EXHIBIT 4.2
CTI IINDUSTRIES CORPORATION
AND
JOSEPH STEVENS & COMPANY, INC.
-----------------
UNDERWRITER'S
WARRANT AGREEMENT
________, 1997
UNDERWRITER'S WARRANT AGREEMENT dated as of _______ ____, 1997
by and between CTI INDUSTRIES CORPORATION, a Delaware corporation (the
"Company"), and JOSEPH STEVENS & COMPANY, INC. ("Joseph Stevens") (Joseph
Stevens is hereinafter referred to variously as the "Holder" or the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter or
its designee(s) warrants ("Warrants") to purchase up to 133,333 Units (as
defined in Section 1 hereof, each Unit consisting of one (1) share of common
stock, $____ par value per share, of the Company ("Common Stock") and one (1)
redeemable Common Stock purchase warrant, each to purchase one additional share
of Common Stock ("Redeemable Warrants")); and
WHEREAS, the Underwriter has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof by and between the Underwriter and the Company to act as the underwriter
in connection with the proposed public offering of 1,333,333 Units at a public
offering price of $____ per Unit; and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter in consideration for, and as part
of the Underwriter's compensation in connection with the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of thirteen dollars and thirty-three cents
($13.33) the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Grant. The Underwriter (or its designee(s)) is hereby
granted the right to purchase, at any time from __________, 1998 [one year from
the date hereof] until 5:00 p.m., New York time, on __________, 2002, [5 years
from the date hereof] up to 133,333 Units at an initial exercise price (subject
to adjustment as provided in Section 8 hereof) of $__________ [120% of the IPO
price per Unit] per Unit subject to the terms and conditions of this Agreement.
A "Unit" consists of one (1) share of Common Stock and one (1) Redeemable
Warrant. Each Redeemable Warrant is exercisable to purchase one additional share
of Common Stock at an initial exercise price of $__________ [150% of the IPO
price per Unit] per share, commencing on the date of issuance (the "Initial
Exercise Date") and ending, at 5:00 p.m. New York time on __________, 2002 [60
months from the date hereof] (the "Redeemable Warrant Expiration Date") at which
time the Redeemable Warrants shall expire. Except as set forth herein, the Units
issuable upon exercise of the Warrants are in all respects identical to the
Units being purchased by the Underwriters for resale to the public pursuant to
the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants are initially exercisable
at an initial exercise price per Unit set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate, together with the annexed Form of Election to
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Purchase duly executed and payment of the Exercise Price (as hereinafter
defined) for the Units purchased at the Company's principal offices in
Barrington, Illinois, (located at 22160 North Pepper Road, Barrington, Illinois
60010) the registered holder of a Warrant Certificate ("Holder" or "Holders")
shall be entitled to receive a certificate or certificates for the shares of
Common Stock so purchased and a certificate or certificates for the Redeemable
Warrants so purchased. The purchase rights represented by each Warrant
Certificate are exercisable at the option of the Holder thereof, in whole or in
part (but not as to fractional shares of the Common Stock and Redeemable
Warrants underlying the Warrants). In the event the Company redeems all of the
outstanding Redeemable Warrants, the Redeemable Warrants underlying the Warrants
may only be exercised if such exercise is simultaneous with the exercise of the
Warrants. Warrants may be exercised to purchase all or part of the Units
represented thereby. In the case of the purchase of less than all the Units
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Units purchasable
thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of Units equal to the product of (x) the number of Units
as to which the Warrants are being exercised, multiplied by (y) a fraction, the
numerator of which is the Market Price (as defined in Section 3.3 hereof) of the
Units minus the Exercise Price of the Units and the denominator of which is the
Market Price per Unit. Solely for the purposes of
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this Section 3.2, Market Price shall be calculated either (i) on the date on
which the form of election attached hereto is deemed to have been sent to the
Company pursuant to Section 14 hereof ("Notice Date") or (ii) as the average of
the Market Price for each of the five trading days immediately preceding the
Notice Date, whichever of (i) or (ii) results in a greater Market Price.
3.3 Definition of Market Price.
(a) As used herein, the phrase "Market Price of the Units,"
the Common Stock or the Redeemable Warrants, respectively, at any date shall be
deemed to be the last reported sale price, or, in case no such reported sale
takes place on such day, the average of the last reported sale prices for the
last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Units, the Common Stock or the
Redeemable Warrants, as the case may be, are listed or admitted to trading or by
the Nasdaq National Market ("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq
Small Cap"), or, if the Units, the Common Stock or the Redeemable Warrants, as
the case may be, are not listed or admitted to trading on any national
securities exchange or quoted by the National Association of Securities Dealers
Automated Quotation System ("Nasdaq"), the average closing bid price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through Nasdaq or similar organization if Nasdaq is no longer reporting such
information.
(b) If the Market Price of the Units cannot be determined
pursuant to Section 3.3(a), the Market Price of the Units at any date shall be
deemed to be the sum of the Market Price of the Common Stock and the Market
Price of the Redeemable Warrants.
(c) If the Market Price of the Common Stock cannot be
determined pursuant to Section 3.3(a) above, the Market Price of the Common
Stock shall be determined in good
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faith (using customary valuation methods) by resolution of the members of the
Board of Directors of the Company, based on the best information available to
it.
(d) If the Market Price of the Redeemable Warrants cannot be
determined pursuant to Section 3.3(a) above, the Market Price of a Redeemable
Warrant shall equal the difference between the Market Price of the Common Stock
and the Exercise Price of the Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and Redeemable
Warrants or other securities, properties or rights underlying such Warrants, and
upon the exercise of the Redeemable Warrants, the issuance of certificates for
shares of Common Stock or other securities, properties or rights underlying such
Redeemable Warrants shall be made forthwith (and in any event such issuance
shall be made within five (5) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants and
the shares of Common Stock underlying each Redeemable Warrant or other
securities, property or rights shall be executed on behalf of the Company by the
manual or facsimile signature of the then present Chairman or Vice Chairman of
the Board of Directors or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then present Secretary or Assistant Secretary or Treasurer or
Assistant Treasurer of the Company.
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Warrant Certificates shall be dated the date of execution by the Company upon
initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers or partners of the
Underwriter.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $____ per Unit [120% of the IPO price per Unit]. The adjusted exercise price
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context. 7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock and the Redeemable Warrants underlying the
Warrants and the shares of Common Stock issuable upon exercise of the Redeemable
Warrants underlying the Warrants and the other securities issuable upon exercise
of the Warrants (collectively, the "Warrant Securities") have been registered
under the Securities Act of 1933, as amended (the "Act") pursuant to the
Company's Registration Statement on Form SB-2 (Registration No. __________) (the
"Registration Statement"). All the representations and warranties of the Company
contained
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in the Underwriting Agreement relating to the Registration Statement, the
Preliminary Prospectus and Prospectus (as such terms are defined in the
Underwriting Agreement) and made as of the dates provided therein, are hereby
incorporated by reference. The Company agrees and covenants promptly to file
post effective amendments to such Registration Statement as may be necessary to
maintain the effectiveness of the Registration Statement as long as any Warrants
are outstanding. In the event that, for any reason, whatsoever, the Company
shall fail to maintain the effectiveness of the Registration Statement, upon
exercise, in part or in whole, of the Warrants, certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants, and
upon exercise, in whole or in part of the Redeemable Warrants, certificates
representing the shares of Common Stock underlying the Redeemable Warrants and
the other securities issuable upon exercise of the Warrants shall bear the
following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered, sold, pledged, hypothecated,
assigned or transferred except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii)
an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7.2 Piggyback Registration. If, at any time commencing after
the date hereof and expiring seven (7) years thereafter, the Company proposes to
register any of its securities under the Act (other than pursuant to Form S-8,
S-4 or a comparable registration statement) the Company will give written notice
by registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Underwriter and to all other Holders of the
Warrants and/or the Warrant Securities of its intention to do so. If the
Underwriter or other Holders of the Warrants and/or Warrant Securities notifies
the Company within twenty (20) days after
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receipt of any such notice of its or their desire to include any such securities
in such proposed registration statement, the Company shall afford the
Underwriter and such Holders of the Warrants and/or Warrant Securities the
opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants and the Redeemable Warrants underlying the
Warrants) shall have the right (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to the Company,
to have the Company prepare and file with the Securities and Exchange Commission
(the "Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Underwriter and Holders, in order to
comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for nine (9) consecutive months by
such Holders and any other Holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request.
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(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company shall have the option, upon
the written notice of election of a Majority of the Holders of the Warrants
and/or Warrant Securities to repurchase (i) any and all Warrant Securities at
the higher of the Market Price per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the Exercise Price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(c).
(d) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by any such Holder of its Warrant Securities
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and
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registration and all costs incident thereto shall be at the expense of the
Holder or Holders making such request.
7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
therefor, shall use its best efforts to have any registration statement
declared effective at the earliest possible time, and shall furnish
each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.2 and 7.3(a) hereof including,
without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs,
fees and expenses in connection with any registration statement filed
pursuant to Section 7.3(d). If the Company shall fail to comply with
the provisions of Section 7.4(a), the Company shall, in addition to any
other equitable or other relief available to the Holder(s), be liable
for any or all incidental or special damages sustained by the Holder(s)
requesting registration of their Warrant Securities, excluding
consequential damages.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included
in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are
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requested by the Holder(s), provided that the Company shall not be
obligated to execute or file any general consent to service of process
or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), against all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement but only to the
same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Underwriters contained in
Section 7 of the Underwriting Agreement. The Company further agree(s)
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 Section 7.4(d) 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 Company or such indemnified person as a direct
result of the Holder(s) or such person's gross negligence or willful
misfeasance will be promptly repaid to the Company.
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(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers
and directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from
information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 7 of the Underwriting Agreement pursuant to which
the Underwriters have agreed to indemnify the Company. The Holder(s)
further agree(s) that upon demand by an indemnified person, at any time
or from time to time, they 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 Holder(s)
have indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section 7.4(e) any such payment or
reimbursement by the Holder(s) 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 Company or such
indemnified person as a direct result of the Company or such person's
gross negligence or willful misfeasance will be promptly repaid to the
Holder(s).
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(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any
registration statement filed pursuant to Section 7.3 hereof, or permit
any other registration statement to be or remain effective during the
effectiveness of a registration statement filed pursuant to Section 7.3
hereof, without the prior written consent of the Holders of the
Warrants and Warrant Securities representing a Majority of such
securities (assuming the exercise of all of the Warrants and the
Redeemable Warrants underlying the Warrants).
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public
accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to events subsequent
to the date of such financial
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statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of
the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriter, if any,
copies of all correspondence between the Commission and the Company,
its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement
and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested to be included
in such underwriting, which may be the
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Underwriter. Such agreement shall be satisfactory in form and substance
to the Company, each Holder and such managing underwriter, and shall
contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that
type used by the managing underwriter. The Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their
Warrant Securities and may, at their option, require that any or all of
the representations, warranties and covenants of the Company to or for
the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their
intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the
registration statement any other securities of the Company held by such
Holder(s) as of the date of filing of such registration statement,
including without limitation, restricted shares of Common Stock,
options, warrants or any other securities convertible into shares of
Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities shall mean
in excess of fifty percent (50%) of the then outstanding Warrants or
Warrant Securities that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under
the Act.
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8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall
at any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.2 Stock Dividends and Distributions. In case the Company
shall pay dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted Exercise Price
of each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value.
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8.5 Merger or Consolidation or Sale.
(a) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
(b) In the event of (i) the sale by the Company of all or
substantially all of its assets, or (ii) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or (iii) a distribution to the Company's stockholders
of any cash, assets, property, rights, evidences of indebtedness, securities or
any other thing of value, or any combination thereof, the Holders of the
unexercised Warrants shall receive notice of such sale, transaction or
distribution twenty (20) days prior to the date of such sale or the record date
for such transaction or distribution, as applicable, and, if they exercise such
Warrants prior to such date, they shall be entitled, in addition to the shares
of Common
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Stock issuable upon the exercise thereof, to receive such property, cash,
assets, rights, evidence of indebtedness, securities or any other thing of
value, or any combination thereof, on the payment date of such sale, transaction
or distribution.
8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents (10(cent)) per Warrant Security, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least ten cents (10(cent)) per Warrant Security.
8.7 Adjustment of Redeemable Warrants' Exercise Price. With
respect to any of the Redeemable Warrants whether or not the Redeemable Warrants
have been exercised (or are exercisable) and whether or not the Redeemable
Warrants are issued and outstanding, the Redeemable Warrant exercise price and
the number of shares of Common Stock underlying such Redeemable Warrants shall
be automatically adjusted in accordance with Section 8 of the Warrant Agreement
between the Company and Continental Stock Transfer & Trust Company dated
__________, 1997 (the "Redeemable Warrant Agreement"), upon the occurrence of
any of the events described therein. Thereafter, the underlying Redeemable
Warrants shall be exercisable at such adjusted Redeemable Warrant exercise price
for such adjusted number of underlying shares of Common Stock or other
securities, properties or rights.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and
18
date representing in the aggregate the right to purchase the same number of
Units in such denominations as shall be designated by the Holder thereof at the
time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock or Redeemable Warrants upon the exercise of the Warrants, or fractions of
shares of Common Stock upon the exercise of the Redeemable Warrants underlying
the Warrants, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
shares of Common Stock or Redeemable Warrants, as the case may be, or other
securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. The
Company further covenants and agrees that
19
upon exercise of the Redeemable Warrants underlying the Warrants and payment of
the respective Redeemable Warrant exercise price therefor, all shares of Common
Stock and other securities issuable upon such exercises shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants and the Redeemable Warrants and all Redeemable
Warrants underlying the Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock or the
Redeemable Warrants issued to the public in connection herewith may then be
listed and/or quoted on Nasdaq National Market or Nasdaq Small Cap Market.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or
20
exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least twenty (20) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Redeemable Warrants. The form of the certificate
representing Redeemable Warrants (and the form of election to purchase shares of
Common Stock upon the exercise of Redeemable Warrants and the form of assignment
printed on the reverse thereof) shall be substantially as set forth in Exhibit
"A" to the Redeemable Warrant Agreement. Each Redeemable Warrant issuable upon
exercise of the Warrants shall evidence the right to initially purchase one
fully paid and non-assessable share of Common Stock at an initial purchase price
of $__________ [150% of the IPO price per Unit] per share commencing on the
Initial Exercise Date and ending at 5:00 p.m. New York time on the Redeemable
Warrant Expiration Date at
21
which time the Redeemable Warrants shall expire. The exercise price of the
Redeemable Warrants and the number of shares of Common Stock issuable upon the
exercise of the Redeemable Warrants are subject to adjustment, whether or not
the Warrants have been exercised and the Redeemable Warrants have been issued,
in the manner and upon the occurrence of the events set forth in Section 8 of
the Redeemable Warrant Agreement, which is hereby incorporated herein by
reference and made a part hereof as if set forth in its entirety herein. Subject
to the provisions of this Agreement and upon issuance of the Redeemable Warrants
underlying the Warrants, each registered holder of such Redeemable Warrants
shall have the right to purchase from the Company (and the Company shall issue
to such registered holders) up to the number of fully paid and non-assessable
shares of Common Stock (subject to adjustment as provided herein and in the
Redeemable Warrant Agreement), free and clear of all preemptive rights of
stockholders, provided that such registered holder complies with the terms
governing exercise of the Redeemable Warrants set forth in the Redeemable
Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Redeemable Warrant Agreement. Upon exercise of
the Redeemable Warrants, the Company shall forthwith issue to the registered
holder of any such Redeemable Warrant in his name or in such name as may be
directed by him, certificates for the number of shares of Common Stock so
purchased. Except as otherwise provided herein, the Redeemable Warrants
underlying the Warrants shall be governed in all respects by the terms of the
Redeemable Warrant Agreement. The Redeemable Warrants shall be transferable in
the manner provided in the Redeemable Warrant Agreement, and upon any such
transfer, a new Redeemable Warrant Certificate shall be issued promptly to the
transferee. The Company covenants to, and agrees with, the Holder(s) that
without the prior written consent of the Holder(s), the Redeemable Warrant
Agreement will
22
not be modified, amended, cancelled, altered or superseded, and that the Company
will send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Redeemable Warrant Agreement to
be sent to holders of Redeemable Warrants.
14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
(c) If to the Underwriter, to Joseph Stevens & Company,
Inc., 33 Maiden Lane, New York, New York, 10038, Attention: Joseph
Sorbara.
15. Supplements and Amendments. The Company and the
Underwriter may from time to time supplement or amend this Agreement without the
approval of any Holders of Warrant Certificates (other than the Underwriter) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem shall not adversely affect the interests of
the Holders of Warrant Certificates.
23
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close
of business on __________, 2004 [7 years from the date hereof]. Notwithstanding
the foregoing, the indemnification provisions of Section 7 shall survive such
termination until the close of business on __________, 2009 [12 years from the
date hereof.]
18. Governing Law, Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Underwriter and the Holders hereby agree that
any action, proceeding or claim against it arising out of, or relating in any
way to, this Agreement shall be brought and enforced in the courts of the State
of New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holders hereby irrevocably waive
any objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company, the Underwriter and the
Holders (at the option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to it at the address as set
forth in Section 14 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the party so served in any action, proceeding or
claim. The Company, the Underwriter and the Holders agree that the prevailing
24
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) and the Redeemable Warrant Agreement contain the entire understanding
between the parties hereto with respect to the subject matter hereof 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.
20. Severability. 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.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Underwriter and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Underwriter and any other Holder(s) of the
Warrant Certificates or Warrant Securities.
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall to either constitute but one and
the same instrument.
25
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
CTI INDUSTRIES CORPORATION
By:_________________________
Howard W. Schwan
President
Officer
Attest:
_________________
Secretary
JOSEPH STEVENS & COMPANY, INC.
By: ___________________________
Name:
Title:
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, ________, 2002
No. W- ____ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or
registered assigns, is the registered holder of __________ Warrants to purchase
initially, at any time from ____________, 1998 [one year from the effective date
of the Registration Statement] until 5:00 p.m. New York time on ____________,
2002 [five years from the effective date of the Registration Statement]
("Expiration Date"), up to ______________ Units, each Unit consisting of one (1)
fully-paid and non-assessable share of common stock, ____ par value ("Common
Stock") of CTI INDUSTRIES CORPORATION, a Delaware corporation (the "Company"),
and one (1) redeemable warrant ("Redeemable Warrants") (each Redeemable Warrant
entitling the holder to purchase one fully-paid and non-assessable share of
Common Stock), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $_____________ [120% of the public offering
price per Unit] per Unit upon surrender of this Warrant Certificate and payment
of the Exercise Price at an office or agency of the Company, or by surrender of
this Warrant Certificate in lieu of cash payment, but subject to the conditions
set forth herein and in the warrant agreement dated as of _________________,
1997 between the Company and Joseph Stevens & Company, Inc. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company or by surrender of this Warrant Certificate.
1
No Warrant may be exercised after 5:00 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such Warrant.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of , 1997
CTI INDUSTRIES CORPORATION
[SEAL] By:__________________________
Howard W. Schwan
President Officer
Attest:
________________________
Secretary
3
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _____________ Units
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of CTI Industries
Corporation in the amount of $__________, all in accordance with the terms of
Section 3.1 of the Underwriter's Warrant Agreement dated as of ___________, 1997
between CTI Industries Corporation and Joseph Stevens & Company, Inc. The
undersigned requests that certificates for such securities be registered in the
name of _______________ whose address is __________________________ and that
such certificates be delivered to ______________________________ whose address
is ____________________________.
Dated:
Signature ___________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
______________________________________
(Insert Social Security or Other
Identifying Number of Holder)
4
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____________ Units
all in accordance with the terms of Section 3.2 of the Underwriter's Warrant
Agreement dated as of ______________, 1997 between CTI Industries Corporation
and Joseph Stevens & Company, Inc. The undersigned requests that certificates
for such securities be registered in the name of __________________ whose
address is _______________________ and that such certificates be delivered to
_____________________ whose address is ____________________________________.
Dated:
Signature ___________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
_____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
5
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ______________________
Signature: _________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
_____________________________________
(Insert Social Security or Other
Identifying Number of Holder)