Document:

Unassociated Document

    CTI
      INDUSTRIES CORPORATION 

    PLACEMENT
      AGENT AGREEMENT

    

    

    Dated
      as
      of: June
      6,
      2006

    

    Newbridge
      Securities Corporation

    1451
      Cypress Creek Road, Suite 204

    Fort
      Lauderdale, Florida 33309

    

    

    Ladies
      and Gentlemen:

    

    The
      undersigned, CTI Industries Corporation, a Illinois corporation (the
“Company”),
      hereby agrees with
      Newbridge Securities Corporation (the “Placement
      Agent”)
      as
      follows:

     

    1. Offering.
      The
      Company hereby engages the Placement Agent to act as its exclusive placement
      agent in connection with the Standby Equity Distribution Agreement dated the
      date hereof between the Company and Cornell Capital Partners, LP (the
“Investor”)
      (the
“Standby
      Equity Distribution Agreement”),
      pursuant to which the Company shall issue and sell to the Investor, from time
      to
      time, and the Investor shall purchase from the Company (the “Offering”)
      up to
      Five Million Dollars ($5,000,000) (the “Commitment
      Amount”)
      of the
      Company’s common stock, no par value per share (the “Common
      Stock”),
      at
      price per share equal to the Purchase Price, as that term is defined in the
      Standby Equity Distribution Agreement. The
      Placement Agent services
      shall
      consist of reviewing
      the
terms
      of
the
      Standby Equity Distribution Agreement and advising
      the
      Company with
      respect to those
      terms.

     

    All
      capitalized terms used herein and not otherwise defined herein shall have the
      same meaning ascribed to them as in the Standby Equity Distribution Agreement.
      The Investor will be granted certain registration rights with respect to the
      Common Stock as more fully set forth in the Registration Rights Agreement
      between the Company and the Investor dated the date hereof (the “Registration
      Rights Agreement”).
      The
      documents to be executed and delivered in connection with the Offering,
      including, but not limited, to the
      Company’s latest Quarterly Report on Form 10-QSB as filed with the United States
      Securities and Exchange Commission, this
      Agreement, the Standby Equity Distribution Agreement, and the Registration
      Rights Agreement are referred to sometimes hereinafter collectively as the
      “Offering
      Materials.”
The
      Company’s Common Stock
      purchased by the Investor under
      the
      Standby Equity Distribution Agreement is sometimes referred to hereinafter
      as
      the “Securities.”
The
      Placement Agent shall not be obligated to sell any Securities.

     

    2. Compensation.

     

    A. Upon
      the
      execution of this Agreement, the Company shall issue to the Placement Agent
      or
      its designee three thousand five hundred (3,500) shares of the Company’s Common
      Stock (the “Placement
      Agent’s Shares”).
      The
      Placement Agent shall be entitled to “piggy-back” registration rights with
      respect to the Placement Agent’s Shares, which shall be triggered upon
      registration of any shares of Common Stock by the Company pursuant to the
      Registration Rights Agreement dated the date hereof. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3. Representations,
      Warranties and Covenants of the Placement Agent.

     

    A. The
      Placement Agent represents, warrants and covenants as follows:

     

    (i) The
      Placement Agent has the necessary power to enter into this Agreement and to
      consummate the transactions contemplated hereby.

     

    (ii) The
      execution and delivery by the Placement Agent of this Agreement and the
      consummation of the transactions contemplated herein will not result in any
      violation of, or be in conflict with, or constitute a default under, any
      agreement or instrument to which the Placement Agent is a party or by which
      the
      Placement Agent or its properties are bound, or any judgment, decree, order
      or,
      to the Placement Agent’s knowledge, any statute, rule or regulation applicable
      to the Placement Agent. This Agreement when executed and delivered by the
      Placement Agent, will constitute the legal, valid and binding obligations of
      the
      Placement Agent, enforceable in accordance with their respective terms, except
      to the extent that (a) the enforceability hereof or thereof may be limited
      by
      bankruptcy, insolvency, reorganization, moratorium or similar laws from time
      to
      time in effect and affecting the rights of creditors generally, (b) the
      enforceability hereof or thereof is subject to general principles of equity,
      or
      (c) the indemnification provisions hereof or thereof may be held to be in
      violation of public policy.

     

    (iii) Upon
      receipt and execution of this Agreement, the Placement Agent will promptly
      forward copies of this Agreement to the Company or its counsel and the Investor
      or its counsel.

     

    (iv) The
      Placement Agent will not intentionally take any action that it reasonably
      believes would cause the Offering to violate the provisions of the Securities
      Act of 1933, as amended (the “1933
      Act”),
      the
      Securities Exchange Act of 1934 (the “1934
      Act”),
      the
      respective rules and regulations promulgated thereunder
      (the
“Rules
      and Regulations”)
      or
      applicable “Blue Sky” laws of any state or jurisdiction.

     

    (v) The
      Placement Agent is a member of the National Association of Securities Dealers,
      Inc., and is a broker-dealer registered as such under the 1934 Act and under
      the
      securities laws of the states in which the Securities will be offered or sold
      by
      the Placement Agent unless an exemption for such state registration is available
      to the Placement Agent. The Placement Agent is in material
      compliance
      with the
      rules
      and regulations applicable to the Placement Agent generally and applicable
      to
      the Placement Agent’s participation in the Offering.

     

    4. Representations
      and Warranties of the Company.

     

    A. The
      Company represents and warrants as follows:

     

    (i) The
      execution, delivery and performance of each of this Agreement, the Standby
      Equity Distribution Agreement, and the Registration Rights Agreement has been
      or
      will be duly and validly authorized by the Company and is, or with respect
      to
      this Agreement, the Standby Equity Distribution Agreement, and the Registration
      Rights Agreement will be, a valid and binding agreement of the Company,
      enforceable in accordance with its respective terms, except to the extent that
      (a) the enforceability hereof or thereof may be limited by bankruptcy,
      insolvency, reorganization, moratorium or similar laws from time to time in
      effect and affecting the rights of creditors generally, (b) the enforceability
      hereof or thereof is subject to general principles of equity or (c) the
      indemnification provisions hereof or thereof may be held to be in violation
      of
      public policy. The Securities to be issued pursuant to the transactions
      contemplated by this Agreement and the Standby Equity Distribution Agreement
      have been duly authorized and, when issued and paid for in accordance with
      this
      Agreement and the Standby Equity Distribution Agreement will be valid and
      binding obligations of the Company, enforceable in accordance with their
      respective terms, except to the extent that (1) the enforceability thereof
      may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
      laws from time to time in effect and affecting the rights of creditors
      generally, and (2) the enforceability thereof is subject to general principles
      of equity. All corporate action required to be taken for the authorization,
      issuance and sale of the Securities has been duly and validly taken by the
      Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (ii) The
      Company has a duly authorized, issued and outstanding capitalization as set
      forth herein and in the Standby Equity Distribution Agreement. The Company
      is
      not a party to or bound by any instrument, agreement or other arrangement
      providing for it to issue any capital stock, rights, warrants, options or other
      securities, except for this Agreement, the agreements described herein and
      as
      described in the Standby Equity Distribution Agreement and the agreements
      described therein.
      All
      issued and outstanding securities of the Company, have been duly authorized
      and
      validly issued and are fully paid and non-assessable; the holders thereof have
      no rights of rescission or preemptive rights with respect thereto and are not
      subject to personal liability solely by reason of being security holders; and
      none of such securities were issued in violation of the preemptive rights of
      any
      holders of any security of the Company. 

     

    (iii) The
      Common Stock to be issued in accordance with this Agreement and the Standby
      Equity Distribution Agreement have been duly authorized and, when issued and
      paid for in accordance with this Agreement, the Standby Equity Distribution
      Agreement and the certificates/instruments representing such Common Stock will
      be validly issued, fully-paid and non-assessable; the holders thereof will
      not
      be subject to personal liability solely by reason of being such holders; such
      Securities are not and will not be subject to the preemptive rights of any
      holder of any security of the Company.

     

    (iv) The
      Company has good and marketable title to, or valid and enforceable leasehold
      estates in, all items of real and personal property necessary to conduct its
      business (including, without limitation, any real or personal property stated
      in
      the Offering Materials to be owned or leased by the Company), free and clear
      of
      all liens, encumbrances, claims, security interests and defects of any material
      nature whatsoever, other than those set forth in the Offering Materials and
      liens for taxes not yet due and payable.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (v) There
      is
      no litigation or governmental proceeding pending or, to the best of the
      Company’s knowledge, threatened against, or involving the properties or business
      of the Company, except as set forth in the Offering Materials. 

     

    (vi) The
      Company is duly organized and validly exists as a corporation in good standing
      under the laws of the State of Illinois. Except as set forth in the Offering
      Materials, the Company does not own or control, directly or indirectly, an
      interest in any other corporation, partnership, trust, joint venture or other
      business entity. The Company is duly qualified or licensed and in good standing
      as a foreign corporation in each jurisdiction in which the character of its
      operations requires such qualification or licensing and where failure to so
      qualify would have a material adverse effect on the Company. The Company has
      all
      requisite corporate power and authority, and all material and necessary
      authorizations, approvals, orders, licenses, certificates and permits of and
      from all governmental regulatory officials and bodies (domestic and foreign)
      to
      conduct its businesses (and proposed business) as described in the Offering
      Materials. Any disclosures in the Offering Materials concerning the effects
      of
      foreign, federal, state and local regulation on the Company’s businesses as
      currently conducted and as contemplated are correct in all material respects
      and
      do not omit to state a material fact. The Company has all corporate power and
      authority to enter into this Agreement, the Standby Equity Distribution
      Agreement, the Registration Rights Agreement, and to carry out the provisions
      and conditions hereof and thereof, and all consents, authorizations, approvals
      and orders required in connection herewith and therewith have been obtained.
      No
      consent, authorization or order of, and no filing with, any court, government
      agency or other body is required by the Company for the issuance of the
      Securities or execution and delivery of the Offering Materials except for
      applicable federal and state securities laws. The Company, since its inception,
      has not incurred any liability arising under or as a result of the application
      of any of the provisions of the 1933 Act, the 1934 Act or the Rules and
      Regulations.

     

    (vii) There
      has
      been no material adverse change in the condition or prospects of the Company,
      financial or otherwise, from the latest dates as of which such condition or
      prospects, respectively, are set forth in the Offering Materials, and the
      outstanding debt, the property and the business of the Company conform in all
      material respects to the descriptions thereof contained in the Offering
      Materials.

     

    (viii) Except
      as
      set forth in the Offering Materials,
      the
      Company is not in breach of, or in default under, any term or provision of
      any
      material indenture, mortgage, deed of trust, lease, note, loan or any other
      material agreement or instrument evidencing an obligation for borrowed money,
      or
      any other material agreement or instrument to which it is a party or by which
      it
      or any of its properties may be bound or affected. The Company is not in
      violation of any provision of its charter or by-laws or in violation of any
      franchise, license, permit, judgment, decree or order, or in violation of any
      material statute, rule or regulation. Neither the execution and delivery of
      the
      Offering Materials nor the issuance and sale or delivery of the Securities,
      nor
      the consummation of any of the transactions contemplated in the Offering
      Materials nor the compliance by the Company with the terms and provisions hereof
      or thereof, has conflicted with or will conflict with, or has resulted in or
      will result in a breach of, any of the terms and provisions of, or has
      constituted or will constitute a default under, or has resulted in or will
      result in the creation or imposition of any lien, charge or encumbrance upon
      any
      property or assets of the Company or pursuant to the terms of any indenture,
      mortgage, deed of trust, note, loan or any other agreement or instrument
      evidencing an obligation for borrowed money, or any other agreement or
      instrument to which the Company may be bound or to which any of the property
      or
      assets of the Company is subject except (a) where such default, lien, charge
      or
      encumbrance would not have a material adverse effect on the Company and (b)
      as
      described in the Offering Materials; nor will such action result in any
      violation of the provisions of the charter or the by-laws of the Company or,
      assuming the due performance by the Placement Agent of its obligations
      hereunder, any material statute or any material order, rule or regulation
      applicable to the Company of any court or of any foreign, federal, state or
      other regulatory authority or other government body having jurisdiction over
      the
      Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (ix) Subsequent
      to the dates as of which information is given in the Offering Materials, and
      except as may otherwise be indicated or contemplated herein or therein the
      Company has not (a) issued any securities or incurred any liability or
      obligation, direct or contingent, for borrowed money, or (b) entered into any
      transaction other than in the ordinary course of business, or (c) declared
      or
      paid any dividend or made any other distribution on or in respect of its capital
      stock. Except as described in the Offering Materials, the Company has no
      outstanding obligations to any officer or director of the Company other than
      normal payable in connection with services provided recently.

     

    (x) There
      are
      no claims for services in the nature of a finder’s or origination fee with
      respect to the sale of the Common Stock or any other arrangements, agreements
      or
      understandings that may affect the Placement Agent's compensation, as determined
      by the National Association of Securities Dealers, Inc.

     

    (xi) The
      Company owns or possesses, free and clear of all liens or encumbrances and
      rights thereto or therein by third parties, the requisite licenses or other
      rights to use all trademarks, service marks, copyrights, service names, trade
      names, patents, patent applications and licenses necessary to conduct its
      business (including, without limitation, any such licenses or rights described
      in the Offering Materials as being owned or possessed by the Company) and,
      except as set forth in the Offering Materials, there is no claim or action
      by
      any person pertaining to, or proceeding, pending or threatened, which challenges
      the exclusive rights of the Company with respect to any trademarks, service
      marks, copyrights, service names, trade names, patents, patent applications
      and
      licenses used in the conduct of the Company’s businesses (including, without
      limitation, any such licenses or rights described in the Offering Materials
      as
      being owned or possessed by the Company) except any claim or action that would
      not have a material adverse effect on the Company; the Company’s current
      products, services or processes do not infringe or will not infringe on the
      patents currently held by any third party.

     

    (xii) Subject
      to the performance by the Placement Agent of its obligations
      hereunder
      the
      offer and sale of the Securities complies,
      and
      will continue to comply,
      in all
      material respects with the requirements of Rule 506 of Regulation D promulgated
      by the SEC pursuant to the 1933 Act and any other applicable federal and state
      laws, rules, regulations and executive orders. Neither the Offering Materials
      nor any amendment or supplement thereto nor any documents prepared by the
      Company in connection with the Offering will contain any untrue statement of
      a
      material fact or omit to state any material fact required to be stated therein
      or necessary to make the statements therein, in light of the circumstances
      under
      which they were made, not misleading. All statements of material facts in the
      Offering Materials are true and correct as of the date of the Offering
      Materials.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (xiii) All
      material
      taxes which are due and payable from the Company have been paid in full or
      adequate provision has been made for such taxes on the books of the
      Company,
      except
      for those taxes disputed in good faith by
      the
      Company 

     

    (xiv) None
      of
      the Company nor any of its officers, directors, employees or agents, nor any
      other person acting on behalf of the Company, has, directly or indirectly,
      given
      or agreed to give any money, gift or similar benefit (other than legal price
      concessions to customers in the ordinary course of business) to any customer,
      supplier, employee or agent of a customer or supplier, or official or employee
      of any governmental agency or instrumentality of any government (domestic or
      foreign) or any political party or candidate for office (domestic or foreign)
      or
      other person who is or may be in a position to help or hinder the business
      of
      the Company (or assist it in connection with any actual or proposed transaction)
      which (A) might subject the Company to any damage or penalty in any civil,
      criminal or governmental litigation or proceeding, or (B) if not given in the
      past, might have had a materially adverse effect on the assets, business or
      operations of the Company as reflected in any of the financial statements
      contained in the Offering Materials, or (C) if not continued in the future,
      might adversely affect the assets, business, operations or prospects of the
      Company in the future.

     

    5. Certain
      Covenants and Agreements of the Company.

     

    The
      Company covenants and agrees at its expense and without any expense to the
      Placement Agent as follows:

     

    A. To
      advise
      the Placement Agent of
      any
      material adverse change in the Company’s financial condition, prospects or
      business or of any development materially affecting the Company or rendering
      untrue or misleading any material statement in the Offering Materials occurring
      at any time as soon as the Company is either informed or becomes aware
      thereof.

     

    B. To
      use
      its commercially reasonable efforts to cause the Common Stock issuable in
      connection with the Standby Equity Distribution Agreement to be qualified or
      registered for sale on terms consistent with those stated in the Registration
      Rights Agreement and under the securities laws of such jurisdictions as the
      Placement Agent shall reasonably request. Qualification, registration and
      exemption charges and fees shall be at the sole cost and expense of the
      Company.

     

    C. Upon
      written request, to provide and continue to provide the Placement Agent copies
      of all quarterly financial statements and audited annual financial statements
      prepared by or on behalf of the Company, other reports prepared by or on behalf
      of the Company for public disclosure and all documents delivered to the
      Company’s stockholders.

     

    D. To
      comply
      with the terms of the Offering Materials.

     

    E. To
      ensure
      that any transactions between or among the Company, or any of its officers,
      directors and affiliates be on terms and conditions that are no less favorable
      to the Company, than the terms and conditions that would be available in an
      “arm’s length” transaction with an independent third party.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    F. Upon
      the
      effectiveness of a registration statement covering the Securities, the Company
      shall promptly provide the Placement Agent with an opinion of Counsel to the
      Company, which opinion shall be in form and substance reasonably satisfactory
      to
      and the Placement Agent.

     

    G. At
      or
      prior to the Closing, the Company shall have been furnished such documents,
      certificates and opinions as it may reasonably require for the purpose of
      enabling the Placement Agent to review or pass upon the matters referred to
      in
      this Agreement and the Offering Materials, or in order to evidence the accuracy,
      completeness or satisfaction of any of the representations, warranties or
      conditions herein contained.

     

    6. Indemnification
      and
      Limitation of Liability.

     

    A. The
      Company hereby agrees that it will indemnify and hold the Placement Agent and
      each officer, director, shareholder, employee or representative of the Placement
      Agent and each person controlling, controlled by or under common control with
      the Placement Agent within the meaning of Section 15 of the 1933 Act or Section
      20 of the 1934 Act or the SEC’s Rules and Regulations promulgated thereunder
      (the “Rules
      and Regulations”),
      harmless from and against any and all loss, claim, damage, liability, cost
      or
      expense whatsoever (including, but not limited to, any and all reasonable legal
      fees and other expenses and disbursements incurred in connection with
      investigating, preparing to defend or defending any action, suit or proceeding,
      including any inquiry or investigation, commenced or threatened, or any claim
      whatsoever or in appearing or preparing for appearance as a witness in any
      action, suit or proceeding, including any inquiry, investigation or pretrial
      proceeding such as a deposition) to which the Placement Agent or such
      indemnified person of the Placement Agent may become subject under the 1933
      Act,
      the 1934 Act, the Rules and Regulations, or any other federal or state law
      or
      regulation, common law or otherwise, arising out of or based upon (i) any untrue
      statement or alleged untrue statement of a material fact contained in (a)
      Section 4 of this Agreement, (b) the Offering Materials (except those written
      statements relating to the Placement Agent given by the
      Placement Agent
      for
      inclusion therein), (c) any application or other document or written
      communication executed by the Company or based upon written information
      furnished by the Company filed in any jurisdiction in order to qualify the
      Common Stock under the securities laws thereof, or any state securities
      commission or agency; (ii) the omission or alleged omission from documents
      described in clauses (a), (b) or (c) above of a material fact required to be
      stated therein or necessary to make the statements therein not misleading;
      or
      (iii) the breach of any representation, warranty, covenant or agreement made
      by
      the Company in this Agreement. The Company further agrees that upon demand
      by an
      indemnified person, at any time or from time to time, it will promptly reimburse
      such indemnified person for any loss, claim, damage, liability, cost or expense
      actually and reasonably paid by the indemnified person as to which the Company
      has indemnified such person pursuant hereto. Notwithstanding the foregoing
      provisions of this Paragraph 7(A), any such payment or reimbursement by the
      Company of fees, expenses or disbursements incurred by an indemnified person
      in
      any proceeding in which a final judgment by a court of competent jurisdiction
      (after all appeals or the expiration of time to appeal) is entered against
      the
      Placement Agent or such indemnified person based upon specific finding of fact
      that the Placement Agent or such indemnified person’s gross negligence or
      willful misfeasance will be promptly repaid to the Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    B. The
      Placement Agent hereby agrees that it will indemnify and hold the Company and
      each officer, director, shareholder, employee or representative of the Company,
      and each person controlling, controlled by or under common control with the
      Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
      1934 Act or the Rules and Regulations, harmless from and against any and all
      loss, claim, damage, liability, cost or expense whatsoever (including, but
      not
      limited to, any and all reasonable legal fees and other expenses and
      disbursements incurred in connection with investigating, preparing to defend
      or
      defending any action, suit or proceeding, including any inquiry or
      investigation, commenced or threatened, or any claim whatsoever or in appearing
      or preparing for appearance as a witness in any action, suit or proceeding,
      including any inquiry, investigation or pretrial proceeding such as a
      deposition) to which the Company or such indemnified person of the Company
      may
      become subject under the 1933 Act, the 1934 Act, the Rules and Regulations,
      or
      any other federal or state law or regulation, common law or otherwise, arising
      out of or based upon (i) the material
      breach of any representation, warranty, covenant or agreement made by the
      Placement Agent in this Agreement, or (ii)
      any
      false or misleading information provided to the Company in
      writing by
      one of
      the Placement Agent’s indemnified persons
      specifically for inclusion in the Offering Materials.

     

    C. Promptly
      after receipt by an indemnified party of notice of commencement of any action
      covered by Section 7(A) or (B), the party to be indemnified shall, within five
      (5) business days, notify the indemnifying party of the commencement thereof;
      the omission by one (1) indemnified party to so notify the indemnifying
      party shall not relieve the indemnifying party of its obligation to indemnify
      any other indemnified party that has given such notice and shall not relieve
      the
      indemnifying party of any liability outside of this indemnification if not
      materially prejudiced thereby. In the event that any action is brought against
      the indemnified party, the indemnifying party will be entitled to participate
      therein and, to the extent it may desire, to assume and control the defense
      thereof with counsel chosen by it which is reasonably acceptable to the
      indemnified party. After notice from the indemnifying party to such indemnified
      party of its election to so assume the defense thereof, the indemnifying party
      will not be liable to such indemnified party under such Section 7(A) or (B),
      for
      any legal or other expenses subsequently incurred by such indemnified party
      in
      connection with the defense thereof, but the indemnified party may, at its
      own
      expense, participate in such defense by counsel chosen by it, without, however,
      impairing the indemnifying party’s control of the defense. Subject to the
      proviso of this sentence and notwithstanding any other statement to the contrary
      contained herein, the indemnified party or parties shall have the right to
      choose its or their own counsel and control the defense of any action, all
      at
      the expense of the indemnifying party if (i) the employment of such counsel
      shall have been authorized in writing by the indemnifying party in connection
      with the defense of such action at the expense of the indemnifying party, or
      (ii) the indemnifying party shall not have employed counsel reasonably
      satisfactory to such indemnified party to have charge of the defense of such
      action within a reasonable time after notice of commencement of the action,
      or
      (iii) such indemnified party or parties shall have reasonably concluded that
      there may be defenses available to it or them which are different from or
      additional to those available to one or all of the indemnifying parties (in
      which case the indemnifying parties shall not have the right to direct the
      defense of such action on behalf of the indemnified party or parties), in any
      of
      which events such fees and expenses of one additional counsel shall be borne
      by
      the indemnifying party; provided, however, that the indemnifying party shall
      not, in connection with any one action or separate but substantially similar
      or
      related actions in the same jurisdiction arising out of the same general
      allegations or circumstance, be liable for the reasonable fees and expenses
      of
      more than one separate firm of attorneys at any time for all such indemnified
      parties. No settlement of any action or proceeding against an indemnified party
      shall be made without the consent of the indemnifying party.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    D. In
      order
      to provide for just and equitable contribution in circumstances in which the
      indemnification provided for in Section 7(A) or 7(B) is due in accordance with
      its terms but is for any reason held by a court to be unavailable on grounds
      of
      policy or otherwise, the Company and the Placement Agent shall contribute to
      the
      aggregate losses, claims, damages and liabilities (including legal or other
      expenses reasonably incurred in connection with the investigation or defense
      of
      same) which the other may incur in such proportion so that the Placement Agent
      shall be responsible for such percent of the aggregate of such losses, claims,
      damages and liabilities as shall equal the percentage of the gross proceeds
      paid
      to the Placement Agent and the Company shall be responsible for the balance;
      provided, however, that no person guilty of fraudulent misrepresentation within
      the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution
      from any person who was not guilty of such fraudulent misrepresentation. For
      purposes of this Section 7(D), any person controlling, controlled by or under
      common control with the Placement Agent, or any partner, director, officer,
      employee, representative or any agent of any thereof, shall have the same rights
      to contribution as the Placement Agent and each person controlling, controlled
      by or under common control with the Company within the meaning of Section 15
      of
      the 1933 Act or Section 20 of the 1934 Act and each officer of the Company
      and
      each director of the Company shall have the same rights to contribution as
      the
      Company. Any party entitled to contribution will, promptly after receipt of
      notice of commencement of any action, suit or proceeding against such party
      in
      respect of which a claim for contribution may be made against the other party
      under this Section 7(D), notify such party from whom contribution may be sought,
      but the omission to so notify such party shall not relieve the party from whom
      contribution may be sought from any obligation they may have hereunder or
      otherwise if the party from whom contribution may be sought is not materially
      prejudiced thereby. 

     

    E. The
      indemnity and contribution agreements contained in this Section 7 shall remain
      operative and in full force and effect regardless of any investigation made
      by
      or on behalf of any indemnified person or any termination of this
      Agreement.

     

    F. The
      Company hereby waives, to the fullest extent permitted by law, any right to
      or
      claim of any punitive, exemplary, incidental, indirect, special, consequential
      or other damages (including, without limitation, loss of profits) against the
      Placement Agent and each officer, director, shareholder, employee or
      representative of the placement agent and each person controlling, controlled
      by
      or under common control with the Placement Agent within the meaning of Section
      15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations
      arising out of any cause whatsoever (whether such cause be based in contract,
      negligence, strict liability, other tort or otherwise). Notwithstanding anything
      to the contrary contained herein, the aggregate liability of the Placement
      Agent
      and each officer, director, shareholder, employee or representative of the
      Placement Agent and each person controlling, controlled by or under common
      control with the Placement Agent within the meaning of Section 15 of the 1933
      Act or Section 20 of the 1934 Act or the Rules and Regulations shall not exceed
      the compensation received by the Placement Agent pursuant to Section 2 hereof.
      This limitation of liability shall apply regardless of the cause of action,
      whether contract, tort (including, without limitation, negligence) or breach
      of
      statute or any other legal or equitable obligation.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    7. Payment
      of Expenses.

     

    The
      Company hereby agrees to bear all of the expenses in connection with the
      Offering, including, but not limited to the following: filing fees, printing
      and
      duplicating costs, advertisements, postage and mailing expenses with respect
      to
      the transmission of Offering Materials, registrar and transfer agent fees,
      escrow agent fees and expenses, fees of the Company’s counsel and accountants,
      issue and transfer taxes, if any. 

     

    8. Termination.

     

    This
      Agreement shall be co-terminus with, and terminate upon the same terms and
      conditions as those set forth in the Standby Equity Distribution Agreement.
      

     

    9. Miscellaneous.

     

    A. This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      deemed to be an original, but all which shall be deemed to be one and the same
      instrument.

     

    B. Any
      notice required or permitted to be given hereunder shall be given in writing
      and
      shall be deemed effective when deposited in the United States mail, postage
      prepaid, or when received if personally delivered or faxed (upon confirmation
      of
      receipt received by the sending party), addressed as follows
      to such
      other address of which written notice is given to the others):

     

    
      	
              If
                to Placement Agent, to:

            	
              Newbridge
                Securities Corporation

            
	 	
              1451
                Cypress Creek Road, Suite 204

            
	 	
              Fort
                Lauderdale, Florida 33309

            
	 	
              Attention: Doug
                Aguililla

            
	 	
              Telephone: (954)
                334-3450

            
	 	
              Facsimile: (954)
                229-9937

            
	 	 
	
              If
                to the Company, to:

            	
              CTI
                Industries Corporation 

            
	 	
              22160
                N. Pepper Road

            
	 	
              Barrington,
                IL 60010

            
	 	
              Attention: Stephen
                M. Merrick

            
	 	
              Telephone: (847)
                382-1000

            
	 	
              Facsimile: (847)
                382-1219

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	 
	
              With
                a copy to:

            	
              Kirkpatrick
                & Lockhart Nicholson Graham LLP

            
	 	
              201
                S. Biscayne Blvd. - Suite 2000

            
	 	
              Miami,
                FL 33131

            
	 	
              Attention: Clay
                E. Parker, Esq.

            
	 	
              Telephone: (305)
                539-3306

            
	 	
              Facsimile: (305)
                358-7095

            
	 	 
	 	 

    

    

    C. This
      Agreement shall be governed by and construed in all respects under the laws
      of
      the State of New Jersey, without reference to its conflict of laws rules or
      principles. Any suit, action, proceeding or litigation arising out of or
      relating to this Agreement shall be brought and prosecuted in such federal
      or
      state court or courts located within the State of New Jersey as provided by
      law.
      The parties hereby irrevocably and unconditionally consent to the jurisdiction
      of each such court or courts located within the State of New Jersey and to
      service of process by registered or certified mail, return receipt requested,
      or
      by any other manner provided by applicable law, and hereby irrevocably and
      unconditionally waive any right to claim that any suit, action, proceeding
      or
      litigation so commenced has been commenced in an inconvenient
      forum.

     

    D. This
      Agreement and the other agreements referenced herein contain the entire
      understanding between the parties hereto and may not be modified or amended
      except by a writing duly signed by the party against whom enforcement of the
      modification or amendment is sought.

     

    E. If
      any
      provision of this Agreement shall be held to be invalid or unenforceable, such
      invalidity or unenforceability shall not affect any other provision of this
      Agreement.

     

    [REMAINDER
      OF PAGE INTENTIALLY LEFT BLANK]

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have executed this Placement Agent Agreement as of the date
      first
      written above.

     

    
      	 	 	 
	 	 	
              CTI
                Industries Corporation

            
	 	 	 
	 	 	
              By:
                /s/ Stephen M. Merrick     

            
	 	 	
              Name: Stephen
                M. Merrick

            
	 	 	
              Title: Executive
                Vice President

            
	 	 	 
	 	 	 
	 	 	 
	 	 	
              Newbridge
                Securities Corporation

            
	 	 	 
	 	 	
              By:
                /s/ Guy S. Amico     

            
	 	 	
              Name: Guy
                S. Amico

            
	 	 	
              Title: PresidentUnassociated Document

    NEITHER
      THESE WARRANTS NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THESE WARRANTS
      HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),
      OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
      TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
      SECURITIES UNDER THE ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
      AVAILABLE.

     

    
      	3,000,000
              Warrants  	
               April
                26,
                2006

            

    

    

    FLEXSCAN,
      INC.

    

    WARRANTS

    

    FlexSCAN,
      Inc., a Delaware corporation (“FXSC”),
      certifies that, for value received, Trilogy Capital Partners, Inc.
      (“Trilogy”),
      or
      registered assigns (the “Holder”),
      is
      the owner of Three Million (3,000,000) Warrants of FXSC (the “Warrants”).
      Each
      Warrant entitles the Holder to purchase from FXSC at any time prior to the
      Expiration Date (as defined below) one share of the common stock of FXSC (the
      “Common
      Stock”)
      for
      $0.35 per share (the “Exercise
      Price”),
      on
      the terms and conditions hereinafter provided. The Exercise Price and the number
      of shares of Common Stock purchasable upon exercise of each Warrant are subject
      to adjustment as provided in this Certificate. 

     

    1.  Vesting;
      Expiration Date; Exercise

     

    1.1  
      Vesting.
      The Warrants shall vest and become exercisable as of the date of this
      Certificate.

     

    1.2  Expiration
      Date. The Warrants shall expire on April 25, 2009 (the “Expiration
      Date”).

     

    1.3  Manner
      of
      Exercise. The Warrants are exercisable by delivery to FXSC of the following
      (the
“Exercise
      Documents”):
      (a)
      this Certificate; (b) a written notice of election to exercise the Warrants;
      and
      (c) payment of the Exercise Price in cash, by check or by “net” exercise as
      contemplated by Section 1.4 of this Certificate. Within three business days
      following receipt of the foregoing, FXSC shall execute and deliver to the
      Holder: (a) a certificate or certificates representing the aggregate number
      of
      shares of Common Stock purchased by the Holder, and (b) if less than all of
      the
      Warrants evidenced by this Certificate are exercised, a new certificate
      evidencing the Warrants not so exercised.

     

    1.4  Net
      Exercise. In lieu of the payment methods set forth in Section 1.3 above, the
      Holder may elect to exchange all or some of the Warrant for the number of shares
      of Common Stock computed using the following formula:

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    X
      =
Y
      (A-B)

    A

     

    Where
      X =
      the number of shares of Common Stock to be issued to Holder.

     

    Y
      = the
      number of shares of Common Stock purchasable under the Warrants being exchanged
      (as adjusted to the date of such calculation).

     

    A
      = the
      Market Price on the date of receipt by FXSC of the exercise
      documents.

     

    B
      = the
      Exercise Price of the Warrants being exchanged (as adjusted in accordance with
      the terms of Section 2 hereof).

     

    The
      “Market
      Price”
on
      any
      trading day shall be deemed to be the last reported sale price of the Common
      Stock on such day, or, in the case no such reported sales take place on such
      day, the last reported sale price on the preceding trading day on which there
      was a last reported sales price, as officially reported by the principal
      securities exchange in which the shares of Common Stock are listed or admitted
      to trading or by the Nasdaq Stock Market, or if the Common Stock is not listed
      or admitted to trading on any national securities exchange or the Nasdaq Stock
      Market, the last sale price, or if there is no last sale price, the closing
      bid
      price, as furnished by the National Association of Securities Dealers, Inc.
      (such as through the OTC Bulletin Board) or a similar organization or if Nasdaq
      is no longer reporting such information. If the Market Price cannot be
      determined pursuant to the sentence above, the Market Price shall be determined
      in good faith (using customary valuation methods) by the Board of Directors
      of
      FXSC based on the information best available to it, including recent arms-length
      sales of Common Stock to unaffiliated persons.

     

    1.5  Warrant
      Exercise Limitation. Notwithstanding any other provision of this Agreement,
      if
      as of the date of exercise FXSC has a class of securities registered under
      Section 12 of the Securities Exchange Act of 1934, as amended, Holder may not
      exercise Warrants under this Section 1 to the extent that immediately following
      such exercise Holder would beneficially own 5% or more of the outstanding Common
      Stock of FXSC. For this purpose, a representation of the Holder that following
      such exercise it would not beneficially own 5% or more of the outstanding Common
      Stock of FXSC shall be conclusive and binding upon FXSC.

     

    2.  Adjustments
      of Exercise Price and Number and Kind of Conversion Shares

     

    2.1  In
      the
      event that FXSC shall at any time hereafter (a) pay a dividend in Common Stock
      or securities convertible into Common Stock; (b) subdivide or split its
      outstanding Common Stock; (c) combine its outstanding Common Stock into a
      smaller number of shares; then the number of shares to be issued immediately
      after the occurrence of any such event shall be adjusted so that the Holder
      thereafter may receive the number of shares of Common Stock it would have owned
      immediately following such action if it had exercised the Warrants immediately
      prior to such action and the Exercise Price shall be adjusted to reflect such
      proportionate increases or decreases in the number of shares.

     

    2.2  In
      case
      of any reclassification of the outstanding shares of Common Stock (other than
      a
      change covered by Section 2.1 hereof or a change which solely affects the par
      value of such shares) or in the case of any merger or consolidation or merger
      in
      which FXSC is not the continuing corporation and which results in any
      reclassification or capital reorganization of the outstanding shares), the
      Holder shall have the right thereafter (until the Expiration Date) to receive
      upon the exercise hereof, for the same aggregate Exercise Price payable
      hereunder immediately prior to such event, the kind and amount of shares of
      stock or other securities or property receivable upon such reclassification,
      capital reorganization, merger or consolidation, by a Holder of the number
      of
      shares of Common Stock obtainable upon the exercise of the Warrants immediately
      prior to such event; and if any reclassification also results in a change in
      shares covered by Section 2.1, then such adjustment shall be made pursuant
      to
      both this Section 2.2 and Section 2.1 (without duplication). The provisions
      of
      this Section 2.2 shall similarly apply to successive reclassifications, capital
      reorganizations and mergers or consolidations, sales or other
      transfers.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    3.  Reservation
      of Shares. FXSC
      shall at all times reserve and keep available out of its authorized but unissued
      shares of Common Stock, such number of shares of Common Stock as shall from
      time
      to time be issuable upon exercise of the Warrants. If at any time the number
      of
      authorized but unissued shares of Common Stock shall not be sufficient to permit
      the exercise of the Warrants, FXSC shall promptly seek such corporate action
      as
      may necessary to increase its authorized but unissued shares of Common Stock
      to
      such number of shares as shall be sufficient for such purpose.

     

    4.  Certificate
      as to Adjustments. In
      each
      case of any adjustment in the Exercise Price, or number or type of shares
      issuable upon exercise of these Warrants, the Chief Financial Officer of FXSC
      shall compute such adjustment in accordance with the terms of these Warrants
      and
      prepare a certificate setting forth such adjustment and showing in detail the
      facts upon which such adjustment is based, including a statement of the adjusted
      Exercise Price. FXSC shall promptly send (by facsimile and by either first
      class
      mail, postage prepaid or overnight delivery) a copy of each such certificate
      to
      the Holder.

     

    5.  Loss
      or Mutilation. Upon
      receipt of evidence reasonably satisfactory to FXSC of the ownership of and
      the
      loss, theft, destruction or mutilation of this Certificate, and of indemnity
      reasonably satisfactory to it, and (in the case of mutilation) upon surrender
      and cancellation of these Warrants, FXSC will execute and deliver in lieu
      thereof a new Certificate of like tenor as the lost, stolen, destroyed or
      mutilated Certificate.

     

    6.  Representations
      and Warranties of FXSC. FXSC
      hereby represents and warrants to Holder that:

     

    6.1  Due
      Authorization.
      All
      corporate action on the part of FXSC, its officers, directors and shareholders
      necessary for (a) the authorization, execution and delivery of, and the
      performance of all obligations of FXSC under, these Warrants, and (b) the
      authorization, issuance, reservation for issuance and delivery of all of the
      Common Stock issuable upon exercise of these Warrants, has been duly taken.
      These Warrants constitute a valid and binding obligation of FXSC enforceable
      in
      accordance with their terms, subject, as to enforcement of remedies, to
      applicable bankruptcy, insolvency, moratorium, reorganization and similar laws
      affecting creditors’ rights generally and to general equitable
      principles.

     

    6.2  Organization.
      FXSC is a corporation duly organized, validly existing and in good standing
      under the laws of the State referenced in the first paragraph of this
      Certificate and has all requisite corporate power to own, lease and operate
      its
      property and to carry on its business as now being conducted and as currently
      proposed to be conducted.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    6.3  Valid
      Issuance of Stock. Any shares of Common Stock issued upon exercise of these
      Warrants will be duly and validly issued, fully paid and
      non-assessable.

     

    6.4  Governmental
      Consents. All consents, approvals, orders, authorizations or registrations,
      qualifications, declarations or filings with any federal or state governmental
      authority on the part of FXSC required in connection with the consummation
      of
      the transactions contemplated herein have been obtained.

     

    7.  Representations
      and Warranties of Trilogy.
      Trilogy
      hereby represents and warrants to FXSC that:

     

    7.1  Trilogy
      is acquiring the Warrants for its own account, for investment purposes
      only.

     

    7.2  Trilogy
      understands that an investment in the Warrants involves a high degree of risk,
      and Trilogy has the financial ability to bear the economic risk of this
      investment in the Warrants, including a complete loss of such investment.
      Trilogy has adequate means for providing for its current financial needs and
      has
      no need for liquidity with respect to this investment.

     

    7.3  Trilogy
      has such knowledge and experience in financial and business matters that it
      is
      capable of evaluating the merits and risks of an investment in the Warrants
      and
      in protecting its own interest in connection with this transaction.

     

    7.4  Trilogy
      understands that the Warrants have not been registered under the Securities
      Act
      of 1933, as amended (the “Securities
      Act”)
      or
      under any state securities laws. Trilogy is familiar with the provisions of
      the
      Securities Act and Rule 144 thereunder and understands that the restrictions
      on
      transfer on the Warrants may result in Trilogy being required to hold the
      Warrants for an indefinite period of time.

     

    7.5  Trilogy
      agrees not to sell, transfer, assign, gift, create a security interest in,
      or
      otherwise dispose of, with or without consideration (collectively, “Transfer”)
      any of
      the Warrants except pursuant to an effective registration statement under the
      Securities Act or an exemption from registration. As a further condition to
      any
      such Transfer, except in the event that such Transfer is made pursuant to an
      effective registration statement under the Securities Act, if in the reasonable
      opinion of counsel to FXSC any Transfer of the Warrants by the contemplated
      transferee thereof would not be exempt from the registration and prospectus
      delivery requirements of the Securities Act, FXSC may require the contemplated
      transferee to furnish FXSC with an investment letter setting forth such
      information and agreements as may be reasonably requested by FXSC to ensure
      compliance by such transferee with the Securities Act.

     

    8.  Notices
      of Record Date

     

    In
      the
      event:

     

    8.1  FXSC
      shall take a record of the holders of its Common Stock (or other stock or
      securities at the time receivable upon the exercise of these Warrants), for
      the
      purpose of entitling them to receive any dividend or other distribution, or
      any
      right to subscribe for or purchase any shares of stock of any class or any
      other
      securities or to receive any other right; or

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    8.2  of
      any
      consolidation or merger of FXSC with or into another corporation, any capital
      reorganization of FXSC, any reclassification of the capital stock of FXSC,
      or
      any conveyance of all or substantially all of the assets of FXSC to another
      corporation in which holders of FXSC’s stock are to receive stock, securities or
      property of another corporation; or

     

    8.3  of
      any
      voluntary dissolution, liquidation or winding-up of FXSC; or

     

    8.4  of
      any
      redemption or conversion of all outstanding Common Stock;

     

    then,
      and
      in each such case, FXSC will mail or cause to be mailed to the Holder a notice
      specifying, as the case may be, (a) the date on which a record is to be taken
      for the purpose of such dividend, distribution or right, or (b) the date on
      which such reorganization, reclassification, consolidation, merger, conveyance,
      dissolution, liquidation, winding-up, redemption or conversion is to take place,
      and the time, if any is to be fixed, as of which the holders of record of Common
      Stock (or such stock or securities as at the time are receivable upon the
      exercise of these Warrants), shall be entitled to exchange their shares of
      Common Stock (or such other stock or securities), for securities or other
      property deliverable upon such reorganization, reclassification, consolidation,
      merger, conveyance, dissolution, liquidation or winding-up. FXSC shall use
      all
      reasonable efforts to ensure such notice shall be delivered at least 15 days
      prior to the date therein specified. 

     

    9.  Registration
      Rights.
      

     

    9.1  Definitions.
      For
      purposes of this Section 9, the following terms shall have the meanings set
      forth below:

     

    9.1.1  A
      “Blackout
      Event”
means
      any of the following: (a) the possession by FXSC of material information that
      is
      not ripe for disclosure in a registration statement or prospectus, as determined
      reasonably and in good faith by the Chief Executive Officer or the Board of
      Directors of FXSC or that disclosure of such information in the Registration
      Statement or the prospectus constituting a part thereof would be materially
      detrimental to the business and affairs of FXSC; or (b) any material engagement
      or activity by FXSC which would, in the reasonable and good faith determination
      of the Chief Executive Officer or the Board of Directors of FXSC, be materially
      adversely affected by disclosure in a registration statement or prospectus
      at
      such time. 

     

    9.1.2  “Exchange
      Act”
shall
      mean the Securities Exchange Act of 1934, as amended.

     

    9.1.3  “Included
      Shares”
shall
      mean any Registrable Shares included in a Registration.

     

    9.1.4  “Registrable
      Shares”
shall
      mean the shares of Common Stock (or such stock or securities as at the time
      are
      receivable upon the exercise of these Warrants) issuable upon exercise of the
      Warrants and any other warrants and or other securities issued to Trilogy in
      connection with performing investor relations services for FXSC, and shares
      or
      securities issued as a result of stock split, stock dividend or reclassification
      of such shares.

     

    9.1.5  “Registration”
shall
      mean a registration of securities under the Securities Act pursuant to Section
      9.2 or 9.3 of this Agreement. 

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    9.1.6  “Registration
      Period”
with
      respect to any Registration Statement the period commencing the effective date
      of the Registration Statement and ending upon withdrawal or termination of
      the
      Registration Statement.

     

    9.1.7  “Registration
      Statement”
shall
      mean the registration statement, as amended from time to time, filed with the
      SEC in connection with a Registration. 

     

    9.1.8  “SEC”
shall
      mean the Securities and Exchange Commission.

     

    9.2  
      Demand
      Registration. No later than June
      12,
      2006, FXSC shall prepare and file with the SEC a Registration Statement for
      the
      purpose of registering the sale of the Registrable Shares under the Securities
      Act, and shall use its commercially reasonable efforts to cause the Registration
      Statement to become effective within 60 days of the date of filing. Once
      effective, FXSC shall prepare and file with the SEC such amendments and
      supplements to the Registration Statement and the prospectus forming a part
      thereof as may be necessary to keep the Registration Statement effective until
      the earliest date on which (a) all the Included Shares have been disposed of
      pursuant to the Registration Statement, or (b) all of the Included Shares then
      held by Holder may be sold under the provisions of Rule 144 without limitation
      as to volume, whether pursuant to Rule 144(k) or otherwise. 

     

    9.3  
      Piggyback Registration. Unless the Registrable Shares are then included in
      a
      Registration Statement or can be sold under the provisions of Rule 144 without
      limitation as to volume, whether pursuant to Rule 144(k) or otherwise, if FXSC
      shall determine to register any Common Stock under the Securities Act for sale
      in connection with a public offering of Common Stock (other than pursuant to
      an
      employee benefit plan or a merger, acquisition or similar transaction), FXSC
      will give written notice thereof to Holder and will include in such Registration
      Statement any of the Registrable Shares which Holder may request be included
      (“Included
      Shares”)
      by a
      writing delivered to FXSC within 15 days after the notice given by FXSC to
      Holder; provided, however, that if the offering is to be firmly underwritten,
      and the representative of the underwriters of the offering refuse in writing
      to
      include in the offering all of the shares of Common Stock requested by FXSC
      and
      others, the shares to be included shall be allocated first to FXSC and any
      shareholder who initiated such Registration and then among the others based
      on
      the respective number of shares of Common Stock held by such persons. If FXSC
      decides not to, and does not, file a Registration Statement with respect to
      such
      Registration, or after filing determines to withdraw the same before the
      effective date thereof, FXSC will promptly so inform Holder, and FXSC will
      not
      be obligated to complete the registration of the Included Shares included
      therein. 

     

    9.4  
      Certain
      Covenants. In connection with any Registration: 

     

    9.4.1  FXSC
      shall take all lawful action such that the Registration Statement, any amendment
      thereto and the prospectus forming a part thereof does not contain an untrue
      statement of a material fact or omit to state a material fact required to be
      stated therein or necessary to make the statements therein, in light of the
      circumstances under which they are made, not misleading. Upon becoming aware
      of
      the occurrence of any event or the discovery of any facts during the
      Registration Period that make any statement of a material fact made in the
      Registration Statement or the related prospectus untrue in any material respect
      or which material fact is omitted from the Registration Statement or related
      prospectus that requires the making of any changes in the Registration Statement
      or related prospectus so that it will not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the statements
      therein, in light of the circumstances under which they are made, not misleading
      (taking into account any prior amendments or supplements), FXSC shall promptly
      notify Holder, and, subject to the provisions of Section 9.5, as soon as
      reasonably practicable prepare (but, subject to Section 9.5, in no event more
      than five business days in the case of a supplement or seven business days
      in
      the case of a post-effective amendment) and file with the SEC a supplement
      or
      post-effective amendment to the Registration Statement or the related prospectus
      or file any other required document so that, as thereafter delivered to a
      purchaser of Shares from Holder, such prospectus will not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make
      the statements therein, in light of the circumstances under which they were
      made, not misleading.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    9.4.2  At
      least
      three business days prior to the filing with the SEC of the Registration
      Statement (or any amendment thereto) or the prospectus forming a part thereof
      (or any supplement thereto), FXSC shall provide draft copies thereof to Holder
      and shall consider incorporating into such documents such comments as Holder
      (and its counsel) may propose to be incorporated therein. Notwithstanding the
      foregoing, no prospectus supplement, the form of which has previously been
      provided to Holder, need be delivered in draft form to Holder.

     

    9.4.3  FXSC
      shall promptly notify Holder upon the occurrence of any of the following events
      in respect of the Registration Statement or the prospectus forming a part
      thereof: (a) the receipt of any request for additional information from the
      SEC
      or any other federal or state governmental authority, the response to which
      would require any amendments or supplements to the Registration Statement or
      related prospectus; (b) the issuance by the SEC or any other federal or state
      governmental authority of any stop order suspending the effectiveness of the
      Registration Statement or the initiation of any proceedings for that purpose;
      or
      (c) the receipt of any notification with respect to the suspension of the
      qualification or exemption from qualification of any of the Shares for sale
      in
      any jurisdiction or the initiation or threatening of any proceeding for such
      purpose.

     

    9.4.4  FXSC
      shall furnish to Holder with respect to the Included Shares registered under
      the
      Registration Statement (and to each underwriter, if any, of such Shares) such
      number of copies of prospectuses and such other documents as Holder may
      reasonably request, in order to facilitate the public sale or other disposition
      of all or any of the Included Shares by Holder pursuant to the Registration
      Statement.

     

    9.4.5  In
      connection with any registration pursuant to Section 9.2, FXSC shall file or
      cause to be filed such documents as are required to be filed by FXSC for normal
      Blue Sky clearance in states specified in writing by Holder; provided,
      however,
      that
      FXSC shall not be required to qualify to do business or consent to service
      of
      process in any jurisdiction in which it is not now so qualified or has not
      so
      consented.

     

    9.4.6  FXSC
      shall bear and pay all expenses incurred by it and Holder (other than
      underwriting discounts, brokerage fees and commissions and fees and expenses
      of
      more than one law firm) in connection with the registration of the Shares
      pursuant to the Registration Statement. 

     

    9.4.7  FXSC
      shall require each legal opinion and accountant’s “cold comfort” letter in
      connection with the Registration, if any, to be rendered to Holder as well
      as
      FXSC and/or its Board of Directors. 

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    9.4.8  As
      a
      condition to including Registrable Shares in a Registration Statement, Holder
      must provide to FXSC such information regarding itself, the Registrable Shares
      held by it and the intended method of distribution of such Shares as shall
      be
      required to effect the registration of the Registrable Shares and, if the
      offering is being underwritten, Holder must provide such powers of attorney,
      indemnities and other documents as may be reasonably requested by the managing
      underwriter.

     

    9.4.9  Following
      the effectiveness of the Registration Statement, upon receipt from FXSC of
      a
      notice that the Registration Statement contains an untrue statement of material
      fact or omits to state any material fact required to be stated therein or
      necessary to make the statements therein not misleading in light of the
      circumstances under which they were made, Holder will immediately discontinue
      disposition of Included Shares pursuant to the Registration Statement until
      FXSC
      notifies Holder that it may resume sales of Included Shares and, if necessary,
      provides to Holder copies of the supplemental or amended prospectus.

     

    9.5  
      Blackout
      Event. FXSC shall not be obligated to file a post-effective amendment or
      supplement to the Registration Statement or the prospectus constituting a part
      thereof during the continuance of a Blackout Event; provided, however, that
      no
      Blackout Event may be deemed to exist for more than 60 days. Without the express
      written consent of Holder, if required to permit the continued sale of Shares
      by
      Holder, a post-effective amendment or supplement to Registration Statement
      or
      the prospectus constituting a part thereof must be filed no later than the
      61st
      day
      following commencement of a Blackout Event.

     

    9.6  
      Rule
      144. With a view to making available to Holder the benefits of Rule 144, FXSC
      agrees, until such time as Holder can sell all remaining Registrable Shares
      under the provisions Rule 144(k), to:

     

    9.6.1.1  comply
      with the provisions of paragraph (c)(1) of Rule 144; and

     

    9.6.1.2  file
      with
      the SEC in a timely manner all reports and other documents required to be filed
      by FXSC pursuant to Section 13 or 15(d) under the Exchange Act; and, if at
      any
      time it is not required to file such reports but in the past had been required
      to or did file such reports, it will, upon the request of a Purchaser, make
      available other information as required by, and so long as necessary to permit
      sales of its Shares pursuant to, Rule 144.

     

    9.7  
      FXSC
      Indemnification. FXSC agrees to indemnify and hold harmless Holder, and its
      officers, directors and agents (including
      broker or underwriter selling Included Shares for Holder),
      and each
      person, if any, who controls Holder within the meaning of Section 15 of the
      Securities Act or Section 20 of the Exchange Act from and against any and all
      losses, claims, damages and liabilities caused by (a) any violation or alleged
      violation by FXSC of the Securities Act, Exchange Act, any state securities
      laws
      or any rule or regulation promulgated under the Securities Act, Exchange Act
      or
      any state securities laws, (b) any untrue statement or alleged untrue statement
      of a material fact contained in any registration statement or prospectus
      relating to the Included Shares (as amended or supplemented if FXSC shall have
      furnished any amendments or supplements thereto) or any preliminary prospectus,
      or (c) caused by any omission or alleged omission to state therein a material
      fact required to be stated therein or necessary to make the statements therein
      not misleading in light of the circumstances under which they were made, except
      insofar as such losses, claims, damages or liabilities are caused by any such
      untrue statement or omission or alleged untrue statement or omission based
      upon
      information furnished in writing to FXSC by Holder or on Holder’s behalf
      expressly for use therein.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    9.8  
      Holder
      Indemnification. Holder agrees to indemnify and hold harmless FXSC, its
      officers, directors and agents and each person, if any, who controls FXSC within
      the meaning of either Section 15 of the Securities Act or Section 20 of the
      Exchange Act to the same extent as the foregoing indemnity from FXSC to Holder,
      but only with respect to information furnished in writing by Holder or on
      Holder’s behalf expressly for use in any registration statement or prospectus
      relating to the Registrable Shares, or any amendment or supplement thereto,
      or
      any preliminary prospectus. 

     

    9.9  
      Indemnification Procedures. In case any proceeding (including any governmental
      investigation) shall be instituted involving any person in respect of which
      indemnity may be sought pursuant to this Section 9, such person (an
“Indemnified
      Party”)
      shall
      promptly notify the person against whom such indemnity may be sought (the
“Indemnifying
      Party”)
      in
      writing and the Indemnifying Party shall assume the defense thereof, including
      the employment of counsel reasonably satisfactory to such Indemnified Party,
      and
      shall assume the payment of all fees and expenses; provided that the failure
      of
      any Indemnified Party so to notify the Indemnifying Party shall not relieve
      the
      Indemnifying Party of its obligations hereunder except to the extent (and only
      to the extent that) that the Indemnifying Party is materially prejudiced by
      such
      failure to notify. In any such proceeding, any Indemnified Party shall have
      the
      right to retain its own counsel, but the fees and expenses of such counsel
      shall
      be at the expense of such Indemnified Party unless (a) the Indemnifying Party
      and the Indemnified Party shall have mutually agreed to the retention of such
      counsel or (b) in the reasonable judgment of such Indemnified Party
      representation of both parties by the same counsel would be inappropriate due
      to
      actual or potential differing interests between them. It is understood that
      the
      Indemnifying Party shall not, in connection with any proceeding or related
      proceedings in the same jurisdiction, be liable for the reasonable fees and
      expenses of more than one separate firm of attorneys (in addition to any local
      counsel) at any time for all such Indemnified Parties (including in the case
      of
      Holder, all of its officers, directors and controlling persons) and that all
      such fees and expenses shall be reimbursed as they are incurred. In the case
      of
      any such separate firm for the Indemnified Parties, the Indemnified Parties
      shall designate such firm in writing to the Indemnifying Party. The Indemnifying
      Party shall not be liable for any settlement of any proceeding effected without
      its written consent (which consent shall not be unreasonably withheld or
      delayed), but if settled with such consent, or if there be a final judgment
      for
      the plaintiff, the Indemnifying Party shall indemnify and hold harmless such
      Indemnified Parties from and against any loss or liability (to the extent stated
      above) by reason of such settlement or judgment. No Indemnifying Party shall,
      without the prior written consent of the Indemnified Party, effect any
      settlement of any pending or threatened proceeding in respect of which any
      Indemnified Party is or could have been a party and indemnity could have been
      sought hereunder by such Indemnified Party, unless such settlement includes
      an
      unconditional release of such Indemnified Party from all liability arising
      out
      of such proceeding.

     

    9.10  Contribution.
      To the extent any indemnification by an Indemnifying Party is prohibited or
      limited by law, the Indemnifying Party agrees to make the maximum contribution
      with respect to any amounts for which, he, she or it would otherwise be liable
      under this Section 9 to the fullest extent permitted by law; provided, however,
      that (a) no contribution shall be made under circumstances where a party would
      not have been liable for indemnification under this Section 9 and (b) no seller
      of Registrable Securities guilty of fraudulent misrepresentation (within the
      meaning used in the Securities Act) shall be entitled to contribution from
      any
      party who was not guilty of such fraudulent misrepresentation.

     

    10.  Nontransferability.
      Trilogy
      may not sell or transfer any Warrants to any person other than a director,
      officer, employee, manager or affiliate of Trilogy (or a person controlled
      by
      one or more directors, officers, employees, managers or affiliates of Trilogy)
      or
      to a
      person or entity that assists Trilogy in providing services to FXSC pursuant
      to
      the Letter of Engagement dated April 26, 2006 as the same may be amended from
      time to time, without
      the consent
      of FXSC.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    11.  Severability.
      If
      any
      term, provision, covenant or restriction of these Warrants is held by a court
      of
      competent jurisdiction to be invalid, void or unenforceable, the remainder
      of
      the terms, provisions, covenants and restrictions of these Warrants shall remain
      in full force and effect and shall in no way be affected, impaired or
      invalidated.

     

    12.  Notices.
      All
      notices, requests, consents and other communications required hereunder shall
      be
      in writing and shall be effective when delivered or, if delivered by registered
      or certified mail, postage prepaid, return receipt requested, shall be effective
      on the third day following deposit in United States mail: to the Holder, at
      Trilogy Capital Partners, Inc., 11726 San Vicente Boulevard, Suite 235, Los
      Angeles, CA 90049; and if addressed to FXSC, at FlexSCAN, Inc., 27201 Puerta
      Real, Suite 350, Mission Viejo, CA 92691, or such other address as Holder or
      FXSC may designate in writing.

     

    13.  No
      Rights as Shareholder. The
      Holder shall have no rights as a shareholder of FXSC with respect to the shares
      issuable upon exercise of the Warrants until the receipt by FXSC of all of
      the
      Exercise Documents. 

     

    
      	 	FLEXSCAN, INC. 	 
	 	 	 
	 	By:  /s/
              Thomas Banks 	 

    

     

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    EXHIBIT
      “A”

    NOTICE
      OF EXERCISE

    (To
      be signed only upon exercise of the Warrants)

     

    To: FlexSCAN,
      Inc.

     

    The
      undersigned hereby elects to purchase shares of Common Stock (the “Warrant
      Shares”)
      of
      FlexSCAN,
      Inc.
      (“FXSC”),
      pursuant to the terms of the enclosed warrant certificate (the “Certificate”).
      The
      undersigned tenders herewith payment of the exercise price pursuant to the
      terms
      of the Certificate. 

     

    The
      undersigned hereby represents and warrants to, and agrees with, FXSC as follows:
      

     

    1.  Holder
      is
      acquiring the Warrant Shares for its own account, for investment purposes
      only.

     

    2.  Holder
      understands that an investment in the Warrant Shares involves a high degree
      of
      risk, and Holder has the financial ability to bear the economic risk of this
      investment in the Warrant Shares, including a complete loss of such investment.
      Holder has adequate means for providing for its current financial needs and
      has
      no need for liquidity with respect to this investment.

     

    3.  Holder
      has such knowledge and experience in financial and business matters that it
      is
      capable of evaluating the merits and risks of an investment in the Warrant
      Shares and in protecting its own interest in connection with this
      transaction.

     

    4.  Holder
      understands that the Warrant Shares have not been registered under the
      Securities Act or under any state securities laws. Holder is familiar with
      the
      provisions of the Securities Act and Rule 144 thereunder and understands that
      the restrictions on transfer on the Warrant Shares may result in Holder being
      required to hold the Warrant Shares for an indefinite period of
      time.

     

    5.  Holder
      agrees not to sell, transfer, assign, gift, create a security interest in,
      or
      otherwise dispose of, with or without consideration (collectively, “Transfer”)
      any of
      the Warrant Shares except pursuant to an effective registration statement under
      the Securities Act or an exemption from registration. As a further condition
      to
      any such Transfer, except in the event that such Transfer is made pursuant
      to an
      effective registration statement under the Securities Act, if in the reasonable
      opinion of counsel to FXSC any Transfer of the Warrant Shares by the
      contemplated transferee thereof would not be exempt from the registration and
      prospectus delivery requirements of the Securities Act, FXSC may require the
      contemplated transferee to furnish FXSC with an investment letter setting forth
      such information and agreements as may be reasonably requested by FXSC to ensure
      compliance by such transferee with the Securities Act.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Each
      certificate evidencing the Warrant Shares will bear the following
      legend:

     

    “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933 (THE “ACT”) OR ANY APPLICABLE STATE SECURITIES LAWS AND
      MAY NOT BE EXERCISED, SOLD, PLEDGED OR TRANSFERRED IN THE ABSENCE OF AN
      EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR UNLESS
      AN
      EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

     

    6.  Immediately
      following this exercise of Warrants, if as of the date of exercise FXSC has
      a
      class of securities registered under Section 12 of the Securities Exchange
      Act
      of 1934, as amended, the undersigned will not beneficially own five percent
      (5%)
      or more of the then outstanding Common Stock of FXSC (based on the number of
      shares outstanding set forth in the most recent periodic report filed by FXSC
      with the Securities and Exchange Commission and any additional shares which
      have
      been issued since that date of which Holder is aware have been
      issued).

     

     

     

    Number
      of
      Warrants Exercised: ______________

     

    Net
      Exercise ____ Yes ___ No 

     

    Dated:
      ____________________   

    

    
      
        

      

     

     

    

     

    
      
         

      

      
        2

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