EXHIBIT 10.4

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of July __,
2016, by and among CTI Industries Corporation, an Illinois corporation (the
“Company”), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a “Purchaser” and collectively, the
“Purchasers”).

 

RECITALS

 

A.           The Company and each Purchaser is executing and delivering this
agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission under the Securities Act.

 

B.           The Company desires to raise cash proceeds pursuant to the issuance
and sale of up to 500,000 shares of the Common Stock, no par value, of the
Company (which shares of Common Stock and shall be collectively referred to
herein as the “Shares”) and up to 250,000 warrants (“Warrants”) to purchase
shares (which Shares and Warrants may be collectively referred to as
“Securities”).

 

C.           Each Purchaser, severally and not jointly, wishes to purchase, and
the Company wishes to sell, upon the terms and conditions stated in this
Agreement, that aggregate number of Shares and Warrants set forth below such
Purchaser’s name on the signature page of this Agreement.

 

D.           The Company has engaged Dougherty & Company LLC as its placement
agent (the “Placement Agent”) for the offering of the Securities on a
“reasonable efforts” basis. The Placement Agent is receiving a fee as the
Placement Agent’s compensation for services rendered in connection with the
transactions set forth herein.

 

E.           Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit A (the “Registration Rights
Agreement”), pursuant to which, among other things, the Company will agree to
provide certain registration rights with respect to the Shares under the
Securities Act and applicable state securities laws.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers hereby
agree as follows:

 

ARTICLE I.
DEFINITIONS

 

1.1           Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 1.1:

 

“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or, to the Company’s Knowledge, threatened in writing against or affecting the
Company or its properties before or by any court, arbitrator, governmental or
administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.

 

 

 

 

“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, Controls, is controlled by or
is under common control with such Person, as such terms are used in and
construed under Rule 144. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same investment
manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.

 

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
Chicago, Illinois are open for the general transaction of business.

 

“Closing” means the closing of the purchase and sale of the Shares and Warrants
pursuant to this Agreement.

 

“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all of the
conditions set forth in Sections 2.1, 2.2, 5.1 and 5.2 hereof are satisfied, or
such other date as the parties may agree.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the Common Stock of the Company, and also includes any
securities into which the Common Stock may hereafter be reclassified or changed.

 

“Company Counsel” means Vanasco Genelly & Miller.

 

“Company Deliverables” has the meaning set forth in Section 2.2(a).

 

“Company’s Knowledge” means with respect to any statement made to the knowledge
of a party, that the statement is based upon the actual knowledge of the
executive officers of such party having responsibility for the matter or matters
that are the subject of the statement.

 

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

 

“Disclosure Materials” has the meaning set forth in Section 3.1(h).

 

“Effective Date” means the date on which the initial Registration Statement
required by Section 2(a) of the Registration Rights Agreement is first declared
effective by the Commission.

 

“Environmental Laws” has the meaning set forth in Section 3.1(l).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.

 

“GAAP” means U.S. generally accepted accounting principles, as applied by the
Company.

 

“Illinois Courts” means the state and federal courts sitting in the City of
Chicago, Illinois, and Cook County, Illinois.

 

“Intellectual Property” has the meaning set forth in Section 3.1(r).

 

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“Irrevocable Transfer Agent Instructions” means, with respect to the Company,
the Irrevocable Transfer Agent Instructions, in the form of Exhibit D, executed
by the Company and delivered to and acknowledged in writing by the Transfer
Agent.

 

“Lien” means any lien, charge, claim, encumbrance, security interest, right of
first refusal, preemptive right or other restrictions of any kind.

 

“Material Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, prospects,
business or financial condition of the Company, or (iii) any material adverse
impairment to the Company's ability to perform in any material respect on a
timely basis its obligations under any Transaction Document.

 

“Material Permits” has the meaning set forth in Section 3.1(p).

 

“Outside Date” means five Trading Days following the date of this Agreement.

 

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

 

“Principal Trading Market” means the Trading Market on which the Common Stock is
primarily listed on and quoted for trading, which, as of the date of this
Agreement and the Closing Date, shall be the NASDAQ Capital Market.

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

 

“Purchase Price” means an amount per Share equal to $6.00.

 

“Purchaser Deliverables” has the meaning set forth in Section 2.2(b).

 

“Registration Rights Agreement” has the meaning set forth in the Recitals.

 

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Purchasers of the Registrable Securities (as defined in the Registration Rights
Agreement).

 

“Required Approvals” has the meaning set forth in Section 3.1(e).

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

“SEC Reports” has the meaning set forth in Section 3.1(h).

 

“Secretary’s Certificate” has the meaning set forth in Section 2.2(a)(v).

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

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“Short Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Exchange Act, whether or not
against the box, and all types of direct and indirect stock pledges, forward
sale contracts, options, puts, calls, short sales, swaps, “put equivalent
positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar
arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.

 

“Subscription Amount” means with respect to each Purchaser, the aggregate amount
to be paid for the Shares and Warrants purchased hereunder as indicated on such
Purchaser’s signature page to this Agreement next to the heading “Purchase Price
(Subscription Amount)”.

 

“Trading Affiliate” has the meaning set forth in Section 3.2(g).

 

“Trading Day” means a day on which the Common Stock is listed or quoted and
traded on its primary Trading Market.

 

“Trading Market” means the NASDAQ Capital Market.

 

“Transaction Documents” means this Agreement, the schedules and exhibits
attached hereto, the Registration Rights Agreement, the Irrevocable Transfer
Agent Instructions and any other documents or agreements executed in connection
with the transactions contemplated hereunder.

 

“Transfer Agent” means American Stock Transfer and Trust Company, LLC or any
successor transfer agent for the Company.

 

“Warrant” means the warrant being sold together with the Shares giving the
Purchaser the right to purchase Common Stock between six (6) months and three
(3) years from the date of issuance at a price of $7.00 per share.

 

ARTICLE II.
PURCHASE AND SALE

 

2.1           Closing. (a) Subject to the terms and conditions set forth in this
Agreement, at the Closing, the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly, purchase from the Company,
such number of Shares of Common Stock equal to the quotient resulting from
dividing (i) the aggregate purchase price for such Purchaser, as indicated below
such Purchaser’s name on the signature page of this Agreement (the “Subscription
Amount”) by (ii) the Purchase Price, rounded down to the nearest whole Share,
along with one-half of a Warrant to purchase a whole share of Common Stock at a
purchase price of $7.00 per share between six (6) months and three (3) years
from the date of issuance.

 

(b)          Each Purchaser must complete and return a duly executed, unaltered
copy of this Agreement (including without limitation the completed Accredited
Investor Questionnaire and the Stock Certificate Questionnaire included as
Exhibits B-1 and B-2 hereto, respectively) to the Placement Agent. The Company
and the Placement Agent retain complete discretion to accept or reject any
subscription unless and until the Company executes a counterpart to this
Agreement that includes such Purchaser’s signature. Upon execution and delivery
of this Agreement by Purchaser, each Purchaser shall deposit the amount of
readily available funds equal to such Purchaser’s Subscription Amount in a
segregated escrow account (the “Escrow Account”) with an escrow agent designated
by the Company (the “Escrow Agent”) by wire transfer of immediately available
funds pursuant to the instructions provided in Exhibit E.

 

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(c)          The Closing shall be held at a date and time designated by the
Company and the Placement Agent prior to 11:59 p.m. prevailing Central time on
the Outside Date. The Closing shall occur at the offices of the Company Counsel,
located at 33 N. LaSalle Street, Suite 2200, Chicago, Illinois or at such other
locations or remotely by facsimile transmission or other electronic means as the
parties may mutually agree. Upon satisfaction or waiver of all conditions to the
Closing, the Placement Agent and the Company shall instruct the Escrow Agent to
release the proceeds held in the Escrow Account to the Company, less fees and
expenses due to the Placement Agent. Interest, if any, that has accrued with
respect to the Subscription Amount while in escrow shall also be distributed to
the Company at the Closing and the Purchaser will have no right to such
interest, even if there is no Closing.

 

(d)          The Company shall deliver, or cause to be delivered, as soon as
practical after the Closing, and in any event within five Business Days, to the
Purchaser’s mailing address indicated on the Stock Certificate Questionnaire
included as Exhibit B-2 hereto, a certificate or certificates, registered in
such name or names as the Purchasers may designate, representing the Shares
purchased by the Purchaser hereunder and a one-half Warrant per Share purchased
for the right to purchase shares of Common Stock.

 

2.2           Closing Deliveries.   (a)   On or prior to the Closing, the
Company shall issue, deliver or cause to be delivered to each Purchaser the
items listed in clauses (i) through (viii) below and shall issue, deliver or
cause to be delivered to the Placement Agent the Shares and Warrants referred to
in clause (ix) below (collectively, the “Company Deliverables”):

 

(i)          this Agreement, duly executed by the Company;

 

(ii)         the Registration Rights Agreement, duly executed by the Company;

 

(iii)        a legal opinion of Company Counsel, in the form attached hereto as
Exhibit C, executed by such counsel and addressed to the Purchasers and the
Placement Agent;

 

(iv)        duly executed Irrevocable Transfer Agent Instructions acknowledged
in writing by the Transfer Agent;

 

(v)         a certificate of the Secretary of the Company (the “Secretary’s
Certificate”), dated as of the Closing Date, (a) certifying the resolutions
adopted by the Board of Directors of the Company approving the transactions
contemplated by this Agreement and the other Transaction Documents and the
issuance of the Securities, (b) certifying the current versions of the articles
of incorporation and by-laws, of the Company and (c) certifying as to the
signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company;

 

(vi)        the Compliance Certificate referred to in Section 5.1(h);

 

(vii)       a certificate evidencing the formation and good standing of the
Company in the State of Illinois issued by the Secretary of State (or comparable
office), as of a date within 10 days of the Closing Date;

 

(viii)      a certified copy of the Third Restated Articles of Incorporation as
certified by the Secretary of State of the State of Illinois within ten (10)
days of the Closing Date; and

 

(ix)         the Shares and Warrants, executed by the Company and registered in
the name of the Placement Agent and/or its designee(s).

 

(b)          On or prior to the Closing, each Purchaser shall deliver or cause
to be delivered to the Company the following (the “Purchaser Deliverables”):

 

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(i)          this Agreement, duly executed by such Purchaser;

 

(ii)         its Subscription Amount, in United States dollars and in
immediately available funds, in the amount set forth as the “Purchase Price”
indicated below such Purchaser’s name on the applicable signature page hereto by
wire transfer to an account designated in writing by the Company for such
purpose, as set forth on Exhibit E attached hereto;

 

(iii)        the Registration Rights Agreement, duly executed by such Purchaser;

 

(iv)        a fully completed and duly executed Selling Stockholder
Questionnaire in the form attached as Annex B to the Registration Rights
Agreement; and

 

(v)         a fully completed and duly executed Accredited Investor
Questionnaire and Stock Certificate Questionnaire in the forms attached hereto
as Exhibits B-1 and B-2, respectively.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers and to the Placement Agent that, as of
the Closing Date (except as otherwise noted below, in which case as of the date
so noted), and except as set forth in the Schedules delivered herewith:

 

(a)          Subsidiaries. Except for (i) CTI Balloons Limited, a UK entity,
(ii) CTI Europe, GMBH, a German entity (iii) CTI Supply, Inc., f/k/a/CTI Helium,
a wholly owned subsidiary, (iv) Clever Container Company, LLC (of which the
Company owns a 28.5% interest), (v) Flexo Universal, S. de R.L. de C.V. (of
which the Company owns a 99% interest), and (vi) two variable interest entities
whose financials are consolidated with the Company, which are Venture Leasing,
LLC and Venture Leasing, S.A. de R.L.

 

(b)          Organization and Qualification. The Company is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with the requisite power and
authority to own or lease and use its properties and assets and to carry on its
business as currently conducted. The Company is not in violation of any of the
provisions of its articles of incorporation, bylaws or other organizational or
charter documents. The Company is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to have,
individually or in the aggregate, resulted in a Material Adverse Effect, and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

 

(c)          Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents to which it is a party and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of each of the Transaction Documents to which it is a party by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including, but not limited to, the sale and delivery of the Securities)
have been duly authorized by all necessary corporate action on the part of the
Company, and no further corporate action is required by the Company, its Board
of Directors or its shareholders in connection therewith other than in
connection with the Required Approvals. Each of the Transaction Documents to
which it is a party has been (or upon delivery will have been) duly executed by
the Company and is, or when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application. There are no shareholder agreements, voting agreements, or other
similar arrangements with respect to the Company’s capital stock to which the
Company is a party or, to the Company’s Knowledge, between or among any of the
Company’s shareholders.

 

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(d)          No Conflicts. The execution, delivery and performance by the
Company of the Transaction Documents to which it is a party and the consummation
by the Company of the transactions contemplated hereby or thereby (including,
without limitation, the issuance of the Securities) do not and will not (i)
conflict with or violate any provision of the Company’s articles of
incorporation, bylaws or other organizational or charter documents, (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or give to others any rights
of termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company is
subject (including federal and state securities laws and regulations and the
rules and regulations, assuming the correctness of the representations and
warranties made by the Purchasers herein, of any self-regulatory organization to
which the Company or its securities are subject, including all applicable
Trading Markets), or by which any property or asset of the Company is bound or
affected, except in the case of clauses (ii) and (iii), such as would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.

 

(e)          Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents
(including the issuance of the Securities), other than (i) the filing with the
Commission of one or more Registration Statements in accordance with the
requirements of the Registration Rights Agreement, (ii) filings required by
applicable state securities laws, (iii) the filing of a Notice of Sale of
Securities on Form D with the Commission under Regulation D of the Securities
Act, (iv) the filing of any requisite notices and/or application(s) to the
Principal Trading Market for the issuance and sale of the Common Stock and the
listing of the Common Stock for trading or quotation, as the case may be,
thereon in the time and manner required thereby, (v) the filings required in
accordance with Section 4.6 of this Agreement, and (vi) those that have been
made or obtained prior to the date of this Agreement (collectively, the
“Required Approvals”).

 

(f)          Issuance of the Shares and Warrants. The Shares have been duly
authorized and, when issued and paid for in accordance with the terms of the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens, other than restrictions on transfer
provided for in the Transaction Documents or imposed by applicable securities
laws, and shall not be subject to preemptive or similar rights of shareholders.
Assuming the accuracy of the representations and warranties of the Purchasers in
this Agreement, the Shares and Warrants will be issued in compliance with all
applicable federal and state securities laws.

 

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(g)          Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock, options and other securities of the
Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) has been set forth in
the SEC Reports and has changed since the date of such SEC Reports, if at all,
only to reflect stock option exercises that do not, individually or in the
aggregate, have a material effect on the issued and outstanding capital stock,
options and other securities. Except as disclosed in the SEC Reports, all of the
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid and non-assessable, have been issued in compliance in all
material respects with all applicable federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase any capital stock of the Company.
Except for preemptive rights and warrants owned by BMO Private Equity (U.S.),
Inc. and as specified in the SEC Reports and as contemplated under the
Transaction Documents: (i) no shares of the Company's capital stock are subject
to preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) other than the Warrants being sold
hereunder, there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company, or contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
issue additional shares of capital stock of the Company or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any shares of capital stock of the Company; (iii) there are no
outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing indebtedness of the
Company or by which the Company is or may become bound; (iv) there are no
financing statements securing obligations in any material amounts, either singly
or in the aggregate, filed in connection with the Company; (v) there are no
agreements or arrangements under which the Company is obligated to register the
sale of any of their securities under the Securities Act (except the
Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company which contain any redemption or similar provisions,
and there are no contracts, commitments, understandings or arrangements by which
the Company is or may become bound to redeem a security of the Company; (vii)
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities; (viii) the
Company does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) the Company has no
liabilities or obligations required to be disclosed in the SEC Reports (as
defined herein) but not so disclosed in the SEC Reports, other than those
incurred in the ordinary course of the Company's businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect.

 

(h)          SEC Reports. The Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law or regulation to file such material) on a timely basis or has received a
valid extension of such time of filing and has made any such filings prior to
the expiration of any such extension (the foregoing materials and any filings
made pursuant to the Exchange Act from the date hereof through the Closing Date,
including the exhibits thereto and documents incorporated by reference therein,
are collectively referred to herein as the “SEC Reports;” and together with this
Agreement and the Schedules to this Agreement (if any), the “Disclosure
Materials”). As of the date hereof, the Company is not aware of any event (other
than the transactions contemplated by the Transaction Documents) that requires
the filing of a Form 8-K. As of their respective dates, or to the extent
corrected by a subsequent restatement, the SEC Reports complied in all material
respects with the requirements of the Exchange Act and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

 

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(i)          Financial Statements. To the Company’s knowledge, the financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing (or to
the extent corrected by a subsequent restatement). Such financial statements
have been prepared in accordance with GAAP applied on a consistent basis during
the periods involved, except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company of and for the dates
thereof and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, year-end audit
adjustments. All material agreements to which the Company is a party or to which
the property or assets of the Company are subject are included as part of or
specifically identified in the SEC Reports.

 

(j)          Tax Matters Except as set forth in the SEC Reports, the Company (i)
has accurately and timely prepared and filed all foreign, federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith, with respect to which adequate reserves have been
set aside on the books of the Company and (iii) has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply,
except, in the case of clauses (i) and (ii) above, where the failure to so pay
or file any such tax, assessment, charge or return would not result in a
Material Adverse Effect. Except as set forth in the SEC Reports, there are no
unpaid taxes in any material amount claimed to be due from the Company by the
taxing authority of any jurisdiction.

 

(k)          Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
a subsequent SEC Report filed prior to the date of this Agreement, (i) to the
Company’s Knowledge, there have been no events, occurrences or developments that
have had or that could reasonably be expected to result, either individually or
in the aggregate, in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade
payables, accrued expenses and other liabilities incurred in the ordinary course
of business consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting or the manner in which it keeps its accounting
books and records, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its shareholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock (other than in connection with repurchases of unvested stock issued to
employees of the Company) and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except Common Stock issued in
the ordinary course as dividends on outstanding preferred stock or pursuant to
existing Company stock option plans, equity incentive plans or stock purchase
plans or executive and director corporate arrangements disclosed in the SEC
Reports and (vi) there has not been any material change or amendment to, or any
waiver of any material right under, any contract under which the Company or any
of their assets is bound or subject. Except for the issuance of the Securities
contemplated by this Agreement, no event, liability or development has occurred
or exists with respect to the Company or its business, properties, operations or
financial condition that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made that has not
been publicly disclosed at least one Trading Day prior to the date that this
representation is made.

 

(l)          Environmental Matters. To the Company’s Knowledge, the Company (i)
is not in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), (ii) does not own or
operate any real property contaminated with any substance that is in violation
of any Environmental Laws, (iii) is not liable for any off-site disposal or
contamination pursuant to any Environmental Laws, and (iv) is not subject to any
claim relating to any Environmental Laws; which violation, contamination,
liability or claim has had or could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; and there is no pending or, to
the Company’s Knowledge, threatened investigation that might lead to such a
claim.

 

 9 

 

 

(m)          Litigation. There is no Action which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) except as specifically disclosed in the SEC
Reports, would, if there were an unfavorable decision, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. The Company, nor, to the Company’s Knowledge, any current director or
officer thereof (in his or her capacity as an officer or director of the
Company), is or has been during the five-year period prior to the Closing Date
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been and, to the Company’s Knowledge, there is not pending or
contemplated, any investigation by the Commission involving the Company or, to
the Company’s Knowledge, any current or former director or officer of the
Company (in his or her capacity as an officer or director of the Company). The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company under the
Exchange Act or the Securities Act.

 

(n)          Employment Matters. No material labor dispute exists or, to the
Company’s Knowledge, is imminent with respect to any of the employees of the
Company which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s employees is a member of a union that relates to
such employee’s relationship with the Company, and the Company is not a party to
a collective bargaining agreement, and the Company believes that its
relationships with its employees is satisfactory. No executive officer, to the
Company’s Knowledge, is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or proprietary
information agreement or non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each such
executive officer does not subject the Company to any liability with respect to
any of the foregoing matters. To the Company’s Knowledge, the Company is in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

(o)          Compliance. To the Company’s knowledge, the Company is not (i) in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company), nor has the Company received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) in violation of any order of any court,
arbitrator or governmental body having jurisdiction over the Company or its
properties or assets, or (iii) in violation of, or in receipt of notice that it
is in violation of, any statute, rule or regulation of any governmental
authority applicable to the Company, except in each case as could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.

 

(p)          Regulatory Permits. To the Company’s knowledge, the Company
possesses all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct its
business as described in the SEC Reports, except where the failure to possess
such permits, individually or in the aggregate, has not and could not reasonably
be expected to result in a Material Adverse Effect (“Material Permits”), and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such Material Permits.

 

 10 

 

 

(q)          Title to Assets. Except for property that is specifically the
subject of, and covered by, other representations and warranties as to ownership
or title contained herein, the Company has good and marketable title in fee
simple to all real property owned by it that is material to its business and
good and marketable title in all personal property owned by it that is material
to its business, in each case free and clear of all Liens, except for Liens as
do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and Liens for the payment of federal, state or other taxes, the payment
of which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company are held by it under valid,
subsisting and enforceable leases of which the Company is in material
compliance.

 

(r)          Intellectual Property. The Company owns, possesses, licenses or has
other rights to use all foreign and domestic patents, patent applications, trade
and service marks, trade and service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets, technology, Internet domain
names, know-how and other intellectual property (collectively, the “Intellectual
Property”) necessary for the conduct of its business as now conducted or as
proposed to be conducted. Except as set forth in the SEC Reports and except
where such violations or infringements would not reasonably be expected to
result, either individually or in the aggregate, in a Material Adverse Effect,
(a) to the Company’s Knowledge, there are no rights of third parties to any such
Intellectual Property; (b) to the Company’s Knowledge, there is no infringement
by third parties of any such Intellectual Property; (c) there is no pending or,
to the Company’s Knowledge, threatened action, suit, proceeding or claim by
others challenging the Company’s rights in or to any such Intellectual Property,
and the Company is unaware of any facts which would form a reasonable basis for
any such claim; (d) there is no pending or, to the Company’s Knowledge,
threatened action, suit, proceeding or claim by others challenging the validity
or scope of any such Intellectual Property; and (e) there is no pending or, to
the Company’s Knowledge, threatened action, suit, proceeding or claim by others
that the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary rights of others, and the Company
is unaware of any other fact which would form a reasonable basis for any such
claim.

 

(s)          Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses and location in which the Company is
engaged. The Company does not have any knowledge that it will be unable to renew
its existing insurance coverage for the Company as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost.

 

(t)          Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports or reported on a Form 3, 4 or 5 filed with the Commission, in
either case at least ten days prior to the date hereof, none of the executive
officers, directors or employees of the Company is presently a party to any
transaction with the Company (other than for ordinary course services as
employees or directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the Company’s Knowledge, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.

 

(u)          Internal Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

 

 11 

 

 

(v)         Sarbanes-Oxley; Disclosure Controls. To the Company’s knowledge, the
Company is in compliance in all material respects with all of the provisions of
the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing
Date. The Company maintains disclosure controls and procedures (as such term is
defined in Rule 13a-15(e) under the Exchange Act) that are effective in ensuring
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the
Commission, including, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the Company's management, including its principal executive officer or
officers and its principal financial officer or officers, as appropriate, to
allow timely decisions regarding required disclosure.

 

(w)          Certain Fees. No person or entity will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or a Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Company, other than the Placement Agent with respect
to the offer and sale of the Securities. The Placement Agent fees and expenses
are described on Schedule 3.1(w) hereto and are being paid by the Company. The
Company shall pay, and hold each Purchaser harmless against, any liability, loss
or expense (including, without limitation, attorneys’ fees and out-of-pocket
expenses) arising in connection with any such right, interest or claim.

 

(x)          Private Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2 of this Agreement, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers under the Transaction Documents. To
the Company’s Knowledge, other than each of the Purchasers and the Placement
Agent (with respect to the Shares), no Person has any right to cause the Company
to effect the registration under the Securities Act of any securities of the
Company other than those securities which are currently registered on an
effective registration statement on file with the Commission.

 

(y)          No Directed Selling Efforts or General Solicitation. Neither the
Company, nor any of its Affiliates, nor any Person acting on its or their behalf
has conducted any “general solicitation” or “general advertising” (as those
terms are used in Regulation D) in connection with the offer or sale of any of
the Securities.

 

(z)          No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company,
its Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, at any time within the past six months, made any offers or sales of
any Company security or solicited any offers to buy any security under
circumstances that would (i) eliminate the availability of the exemption from
registration under Regulation D under the Securities Act in connection with the
offer and sale by the Company of the Securities as contemplated hereby or (ii)
cause the offering of the Securities pursuant to the Transaction Documents to be
integrated with prior offerings by the Company for purposes of any applicable
law, regulation or shareholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market on which any
of the securities of the Company are listed or designated.

 

(aa)         Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(b) of the Exchange Act, and the Company has
taken no action designed to terminate the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that the
Commission is contemplating terminating such registration. Except as specified
in the SEC Reports, the Company has not, in the two years preceding the date
hereof, received written notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.
The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance in all material respects with the listing
and maintenance requirements for continued trading of the Common Stock on the
Principal Trading Market.

 

 12 

 

 

(bb)         Investment Company The Company is not required to be registered as,
and is not an Affiliate of, and immediately following the Closing will not be
required to register as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

 

(cc)         Questionable Payments. Neither the Company, nor, to the Company’s
Knowledge, any directors, executive officers, employees, agents or other Persons
acting on behalf of the Company has, in the course of its actions for, or on
behalf of, the Company: (a) directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to foreign or domestic political activity; (b) made any direct or indirect
unlawful payments to any foreign or domestic governmental officials or employees
or to any foreign or domestic political parties or campaigns from corporate
funds; (c) violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (d) made any other unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

 

(dd)         Application of Takeover Protections; Rights Agreements. The Company
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's charter documents or the laws of its
state of incorporation that is or could reasonably be expected to become
applicable to any of the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including, without limitation, the Company's issuance of
the Securities and the Purchasers' ownership of the Securities. The Company has
not adopted a shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.

 

(ee)         Disclosure. The Company confirms that neither it nor any of its
executive officers or directors nor any other Person acting on its or their
behalf has provided, and it has not authorized the Placement Agent to provide,
any Purchaser with any information that it believes constitutes or could
reasonably be expected to constitute material, non-public information except
insofar as the existence, provisions and terms of the Transaction Documents and
the proposed transactions hereunder may constitute such information, all of
which will be disclosed by the Company in the Press Release as contemplated by
Section 4.6 hereof. The Company understands and confirms that the Purchasers
will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosures provided to the Purchasers regarding
the Company, its business and the transactions contemplated hereby furnished by
the Company or authorized by the Company and furnished by the Placement Agent on
behalf of the Company (including the Company’s representations and warranties
set forth in this Agreement) are true and correct in all material respects and
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or
its business, properties, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed, to the
Company’s Knowledge, except for the announcement of this Agreement and related
transactions.

 

(ff)         Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

 

 13 

 

 

(gg)         Consultation with Auditors. The Company has consulted its
independent auditors concerning the accounting treatment of the transactions
contemplated by the Transaction Documents and in connection therewith has
furnished such auditors complete copies of the Transaction Documents. The
Company intends to account for the gross proceeds raised from the financing
which is the subject of this Agreement as equity in its financial statements.

 

(hh)         No Additional Agreements. The Company does not have any agreement
or understanding with any Purchaser with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.

 

(ii)         Use of Form S-3. The Company meets the registration and transaction
requirements for use of Form S-3 for the registration of the Shares for resale
by the Purchasers and the Placement Agent.

 

3.2           Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company and the Placement Agent as
follows:

 

(a)          Organization; Authority. If such Purchaser is not a natural person,
(i) such Purchaser is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with the
requisite corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the applicable Transaction Documents
and otherwise to carry out its obligations hereunder and thereunder, and (ii)
the execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or, if such Purchaser is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such
Purchaser. Each of this Agreement and the Registration Rights Agreement has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.

 

(b)          Investment Intent. Such Purchaser understands that the Securities
are “restricted securities” and have not been registered under the Securities
Act or any applicable state securities law, and is acquiring the Securities as
principal for its own account and not with a view to, or for distributing or
reselling such Securities or any part thereof in violation of the Securities Act
or any applicable state securities laws, provided, however, that by making the
representations herein, such Purchaser does not agree to hold any of the
Securities for any minimum period of time and reserves the right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act or under an
exemption from such registration and in compliance with applicable federal and
state securities laws, subject to the limitations set forth herein and under the
securities laws. Such Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. Such Purchaser does not presently have any
agreement, plan or understanding, directly or indirectly, with any Person to
distribute or effect any distribution of any of the Securities (or any
securities which are derivatives thereof) to or through any person or entity.
Such Purchaser is not a registered broker-dealer under Section 15 of the
Exchange Act or an entity engaged in a business that would require it to be so
registered as a broker-dealer.

 

 14 

 

 

(c)          Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, an “accredited investor” as
defined in Rule 501(a) under the Securities Act.

 

(d)          General Solicitation.  Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general advertisement.

 

(e)          Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.

 

(f)          Access to Information. Such Purchaser acknowledges that it has had
the opportunity to review the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and its financial
condition, results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the opportunity to
obtain such additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment. Neither such inquiries nor
any other investigation conducted by or on behalf of such Purchaser or its
representatives or counsel shall modify, amend or affect such Purchaser's right
to rely on the Company's representations and warranties contained in the
Transaction Documents.

 

(g)           Certain Trading Activities. Other than with respect to the
transactions contemplated herein, since the earlier to occur of (1) the time
that such Purchaser was first contacted by the Company, the Placement Agent or
any other Person regarding the transactions contemplated hereby and (2) the
tenth (10th) day prior to the date of this Agreement, neither the Purchaser nor
any Affiliate of such Purchaser which (x) had knowledge of the transactions
contemplated hereby, (y) has or shares discretion relating to such Purchaser’s
investments or trading or information concerning such Purchaser’s investments,
including in respect of the Securities, and (z) is subject to such Purchaser’s
review or input concerning such Affiliate’s investments or trading
(collectively, “Trading Affiliates”) has directly or indirectly, nor has any
Person acting on behalf of or pursuant to any understanding with such Purchaser
or Trading Affiliate, effected or agreed to effect any transactions in the
securities of the Company (including, without limitation, any Short Sales
involving the Company’s securities). Notwithstanding the foregoing, in the case
of a Purchaser and/or Trading Affiliate that is, individually or collectively, a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's or Trading Affiliate’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's or Trading
Affiliate’s assets, the representation set forth above shall apply only with
respect to the portion of assets managed by the portfolio manager that have
knowledge about the financing transaction contemplated by this Agreement. Other
than to other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6, subject to the
restrictions set forth in Section 4.9.

 

(h)          Brokers and Finders. No Person will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or any Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Purchaser, other than the Placement Agent.

 

 15 

 

 

(i)          Limited Ownership. The purchase by such Purchaser of the Securities
issuable to it at the Closing will not result in such Purchaser (individually or
together with other Person with whom such Purchaser has identified, or will have
identified, itself as part of a “group” in a public filing made with the
Commission involving the Company’s securities) acquiring, or obtaining the right
to acquire, in excess of 19.99% of the outstanding shares of Common Stock or the
voting power of the Company on a post transaction basis that assumes that the
Closing shall have occurred. Such Purchaser does not presently intend to, alone
or together with others, make a public filing with the Commission to disclose
that it has (or that it together with such other Persons have) acquired, or
obtained the right to acquire, as a result of the Closing (when added to any
other securities of the Company that it or they then own or have the right to
acquire), in excess of 19.99% of the outstanding shares of Common Stock or the
voting power of the Company on a post transaction basis that assumes that the
Closing shall have occurred.

 

(j)          Independent Investment Decision. Such Purchaser has independently
evaluated the merits of its decision to purchase Securities pursuant to the
Transaction Documents, and such Purchaser confirms that it has not relied on the
advice of any other Purchaser’s business and/or legal counsel in making such
decision. Such Purchaser understands that nothing in this Agreement or any other
materials presented by or on behalf of the Company to the Purchaser in
connection with the purchase of the Securities constitutes legal, tax or
investment advice. Such Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Securities. Such Purchaser understands that
the Placement Agent has acted solely as the agent of the Company in this
placement of the Securities and such Purchaser has not relied on the business or
legal advice of the Placement Agent or any of its agents, counsel or Affiliates
in making its investment decision hereunder, and confirms that none of such
Persons has made any representations or warranties to such Purchaser in
connection with the transactions contemplated by the Transaction Documents.

 

(k)          Reliance on Exemptions. Such Purchaser understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgements and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities.

 

(l)          No Governmental Review. Such Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

(m)        Indemnification. Each Purchaser hereby agrees to indemnify and defend
the Company, and each of its respective officers and directors, and hold them
harmless from and against any and all claims, liabilities, damages and expenses
(including, without limitation, court costs and attorneys' fees) incurred on
account of or arising out of:

 

Any breach of or inaccuracy in the Purchaser's representations, warranties or
agreements in this Agreement or in the Questionnaire(s), including without
limitation the defense of any claim based on any allegation of fact inconsistent
with any of such representations, warranties or agreements;

 

 16 

 

 

Any disposition of Shares or Warrants contrary to any of such representations,
warranties or agreements; or

 

Any action, suit or proceeding based on (1) a claim that any of such
representations, warranties or agreements were inaccurate or misleading or
otherwise cause for obtaining damages or redress under the 1933 Act or any other
securities law, or (2) any disposition of any part or all of the Interests.

 

The Company acknowledges and agrees that no Purchaser has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1           (a)          Compliance with Laws. Notwithstanding any other
provision of this Article IV, each Purchaser covenants that the Shares may be
disposed of only pursuant to an effective registration statement under, and in
compliance with the requirements of, the Securities Act, or pursuant to an
available exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act, and in compliance with any applicable state
and federal securities laws. In connection with any transfer of the Securities
other than (i) pursuant to an effective registration statement, (ii) to the
Company, (iii) to an Affiliate of a Purchaser, (iv) pursuant to Rule 144
(provided that the Purchaser provides the Company with reasonable assurances (in
the form of seller and broker representation letters or an opinion of counsel,
as appropriate) that the securities may be sold pursuant to such rule) or Rule
144A, or (v) in connection with a bona fide pledge as contemplated in Section
4.1(b), except as otherwise provided herein, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.

 

(b)          Legends. Certificates evidencing the Securities shall bear any
legend as required by the “blue sky” laws of any applicable state and a
restrictive legend in substantially the following form, until such time as they
are not required under Section 4.1(c):

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY.

 

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The Company acknowledges and agrees that a Purchaser may from time to time
pledge, and/or grant a security interest in, some or all of the legended
Securities in connection with applicable securities laws, pursuant to a bona
fide margin agreement in compliance with a bona fide margin loan. Such a pledge
would not be subject to approval or consent of the Company and no legal opinion
of legal counsel to the pledgee, secured party or pledgor shall be required in
connection with the pledge, but such legal opinion shall be required in
connection with a subsequent transfer or foreclosure following default by the
Purchaser's transferee of the pledge. No notice shall be required of such
pledge, but Purchaser’s transferee shall promptly notify the Company of any such
subsequent transfer or foreclosure. Each Purchaser acknowledges that the Company
shall not be responsible for any pledges relating to, or the grant of any
security interest in, any of the Securities or for any agreement, understanding
or arrangement between any Purchaser and its pledgee or secured party. At the
appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Shares may reasonably
request in connection with a pledge or transfer of the Shares, including the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) of the Securities Act or other applicable provision of the Securities
Act to appropriately amend the list of Selling Shareholders thereunder. Each
Purchaser acknowledges and agrees that, except as otherwise provided in Section
4.1(c), any Securities subject to a pledge or security interest as contemplated
by this Section 4.1(b) shall continue to bear the legend set forth in this
Section 4.1(b) and be subject to the restrictions on transfer set forth in
Section 4.1(a).

 

(c)          Removal of Legends. The legend set forth in Section 4.1(b) above
shall be removed and the Company shall issue a certificate without such legend
to the holder of the Securities upon which it is stamped, if (i) such Securities
are registered for resale under the Securities Act, (ii) such Securities are
sold or transferred pursuant to Rule 144 (assuming the transferor is not an
Affiliate of the Company) or Rule 144A, or (iii) such Securities are eligible
for sale under Rule 144 without application of the requirements of paragraph
(c)(1) thereof. The Company shall cause its counsel to issue the legal opinion
referred to in the Irrevocable Transfer Agent Instructions to the Company’s
transfer agent on the Effective Date. Any fees (with respect to the Transfer
Agent, counsel to the Company or otherwise) associated with the issuance of such
opinion or the removal of such legend shall be borne by the Company. Following
the Effective Date, or at such earlier time as a legend is no longer required
for certain Securities, the Company will no later than three (3) Trading Days
following the delivery by a Purchaser to the Company or the Transfer Agent (with
notice to the Company) of a legended certificate representing such Shares
(endorsed or with stock powers attached, signatures guaranteed, and otherwise in
form necessary to affect the reissuance and/or transfer), deliver or cause to be
delivered to such Purchaser a certificate representing such Securities that is
free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to the Transfer Agent that enlarge
the restrictions on transfer set forth in this Section.

 

(d)          Irrevocable Transfer Agent Instructions.  The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates registered in the name of each Purchaser or its
respective nominee(s), for the Shares in such amounts as specified from time to
time by each Purchaser to the Company in the form of Exhibit D attached hereto
(the “Irrevocable Transfer Agent Instructions”).

 

(e)          Acknowledgement. Each Purchaser hereunder acknowledges its primary
responsibilities under the Securities Act and accordingly will not sell the
Securities or any interest therein without complying with the requirements of
the Securities Act. While the above-referenced registration statement remains
effective, each Purchaser hereunder may sell the shares in accordance with the
plan of distribution contained in the registration statement and if it does so
it will comply therewith and with the related prospectus delivery requirements
unless an exemption therefrom is available. Each Purchaser, severally and not
jointly with the other Purchasers, agrees that if it is notified by the Company
at any time after the date any legend is removed pursuant to Section 4.1(c)
hereof that the registration statement registering the resale of the Shares is
not effective or that the prospectus included in such registration statement no
longer complies with the requirements of Section 10 of the Securities Act, the
Purchaser will refrain from selling such Shares until such time as the Purchaser
is notified by the Company that such registration statement is effective or such
prospectus is compliant with Section 10 of the Exchange Act, unless such
Purchaser is able to, and does, sell such Shares pursuant to an available
exemption from the registration requirements of Section 5 of the Securities Act.
Each Purchaser, severally and not jointly with the other Purchasers, agrees to
indemnify the Company for any damages or losses resulting to the Company from
the Purchaser’s breach of its covenants set forth in the preceding sentence.

 

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4.2           Furnishing of Information. In order to enable the Purchasers to
sell the Securities under Rule 144 of the Securities Act, for a period of one
year from the Closing, the Company shall use its commercially reasonable efforts
to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. During such one year period, if
the Company is not required to file reports pursuant to such laws, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to sell the
Shares under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell the Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.

 

4.3            Reporting Status. During the one year period from and after the
Closing, the Company shall not terminate its status as an issuer required to
file reports under the Exchange Act even if the Exchange Act would otherwise
permit such termination.

 

4.4            Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to the Placement Agent promptly after such filing. The Company, on or
before the Closing Date, shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Purchasers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Placement Agent on or prior to the
Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or “Blue
Sky” laws of the states of the United States following the Closing Date.

 

4.5            No Integration. The Company shall not, and shall use its best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that will be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that will be integrated with the offer or sale of the Securities for purposes of
the rules and regulations of any Trading Market such that it would require
shareholder approval prior to the closing of such other transaction unless
shareholder approval is obtained before the closing of such subsequent
transaction.

 

4.6           Securities Laws Disclosure; Publicity. By 8:30 a.m. (prevailing
Central time) on the Trading Day immediately following the Closing, the Company
shall issue a press release (the “Press Release”) reasonably acceptable to the
Placement Agent disclosing all material terms of the transactions contemplated
hereby. On or before 8:30 a.m. (prevailing Central time) on the Trading Day
following the Closing Date, the Company will file a Current Report on Form 8-K
with the Commission describing the terms of the Transaction Documents (and
including as exhibits to such Current Report on Form 8-K the material
Transaction Documents (including, without limitation, this Agreement and the
Registration Rights Agreement)). Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser or an Affiliate of any
Purchaser, or include the name of any Purchaser or an Affiliate of any
Purchaser, in any press release without the prior written consent of such
Purchaser, except to the extent such disclosure is required by law, request of
the Staff of the Commission or Trading Market regulations. From and after the
issuance of the Press Release, no Purchaser shall be in possession of any
material, non-public information received from the Company or any of its
executive officers, directors, employees or agents, that is not disclosed in the
Press Release. The Company shall not, and shall cause each of its executive
officers, directors, employees and agents, not to, provide any Purchaser with
any material, non-public information regarding the Company from and after the
filing of the Press Release without the express written consent of such
Purchaser. Each Purchaser, severally and not jointly with the other Purchasers,
covenants that until such time as the transactions contemplated by this
Agreement are publicly disclosed by the Company as described in Section 4.6,
such Purchaser will maintain the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).

 

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4.7           Listing of Shares. Promptly following the date hereof, the Company
shall take all necessary action to cause the Shares to be listed upon the
Principal Trading Market, if any, upon which Shares are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing. Further, if the Company applies
to have its Common Stock or other securities listed on any other Trading Market,
it shall include in such application the Shares and will take such other action
as is necessary to cause the Shares to be listed on such other Trading Market as
promptly as practicable.

 

4.8           Use of Proceeds. The Company intends to use the net proceeds from
the sale of the Securities hereunder for working capital and other general
corporate purposes, including to finance its growth, develop new products and
fund capital expenditures. Pending the use of the net proceeds from this
offering, the Company intends to invest the proceeds in a variety of capital
preservation investments, including short-term, investment-grade and
interest-bearing instruments.

 

4.9            Sales and Confidentiality After The Date Hereof. Such Purchaser
shall not, and shall cause its Trading Affiliates not to, engage, directly or
indirectly, in any transactions in the securities of the Company (including,
without limitation, any Short Sales) during the period from the date hereof
until such time as (i) the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.6, or (ii) this Agreement is
terminated in full pursuant to Section 6.15. Notwithstanding the foregoing, in
the case of a Purchaser that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Purchaser's assets
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser's
assets, the representation set forth above shall apply only with respect to the
portion of assets managed by the portfolio manager that have knowledge about the
financing transaction contemplated by this Agreement. Each Purchaser understands
and acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that covering a short position
established prior to effectiveness of a resale registration statement with
shares included in such registration statement would be a violation of Section 5
of the Securities Act, as set forth in Item 65, Section 5 under Section A, of
the Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.

 

ARTICLE V.

CONDITIONS PRECEDENT TO CLOSING

 

5.1          Conditions Precedent to the Obligations of the Purchasers to
Purchase Securities. The obligation of each Purchaser to acquire Securities at
the Closing is subject to the fulfillment to such Purchaser’s satisfaction, on
or prior to the Closing Date, of each of the following conditions, any of which
may be waived by such Purchaser (as to itself only):

 

(a)          Representations and Warranties. The representations and warranties
of the Company contained herein shall be true and correct in all material
respects as of the date when made and as of the Closing Date, as though made on
and as of the Closing Date, except for representations and warranties that speak
as of a specific date which shall be true and correct in all material respects
as of such date;

 

 20 

 

 

(b)          Performance. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing;

 

(c)          No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents;

 

(d)          Consents. The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary or
appropriate for consummation of the purchase and sale of the Securities, all of
which shall be and remain so long as necessary in full force and effect;

 

(e)          Adverse Changes. Since the date of execution of this Agreement, no
event or series of events shall have occurred that has resulted or reasonably
could result in a Material Adverse Effect;

 

(f)          No Suspensions of Trading in Common Stock; Listing. The Common
Stock (i) shall be designated for quotation or listed on the Principal Market
and (ii) shall not have been suspended, as of the Closing Date, by the
Commission or the Principal Market from trading on the Principal Market nor
shall suspension by the Commission or the Principal Market have been threatened,
as of the Closing Date, either (A) in writing by the Commission or the Principal
Market or (B) by falling below the minimum listing maintenance requirements of
the Principal Market;

 

(g)          Company Deliverables. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a);

 

(h)          Compliance Certificate. The Company shall have delivered to each
Purchaser a certificate, dated as of the Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1(a),
(b), (c), (d) and (f); and

 

(i)          Termination. This Agreement shall not have been terminated as to
such Purchaser in accordance with Section 6.15 herein.

 

5.2          Conditions Precedent to the Obligations of the Company to Sell
Securities. The Company's obligation to sell and issue the Securities at the
Closing is subject to the fulfillment to the satisfaction of the Company on or
prior to the Closing Date of the following conditions, any of which may be
waived by the Company:

 

(a)          Representations and Warranties. The representations and warranties
made by the Purchasers in Section 3.2 hereof shall be true and correct in all
material respects as of the date when made, and as of the Closing Date as though
made on and as of the Closing Date, except for representations and warranties
that speak as of a specific date which shall be true and correct in all material
respects as of such date;

 

 21 

 

 

(b)          Performance. The Purchasers shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing Date;

 

(c)          No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents;

 

(d)          Consents. The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary or
appropriate for consummation of the purchase and sale of the Securities, all of
which shall be and remain so long as necessary in full force and effect;

 

(e)          Purchasers Deliverables. Each Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section 2.2(b); and

 

(f)          Termination. This Agreement shall not have been terminated as to
such Purchaser in accordance with Section 6.15 herein.

 

ARTICLE VI.
MISCELLANEOUS

 

6.1           Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules. At or after the Closing, and without further
consideration, the Company and the Purchasers will execute and deliver to the
other such further documents as may be reasonably requested in order to give
practical effect to the intention of the parties under the Transaction
Documents.

 

6.2           Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number specified in this Section prior to 5:00 p.m. (prevailing
Central time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 5:00 p.m. (prevailing Central time) on any Trading Day, (c) the
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service with next day delivery specified, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:

 

  If to the Company: CTI Industries Corporation     22160 N. Pepper Road    
Lake Barrington, Illinois   60010     Telephone No. (847) 382-1000     Facsimile
No. (847) 382-1219     Attention: Stephen M. Merrick, President         With a
copy to: Vanasco Genelly & Miller     33 N. LaSalle Street, Suite 2200

    Chicago, Illinois  60602     Telephone No. (312) 786-5100     Facsimile No.
(312) 786-5111     Attention: Gerald M. Miller, Esq.         If to a Purchaser:
To the address set forth under such Purchaser’s name on the signature page
hereof;

 

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

 

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6.3           Amendments; Waivers; No Additional Consideration. No provision of
this Agreement may be waived or amended except in a written instrument signed,
in the case of an amendment, by the Company and each of the Purchasers or, in
the case of a waiver, by the party against whom enforcement of any such waiver
is sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right. No consideration shall be offered or paid to any Purchaser to amend or
consent to a waiver or modification of any provision of any Transaction Document
unless the same consideration is also offered to all Purchasers who then hold
Securities.

 

6.4           Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.

 

6.5           Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of and be binding upon the parties and their successors and
permitted assigns. This Agreement, or any rights or obligations hereunder, may
not be assigned by the Company without the prior written consent of the
Purchasers. Any Purchaser may assign its rights hereunder in whole or in part to
any Person to whom such Purchaser assigns or transfers any Securities in
compliance with this Agreement and applicable law, provided such transferee
shall agree in writing to be bound, with respect to the transferred Securities,
by the terms and conditions of this Agreement that apply to the “Purchasers”.

 

6.6            No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except the Placement Agent is an intended third party
beneficiary of Article III hereof and the Placement Agent may enforce the
provisions of such Sections directly against the parties with obligations
thereunder.

 

 23 

 

 

6.7           Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Illinois, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the Illinois
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the Illinois Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such Illinois Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. If either party shall
commence a Proceeding to endorse any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorney’s fees and other reasonable costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

 

6.8           Survival. Subject to applicable statute of limitations, the
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery of the Securities.

 

6.9           Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such signature page were an original thereof.

 

6.10         Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

 

6.11         Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

 

6.12         Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company and the Transfer Agent of such loss, theft or destruction and the
execution by the holder thereof of a customary lost certificate affidavit of
that fact and an agreement to indemnify and hold harmless the Company and the
Transfer Agent for any losses in connection therewith or, if required by the
Transfer Agent, a bond in such form and amount as is reasonably required by the
Transfer Agent. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities. If a replacement certificate or
instrument evidencing any Securities is requested due to a mutilation thereof,
the Company may require delivery of such mutilated certificate or instrument as
a condition precedent to any issuance of a replacement.

 

 24 

 

 

6.13         Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be deemed to be amended to appropriately account for such event.

 

6.14         Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Securities pursuant to the Transaction Documents has been made by such
Purchaser independently of any other Purchaser and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or
given by any other Purchaser or by any agent or employee of any other Purchaser,
and no Purchaser and any of its agents or employees shall have any liability to
any other Purchaser (or any other Person) relating to or arising from any such
information, materials, statement or opinions. Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment in the Securities or enforcing its rights under the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the
Purchasers has been provided with the same Transaction Documents for the purpose
of closing a transaction with multiple Purchasers and not because it was
required or requested to do so by any Purchaser. The Company’s obligations to
each Purchaser under this Agreement are identical to its obligations to each
other Purchaser other than such differences resulting solely from the number of
Securities purchased by such Purchaser, but regardless of whether such
obligations are memorialized herein or in another agreement between the Company
and a Purchaser.

 

6.15         Termination. This Agreement may be terminated and the sale and
purchase of the Securities abandoned at any time prior to the Closing by either
the Company or any Purchaser (with respect to itself only) upon written notice
to the other, if the Closing has not been consummated on or prior to 5:00 p.m.
(prevailing Central time) on the Outside Date; provided, however, that the right
to terminate this Agreement under this Section 6.15 shall not be available to
any Person whose failure to comply with its obligations under this Agreement has
been the cause of or resulted in the failure of the Closing to occur on or
before such time. Nothing in this Section 6.15 shall be deemed to release any
party from any liability for any breach by such party of the terms and
provisions of this Agreement or the other Transaction Documents or to impair the
right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents. In the
event of a termination pursuant to this Section, the Company shall promptly
notify all non-terminating Purchasers. Upon a termination in accordance with
this Section, the Company and the terminating Purchaser(s) shall not have any
further obligation or liability (including arising from such termination) to the
other, and no Purchaser will have any liability to any other Purchaser under the
Transaction Documents as a result therefrom.

 

 25 

 

 

TO ALL PURCHASERS:

 

THE PURCHASE OF THE SECURITIES OFFERED HEREBY IS SUITABLE ONLY FOR THOSE WHOSE
BUSINESS AND INVESTMENT EXPERIENCE MAKE THEM CAPABLE OF EVALUATING, EITHER ALONE
OR TOGETHER WITH A QUALIFIED PURCHASER REPRESENTATIVE (ATTORNEY, ACCOUNTANT OR
OTHER QUALIFIED FINANCIAL ADVISOR), THE MERITS AND RISKS OF AN INVESTMENT IN THE
COMPANY AND WHO CAN AFFORD TO BEAR THE ECONOMIC RISK OF THEIR INVESTMENT FOR AN
INDEFINITE PERIOD AND HAVE NO NEED FOR LIQUIDITY IN SUCH AN INVESTMENT.

 

EACH RECIPIENT MUST RELY UPON HIS OR HER OWN REPRESENTATIVES, INCLUDING LEGAL,
ACCOUNTING AND INVESTMENT COUNSEL AS TO LEGAL, TAX AND RELATED MATTERS.

 

EACH INVESTOR MUST ACQUIRE SUCH SECURITIES SOLELY FOR SUCH INVESTOR’S OWN
ACCOUNT, FOR INVESTMENT AND NOT WITH AN INTENTION OF DISTRIBUTION, TRANSFER OR
RESALE EITHER IN WHOLE OR IN PART.

 

THESE SECURITIES ARE BEING SOLD PURSUANT TO RULE 506 OF REGULATION D OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATIONS THEREUNDER OR EXEMPTIONS THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MIGHT BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

  CTI INDUSTRIES CORPORATION         By:       Timothy Patterson, Chief
Financial Officer

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES for purchasers FOLLOW]

 

 

 

 

  NAME OF PURCHASER: ____________________________

 

  By:     Name:     Title:  

 

  Purchase Price (Subscription Amount): $_________________       Tax ID No. (or
Social Security No., if an individual):               Address for Notice:      
         

 

  Telephone No.:           Facsimile No.:  

 

  Email:           Attention:  

 

 

 

 

EXHIBITS:

 

A:Form of Registration Rights Agreement

 

B-1:Accredited Investor Questionnaire

 

B-2:Stock Certificate Questionnaire

 

C:Form of Opinion of Company Counsel

 

D:Irrevocable Transfer Agent Instructions

 

E:Wire Instructions

 

SCHEDULES:

 

3.1(w)Certain Fees

 

Instruction Sheet for Subscribers

 

 

 

Exhibit A

 

Form of Registration Rights Agreement

 

 A-1 

 

 

EXHIBIT B-1

 

ACCREDITED INVESTOR QUESTIONNAIRE

 

 B-1-1 

 

 

Exhibit B-2

 

Securities Questionnaire

 

Pursuant to Section 2.2(b) of the Agreement, please provide us with the
following information:

 

1. The exact name that the Securities are to be registered in (this is the name
that will appear on the stock certificate(s)).  You may use a nominee name if
appropriate:             2. If Securities are being registered in a name other
than that of the Purchaser (as reflected on the signature page to the Securities
Purchase Agreement), the relationship between the Purchaser of the Securities
and the Registered Holder listed in response to Item 1 above:             3. The
mailing address, telephone and facsimile number of the Registered Holder listed
in response to Item 1 above:                                                    
                        4. The Tax Identification Number (or, if an individual,
the Social Security Number) of the Registered Holder listed in response to Item
1 above:    

 

 B-2-1 

 

 

Exhibit C

 

Form of Opinion of Company Counsel

 

 C-1 

 

 

EXHIBIT D

 

Form of Irrevocable Transfer Agent Instructions

 

 D-1 

 

 

Annex I

 

Form of Notice of Effectiveness of Registration Statement

 

 D-2 

 

 

EXHIBIT E

 

WIRE INSTRUCTIONS

 

 E-1 

 

 

Schedule 3.1(w)

 

Certain Fees

 

As compensation for services provided in connection with the transactions
contemplated by this Agreement, the Placement Agent will receive (i) a cash
placement fee equal to 8.0% of the gross proceeds from the sale of Securities in
the transactions contemplated by this Agreement.

 

The Company has also agreed to reimburse the Placement Agent for up to $25,000
of its reasonable out-of-pocket expenses incurred in connection with the
services rendered.

 

 

 

 

Instruction Sheet for Subscribers

 

(to be read in conjunction with the entire Securities Purchase Agreement and
Registration Rights Agreement)

 

A.Complete the following items in the Securities Purchase Agreement and/or
Registration Rights Agreement:

 

1.Provide the information regarding the Purchaser requested on the signature
page. The Securities Purchase Agreement must be executed by an individual
authorized to bind the Purchaser.

 

2.Exhibit B-1 – Accredited Investor Questionnaire:

 

Provide the information requested by the Accredited Investor Questionnaire

 

3.Exhibit B-2 - Securities Questionnaire

 

Provide the information requested by the Securities Questionnaire

 

4.Annex B to the Registration Rights Agreement — Selling Securityholder Notice
and Questionnaire

 

Provide the information requested by the Selling Securityholder Notice and
Questionnaire

 

5.Return the signed Securities Purchase Agreement and Registration Rights
Agreement to:

 

Joseph P. Sullivan

Dougherty & Company LLC

90 South Seventh Street, Suite 4300

Minneapolis, MN 55402-4115

Office: 612.317.2179

 

B.Wire funds for the purchase of the Securities to the Escrow Agent. The wire
transfer information is set forth on Exhibit E to the Securities Purchase
Agreement.