Exhibit 10.20

 

Limited waiver and Amendment No. 2
to note and warrant purchase agreement

 

THIS LIMITED WAIVER AND AMENDMENT NO. 2 TO NOTE AND WARRANT PURCHASE AGREEMENT
(this “Agreement”) is dated as of December 23, 2014, and is between CTI
Industries Corporation, an Illinois corporation (the “Company”), CTI SUPPLY,
Inc., an Illinois corporation (f/k/a CTI Helium, Inc.), and a Wholly-Owned
Subsidiary of the Company, in its capacity as a guarantor (the “Subsidiary
Guarantor”); and BMO PRIVATE EQUITY (U.S.), INC., a Delaware corporation (the
“Purchaser”).

 

The Company and the Purchaser have entered into a Note and Warrant Purchase
Agreement dated as of July 17, 2012, as amended by that certain Amendment No. 1
to Note and Warrant Purchase Agreement dated as of April 12, 2013 (as amended,
restated, supplemented or otherwise modified from time to time, the “Purchase
Agreement”), under which the Purchaser has extended certain credit facilities to
the Company.

 

In connection with the Purchase Agreement, (i) the Company executed a Senior
Subordinated Promissory Note dated July 17, 2012 (the “Note”), under which,
among other things, the Company promised to pay the Note Amount to the Purchaser
on the terms and conditions therein and (ii) the Subsidiary Guarantor entered
into a Guaranty dated as of July 17, 2012 (the “Subsidiary Guaranty”), under
which, among other things, the Subsidiary Guarantor guarantees the prompt and
complete payment and performance of the Obligations.

 

The parties now desire to further amend the Purchase Agreement in certain
respects.

 

The parties therefore agree as follows:

 

1.         Definitions. Defined terms used but not defined in this Agreement are
as defined in the Purchase Agreement.

 

2.         Limited Waiver. (a) The Company has informed the Purchaser of the
following defaults in the observance or performance of certain provisions of the
Operative Documents:

 

(1)         that the Company and its Subsidiaries will make or will have made
Capital Expenditures in the fiscal year of the Company ending on December 31,
2014, in excess of $775,000, the maximum permitted amount of Capital
Expenditures set forth in Section 8.23(d) of the Purchase Agreement; and

 

(2)         that the Subsidiary Guarantor changed its legal name without first
giving 30 days’ prior written notice of its intent to do so to the Purchaser.

 

(b)         The Company acknowledges that an Event of Default has occurred or
would occur as a result of each default described in Section 2(a) hereof (each
such Event of Default, a “Subject Event of Default”). The Company further
acknowledges that each Subject Event of Default entitles the Purchaser to
exercise its rights and remedies under the Purchase Agreement, applicable law,
or otherwise. The Company has therefore requested that the Purchaser waive each
Subject Event of Default. The Company acknowledges that but for the terms of
this Agreement all obligations under the Purchase Agreement and each of the
other Operative Documents would be immediately due and payable as the result of
the occurrence of or upon the occurrence of a Subject Event of Default. In
addition, the Company acknowledges that the Purchaser has incurred reasonable
attorneys’ fees in connection with each Subject Event of Default and that those
costs, fees, and expenses are recoverable by the Purchaser under the Purchase
Agreement.

 

 

 

 

(c)         The Purchaser hereby waives each Subject Event of Default that has
occurred or that would result from any of the defaults described in Section 2
and the Purchaser’s remedies under the Purchase Agreement with respect to each
Subject Event of Default. The limited waivers set forth in this Agreement are to
be narrowly construed. Except as provided in this Agreement, those limited
waivers neither extend to any other violations under, or default of, the
Purchase Agreement nor prejudice any rights or remedies that the Purchaser might
have or be entitled to with respect to any such other violations or defaults.

 

3.         Amendments to Purchase Agreement.

 

(a)         The definition of “Senior Funded Debt” in section 5.1 of the
Purchase Agreement is hereby amended by replacing “Excluded Flexo VIE Debt” with
“Excluded VIE Debt.”

 

(b)         The definition of “Total Funded Debt” in section 5.1 of the Purchase
Agreement is hereby amended by replacing “Excluded Flexo VIE Debt” with
“Excluded VIE Debt.”

 

(c)         Section 5.1 of the Purchase Agreement is hereby further amended by
inserting each of the following new definitions in the appropriate alphabetical
order:

 

““Clever Container” means Clever Container Company LLC, an Illinois limited
liability company and an Affiliate of the Company.

 

“Excluded Clever Container VIE Debt” means all Indebtedness for Borrowed Money
of Clever Container subject to satisfaction of the following conditions: (a) the
aggregate amount of Clever Container’s liability for such indebtedness does not
exceed $880,000 at any time; (b) none of the Company and its other Subsidiaries
has done any of the following: (i) directly or indirectly guaranteed such
indebtedness; (ii) agreed (contingently or otherwise) to purchase or otherwise
acquire such indebtedness; or (iii) otherwise assured any creditor of Clever
Container against loss in respect of such indebtedness; and (c) no creditor of
Clever Container has recourse to the general credit of the Company or any of its
other Subsidiaries as a result of including Clever Container in the consolidated
financial statements of the Company and its Subsidiaries.

 

“Excluded VIE Debt” means, collectively, the Excluded Clever Container VIE Debt
and the Excluded Flexo VIE Debt.

 

“Financial Consultant” is defined in Section 8.28 hereof.”

 

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(d)         Section 8.5(b) of the Purchase Agreement is hereby amended to read
in its entirety as follows:

 

“(b)         as soon as available, and in any event within forty-five (45) days
after the last day of each calendar month, (i) a copy of the consolidated and
consolidating balance sheet of the Company and its Subsidiaries as of the last
day of such period and the consolidated and consolidating statements of income,
retained earnings, and cash flows of the Company and its Subsidiaries for the
calendar month and the fiscal year-to-date period then ended, each in reasonable
detail showing in comparative form the figures for the corresponding date and
period in the previous fiscal year, prepared by the Company in accordance with
GAAP and certified to by its chief financial officer or such other officer
acceptable to the Purchaser; and (ii) a variance-to-budget analysis, in
reasonable detail and setting forth a description of variances, if any, in the
figures for such period from the projected figures for such period presented in
the applicable business plan delivered to the Purchaser in accordance with
subsection (g) below and specifying the action, if any, taken by the Company to
address the same;”

 

(e)         Section 8.5(f) of the Purchase Agreement is hereby amended by
replacing “its independent public accountants” with “its independent public
accountants or the Financial Consultant.”

 

(f)         Section 8.6 of the Purchase Agreement is hereby amended by replacing
“and independent public accountants (and by this provision the Company hereby
authorizes such accountants to discuss with the Purchaser the finances and
affairs of the Company and of each Subsidiary)” with “and independent public
accountants and the Financial Consultant (and by this provision the Company
hereby authorizes such accountants and the Financial Consultant to discuss with
the Purchaser the finances and affairs of the Company and of each Subsidiary).”

 

(g)         Section 8.23(a) of the Purchase Agreement is hereby amended to read
in its entirety as follows:

 

“         (a)         Senior Leverage Ratio. As of the last day of each fiscal
quarter of the Company, the Company shall not permit the Senior Leverage Ratio
for the four fiscal quarters of the Company then ended to be more than the
amount set forth below for such fiscal quarter:

 

Fiscal Quarter Ending   Level   June 30, 2012 and September 30, 2012   3.65 to
1.00   December 31, 2012 and March 31, 2013   3.40 to 1.00   June 30, 2013, and
September 30, 2013   3.60 to 1.00  

 

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Fiscal Quarter Ending   Level   December 31, 2013   3.30 to 1.00   March 31,
2014   3.05 to 1.00   June 30, 2014, and September 30, 2014   2.75 to 1.00  
December 31, 2014   4.70 to 1.00   March 31, 2015   4.15 to 1.00   June 30, 2015
  3.85 to 1.00   September 30, 2015, and December 31, 2015   3.60 to 1.00  
March 31, 2016,
and each fiscal quarter thereafter   3.30 to 1.00 ”

 

(h)         Section 8.23(b) of the Purchase Agreement is hereby amended to read
in its entirety as follows:

 

“(b)         Total Leverage Ratio. As of the last day of each fiscal quarter of
the Company, the Company shall not permit the Total Leverage Ratio for the four
fiscal quarters of the Company then ended to be more than the amount set forth
below for such fiscal quarter:

 

Fiscal Quarter Ending   Level   June 30, 2012   5.80 to 1.00   September 30,
2012   5.45 to 1.00   December 31, 2012 and March 31, 2013   5.10 to 1.00  
June 30, 2013, and September 30, 2013   5.50 to 1.00   December 31, 2013   4.95
to 1.00   March 31, 2014   4.70 to 1.00   June 30, 2014, and September 30, 2014
  4.60 to 1.00   December 31, 2014   6.45 to 1.00  

 

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Fiscal Quarter Ending   Level   March 31, 2015   5.80 to 1.00   June 30, 2015,
September 30, 2015, and
December 31, 2015   4.95 to 1.00   March 31, 2016,
and each fiscal quarter thereafter   4.70 to 1.00 ”

 

(i)         Section 8 of the Purchase Agreement is hereby further amended by
inserting after section 8.27 the following new section 8.28:

 

“Section 8.28 Engagement of Financial Consultant. The Company shall engage, for
the duration of the fiscal year of the Company ending December 31, 2015 (or any
shorter period approved in writing by the Senior Lender), at the Company’s
expense, Capstone Advisory Group, LLC, or another independent consultant of
recognized standing selected by the Company and reasonably acceptable to the
Senior Lender (the “Financial Consultant”) to provide business financial
planning and other advisory services to the Company and its Subsidiaries. The
Company shall cause the management of the Company and its Subsidiaries to meet
with the Financial Consultant at such reasonable times and reasonable intervals
as the Company may determine, but at least once per fiscal quarter during the
fiscal year of the Company ending December 31, 2015 (or less frequently as
approved in writing by the Senior Lender).”

 

4.         Reaffirmation of Subsidiary Guaranty. The Subsidiary Guarantor hereby
expressly does each of the following:

 

(1)         consents to the execution by the Company and the Purchaser of this
Agreement;

 

(2)         acknowledges that the “Indebtedness” (as defined in the Subsidiary
Guaranty) includes all of the “Obligations” under and as defined in the Purchase
Agreement, as amended from time to time (including as amended by this
Agreement);

 

(3)         acknowledges that the Subsidiary Guarantor does not have any
set-off, defense, or counterclaim to the payment or performance of any of the
obligations of the Company under the Purchase Agreement or the Subsidiary
Guarantor under the Subsidiary Guaranty;

 

(4)         reaffirms, assumes, and binds itself in all respects to all of the
obligations, liabilities, duties, covenants, terms, and conditions contained in
the Subsidiary Guaranty;

 

(5)         agrees that all such obligations and liabilities under the
Subsidiary Guaranty continue in full force and that the execution and delivery
of this Agreement to, and its acceptance by, the Purchaser will not in any
manner whatsoever do any of the following:

 

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(A)         impair or affect the liability of the Subsidiary Guarantor to the
Company under the Subsidiary Guaranty;

 

(B)         prejudice, waive, or be construed to impair, affect, prejudice, or
waive the rights and abilities of the Purchaser at law, in equity, or by statute
against the Subsidiary Guarantor pursuant to the Subsidiary Guaranty; or

 

(C)         release or discharge, or be construed to release or discharge, any
of the obligations and liabilities owing to the Purchaser by the Subsidiary
Guarantor under the Subsidiary Guaranty; and

 

(6)         represents and warrants that each of the representations and
warranties made by the Subsidiary Guarantor in any of the documents executed in
connection with the loans remain true and correct as of the date of this
Agreement.

 

5.         Representations and Warranties. To induce the Purchaser to enter into
this Agreement, the Company hereby represents to the Purchaser as follows:

 

(1)         that the Company is duly authorized to execute and deliver this
Agreement and is and will continue to be duly authorized to borrow monies under
the Purchase Agreement, as amended by this Agreement, and to perform its
obligations under the Purchase Agreement, as amended by this Agreement;

 

(2)         that the execution and delivery of this Agreement and the
performance by the Company of its obligations under the Purchase Agreement, as
amended by this Agreement, do not and will not conflict with any provision of
law or of the articles of organization or operating agreement of the Company or
of any agreement binding upon the Company;

 

(3)         that the Purchase Agreement, as amended by this Agreement, is a
legal, valid, and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforceability might be limited
by bankruptcy, insolvency, or other similar laws of general application
affecting the enforcement of creditors’ rights or by general principles of
equity limiting the availability of equitable remedies;

 

(4)         that the representation and warranties set forth in section 6 of the
Purchase Agreement, as amended by this Agreement, are true and correct with the
same effect as if those representations and warranties had been made on the date
hereof, except that all references to the financial statements mean the
financial statements most recently delivered to the Purchaser and except for
changes specifically permitted under the Purchase Agreement, as amended by this
Agreement;

 

(5)         that the Company has complied with and is in compliance with all of
the covenants set forth in the Purchase Agreement, as amended by this Agreement,
including the covenants stated in section 8 of the Purchase Agreement, other
than in respect of the Subject Event of Default; and

 

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(6)         that as of the date of this Agreement no Default and no Event of
Default under section 10 of the Purchase Agreement, as amended by this
Agreement, has occurred or is continuing, other than the Subject Event of
Default.

 

6.         Conditions. The effectiveness of this Agreement is subject to
satisfaction of the following conditions:

 

(1)         that the Purchaser has received the following:

 

(A)         a copy of this Agreement, duly executed by the parties;

 

(B)         a copy of an amendment to the Senior Credit Agreement and each of
the other documents required to be delivered in accordance with section 6 of
that amendment, each in form and substance satisfactory to the Purchaser and
duly executed by all applicable Persons;

 

(C)         a non-refundable closing fee of Twelve Thousand Five Hundred and
No/100 Dollars ($12,500.00), which fee shall be fully earned and payable on the
date hereof; and

 

(D)         all other documents, certificates, resolutions, and opinions of
counsel as the Purchaser requests; and

 

(2)         that all legal matters incident to the execution and delivery of
this Agreement are satisfactory to the Purchaser and its counsel.

 

7.         General. (a) This Agreement and the rights and duties of the parties
hereto are governed by, and are to be construed in accordance with, the internal
laws of State of Illinois without regard to principles of conflicts of laws.
Wherever possible each provision of the Purchase Agreement and this Agreement is
to be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of the Purchase Agreement and this Agreement is
prohibited by or invalid under any such law, that provision will be deemed
ineffective to the extent of that prohibition or invalidity, without
invalidating the remainder of that provision or the remaining provisions of the
Purchase Agreement and this Agreement.

 

(b)         This Agreement is an Operative Document.

 

(c)         This Agreement binds each party and their respective successors and
assigns, and this Agreement inures to the benefit of each party and the
successors and assigns of the Purchaser.

 

(d)         Except as specifically modified or amended by the terms of this
Agreement, the terms and provisions of the Purchase Agreement, the Subsidiary
Guaranty, and the other Operative Documents are incorporated by reference herein
and in all respects continue in full force and effect. The Company, by execution
of this Agreement, hereby reaffirms, assumes, and binds itself to all of the
obligations, duties, rights, covenants, terms, and conditions contained in the
Purchase Agreement and the other Operative Documents to which it is a party.

 

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(e)         Each reference in the Purchase Agreement to “this Agreement,”
“hereunder,” “hereof,” or words of like import, and each reference to the
Purchase Agreement in any and all instruments or documents delivered in
connection therewith, are deemed to refer to the Purchase Agreement, as amended
by this Agreement.

 

(f)         The Company shall pay all costs and expenses in connection with the
preparation of this Agreement and other related loan documents, including,
without limitation, reasonable attorneys’ fees and time charges of attorneys who
are employees of the Company or any affiliate or parent of the Purchaser. The
Company shall pay any and all stamp and other taxes, UCC search fees, filing
fees, and other costs and expenses in connection with the execution and delivery
of this Agreement and the other instruments and documents to be delivered
hereunder, and agrees to save the Company harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such costs and expenses.

 

(g)         The Company hereby waives and releases any and all current existing
claims, counterclaims, defenses, or set-offs of every kind and nature which it
has or might have against the Purchaser arising out of, pursuant to, or
pertaining in any way to the Purchase Agreement, any and all documents and
instruments in connection with or relating to the foregoing, or this Agreement.
The Company hereby further covenants and agrees not to sue the Purchaser or
assert any claims, defenses, demands, actions, or liabilities against the
Purchaser arising out of, pursuant to, or pertaining in any way to the Purchase
Agreement, any and all documents and instruments in connection with or relating
to the foregoing, or this Agreement.

 

(h)         The parties may sign this Agreement in several counterparts, each of
which will be deemed an original but all of which together will constitute one
instrument.

 

[Signature pages follow]

 

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(Signature Page to Limited Waiver and Amendment No. 2 to

Note and Warrant Purchase Agreement)

 

The parties are signing this Agreement as of the date stated in the introductory
clause.

 

COMPANY: CTI Industries Corporation         By: /s/ Stephen M. Merrick   Name:
Stephen M. Merrick   Title: President       SUBSIDIARY GUARANTOR: CTI SUPPLY,
INC.   (f/k/a CTI Helium, Inc.)         By: /s/ Stephen M. Merrick   Name:
Stephen M. Merrick   Title: President       PURCHASER: BMO PRIVATE EQUITY
(U.S.), INC.         By: /s/ Douglas P. Sutton   Name: Douglas P. Sutton  
Title: Managing Director