules, collection reports, and copies of the two (2) largest invoices to account debtors, signed and dated shipment documents and delivery receipts for goods sold to said account debtors, together with such other information as Lender may reasonably require.

(f)       Litigation. Promptly after the commencement thereof, notice in writing of all litigation and of all proceedings before any governmental or regulatory agency affecting the Borrower (i) of the type described in Section 5.13(c) or (ii) which seek a monetary recovery against the Borrower in excess of Fifty Thousand ($50,000.00) Dollars.

(g)       Defaults. When any Officer of the Borrower becomes aware of the probable occurrence of any Default or Event of Default, and no later than three (3) days after such Officer becomes aware of such Default or Event of Default, notice of such occurrence, together with a reasonably detailed statement by an authorized Officer of the Borrower of the steps being taken by the Borrower to cure the effect thereof.

(h)       Plans. As soon as possible, and in any event within thirty (30) days after the Borrower knows or has reason to know that any Reportable Event with respect to any Pension Plan has occurred, a statement signed by the Officer who is the Borrower’s chief financial officer setting forth details as to such Reportable Event and the action which the Borrower proposes to take with respect thereto, together with a copy of the notice of such Reportable Event to the Pension Benefit Guaranty Corporation. As soon as possible, and in any event within ten (10) days after the Borrower fails to make any quarterly contribution required with respect to any Pension Plan under Section 412(m) of the IRC, a statement signed by the Officer who is the Borrower’s chief financial officer setting forth details as to such failure and the action which the Borrower proposes to take with respect thereto, together with a copy of any notice of such failure required to be provided to the Pension Benefit Guaranty Corporation. As soon as possible, and in any event within ten (10) days after the Borrower knows or has reason to know that it has or is reasonably expected to have any liability under Sections 4201 or 4243 of ERISA for any withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan, a statement of the Borrower’s chief financial officer setting forth details as to such liability and the action which the Borrower proposes to take with respect thereto.

(i)       Disputes. Promptly upon knowledge thereof, notice of (i) any disputes or claims by the Borrower’s customers exceeding Fifteen Thousand ($15,000.00) Dollars individually or Fifty Thousand ($50,000.00) Dollars in the aggregate during any fiscal year; (ii) credit memos outside the ordinary course of business; and (iii) any goods returned to or recovered by the Borrower outside the ordinary course of business.

(j)       Officers and Directors. Promptly upon knowledge thereof, notice of any change in the persons constituting the Borrower’s Officers and Directors.

(k)       Collateral. Promptly upon knowledge thereof, notice of any material loss of or material damage to any Collateral or of any substantial adverse change in any Collateral or the prospect of payment thereof.

(l)       Commercial Tort Claims. Promptly upon knowledge thereof, notice of any commercial tort claims it may bring against any Person, including the name and address of each defendant, a summary of the facts, an estimate of the Borrower’s damages, copies of any complaint or demand letter submitted by the Borrower, and such other information as the Lender may reasonably request.

(m)       Intellectual Property.

(i) Thirty (30) days prior written notice of Borrower’s intent to acquire material Intellectual Property Rights; except for transfers permitted under Section 6.18, the Borrower will give the Lender thirty (30) days prior written notice of its intent to dispose of material Intellectual Property Rights and upon request shall provide the Lender with copies of all proposed documents and agreements concerning such rights.

(ii) Promptly upon knowledge thereof, notice of (A) any Infringement of its Intellectual Property Rights by others, (B) claims that the Borrower is Infringing another Person’s Intellectual Property Rights and (C) any threatened cancellation, termination or material limitation of its Intellectual Property Rights.

(iii) Promptly upon receipt, copies of all registrations and filings with respect to its Intellectual Property Rights.

(n)       Reports to Owners. Promptly following their distribution, copies of all financial statements, reports and proxy statements which the Borrower shall have sent to its Owners.

(o)       SEC Filings. Promptly after the filing thereof, copies of all regular and periodic reports which the Borrower shall file with the SEC or any national securities exchange, including without limitation, NASDAQ.

(p)       Tax Returns of Borrower. As soon as possible, and in any event no later than ten (10) days after they are due to be filed, copies of the state and federal income tax returns and all schedules thereto of the Borrower.

(q)       [Reserved]

(r)Violations of Law. Promptly upon knowledge thereof, notice of the Borrower’s violation of any law, rule or regulation, the non-compliance with which is reasonably expected to materially and adversely affect the financial condition, properties or operations of the Borrower.

(s)Late Reporting Fee. In the event that Borrower fails to provide Lender with any of the information required pursuant to this Section 6.1, in accordance with the provisions of this Section 6.1, and without derogating the rights of Lender upon the occurrence of an Event of Default, Borrower shall pay to Lender a fee in the amount of Two Hundred ($200.00) Dollars per day for each separate item that Borrower has failed to provide to Lender in accordance with the provisions of this Section 6.1.

(t)Other Reports. From time to time, with reasonable promptness, any and all receivables schedules, inventory reports, collection reports, deposit records, equipment schedules, copies of invoices to account debtors, shipment documents and delivery receipts for goods sold, and such other material, reports, records or information as the Lender may reasonably request.

Section 6.2 Financial Covenants.

(a) Minimum Earnings. The Borrower will not incur a total loss for the fiscal year ending December 31, 2019 in excess of Six Hundred Forty Thousand ($640,000.00) Dollars and the Borrower will achieve, during each quarter of its fiscal year and on a year-to-date basis at the end of each quarter, commencing with the fiscal quarter ending March 31, 2020, Earnings Before Taxes of not less than one hundred (100%) percent of its projected Earnings Before Taxes set forth in the projections required pursuant to Section 6.1(d) hereof, or delivered to Lender in connection with the initial funding of the Credit Facility and attached hereto as Exhibit C and updated annually on or before November 30 in each fiscal year (or more frequently if approved by the Lender, and solely at the Lender's discretion, on a case by case basis) or, in the alternative, if the Borrower has projected a loss, the Borrower will not incur as of the end of each quarter and on a year·-to-date basis, at the end of each quarter, a loss greater than its projected loss.

(b)        Capital Expenditures. The Borrower will not incur or contract to incur Capital Expenditures in excess of depreciation of more than Fifty Thousand ($50,000.00) Dollars in the aggregate during any fiscal year, or more than Twenty-Five ($25,000.00) Dollars in any one transaction, without the prior written consent of the Lender.

Section 6.3 Permitted Liens; Financing Statements.

(a)       The Borrower will not create, incur or suffer to exist any Lien upon or of any of the Collateral, now owned or hereafter acquired, to secure any indebtedness; excluding, however, from the operation of the foregoing, the following (each a "Permitted Lien"; collectively, "Permitted Liens"):

(i) Covenants, restrictions, rights, easements and minor irregularities in title which do not materially interfere with the Borrower’s business or operations as presently conducted;

(ii) Liens in existence on the date hereof and listed in Schedule 6.3 hereto, securing indebtedness for borrowed money permitted under Section 6.4;

(iii) Warehousemen’s, mechanics’, carriers’ and other similar Liens arising by operation of law in the ordinary course of the Borrower’s business with respect to amounts owed by the Borrower which are not past due or delinquent;

(iv) Liens for state or local taxes which have not been recorded/filed with the applicable secretary of state and which are not delinquent or which are being diligently contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of the Borrower;

(v) Deposits or pledges to secure surety or appeal bonds, obligations under workers’ compensation, social security or similar laws and other statutory obligations, or under unemployment insurance in the ordinary course of business;

(vi) The Security Interest and Liens created by the Security Documents; and

(vii) Purchase money Liens relating to the acquisition of machinery and equipment of the Borrower not exceeding the lesser of cost or fair market value thereof, not exceeding Twenty-Five Thousand ($25,000.00) Dollars for any one purchase or Fifty Thousand ($50,000.00) Dollars in the aggregate during any fiscal year, and so long as no Default Period is then in existence and none would exist immediately after such acquisition.

(b)       The Borrower will not amend any financing statements in favor of the Lender except as permitted by law or authorized by the Lender. Any authorization by the Lender to any Person to amend financing statements in favor of the Lender shall be in writing.

Section 6.4 Indebtedness. The Borrower will not incur, create, assume or permit to exist any indebtedness or liability on account of deposits or advances or any indebtedness for borrowed money or letters of credit issued on the Borrower’s behalf, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, except:

(a)       Any existing or future Indebtedness or any other obligations of Borrower to Lender;

(b)       Any indebtedness of the Borrower in existence on the date hereof and listed in Schedule 6.4 hereto; and

(c)       Any indebtedness relating to Permitted Liens.

Section 6.5 Guaranties. The Borrower will not assume, guarantee, endorse or otherwise become directly or contingently liable in connection with any obligations of any other Person, except:

(a)       The endorsement of negotiable instruments by the Borrower for deposit or collection or similar transactions in the ordinary course of business; and

(b)       Guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons, in existence on the date hereof and listed in Schedule 6.4 hereto.

Section 6.6 Investments and Subsidiaries. The Borrower will not make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person or Affiliate, including any partnership or joint venture, nor purchase or hold beneficially any stock or other securities or evidence of indebtedness of any other Person or Affiliate, except:

(a)       Investments in direct obligations of the United States of America or any agency or instrumentality thereof whose obligations constitute full faith and credit obligations of the United States of America having a maturity of one year or less, commercial paper issued by U.S. corporations rated “A-1” or “A-2” by Standard & Poor’s Ratings Services or “P-1” or “P-2” by Moody’s Investors Service or certificates of deposit or bankers’ acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 (which certificates of deposit or bankers’ acceptances are fully insured by the Federal Deposit Insurance Corporation);

(b)       Travel advances or loans to the Borrower’s Officers and employees not exceeding at any one time an aggregate of Five Thousand ($5,000.00) Dollars;

(c)       Prepaid rent not exceeding one month or security deposits; and

(d)       Current investments in the Subsidiaries in existence on the date hereof and listed in Schedule 5.5 hereto.

Section 6.7 Dividends and Distributions. Except as set forth in this Section 6.7, the Borrower will not declare or pay any dividends (other than dividends payable solely in stock of the Borrower) on any class of its stock or other ownership interests, or make any payment on account of the purchase, redemption or other retirement of any shares of such stock, or other securities or evidence of its indebtedness or make any distribution in respect thereof, either directly or indirectly.

Section 6.8 Salaries. The Borrower will not increase the salary, bonus, commissions, consultant fees or other compensation of any Director, Officer or consultant, or any member of their families by more than ten (10%) percent in any one year (except as may be required by any employment, consulting, bonus, commission or similar agreement or obligation between the Borrower and such party), or pay any such increase from any source other than profits earned in the year of payment, without the written consent of the Lender, not to be unreasonably withheld.

Section 6.9 [Reserved]

Section 6.10 Books and Records; Collateral Examination, Inspection and Appraisals.

(a)       The Borrower will keep accurate books of record and account for itself pertaining to the Collateral and pertaining to the Borrower’s business and financial condition and such other matters as the Lender may from time to time reasonably request in which true and complete entries will be made in accordance with GAAP and, upon the Lender’s request, will permit any officer, employee, attorney, accountant or other agent of the Lender to audit, review, make extracts from or copy any and all company and financial books and records of the Borrower at all times during ordinary business hours, to send and discuss with account debtors and other obligors requests for verification of amounts owed to the Borrower, and to discuss the Borrower’s affairs with any of its Directors, Officers, employees or agents.

(b)       The Borrower hereby authorizes all accountants and third parties to disclose and deliver to the Lender or its designated agent, at the Borrower’s expense, all financial information, books and records, work papers, management reports and other information in their possession regarding the Borrower as the Borrower directs.

(c)       The Borrower will permit the Lender or its employees, accountants, attorneys or agents, to examine and inspect any Collateral or any other property of the Borrower at any time upon reasonable advance notice to the Borrower during ordinary business hours.

Section 6.11 Account Verification.

(a)       The Lender or its agent may at any time and from time to time send or require the Borrower to send requests for verification of accounts or notices of assignment to account debtors and other obligors. The Lender or its agent may also at any time and from time to time telephone account debtors and other obligors to verify accounts.

(b)       The Borrower shall pay when due each undisputed account payable due to a Person holding a Permitted Lien on any Collateral.

Section 6.12 Compliance with Laws.

(a)       The Borrower shall (i) comply, and cause each Subsidiary to comply, with the requirements of applicable laws and regulations, the non-compliance with which would materially and adversely affect its business or its financial condition and (ii) use and keep the Collateral, and require that others use and keep the Collateral, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance.

(b)       Without limiting the foregoing undertakings, the Borrower specifically agrees that it will comply, and cause each Subsidiary to comply, with all applicable Environmental Laws, and obtain and comply with all permits, licenses and similar approvals required by any Environmental Laws, in each case in all material respects, and will not generate, use, transport, treat, store or dispose of any Hazardous Substances in such a manner as to create any material liability or obligation of the Borrower under the common law of any jurisdiction or any Environmental Law.

(c)       The Borrower shall (i) not use or permit the use of the proceeds of the Credit Facility or any other financial accommodation from the Lender to violate any of the foreign asset control regulations of the Office of Foreign Assets Control or other applicable law, and (ii) otherwise comply with the USA Patriot Act as required by federal law and the Lender's policies and practices.

Section 6.13 Payment of Taxes and Other Claims. The Borrower will (a) pay or discharge, when due (within all properly requested extensions), all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including the Collateral) or upon or against the creation, perfection or continuance of the Security Interest, (b) withhold and pay over to the appropriate Person(s) all federal, state and local taxes required to be withheld by it, and (c) pay or discharge all lawful and undisputed claims for labor, materials and supplies which, if unpaid, would by law become a Lien upon any properties of the Borrower; provided, that the Borrower shall not be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which proper reserves have been made.

Section 6.14 Maintenance of Properties.

(a)       The Borrower will keep and maintain the Collateral and all of its other properties necessary or useful in its business in good condition, repair and working order (normal wear and tear excepted) and will from time to time replace or repair any worn, defective or broken parts; provided, however, that nothing in this covenant shall prevent the Borrower from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the Borrower’s judgment, desirable in the conduct of the Borrower’s business and not disadvantageous in any material respect to the Lender. The Borrower will take all commercially reasonable steps necessary to protect and maintain its Intellectual Property Rights.

(b)       The Borrower will defend the Collateral against all Liens, claims or demands of all Persons (other than the Lender and holders of Permitted Liens) claiming the Collateral or any interest therein. The Borrower will keep all Collateral free and clear of all Liens except Permitted Liens. The Borrower will take all commercially reasonable steps necessary to prosecute any Person Infringing its Intellectual Property Rights and to defend itself against any Person accusing it of Infringing any Person’s Intellectual Property Rights.

Section 6.15 Insurance. The Borrower will obtain and at all times maintain insurance with insurers reasonably acceptable to the Lender, in such amounts, on such terms (including any deductibles) and against such risks as may from time to time be required by the Lender, but in all events in such amounts and against such risks as is usually carried by companies engaged in similar business and owning similar properties in the same general areas in which the Borrower operates. Without limiting the generality of the foregoing, the Borrower will at all times maintain business interruption insurance including coverage for force majeure and keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (for Collateral consisting of motor vehicles) and such other risks and in such amounts as the Lender may reasonably request, with any loss payable to the Lender to the extent of its interest, and all policies of such insurance shall contain a Lender’s loss payable endorsement for the Lender’s benefit. All policies of liability insurance required hereunder shall name the Lender as an additional insured.

Section 6.16 Preservation of Existence. The Borrower will preserve and maintain its existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business and shall conduct its business in an orderly and efficient manner consistent with past practice.

Section 6.17 Delivery of Instruments, etc. Upon request by the Lender, the Borrower will promptly deliver to the Lender in pledge all instruments, documents and chattel paper constituting Collateral, duly endorsed or assigned by the Borrower.

Section 6.18 Sale or Transfer of Assets; Suspension of Business Operations. The Borrower will not sell, lease, assign, transfer or otherwise dispose of (a) the stock or ownership interests of any Subsidiary, (b) all or a substantial part of its assets, or (c) any Collateral or any interest therein (whether in one transaction or in a series of transactions) to any other Person other than the sale of Inventory in the ordinary course of business and will not liquidate, dissolve or suspend business operations. The Borrower will not transfer any part of its ownership interest in any material Intellectual Property Rights and will not permit any agreement under which it has licensed Intellectual Property Rights to lapse, except that the Borrower may transfer such rights or permit such agreements to lapse if it shall have reasonably determined that the applicable Intellectual Property Rights are no longer useful in its business. If the Borrower transfers any Intellectual Property Rights for value, the Borrower will pay over the proceeds to the Lender for application to the Indebtedness. The Borrower will not license any other Person to use any of the Borrower’s Intellectual Property Rights, except that the Borrower may grant licenses in the ordinary course of its business in connection with sales of Inventory or provision of services to its customers.

Section 6.19 Consolidation and Merger; Asset Acquisitions. The Borrower will not consolidate with or merge into any Person, or permit any other Person to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all the assets of any other Person.

Section 6.20 Sale and Leaseback. The Borrower will not enter into any arrangement, directly or indirectly, with any other Person whereby the Borrower shall sell or transfer any real or personal property, whether now owned or hereafter acquired, and then or thereafter rent or lease as lessee such property or any part thereof or any other property which the Borrower intends to use for substantially the same purpose or purposes as the property being sold or transferred.

Section 6.21 Restrictions on Nature of Business. The Borrower will not engage in any line of business materially different or unrelated from that presently engaged in by the Borrower and will not purchase, lease or otherwise acquire assets not related to its business.

Section 6.22 Accounting. The Borrower will not adopt any material change in accounting principles other than as required by GAAP. The Borrower will not adopt, permit or consent to any change in its fiscal year.

Section 6.23 Discounts, etc. The Borrower will not grant any discount, credit or allowance to any customer of the Borrower or accept any return of goods sold outside the ordinary course of business. The Borrower will not at any time modify, amend, subordinate, cancel or terminate the obligation of any account debtor or other obligor of the Borrower outside the ordinary course of business.

Section 6.24 Plans. Except as disclosed to the Lender in writing prior to the date hereof, neither the Borrower nor any ERISA Affiliate will (a) adopt, create, assume or become a party to any Pension Plan, (b) incur any obligation to contribute to any Multiemployer Plan, (c) incur any obligation to provide post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required by law), or (d) amend any Plan in a manner that would materially increase its funding obligations.

Section 6.25 Place of Business; Name. The Borrower will not transfer its chief executive office or principal place of business, or move, relocate, close or sell any business location. The Borrower will not permit any tangible Collateral or any records pertaining to the Collateral to be located in any state or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest. The Borrower will not change its name or jurisdiction of organization.

Section 6.26 Constituent Documents. The Borrower will not amend its Constituent Documents.

Section 6.27 Performance by the Lender. If the Borrower at any time fails to perform or observe any of the foregoing covenants contained in this Article VI or elsewhere herein, and if such failure shall continue for a period of ten (10) calendar days after the Lender gives the Borrower written notice thereof (or in the case of the covenants contained in Section 6.13 and Section 6.15, immediately upon the occurrence of such failure, without notice or lapse of time), the Lender may, but need not, perform or observe such covenant on behalf and in the name, place and stead of the Borrower (or, at the Lender’s option, in the Lender’s name) and may, but need not, take any and all other actions which the Lender may reasonably deem necessary to cure or correct such failure (including the payment of taxes, the satisfaction of Liens, the performance of obligations owed to account debtors or other obligors, the procurement and maintenance of insurance, the execution of assignments, security agreements and financing statements, and the endorsement of instruments); and the Borrower shall thereupon pay to the Lender on demand the amount of all monies expended and all reasonable costs and expenses (including reasonable attorneys’ fees and legal expenses) incurred by the Lender in connection with or as a result of the performance or observance of such agreements or the taking of such action by the Lender. To facilitate the Lender’s performance or observance of such covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender, or the Lender’s delegate, acting alone, as the Borrower’s attorney in fact (which appointment is coupled with an interest) with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of the Borrower any and all instruments, documents, assignments, security agreements, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by the Borrower hereunder.

ARTICLE VII

EVENTS OF DEFAULT, RIGHTS AND REMEDIES

Section 7.1. Events of Default. Notwithstanding that the Lender may demand immediate payment of any Indebtedness at any time, and without waiving or limiting in any respect the Lender’s right to so demand payment of the Indebtedness at any time, “Event of Default”, wherever used herein, means any one of the following events:

(a)       Default in the payment of the Revolving Note, or any default with respect to any other Indebtedness due from Borrower to Lender as such Indebtedness becomes due and payable, and failure to cure such default within ten (10) Business Days of the date due;

(b)       Default in the performance, or breach, of any covenant or agreement of the Borrower contained in this Agreement (other than a payment default) and failure to cure such default within the sooner of ten (10) Business Days following notice thereof from the Lender or actual knowledge of the Borrower;

(c)       An Overadvance arises as the result of any reduction in the Borrowing Base, or arises in any manner on terms not otherwise approved of in advance by the Lender in writing;

(d)       The Borrower shall deliver to the Lender a Landlord's Consent and Waiver of Lien on the property located at 111 South Worcester Street, Norton, Massachusetts, in a form acceptable to Lender, within thirty (30) days of the date hereof

(e)       The Borrower shall be or become insolvent, or admit in writing its or his inability to pay its debts as they mature, or make an assignment for the benefit of creditors; or the Borrower shall apply for or consent to the appointment of any receiver, trustee, or similar officer for it or for all or any substantial part of its or his property; or such receiver, trustee or similar officer shall be appointed without the application or consent of the Borrower and such appointment shall not be vacated or stayed within sixty (60) days of its issue; or the Borrower shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it or him under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against the Borrower and such proceeding shall remain undismissed sixty (60) days following its commencement; or any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of the Borrower and such judgment, writ, warrant of attachment or execution or similar process shall not be paid, released, vacated or fully bonded within sixty (60) days after its issue or levy;

(f)       A petition shall be filed by or against the Borrower or any Guarantor under the United States Bankruptcy Code or the laws of any other jurisdiction naming the Borrower or such Guarantor as debtor and such petition shall remain undismissed sixty (60) days following its filing;

(g)       Any representation or warranty made by the Borrower in this Agreement, or by the Borrower (or any of its Officers) in any agreement, certificate, instrument or financial statement or other statement expressly required to be made or delivered pursuant to or in connection with this Agreement shall prove to have been incorrect in any material respect when deemed to be effective;

(h)       The rendering against the Borrower of an arbitration award, final judgment, decree or order for the payment of money in excess of One Hundred Thousand ($100,000.00) Dollars and the continuance of such arbitration award, judgment, decree or order unsatisfied and in effect for any period of thirty (30) consecutive days without a stay of execution;

(i)       A default under any bond, debenture, note or other evidence of material indebtedness of the Borrower owed to any Person other than the Lender, or under any indenture or other instrument under which any such evidence of indebtedness has been issued or by which it is governed, or under any material lease or other contract, and the expiration of the applicable period of grace, if any, specified in such evidence of indebtedness, indenture, other instrument, lease or contract;

(j)       Any Reportable Event, which the Lender determines in good faith might constitute grounds for the termination of any Pension Plan or for the appointment by the appropriate United States District Court of a trustee to administer any Pension Plan, shall have occurred and be continuing thirty (30) days after written notice to such effect shall have been given to the Borrower by the Lender; or a trustee shall have been appointed by an appropriate United States District Court to administer any Pension Plan; or the Pension Benefit Guaranty Corporation shall have instituted proceedings to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan; or the Borrower or any ERISA Affiliate shall have filed for a distress termination of any Pension Plan under Title IV of ERISA; or the Borrower or any ERISA Affiliate shall have failed to make any quarterly contribution required with respect to any Pension Plan under Section 412(m) of the IRC, which the Lender determines in good faith may by itself, or in combination with any such failures that the Lender may determine are likely to occur in the future, result in the imposition of a Lien on the Borrower’s assets in favor of the Pension Plan; or any withdrawal, partial withdrawal, reorganization or other event occurs with respect to a Multiemployer Plan which results or could reasonably be expected to result in a material liability of the Borrower to the Multiemployer Plan under Title IV of ERISA;

(k)       An event of default shall occur under any Security Document and failure to cure such default within the earlier of ten (10) Business Days after the Borrower’s receipt of notice thereof or the Borrower's actual knowledge of such failure;

(l)       The Borrower shall liquidate, dissolve, terminate or suspend its business operations or otherwise fail to operate its business in the ordinary course, merge with another Person unless the Borrower is the surviving entity; or sell or attempt to sell all or substantially all of its assets, without the Lender’s prior written consent;

(m)       Default in the payment of any material amount owed by the Borrower to the Lender other than any indebtedness arising hereunder and failure to cure such default within ten (10) Business Days of the date due;

(n)       Any Guarantor or Person signing a validity guaranty and support agreement in favor of the Lender shall repudiate, purport to revoke or fail to perform any obligation under such Guaranty or validity guaranty and support agreement in favor of the Lender, any individual Guarantor shall die or any other Guarantor shall cease to exist;

(o)       The Borrower shall take or participate in any action which would be prohibited under the provisions of any Subordination Agreement or make any payment with respect to indebtedness that has been subordinated pursuant to any Subordination Agreement;

(p)       The Lender believes in good faith that the prospect of payment in full of any material part of the Indebtedness or that full performance by the Borrower under the Loan Documents is impaired or that there has occurred any material adverse change in the business or financial condition of the Borrower; or

(r)       The indictment of any Director, Officer, or Guarantor, for a felony offence under state or federal law.

Section 7.2 Rights and Remedies. As provided in Section 2.7, the Lender may, at any time, refuse to make any requested Advance, demand payment of the Advances or terminate the Credit Facility, whether or not a Default Period then exists. In addition, during any Default Period, the Lender may exercise any or all of the following rights and remedies:

(a)       The Lender may, by written notice to the Borrower, declare the Indebtedness to be forthwith due and payable, whereupon all Indebtedness shall become and be forthwith due and payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which the Borrower hereby expressly waives;

(b)       The Lender may, without notice to the Borrower and without further action, apply any and all money owing by the Lender to the Borrower to the payment of the Indebtedness;

(c)       The Lender may exercise and enforce any and all rights and remedies available upon default to a secured party under the UCC, including the right to take possession of Collateral, or any evidence thereof, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which the Borrower hereby expressly waives) and the right to sell, lease or otherwise dispose of any or all of the Collateral (with or without giving any warranties as to the Collateral, title to the Collateral or similar warranties), and, in connection therewith, the Borrower will on demand assemble the Collateral and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties;

(d)       The Lender may exercise and enforce its rights and remedies under the Loan Documents;

(e)       The Lender may without regard to any waste, adequacy of the security or solvency of the Borrower, apply for the appointment of a receiver of the Collateral, to which appointment the Borrower hereby consents, whether or not foreclosure proceedings have been commenced under the Security Documents and whether or not a foreclosure sale has occurred; and

(f)       The Lender may exercise any other rights and remedies available to it by law or agreement.

Notwithstanding the foregoing, upon the occurrence of an Event of Default described in Section 7.1(e) or (f), the Indebtedness shall be immediately due and payable automatically without presentment, demand, protest or notice of any kind. If the Lender sells any of the Collateral on credit, the Indebtedness will be reduced only to the extent of payments actually received. If the purchaser fails to pay for the Collateral, the Lender may resell the Collateral and shall apply any proceeds actually received to the Indebtedness.

Section 7.3 Certain Notices. If notice to the Borrower of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 8.3) at least ten (10) calendar days before the date of intended disposition or other action.

ARTICLE VIII

MISCELLANEOUS

Section 8.1 No Waiver; Cumulative Remedies; Compliance with Laws. No failure or delay by the Lender in exercising any right, power or remedy under the Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy under the Loan Documents. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law. The Lender may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

Section 8.2 Amendments, Etc. No amendment, modification, termination or waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom or any release of a Security Interest shall be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

Section 8.3 Notices; Communication of Confidential Information; Requests for Accounting. Except as otherwise expressly provided herein, all notices, requests, demands and other communications provided for under the Loan Documents shall be in writing and shall be (a) personally delivered, (b) sent by first class United States mail, (c) sent by overnight courier of national reputation, (d) transmitted by facsimile, or (e) sent as electronic mail, in each case delivered or sent to the party to whom notice is being given to the business address, facsimile number, or e-mail address set forth below next to its signature or, as to each party, at such other business address, facsimile number, or e-mail address as it may hereafter designate in writing to the other party pursuant to the terms of this section. All such notices, requests, demands and other communications shall be deemed to be an authenticated record communicated or given on (i) the date received if personally delivered, (ii) five (5) days following deposit in the mail if delivered by mail, (iii) the Business Day following the Business Day delivered to the courier if delivered by overnight courier, or (iv) the Business Day of transmission if sent by facsimile or by e-mail during regular business hours (and, if not sent during regular business hours, the following Business Day), except that notices or requests delivered to the Lender pursuant to any of the provisions of Article II shall not be effective until received by the Lender. All notices, financial information, or other business records sent by either party to this Agreement may be transmitted, sent, or otherwise communicated via such medium as the sending party may deem appropriate and commercially reasonable, except with respect to the gross negligence of the Lender; provided, however, that the risk that the confidentiality or privacy of such notices, financial information, or other business records sent by either party may be compromised shall be borne exclusively by the Borrower. All requests for an accounting under Section 9-210 of the UCC (A) shall be made in a writing signed by a Person authorized under Section 2.2(a), (B) shall be personally delivered, sent by registered or certified mail, return receipt requested, or by overnight courier of national reputation, (C) shall be deemed to be sent when received by the Lender, and (D) shall otherwise comply with the requirements of Section 9-210.

Section 8.4 Further Documents. The Borrower will from time to time execute, deliver, endorse and authorize the filing of any and all instruments, documents, conveyances, assignments, security agreements, financing statements, control agreements and other agreements and writings that the Lender may reasonably request in order to secure, protect, perfect or enforce the Security Interest or the Lender’s rights under the Loan Documents (but any failure to request or assure that the Borrower executes, delivers, endorses or authorizes the filing of any such item shall not affect or impair the validity, sufficiency or enforceability of the Loan Documents and the Security Interest, regardless of whether any such item was or was not executed, delivered or endorsed in a similar context or on a prior occasion).

Section 8.5 Costs and Expenses. The Borrower shall pay on demand all reasonable costs and expenses, including reasonable attorneys’ fees, incurred by the Lender in connection with the Indebtedness, this Agreement, the Loan Documents, any Letter of Credit and any other document or agreement related hereto or thereto, and the transactions contemplated hereby, including all such reasonable costs, expenses and fees incurred in connection with the negotiation, preparation, execution, amendment, administration, interpretation, performance, collection and enforcement of the Indebtedness and all such documents and agreements and the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security Interest, and also including without limitation, fees or charges for photocopying, notarization, couriers and messengers, telecommunication and public record searches (including tax lien, litigation and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles and all such similar searches and inquiries).

Section 8.6 Indemnity. In addition to the payment of expenses pursuant to Section 8.5, the Borrower shall indemnify, defend and hold harmless the Lender, and any of its parent corporations, subsidiary corporations, successor corporations, and all present and future officers, directors, employees, attorneys and agents of the foregoing (the "Indemnitees") from and against any of the following (collectively, "Indemnified Liabilities"):

(a)       Any and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of the Loan Documents or the making of the Advances;

(b)       Any claims, loss or damage to which any Indemnitee may be subjected if any representation or warranty contained in Section 5.13 proves to be incorrect in any respect or as a result of any violation of the covenant contained in Section 6.12(b) ; and

(c)       Any and all other liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel) in connection with the foregoing and any other investigative, administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party thereto, which are imposed on, incurred by or asserted against any such Indemnitee, related to or arising out of or in connection with the making of the Advances and the Loan Documents or the use or intended use of the proceeds of the Advances. Notwithstanding the foregoing, the Borrower shall not be obligated to indemnify any Indemnitee for any Indemnified Liability caused by the bad faith, gross negligence or willful misconduct of such Indemnitee.

If any investigative, judicial or administrative proceeding arising from any of the foregoing is brought against any Indemnitee, upon such Indemnitee’s request, the Borrower, or counsel designated by the Borrower and satisfactory to the Indemnitee, will resist and defend such action, suit or proceeding to the extent and in the manner directed by the Indemnitee, at the Borrower’s sole costs and expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such action, suit or proceeding. If the foregoing undertaking to indemnify, defend and hold harmless may be held to be unenforceable because it violates any law or public policy, the Borrower shall nevertheless make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The Borrower’s obligation under this Section 8.6 shall survive the termination of this Agreement and the discharge of the Borrower’s other obligations hereunder for a period of three (3) years.

Section 8.7 Participants. The Lender and its participants, if any, are not partners or joint venturers, and the Lender shall not have any liability or responsibility for any obligation, act or omission of any of its participants. All rights and powers specifically conferred upon the Lender may be transferred or delegated to any of the Lender’s participants, successors or assigns upon the prior consent of the Borrower.

Section 8.8 Retention of Borrower’s Records. The Lender shall have no obligation to maintain any electronic records or any documents, schedules, invoices, agings, or other papers delivered to the Lender by the Borrower or in connection with the Loan Documents for more than thirty (30) days after receipt by the Lender. If there is a special need to retain specific records, the Borrower must inform the Lender of its need to retain those records with particularity, which must be delivered in accordance with the notice provisions of Section 8.3 within thirty (30) days of the Lender taking control of same.

Section 8.9 Binding Effect; Assignment; Complete Agreement; Sharing Information. The Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and permitted assigns, except that the Borrower shall not have the right to assign its rights thereunder or any interest therein without the Lender’s prior written consent. This Agreement shall also bind all Persons who become a party to this Agreement as a borrower. This Agreement, together with the Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. To the extent that any provision of this Agreement contradicts other provisions of the Loan Documents, this Agreement shall control. Without limiting the Lender’s right to share information regarding the Borrower and its Affiliates with the Lender’s participants, accountants, lawyers and other advisors, the Lender may share any and all information it has in its possession regarding the Borrower and its Affiliates, subject to such confidentiality obligations as the Lender imposes with respect to its own confidential information of a similar nature, and further subject to restrictions on trading and disclosure as imposed by all applicable laws, rules and regulations, including SEC and Nasdaq rules and regulations.

Section 8.10 Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof.

Section 8.11 Headings. Article, section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

Section 8.12 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict laws) of the Commonwealth of Massachusetts. The parties hereto hereby (a) consent to the personal jurisdiction of the state and federal courts located in the Commonwealth of Massachusetts in connection with any controversy related to this Agreement; (b) waive any argument that venue in any such forum is not convenient; (c) agree that any litigation initiated by the Lender or the Borrower in connection with this Agreement or the other Loan Documents may be venued in either the state or federal courts located in the Counties of Suffolk or Middlesex, Massachusetts; and (d) agree that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

Section 8.13 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be effective upon delivery and, thereafter, shall be deemed to be an original, and all of which shall be taken as one and the same instrument with the same effect as if each party hereto had signed on the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement without impairing the legal effect of any signature thereto and may be attached to another part of this Agreement identical in form hereto and having attached to it one or more additional signature pages. This Agreement may be transmitted by facsimile machine or by electronic mail in portable document format ("pdf") and signatures appearing on faxed instruments and/or electronic mail instruments shall be treated as original signatures. Any party delivering an executed counterpart of this Agreement by facsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability or binding effect hereof.

THE BORROWER AND THE LENDER WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION AT LAW OR IN EQUITY OR IN ANY OTHER PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

ARTICLE IX CONFIDENTIAL INFORMATION

The Lender acknowledges and confirms the confidential nature of the information provided and to be provided to the Lender by the Borrower pursuant to the terms hereof, including without limitation all financial information (which information shall remain confidential and subject hereto until such time as it becomes generally available to the public through no fault or action by the Lender, its employees, agents or representatives). The Lender agrees that it will keep a)l such information confidential and it shall not, without the Borrower's prior written consent, disclose such information except to its employees, agents, representatives or directors who have a legitimate business reason to know such information in connection with this Agreement, in accordance with the Lender's customary practices, except in connection with the Lender's exercise of its rights following an Event of Default hereunder to a potential buyer, provided that such buyer signs a similar non-disclosure agreement, and

shall not use or permit the use of such information except as required in connection with the transactions contemplated hereby. The Lender further acknowledges that it is aware, and agrees that it will advise its employees, agents, representatives and directors, that federal and state securities laws prohibit any person who has material, nonpublic information about a company from purchasing or selling securities of such company or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. In this regard, the Lender agrees that while in possession of material, non-public information with respect to the Borrower and its subsidiaries (if any), the Lender will not purchase or sell any securities of the Borrower, or communicate such information to any third party in violation of any such laws. The Lender shall be responsible for any breach hereof as determined by a court of competent jurisdiction in a final non-appealable judgment

[Signature Page to Follow]

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

CPS TECHNOLOGIES CORP.

By:_/s/Grant C. Bennett_

Name: Grant C. Bennett

Title: Chief Executive Officer

Mailing Address: 111 South Worcester Street

Norton, Massachusetts 02766

Telecopier:       508-222-0220

Email: gbennett@alsic.com

THE MASSACHUSETTS BUSINESS DEVELOPMENT

CORPORATION

By:_/s/ Stanley J. Horsman

Stanley J. Horsman, Director of Business Finance

Mailing Address: 500 Edgewater Drive

Wakefield, MA 01880

Telecopier:       (781) 928-1101

Email: shorsman@bdcnewengland.com

[Signature Page to Credit and Security Agreement]

Table of Exhibits and Schedules

Exhibit A Form of Revolving Note

Exhibit B Premises

Exhibit C Projections

Schedule 5.1 Trade Names, Chief Executive Office, Principal Place of Business, and Locations of Collateral

Schedule 5.2 [Reserved]

Schedule 5.5 Subsidiaries

Schedule 5.7 Litigation Matters

Schedule 5.13 Environmental Matters

Schedule 6.3 Permitted Liens

Schedule 6.4 Permitted Indebtedness and Guaranties

Exhibit A to Credit and Security Agreement

REVOLVING NOTE

$2,500,000.00 September ____, 2019

For value received, the undersigned, CPS Technologies Corp., a Delaware corporation (the "Borrower"), hereby promises to pay ON DEMAND, and if demand is not made, then as provided in the Credit Agreement (defined below), to the order of The Massachusetts Business Development Corporation (the "Lender"), at its office in Wakefield, Massachusetts, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of Two Million Five Hundred Thousand ($2,5000,000.00) Dollars, or the aggregate unpaid principal amount of all Revolving Advances made by the Lender to the Borrower under the Credit Agreement (defined below) together with interest on the principal amount hereunder remaining unpaid from time to time, computed on the basis of the actual number of days elapsed and a three hundred sixty (360) day year, from the date hereof until this Note is fully paid at the rate from time to time in effect under the Credit and Security Agreement dated the same date as this Note (the "Credit Agreement") by and between the Lender and the Borrower. The principal hereof and interest accruing thereon shall be due and payable as provided in the Credit Agreement. This Note may be prepaid only in accordance with the Credit Agreement.

This Note is issued pursuant, and is subject, to the Credit Agreement, which provides, among other things, for acceleration hereof. This Note is the Revolving Note referred to in the Credit Agreement. This Note is secured, among other things, pursuant to the Credit Agreement and the Security Documents as therein defined, and may now or hereafter be secured by one or more other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements.

The Borrower shall pay all costs of collection, including reasonable attorneys' fees and legal expenses if this Note is not paid when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

CPS TECHNOLOGIES CORP.

___________________________ By:_____________________________________

Witness Name:

Title:

Exhibit B to Credit and Security Agreement

PREMISES

The Premises referred to in the Credit and Security Agreement are legally described as follows:

1. Parties. GIFFORD INVESTMENTS, INC., a Massachusetts corporation, having an address at 111 South Worcester Street, Norton, Massachusetts 02712 (the "Lessor") does hereby lease to CERAMICS PROCESS SYSTEMS CORPORATION, a Delaware corporation, having an address at 111 South Worcester Street, Norton, Massachusetts 02712 (the "Lessee"), and Lessee hereby leases the premises described in Section 2.

2. Leased Premises. Approximately 37,520 square feet ofrentable space, located on approximately seven (7) acres of land (the "Property"), which shall include all buildings (the main building, building #4 and the garage, but shall exclude Lessor's remediation system in building #4), driveways for access and egress, and parking areas located at 111 South Worcester Street, Norton, Massachusetts (the "Leased Premises").

Exhibit C to Credit and Security Agreement

PROJECTIONS

SEE ATTACHED

Schedule 5.1 to Credit and Security Agreement

TRADE NAMES, CHIEF EXECUTIVE OFFICE, PRINCIPAL PLACE OF BUSINESS,

AND LOCATIONS OF COLLATERAL

TRADE NAMES

None

CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS

111 South Worcester Street, Norton, MA 02766

OTHER INVENTORY AND EQUIPMENT LOCATIONS

79 Walton Street, Attleboro, MA 2703

Schedule 5.2 to Credit and Security Agreement

[Reserved]

Schedule 5.5 to Credit and Security Agreement

SUBSIDIARIES

None

Schedule 5.7 to Credit and Security Agreement

LITIGATION MATTERS IN EXCESS OF $10,000.00

None

Schedule 5.13 to Credit and Security Agreement

ENVIRONMENTAL MATTERS

The Borrower leases property and buildings located at 111 South Worcester Street, Norton MA, from Gifford Investments, Inc. Prior to the Borrower leasing this property, several environmental conditions were identified on the property, and the property owner is overseeing ongoing remediation actions. See the Massachusetts Department of Energy and Environmental Affairs website (https://eeaonline.eea.state.ma.us/portal#!/wastesite/4-0000130) for a full description of the environmental conditions and actions taken by the property owner. The site name in the Massachusetts Department of Energy and Environmental Affairs is Kilburn Glass Industries.

The lease between the Borrower and Gifford Investments, Inc., fully indemnifies the Borrower from any and all claims relating to these preexisting environmental matters.

The Borrower remains in full compliance with all local, state and federal environmental regulations.

Schedule 6.3 to Credit and Security Agreement

PERMITTED LIENS

Creditor	Collateral	Jurisdiction	Filing Date	Filing No.
N/A

Schedule 6.4 to Credit and Security Agreement

Permitted Indebtedness and Guaranties

INDEBTEDNESS

Creditor	Principal Amount	Maturity Date	Monthly Payment	Collateral
N/A

GUARANTIES

Primary Obligor	Amount and Description of Obligation Guaranteed	Beneficiary of Guaranty
N/A

EX-4

 

EX-4

 

EX-23

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in CPS Technologies Corp.`s Registration Statement Nos. 333-163553 and 333-129620 on Forms S-8 of our report dated March 16, 2021, relating to our audits of the financial statements of CPS Technologies Corp. which appears in this Annual Report on Form 10-K for the year ended December 26, 2020.

/s/ Wolf & Company, P.C.

Boston, Massachusetts
March 16, 2021

EX-31

EXHIBIT 31.1

Certification Pursuant to Exchange Act
Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Grant C. Bennett, President and Treasurer, certify that:

1. I have reviewed this annual report on Form 10K of CPS Technologies Corp.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

4. The registrant`s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant`s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant`s internal control over financial reporting that occurred during the registrant`s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant`s internal control over financial reporting.

5. The registrant`s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant`s auditors and the audit committee of registrant`s board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant`s ability to record, process, summarize and report financial information and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant`s internal controls over financial reporting.

 Dated: March 16, 2021 /s/ Grant C. Bennett
Grant C. Bennett
President and Treasurer

EX-31

EXHIBIT 31.2

Certification Pursuant to Exchange Act
Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Charles K. Griffith Jr., Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10K of CPS Technologies Corp.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

4. The registrant`s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant`s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant`s internal control over financial reporting that occurred during the registrant`s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant`s internal control over financial reporting.

5. The registrant`s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant`s auditors and the audit committee of registrant`s board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant`s ability to record, process, summarize and report financial information and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant`s internal controls over financial reporting.

 Dated: March 16, 2021 /s/ Charles K. Griffith Jr.
Charles K. Griffith Jr.
Chief Financial Officer

EX-32

EXHIBIT 32

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report on Form 10K of CPS Technologies Corporation (the "Company") for the period ended December 28, 2019, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 16, 2021

/s/ Grant C. Bennett
Grant C. Bennett
Chief Executive Officer and Treasurer

/s/ Charles K. Griffith Jr.
Charles K Griffith Jr.
Chief Financial Officer

XML

Cover - USD ($)	12 Months Ended
	Dec. 26, 2020	Mar. 05, 2021
Cover [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 26, 2020
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2020
Current Fiscal Year End Date	--12-26
Entity File Number	0-16088
Entity Registrant Name	CPS TECHNOLOGIES CORP/DE/
Entity Central Index Key	0000814676
Entity Incorporation, State or Country Code	DE
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Public Float		$ 15,000,000
Entity Common Stock, Shares Outstanding		14,352,542

XML

Balance Sheets - USD ($)	Dec. 26, 2020	Dec. 28, 2019
Current assets:
Cash and cash equivalents	$ 195,203	$ 133,965
Accounts receivable-trade, net	2,914,800	4,086,945
Inventories, net	3,709,471	3,099,824
Prepaid expenses and other current assets	71,506	147,786
Total current assets	6,890,980	7,468,520
Property and equipment:
Production equipment	10,265,471	9,649,169
Furniture and office equipment	568,846	508,423
Leasehold improvements	951,384	934,195
Total cost	11,785,701	11,091,787
Accumulated depreciation and amortization	(10,558,816)	(10,110,663)
Construction in progress	61,062	255,754
Net property and equipment	1,287,947	1,236,878
Right-of-use lease asset (note 4, leases)	25,000	171,000
Deferred taxes, net	117,000	147,873
Total assets	8,320,927	9,024,271
Current liabilities:
Borrowings against line of credit		1,249,588
Notes payable, current portion	58,134
Accounts payable	909,291	1,436,417
Accrued expenses	804,091	815,166
Deferred revenue	12,177	21,110
Lease liability, current portion	25,000	148,000
Total current liabilities	1,808,693	3,670,281
Notes payable less current portion	154,570
Long term lease liability		23,000
Total liabilities	1,963,263	3,693,281
Stockholders’ Equity:
Common stock, $0.01 par value, authorized 20,000,000 shares; issued 13,746,242 and 13,427,492 shares; outstanding 13,313,790 and 13,207,436; at December 26, 2020 and December 28, 2019, respectively	137,462	134,275
Additional paid-in capital	36,688,894	36,094,201
Accumulated deficit	(29,472,369)	(30,380,433)
Less cost of 432,452 and 220,056 common shares repurchased at December 26, 2020 and December 28, 2019, respectively	(996,323)	(517,053)
Total stockholders’ equity	6,357,664	5,330,990
[us-gaap:AdjustmentsToReconcileNetIncomeLossToCashProvidedByUsedInOperatingActivitiesAbstract]
Total liabilities and stockholders’ equity	$ 8,320,927	$ 9,024,271

XML

Balance Sheets (Parenthetical) - $ / shares	Dec. 26, 2020	Dec. 28, 2019
Statement of Financial Position [Abstract]
Common stock, authorized shares	20,000,000	20,000,000
Common stock, issued shares	13,746,242	13,427,492
Common stock, outstanding shares	13,313,790	13,207,436
Common stock, par value	$ .01	$ .01

XML

Statements of Operations - USD ($)	12 Months Ended
	Dec. 26, 2020	Dec. 28, 2019
Income Statement [Abstract]
Product sales	$ 20,872,611	$ 21,468,414
Cost of product sales	16,702,848	18,928,173
Gross margin	4,169,763	2,540,241
Selling, general, and administrative expenses	3,255,527	3,137,440
Income (loss) from operations	914,236	(597,199)
Other income (expense)	(14,720)	(35,547)
Income (loss) before income tax	899,516	(632,746)
Income tax provision (benefit)	(8,548)	5,456
Net income (loss)	$ 908,064	$ (638,202)
Net income (loss) per basic common share	$ 0.07	$ (0.05)
Weighted average number of basic common shares outstanding	13,251,521	13,207,097
Net income (loss) per diluted common share	$ 0.07	$ (0.05)
Weighted average number of diluted common shares outstanding	13,348,582	13,207,097

XML

Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 26, 2020	Dec. 28, 2019
Cash flows from operating activities:
Net income (loss)	$ 908,064	$ (638,202)
Adjments. to reconcile net income (loss) to cash provided (used):
Share-based compensation	117,842	133,671
Depreciation and amortization	530,420	525,783
Deferred taxes	30,873	38,874
Gain on sale of property and equipment	(11,000)	(6,946)
Changes in operating assets and liabilities:
Accounts receivable – trade	1,172,145	(1,033,854)
Inventories	(609,647)	93,109
Prepaid expenses and other current assets	76,280	8,552
Accounts payable	(527,126)	(243,846)
Accrued expenses	(11,075)	(160,149)
Deferred revenue	(8,933)	21,110
Net cash provided (used) by operating activities	1,667,843	(1,261,898)
Cash flows from investing activities:
Purchases of property and equipment	(322,991)	(489,475)
Proceeds from sale of property and equipment	11,000	6,946
Net cash used by investing activities	(311,991)	(482,529)
Cash flows from financing activities:
Net borrowings (repayments) on line of credit	(1,249,588)	1,249,588
Proceeds from employee stock options	768
Payment on notes payable	(45,794)
Net cash provided by financing activities	(1,294,614)	1,249,588
Net increase (decrease) in cash and cash equivalents	61,238	(494,839)
Cash and cash equivalents at beginning of year	133,965	628,804
Cash and cash equivalents at end of year	195,203	133,965
Supplemental cash flow information:
Cash paid (refunded) for income taxes	(8,548)	(67,311)
Cash paid for interest	104,488	44,113
Supplemental disclosures of non-cash activity:
Net exercise of stock options	479,270
Issuance of long term debt to finance equipment purchases	$ 247,807

XML

Shareholders Equity - USD ($)	Common Stock	Additional Paid-In Capital	Retained Earnings / Accumulated Deficit	Total
Beginning balance, stockholders equity at Dec. 29, 2018			$ 5,835,521
Beginning balance, shares at Dec. 29, 2018	13,425,992
Beginning balance, par value of shares issued at Dec. 29, 2018	$ 134,260
Share-based compensation expense		$ 131,421
Issuance of common stock pursuant to exercise of stock options		2,235
Issuance of common stock pursuant to exercise of stock options, number of shares issued	1,500
Issuance of common stock pursuant to exercise of stock options, par value	$ 15
Net income(loss)			638,202	$ (638,202)
Ending balance, stockholders equity at Dec. 28, 2019				$ 5,330,990
Ending balance, shares at Dec. 28, 2019	13,427,482			13,427,492
Ending balance, par value shares issued at Dec. 28, 2019	$ 134,275
Share-based compensation expense		117,842
Issuance of common stock pursuant to exercise of stock options		$ 476,088
Issuance of common stock pursuant to exercise of stock options, number of shares issued	318,250
Issuance of common stock pursuant to exercise of stock options, par value	$ 3,182
Net income(loss)			$ 908,064	$ 908,064
Ending balance, stockholders equity at Dec. 26, 2020				$ 6,357,664
Ending balance, shares at Dec. 26, 2020	13,746,242			13,746,242
Ending balance, par value shares issued at Dec. 26, 2020	$ 137,462

XML

(1) Nature os Business

12 Months Ended

Dec. 26, 2020

Accounting Policies [Abstract]

(1) Nature os Business

(1) Nature of Business

CPS Technologies Corp. (the ‘Company’ or ‘CPS’) provides advanced material solutions to the transportation, automotive, energy, computing/internet, telecommunications, aerospace, defense and oil and gas end markets.

Our primary material solution is metal matrix composites.  We design, manufacture and sell custom metal matrix composite components which improve the performance and reliability of systems in these end markets.

XML

(2) Summary of Significant Accounting Policies

12 Months Ended

Dec. 26, 2020

Accounting Policies [Abstract]

(2) Summary of Significant Accounting Policies

(2) Summary of Significant Accounting Policies

(2)(a) Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.

(2)(b) Accounts Receivable

The Company reports its accounts receivable at the invoiced amount less an allowance for doubtful accounts. The Company’s management provides appropriate provisions for uncollectible accounts based upon factors surrounding the credit risk and activity of specific customers, historical trends, economic conditions and other information. Adjustments to the allowance are charged to operations in the period in which information becomes available that may affect the allowance.   The Company maintains an allowance for doubtful accounts of $10,000 as of December 26, 2020 and December 28, 2019.

(2)(c) Inventories

Inventories are stated at the lower of cost, as determined under the first-in, first-out method (FIFO), or net realizable value. A reserve for obsolete inventories is based on factors regarding the sales and usage of such inventories, including inventories manufactured for specific customers. The Company’s general obsolescence policy is to write off obsolete inventory when there has been no activity on a particular part for a twelve month period and there are no pending customer orders.

(2)(d) Property and Equipment

Property and equipment are stated at cost. Depreciation of equipment is calculated on a straight-line basis over the estimated useful life, generally five years for production equipment and three to five years for furniture and office equipment. Leasehold improvements are depreciated over the shorter of the lease term or their useful life. Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from their respective accounts. Any gains or losses on the disposition of property and equipment are included in the results of operations in the period in which they occur.

(2)(e) Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. Recoverability is assessed based on estimated undiscounted future cash flows. As of December 26, 2020 and December 28, 2019, the Company believes that there has been no impairment of its long-lived assets.

(2)(f) Revenue Recognition

Revenue is recognized in accordance with the five-step method under Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers.”

Identifying the Contract with the Customer

The Company identifies contracts with customers as agreements that create enforceable rights and obligations.  In the case of a few large customers the Company has executed long-term Master Sales Agreements (“MSA”).  These are umbrella agreements which typically define the terms and conditions under which a customer can order goods from CPS.  These in themselves do not constitute a contract as no products are committed to be transferred and the customer has no obligation to make payments.

The Company contract is only enforceable once both parties have approved it, and is usually in the form of a written purchase order from a customer combined with acknowledgement from the Company.

In cases without an MSA, the customer submits a blueprint for a product, the Company provides a quote and the customer responds with a purchase order.   In these cases the Company’s acceptance of the purchase order constitutes an enforceable contract.

Identifying the Performance Obligations in the Contract

For each contract, the Company considers the promise to transfer products, each of which are distinct, to be the identified performance obligations.

Shipping and handling activities for which the Company is responsible are not a separate promised service but instead are activities to fulfill the entity’s promise to transfer goods. Shipping and handling fees will be recognized at the same time as the related performance obligations are satisfied.

The Company provides an assurance-type warranty.  This guarantees that the product functions as promised and meets specifications.  Under its terms and conditions the Company offers a 30 day warranty and replaces defective or non-conforming products.  The expense of replacement is recorded at the time the Company agrees to replace a defective or non-conforming product.  This assurance type warranty is not considered to be a distinct performance obligation.

Determining the Transaction Price

The Company determines the transaction price as the amount of consideration specified in the contract that it expects to receive in exchange for transferring promised goods to the customer. Amounts collected from customers for sales value added and other taxes are excluded from the transaction prices. Product sales are recorded net of trade discounts and sales returns.

If a contract includes a variable amount, such as a rebate, then the Company estimates the transaction price using either the expected value or the most likely amount of consideration to be received, depending upon the specific facts and circumstances. The Company includes estimated variable consideration in the transaction price only to the extent it is probable that a significant reversal of revenue will not occur when the uncertainty is resolved. The Company updates its estimate of variable consideration at the end of each reporting period to reflect changes in facts and circumstances. As of December 26, 2020 there are no contracts with variable consideration.

When credit is granted to customers, payment is typically due 30 to 90 days from billing and accordingly our contracts with customers do not include a significant financing component.

Allocating the Transaction Price to the Performance Obligations

In virtually all cases the transaction price is tied to a specific product in the contract obviating the need for any allocation.

Recognizing Revenue When (or as) the Performance Obligations are Satisfied

The Company recognizes revenue at the point in time when it transfers control of the promised goods or services to the customer, which typically occurs once the product has shipped or has been delivered to the customer. Occasionally, for the purpose of ensuring a steady flow of product, the Company ships products on consignment. In these instances, delivery is deemed to have occurred when the customer pulls inventory out of the warehouse for use in their production, or upon a specified period of time as agreed upon by both parties.  As of December 26, 2020 there are no products on consignment.

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. The costs are recorded within, selling, general and administrative expenses.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less

(2)(g) Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in affect when the differences reverse. A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 26, 2020 and December 28, 2019, the Company has no accruals for interest or penalties related to income tax matters. The Company does not have any uncertain tax positions at December 26, 2020 or December 28, 2019 which required accrual or disclosure.

(2)(h) Net Income (Loss) Per Common Share

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock option and stock purchase rights. Common stock equivalents are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.

(2)(i) Reclassification

Certain amounts in prior year’s financial statements have been reclassified to conform to the current year’s presentation.

(2)(j) Recent Accounting Pronouncements

In the normal course of business, management evaluates all the new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”). Based upon this review, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s financial statements.

(2)(k) Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amounts of revenues and expenses recorded during the reporting period. Such estimates are adjusted by management periodically as a result of existing or anticipated economic changes which effect, or may effect, the Company’s financial statements. Actual results could differ from these estimates.

(2)(l) Fiscal Year-End

The Company’s fiscal year end is the last Saturday in December which could result in a 52 or 53 week year. Fiscal years 2020 and 2019 each consisted of 52 weeks.

(2)(m) Share-Based Payments

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period). The Company provides an estimate of forfeitures at initial grant date, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted.

(2)(n) Segment Reporting

The Company views its operations and manages its business as one segment. The Company produces and sells advanced material solutions, primarily metal matrix composites, to assemblers of high density electronics and other specialty components and subassemblies. The Company also assembles housings and packages for hybrid circuits, selling to the same customers mentioned above. These customers represent a single market or segment with similar stringent and well-defined requirements. The Company’s customers, in turn, sell the components and subassemblies which incorporate the products into many different end markets, however, these end markets are two to three levels removed from the Company. The Company makes operating decisions and assesses financial performance only for the Company as a whole and does not make operating decisions or assess financial performance by the end markets which ultimately use the products.

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(3) Inventories

12 Months Ended

Dec. 26, 2020

Inventory Disclosure [Abstract]

(3) Inventories

(3) Inventories

As of December 26, 2020 and December 28, 2019 inventories consisted of the following:

		2020		2019
Raw materials	$	752,760	$	778,409
Work in process		2,800,226		1,898,916
Finished goods		592,640		871,861
Gross Inventory		4,145,626		3,549,186
Reserve for obsolescence		(436,155)		(449,362)
Total	$	3,709,471	$	3,099,824

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(4) Leases

12 Months Ended

Dec. 26, 2020

Commitments & Contingencies

(4) Leases

(4) Leases

The Company had two real estate leases in 2020—one expiring in February 2021 and one expiring December 2020. The latter lease was not renewed.  CPS also has a few other leases for equipment which are minor in nature and are generally short-term in duration. None of these equipment leases have been capitalized as the Company elected an accounting policy for short-term leases, which allows lessees to avoid recognizing right-of-use assets and liabilities for leases with terms of 12 months or fewer.

The real estate lease expiring in 2021 (the “Norton facility lease’) is included as a right-of-use lease asset and corresponding lease liability on the balance sheet. This asset and liability are based on the present value of remaining lease payments over the remaining lease term using the Company’s incremental borrowing rate at date of adoption of the lease guidance. The Company does not separate lease components from non-lease components.  The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Norton facility lease comprises approximately 38 thousand square feet. The lease is a triple net lease wherein the Company is responsible for payment of all real estate taxes, operating costs and utilities.  The Company also has an option to buy the property and a first right of refusal during the term of the lease.  Annual rental payments are $152 thousand through maturity.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating leases as of December 26, 2020

(Dollars in Thousands)		December 26, 2020
Maturity of capitalized lease payments		Lease payments
2021		25
Total undiscounted operating lease payments	$	25
Less: Imputed interest		—
Present value of operating lease liability	$	25

Balance Sheet Classification
Current lease liability	$	25
Long-term lease liability		—
Total operating lease liability	$	25
Other Information
Weighted-average remaining lease term for capitalized operating leases		2 months
Weighted-average discount rate for capitalized operating leases		6.5%

Cash Flows

Cash paid for the amounts included in the present value of operating lease liabilities was $152 thousand during 2020 and is included in operating cash flows.

Operating Lease Costs

Operating lease cost was $152 thousand during 2020. This cost is related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The company does not have any finance leases that qualify for capitalization.

Subsequent to year end, the Company renewed the Norton facility lease for an additional 5 years.  Estimated monthly payments under the terms of the renewed lease, which is not reflected in the 2020 lease asset or liability escalate from approximately $12 thousand to $16 thousand over the lease term

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(5) Share-Based Compensation Plans

12 Months Ended

Dec. 26, 2020

Retirement Benefits [Abstract]

(5) Share-Based Compensation Plans

(5) Share-Based Compensation Plans

The Company adopted the 2020 Equity Incentive Plan ("2009 Plan") on March 3, 2020. Under the terms of the 2020 Plan all of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted options, restricted stock awards, or other stock-based awards. Some outstanding options are nonstatutory stock options; some are incentive stock options.  All options granted are exercisable at the fair market value of the stock on the date of grant, and expire ten years from the date of grant. The options granted to employees generally vest in equal annual installments over a five-year period. The options granted to directors generally vest immediately on date of grant.

Under the 2020 Plan a total of 1,500,000 shares of common stock are available for issuance, of which 1,381,000 shares remain available for grant as of December 26, 2020.

A summary of stock option activity as of December 26, 2020 and changes during the year then ended is presented below:

			Weighted	Weighted
			Average	Remaining		Aggregate
			Exercise	Contractual		Intrinsic
	Shares		Price	Life (years)		Value
Outstanding at
beginning of year	1,794,105	$	1.73
Granted	119,000	$	1.49
Exercised	(318,250)	$	1.51
Forfeited	(77,000)	$	1.41
Expired	(226,355)	$	1.52
Outstanding at
end of year	1,251,500	$	1.82	5.08	$	753,320
Options exercisable
at year-end	992,600	$	1.90	4.38	$	557,052

No options were exercised during fiscal 2019 and 199,500 options were granted during fiscal 2019.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following table presents the annualized weighted average values of the significant assumptions used to estimate the fair values of the options granted during 2020 and 2019:

		2020		2019
Risk-free interest rate		.84%- .91%		2.48%
Expected life in years		6-7		6.1
Expected volatility		54%		54%
Expected dividend yield		0		0
Weighted average fair value of grants	$	.78	$	.79

All options are granted with an exercise price equal to the fair market value of the underlying common stock on the date of grant.

The Company recognized $118,610 and $133,671 as stock based compensation expense in 2020 and 2019, respectively including $117,842 related to stock options outstanding and $768 related to the issue of common stock in 2020.  As of December 26, 2020, there was $146,017 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plan; that cost is expected to be recognized over a weighted average period of 2.05 years.

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(6) Accrued Expenses

12 Months Ended

Dec. 26, 2020

Payables and Accruals [Abstract]

(6) Accrued Expenses

(6) Accrued Expenses

Accrued expenses at December 26, 2020 and December 28, 2019 consist of the following:

		2020		2019
Accrued legal and accounting	$	71,671	$	62,725
Accrued payroll and related costs		626,063		518,015
Accrued other		106,357		234,426
	$	804,091	$	815,166

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(7) Revolving Line of Credit

12 Months Ended

Dec. 26, 2020

Debt Disclosure [Abstract]

(7) Revolving Line of Credit

(7)       Revolving Line of Credit 

In September 2019, the Company entered into a revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million.  The agreement includes a demand note allowing the Lender to call the loan at any time.  The Company may terminate the agreement without a termination fee after 3 years.  In May of 2020 this credit line was increased to $3.0 million. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 650 basis points.  The Company is subject to certain financial and non-financial covenants, all of which have been waived by BDC for 2020.  At December 26, 2020 the Company had $0 borrowings under this LOC and its borrowing base at the time would have permitted an additional $2.2 to have been borrowed.   Total Interest Expense for 2020 was $104 thousand.

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(9) Income Taxes

12 Months Ended

Dec. 26, 2020

Income Tax Disclosure [Abstract]

(9) Income Taxes

(9) Income Taxes

Components of income tax expense (benefit) for each year are as follows:

		2020		2019
Current:
Federal	$	(39,878)	$	(33,874)
State		456		456
Current income tax provision (benefit):		(39,422)		(33,418)
Deferred:
Federal		33,874		(6,387)
State		(3,000)		45,261
Deferred income tax provision (benefit), net		30,874		38,874
Total	$	(8,548)	$	5,456

Deferred tax assets as of December 26, 2020 and December 28, 2019 are as follows:

		December 26, 2020		December 28, 2019
Deferred Tax Assets:
Net operating loss
carryforwards	$	746,397	$	884,508
Stock compensation		540,281		543,614
Credit carryforwards		1,288,897		1,317,445
Inventory		116,153		316,943
Accrued liabilities		22,140		18,920
Depreciation		250,093		237,449
Other		2,732		2,732
Gross deferred tax assets		2,966,693		3,321,611
Valuation allowance		(2,849,693)		(3,173,738)
Net deferred tax assets	$	117,000	$	147,873

At December 26, 2020 and December 28, 2019 the Company had net operating loss carryforwards of approximately $2,754,601 and $3,278,463, respectively, available to offset future income for U.S. Federal income tax purposes. These net operating loss carryforwards occurred over several years, which begin to expire in the year ended 12/31/2036.

The Company established a valuation reserve as it is judged more likely than not that all or a portion of the tax credits will not be used before they expire. This decision was initially reached in 2018 after giving greater weight to its losses over the last three years compared with its forecast of the future.

A summary of the change in the deferred tax asset is as follows:

		2020		2019
Balance at beginning of year	$	3,321,611	$	3,150,155
Deferred tax benefit (provision)		(354,918)		171,456
Valuation allowance		(2,849,693)		(3,173,738)
Balance at end of year	$	117,000	$	147,873

Income tax expense is different from the amounts computed by applying the U.S. federal statutory income tax rate of 21 percent to pretax income as a result of the following:

		2020		2019
Tax at statutory rate	$	188,899	$	(125,527)
State tax, net
of federal benefit		360		360
Net operating loss and
credit carryforwards		33,873		153,204
Valuation allowance		(324,045)		210,836
Other		92,365		(233,417)
Total	$	(8,548)	$	5,456

The Company’s income tax filings are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit under the applicable statutes of limitations for the years 2017 through 2020.

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(10) Retirement Savings Plan

12 Months Ended

Dec. 26, 2020

Retirement Benefits [Abstract]

(10) Retirement Savings Plan

(10) Retirement Savings Plan

The Company sponsors a Retirement Savings Plan (the ‘Plan’) under the provisions of Section 401 of the Internal Revenue Code. Employees, as defined in the Plan, are eligible to participate in the Plan after 30 days of employment. Under the terms of the Plan, the Company may match employee contributions under such method as described in the Plan and as determined each year by the Board of Directors. During 2020 the company matched ½% of each of the first 2% of employee contributions amounting to $64 thousand.  In 2019 the Company did not offer a 401k match.

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(11) Concentrations of Credit Risk, Significant Customers and Geographic Information

12 Months Ended

Dec. 26, 2020

Accounting Policies [Abstract]

(11) Concentrations of Credit Risk, Significant Customers and Geographic Information

(11) Concentrations of Credit Risk, Significant Customers and Geographic Information

Financial instruments which subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade accounts receivable. The Company maintains such cash deposits in a high credit quality financial institution.

The Company extends credit to customers who consist principally of microelectronics systems companies in the United States, Europe and Asia. The Company generally does not require collateral or other security as a condition of sale rather relying on credit approval, balance limitation and monitoring procedures to control credit risk of trade accounts receivable. Management conducts on-going credit evaluations of its customers, and historically the Company has not experienced any significant credit-related losses with respect to its trade accounts receivable.

Revenues from significant customers as a percentage of total revenues in 2020 and 2019 were as follows:

	Percent of Total Revenues
Significant Customer		2020	2019
A		36%	43%
B		21%	14%
C		16%	13%

As of December 26, 2020, the Company had trade accounts receivable due from these three customers that accounted for 70% of total trade accounts receivable as of that date. No other customer balances constitute 10% or more of accounts receivable at December 26, 2020. To further mitigate the potential for credit losses the Company has acquired a credit insurance policy covering most of our sales to non-US accounts.  Management believes that any credit risks have been properly provided for in the accompanying financial statements.

The Company’s revenue was derived from the following countries in 2020 and 2019:

	Percent of Total Revenues
Country		2020	2019
United States of America		23%	25%
Germany		36%	44%
Other		41%	31%

Many of the Company’s customers based in the United States conduct design, purchasing and payable functions in the United States, but manufacture overseas. Revenue generated from shipments made to customers’ locations outside the United States accounted for 77% and 75% of total revenue in 2020 and 2019, respectively.

All of the Company’s long-lived assets and operations are located in the United States.

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(12) Net Income(Loss) Per Share

12 Months Ended

Dec. 26, 2020

Earnings Per Share [Abstract]

(12) Net Income(Loss) Per Share

(12) Net Income (Loss) Per Share

The following reconciles the basic and diluted net income (loss) per share calculations.

		Dec. 26,		Dec. 28,
		2020		2019
Basic EPS Computation:
Numerator:
Net income (loss)	$	908,064	$	(638,202)
Denominator:
Weighted average
Common shares
Outstanding		13,251,521		13,207,097
Basic EPS	$	0.07	$	(0.05)
Diluted EPS Computation:
Numerator:
Net income (loss)	$	908,064	$	(638,202)
Denominator:
Weighted average
Common shares
Outstanding		13,251,521		13,207,097
Dilutive effect of stock options		97,061		—
Total shares		13,348,582		13,207,097
Diluted net income (loss) per share	$	0.07	$	(0.05)

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(2) Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 26, 2020

Accounting Policies [Abstract]

(2)(a) Cash and Cash Equivalents

(2)(a) Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.

(2)(b) Accounts Receivable

(2)(b) Accounts Receivable

The Company reports its accounts receivable at the invoiced amount less an allowance for doubtful accounts. The Company’s management provides appropriate provisions for uncollectible accounts based upon factors surrounding the credit risk and activity of specific customers, historical trends, economic conditions and other information. Adjustments to the allowance are charged to operations in the period in which information becomes available that may affect the allowance.   The Company maintains an allowance for doubtful accounts of $10,000 as of December 26, 2020 and December 28, 2019.

(2)(c) Inventories

(2)(c) Inventories

Inventories are stated at the lower of cost, as determined under the first-in, first-out method (FIFO), or net realizable value. A reserve for obsolete inventories is based on factors regarding the sales and usage of such inventories, including inventories manufactured for specific customers. The Company’s general obsolescence policy is to write off obsolete inventory when there has been no activity on a particular part for a twelve month period and there are no pending customer orders.

(2)(d) Property and Equipment

(2)(d) Property and Equipment

Property and equipment are stated at cost. Depreciation of equipment is calculated on a straight-line basis over the estimated useful life, generally five years for production equipment and three to five years for furniture and office equipment. Leasehold improvements are depreciated over the shorter of the lease term or their useful life. Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from their respective accounts. Any gains or losses on the disposition of property and equipment are included in the results of operations in the period in which they occur.

(2)(e) Impairment of Long-Lived Assets

(2)(e) Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. Recoverability is assessed based on estimated undiscounted future cash flows. As of December 26, 2020 and December 28, 2019, the Company believes that there has been no impairment of its long-lived assets.

(2)(f) Revenue Recognition

(2)(f) Revenue Recognition

Revenue is recognized in accordance with the five-step method under Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers.”

Identifying the Contract with the Customer

The Company identifies contracts with customers as agreements that create enforceable rights and obligations.  In the case of a few large customers the Company has executed long-term Master Sales Agreements (“MSA”).  These are umbrella agreements which typically define the terms and conditions under which a customer can order goods from CPS.  These in themselves do not constitute a contract as no products are committed to be transferred and the customer has no obligation to make payments.

The Company contract is only enforceable once both parties have approved it, and is usually in the form of a written purchase order from a customer combined with acknowledgement from the Company.

In cases without an MSA, the customer submits a blueprint for a product, the Company provides a quote and the customer responds with a purchase order.   In these cases the Company’s acceptance of the purchase order constitutes an enforceable contract.

Identifying the Performance Obligations in the Contract

For each contract, the Company considers the promise to transfer products, each of which are distinct, to be the identified performance obligations.

Shipping and handling activities for which the Company is responsible are not a separate promised service but instead are activities to fulfill the entity’s promise to transfer goods. Shipping and handling fees will be recognized at the same time as the related performance obligations are satisfied.

The Company provides an assurance-type warranty.  This guarantees that the product functions as promised and meets specifications.  Under its terms and conditions the Company offers a 30 day warranty and replaces defective or non-conforming products.  The expense of replacement is recorded at the time the Company agrees to replace a defective or non-conforming product.  This assurance type warranty is not considered to be a distinct performance obligation.

Determining the Transaction Price

The Company determines the transaction price as the amount of consideration specified in the contract that it expects to receive in exchange for transferring promised goods to the customer. Amounts collected from customers for sales value added and other taxes are excluded from the transaction prices. Product sales are recorded net of trade discounts and sales returns.

If a contract includes a variable amount, such as a rebate, then the Company estimates the transaction price using either the expected value or the most likely amount of consideration to be received, depending upon the specific facts and circumstances. The Company includes estimated variable consideration in the transaction price only to the extent it is probable that a significant reversal of revenue will not occur when the uncertainty is resolved. The Company updates its estimate of variable consideration at the end of each reporting period to reflect changes in facts and circumstances. As of December 26, 2020 there are no contracts with variable consideration.

When credit is granted to customers, payment is typically due 30 to 90 days from billing and accordingly our contracts with customers do not include a significant financing component.

Allocating the Transaction Price to the Performance Obligations

In virtually all cases the transaction price is tied to a specific product in the contract obviating the need for any allocation.

Recognizing Revenue When (or as) the Performance Obligations are Satisfied

The Company recognizes revenue at the point in time when it transfers control of the promised goods or services to the customer, which typically occurs once the product has shipped or has been delivered to the customer. Occasionally, for the purpose of ensuring a steady flow of product, the Company ships products on consignment. In these instances, delivery is deemed to have occurred when the customer pulls inventory out of the warehouse for use in their production, or upon a specified period of time as agreed upon by both parties.  As of December 26, 2020 there are no products on consignment.

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. The costs are recorded within, selling, general and administrative expenses.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less

(2)(g) Income Taxes

(2)(g) Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in affect when the differences reverse. A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 26, 2020 and December 28, 2019, the Company has no accruals for interest or penalties related to income tax matters. The Company does not have any uncertain tax positions at December 26, 2020 or December 28, 2019 which required accrual or disclosure.

(2)(h) Net Income (Loss) Per Common Share

(2)(h) Net Income (Loss) Per Common Share

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock option and stock purchase rights. Common stock equivalents are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.

(2)(i) Reclassification

(2)(i) Reclassification

Certain amounts in prior year’s financial statements have been reclassified to conform to the current year’s presentation.

(2)(j) Recent Accounting Pronouncements

(2)(j) Recent Accounting Pronouncements

In the normal course of business, management evaluates all the new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”). Based upon this review, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s financial statements.

(2)(k) Use of Estimates in the Preparation of Financial Statements

(2)(k) Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amounts of revenues and expenses recorded during the reporting period. Such estimates are adjusted by management periodically as a result of existing or anticipated economic changes which effect, or may effect, the Company’s financial statements. Actual results could differ from these estimates.

(2)(l) Fiscal Year-End

(2)(l) Fiscal Year-End

The Company’s fiscal year end is the last Saturday in December which could result in a 52 or 53 week year. Fiscal years 2020 and 2019 each consisted of 52 weeks.

(2)(m) Share-Based Payments

(2)(m) Share-Based Payments

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period). The Company provides an estimate of forfeitures at initial grant date, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted.

(2)(n) Segment Reporting

(2)(n) Segment Reporting

The Company views its operations and manages its business as one segment. The Company produces and sells advanced material solutions, primarily metal matrix composites, to assemblers of high density electronics and other specialty components and subassemblies. The Company also assembles housings and packages for hybrid circuits, selling to the same customers mentioned above. These customers represent a single market or segment with similar stringent and well-defined requirements. The Company’s customers, in turn, sell the components and subassemblies which incorporate the products into many different end markets, however, these end markets are two to three levels removed from the Company. The Company makes operating decisions and assesses financial performance only for the Company as a whole and does not make operating decisions or assess financial performance by the end markets which ultimately use the products.

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(3) Inventories (Tables)

12 Months Ended

Dec. 26, 2020

Inventory Disclosure [Abstract]

Inventories Current

		2020		2019
Raw materials	$	752,760	$	778,409
Work in process		2,800,226		1,898,916
Finished goods		592,640		871,861
Gross Inventory		4,145,626		3,549,186
Reserve for obsolescence		(436,155)		(449,362)
Total	$	3,709,471	$	3,099,824

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(4) Leases (Tables)

12 Months Ended

Dec. 26, 2020

Commitments & Contingencies

capitalized operating leases

(Dollars in Thousands)		December 26, 2020
Maturity of capitalized lease payments		Lease payments
2021		25
Total undiscounted operating lease payments	$	25
Less: Imputed interest		—
Present value of operating lease liability	$	25

Balance Sheet Classification
Current lease liability	$	25
Long-term lease liability		—
Total operating lease liability	$	25
Other Information
Weighted-average remaining lease term for capitalized operating leases		2 months
Weighted-average discount rate for capitalized operating leases		6.5%

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(5) Share-Based Compensation Plans (Tables)

12 Months Ended

Dec. 26, 2020

Retirement Benefits [Abstract]

Stock Option activity as of December 26, 2020 and changes during the year

			Weighted	Weighted
			Average	Remaining		Aggregate
			Exercise	Contractual		Intrinsic
	Shares		Price	Life (years)		Value
Outstanding at
beginning of year	1,794,105	$	1.73
Granted	119,000	$	1.49
Exercised	(318,250)	$	1.51
Forfeited	(77,000)	$	1.41
Expired	(226,355)	$	1.52
Outstanding at
end of year	1,251,500	$	1.82	5.08	$	753,320
Options exercisable
at year-end	992,600	$	1.90	4.38	$	557,052

Annualized weighted average values of the significant assumptions used to estimate fair values

		2020		2019
Risk-free interest rate		.84%- .91%		2.48%
Expected life in years		6-7		6.1
Expected volatility		54%		54%
Expected dividend yield		0		0
Weighted average fair value of grants	$	.78	$	.79

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(6) Accrued Expenses (Tables)

12 Months Ended

Dec. 26, 2020

Payables and Accruals [Abstract]

Accrued expenses

		2020		2019
Accrued legal and accounting	$	71,671	$	62,725
Accrued payroll and related costs		626,063		518,015
Accrued other		106,357		234,426
	$	804,091	$	815,166

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(9) Income Taxes (Tables)

12 Months Ended

Dec. 26, 2020

Income Tax Disclosure [Abstract]

Components of income tax expense (benefit) for each year

		2020		2019
Current:
Federal	$	(39,878)	$	(33,874)
State		456		456
Current income tax provision (benefit):		(39,422)		(33,418)
Deferred:
Federal		33,874		(6,387)
State		(3,000)		45,261
Deferred income tax provision (benefit), net		30,874		38,874
Total	$	(8,548)	$	5,456

Deferred tax assets

		December 26, 2020		December 28, 2019
Deferred Tax Assets:
Net operating loss
carryforwards	$	746,397	$	884,508
Stock compensation		540,281		543,614
Credit carryforwards		1,288,897		1,317,445
Inventory		116,153		316,943
Accrued liabilities		22,140		18,920
Depreciation		250,093		237,449
Other		2,732		2,732
Gross deferred tax assets		2,966,693		3,321,611
Valuation allowance		(2,849,693)		(3,173,738)
Net deferred tax assets	$	117,000	$	147,873

At December 26, 2020 and December 28, 2019 the Company had net operating loss carryforwards of approximately $2,754,601 and $3,278,463, respectively, available to offset future income for U.S. Federal income tax purposes. These net operating loss carryforwards occurred over several years, which begin to expire in the year ended 12/31/2036.

The Company established a valuation reserve as it is judged more likely than not that all or a portion of the tax credits will not be used before they expire. This decision was initially reached in 2018 after giving greater weight to its losses over the last three years compared with its forecast of the future.

A summary of the change in the deferred tax asset is as follows:

		2020		2019
Balance at beginning of year	$	3,321,611	$	3,150,155
Deferred tax benefit (provision)		(354,918)		171,456
Valuation allowance		(2,849,693)		(3,173,738)
Balance at end of year	$	117,000	$	147,873

Income tax at federal statutory income tax rate of 21 percent

		2020		2019
Tax at statutory rate	$	188,899	$	(125,527)
State tax, net
of federal benefit		360		360
Net operating loss and
credit carryforwards		33,873		153,204
Valuation allowance		(324,045)		210,836
Other		92,365		(233,417)
Total	$	(8,548)	$	5,456

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(11) Concentrations of Credit Risk, Significant Customers and Geographic Information (Tables)

12 Months Ended

Dec. 26, 2020

Accounting Policies [Abstract]

Significant custmers as a percentage

	Percent of Total Revenues
Significant Customer		2020	2019
A		36%	43%
B		21%	14%
C		16%	13%

Revenue derived from following countries

	Percent of Total Revenues
Country		2020	2019
United States of America		23%	25%
Germany		36%	44%
Other		41%	31%

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(12) Net Income(Loss) Per Share (Tables)

12 Months Ended

Dec. 26, 2020

Earnings Per Share [Abstract]

Basic and diluted net income(loss) per share calculations

		Dec. 26,		Dec. 28,
		2020		2019
Basic EPS Computation:
Numerator:
Net income (loss)	$	908,064	$	(638,202)
Denominator:
Weighted average
Common shares
Outstanding		13,251,521		13,207,097
Basic EPS	$	0.07	$	(0.05)
Diluted EPS Computation:
Numerator:
Net income (loss)	$	908,064	$	(638,202)
Denominator:
Weighted average
Common shares
Outstanding		13,251,521		13,207,097
Dilutive effect of stock options		97,061		—
Total shares		13,348,582		13,207,097
Diluted net income (loss) per share	$	0.07	$	(0.05)

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(3) Inventories - Inventories Current (Details) - USD ($)	Dec. 26, 2020	Dec. 28, 2019
Inventory Disclosure [Abstract]
Raw materials	$ 752,760	$ 778,409
Work in process	2,800,226	1,898,916
Finished goods	592,640	871,861
Gross Inventory	4,145,626	3,549,186
Reserve for obsolescence	(436,155)	(449,362)
Total	$ 3,709,471	$ 3,099,824

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(4) Leases - capitalized operating leases (Details)	Dec. 26, 2020 USD ($)
Commitments & Contingencies
2021	$ 25
Total undiscounted operating lease payments	25
Less: Imputed interest
Present value of operating lease liability	25
Current lease liability	25
Long-term lease liability
Total operating lease liability	$ 25
Weighted-average remaining lease term for capitalized operating leases	2 months
Weighted-average discount rate for capitalized operating leases	6.50%

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(5) Share-Based Compensation Plans - Stock Optiond activity as od December 26, 2020 and changes during the year (Details)	12 Months Ended
	Dec. 26, 2020 USD ($) shares
Retirement Benefits [Abstract]
Granted	119,000
Exercised	(318,250)
Forfeited	(77,000)
Expired	(226,355)
Outstanding at end of year, shares	1,251,500
Options exercisable at year-end	992,600
Aggregate Intrinsic Value Outstanding at end of year | $	$ 753,320
Aggregate Intrinsic Value Outstanding Exercisable at end of year | $	$ 557,052
Weighted remaining contractual life (years) outstanding	5 years 8 days
Weighted remaining contractual life (years) outstanding exercisable	4 years 3 months 8 days

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(5) Share-Based Compensation Plans - Annualized weighted average values of the significant assumptions used to estimate fair values (Details) - $ / shares	12 Months Ended
	Dec. 26, 2020	Dec. 28, 2019
Retirement Benefits [Abstract]
Risk-free interest rate, minimum	0.84%	2.48%
Risk-free interest rate, maximum	0.91%	2.48%
Expected life in years, minimum	6 years	6 years 1 month
Expected life years, maximum	7 years	6 years 1 month
Expected volatility	54.00%	54.00%
Expected dividend yield	0.00%	0.00%
Weighted average fair value of grants	$ .78	$ .79

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(6) Accrued Expenses - Accrued expenses (Details) - USD ($)	Dec. 26, 2020	Dec. 28, 2019
Payables and Accruals [Abstract]
Accrued legal and accounting	$ 71,671	$ 62,725
Accrued payroll and related costs	626,063	518,015
Accrued other	106,357	234,426
Total	$ 804,091	$ 815,166

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(9) Income Taxes - Components of income tax expense (benefit) for each year (Details) - USD ($)	12 Months Ended
	Dec. 26, 2020	Dec. 28, 2019
Current:
Federal	$ (39,878)	$ (33,874)
State	456	456
Current income tax provision (benefit):	(39,422)	(33,418)
Deferred:
Federal	33,874	(6,387)
State	(3,000)	45,261
Deferred income tax provision (benefit), net	30,874	38,874
Total	$ (8,548)	$ 5,456

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(9) Income Taxes - Deferred tax assets (Details) - USD ($)	12 Months Ended
	Dec. 26, 2020	Dec. 28, 2019
Deferred Tax Assets:
Net operating loss carryforwards	$ 746,397	$ 884,508
Stock compensation	540,281	543,614
Credit carryforwards	1,288,897	1,317,445
Inventory	116,153	316,943
Accrued liabilities	22,140	18,920
Depreciation	250,093	237,449
Other	2,732	2,732
Gross deferred tax assets	2,966,693	3,321,611
Valuation allowance	(2,849,693)	(3,173,738)
Net deferred tax assets	117,000	147,873
Deferred tax benefit (provision)	(354,918)	171,456
Valuation allowance	$ (2,849,693)	$ (3,173,738)

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(9) Income Taxes - Income tax at federal statutory income tax rate of 21 percent (Details) - USD ($)	12 Months Ended
	Dec. 26, 2020	Dec. 28, 2019
Income Tax Disclosure [Abstract]
Tax at statutory rate	$ 188,899	$ (125,527)
State tax, net of federal benefit	360	360
Net operating loss and credit carryforwards	33,873	153,204
Valuation allowance	(324,045)	210,836
Other	92,365	(233,417)
Total	$ (8,548)	$ 5,456

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(11) Concentrations of Credit Risk, Significant Customers and Geographic Information - Significant custmers as a percentage (Details)	12 Months Ended
	Dec. 26, 2020	Dec. 28, 2019
Significant Customer Percent of Revenue
A	36.00%	43.00%
B	21.00%	14.00%
C	16.00%	13.00%

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(11) Concentrations of Credit Risk, Significant Customers and Geographic Information - Revenue derived from following countries (Details)	12 Months Ended
	Dec. 26, 2020	Dec. 28, 2019
Percent of Total Revenues Country
United States of America	23.00%	25.00%
Germany	36.00%	44.00%
Other	41.00%	31.00%

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(12) Net Income(Loss) Per Share - Basic and diluted net income(loss) per share calculations (Details) - USD ($)	12 Months Ended
	Dec. 26, 2020	Dec. 28, 2019
Basic EPS Computation:
Net income (loss)	$ 908,064	$ (638,202)
Weighted average Common shares Outstanding	13,251,521	13,207,097
Basic EPS	$ 0.07	$ (0.05)
Diluted EPS Computation:
Net income (loss)	$ 908,064	$ (638,202)
Weighted average Common shares Outstanding	13,251,521	13,207,097
Dilutive effect of stock options	$ 97,061
Total shares	13,348,582	13,207,097
Diluted net income (loss) per share	$ 0.07	$ (0.05)

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Label	Element	Value
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	us-gaap_ShareBasedCompensationArrangementByShareBasedPaymentAwardOptionsOutstandingNumber	17,945,105