exhibit 10.1

 

Amendment No. 3
to Credit Agreement

 

This Amendment No. 3 to Credit Agreement is dated as of July 17, 2012, and is
between CTI Industries Corporation, an Illinois corporation (the “Borrower”);
John H. Schwan, an individual resident of Illinois (“Schwan”); Stephen M.
Merrick, an individual resident of Illinois (“Merrick”); CTI Helium, Inc., an
Illinois corporation and a Wholly-Owned Subsidiary of the Borrower, in its
capacity as a guarantor (the “Subsidiary Guarantor”); and BMO Harris Bank N.A.,
a national banking association, successor to Harris N.A. (the “Bank”).

 

The Borrower and the Bank entered into a Credit Agreement dated as of April 29,
2010 (the “Credit Agreement”), under which the Bank has extended certain credit
facilities to the Borrower.

 

In connection with the Credit Agreement, Schwan and Merrick entered into a
Guaranty dated as of April 29, 2010 (the “Limited Guaranty”), under which, among
other things, each of them guarantees the prompt and complete payment and
performance of the Obligations, subject to the limitations set forth in the
Limited Guaranty.

 

In connection with the Credit Agreement, the Subsidiary Guarantor entered into a
Guaranty dated as of April 29, 2010 (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 amend the Credit 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 Credit Agreement.

 

2. Limited Consent. (a) The Borrower desires to incur Indebtedness for Borrowed
Money in an aggregate principal amount equal to $5,000,000 (the “BMO Mezzanine
Debt”) and to issue certain warrants to purchase, in the aggregate, 4% of the
Borrower’s common stock (the “BMO Mezzanine Warrants”), in each case pursuant to
a Note and Warrant Purchase Agreement to be dated on or about the date of this
agreement between the Borrower and BMO Private Equity (U.S.), Inc., a Delaware
corporation and an Affiliate of the Bank (that agreement, the “BMO Mezzanine
NWPA”). The Borrower has requested that the Bank consent to the Borrower’s
entering into the BMO Mezzanine NWPA and to the Borrower’s consummating, in
accordance with the BMO Mezzanine NWPA, the transactions contemplated by the BMO
Mezzanine NWPA, including the Borrower’s incurring the BMO Mezzanine Debt and
the Borrower’s issuing the BMO Mezzanine Warrant.

 

1

 

 

(b) The Bank hereby consents to the Borrower’s entering into the BMO Mezzanine
NWPA and to the Borrower’s consummating, in accordance with the BMO Mezzanine
NWPA, the transactions contemplated by the BMO Mezzanine NWPA, including the
Borrower’s incurring the BMO Mezzanine Debt and the Borrower’s issuing the BMO
Mezzanine Warrants. This consent i) is a one-time consent; ii) is limited
strictly as written; iii) does not constitute, and is not to be deemed to
constitute, the Bank’s consent to any other action that, in the absence of the
consent of the Bank, would be a violation of or default under the Credit
Agreement; and iv) will not prejudice any rights or remedies that the Bank might
have or be entitled to with respect to any such other violation or default. This
consent will be effective upon satisfaction of the conditions set forth in
section 8

 

.

(c) Concurrently with the Borrower’s receipt of Net Proceeds from the incurrence
of the BMO Mezzanine Debt, the Borrower shall make a prepayment of the
outstanding principal amount of the Revolving Loans equal to the lesser of 100%
of those Net Proceeds and the outstanding principal amount of the Revolving
Loans.

 

3. Release under Limited Guaranty. As of the effective date of this agreement,
the Bank hereby releases and discharges each of Schwan and Merrick from the
Limited Guaranty except for any actual claim, demand, loss, or liability that
arose or existed before the release and discharge of the Limited Guaranty.

 

4. Amendments to Credit Agreement. b) Section 1.4 of the Credit Agreement is
hereby amended by replacing “(a) Nine Million and 00/100 Dollars ($9,000,000.00)
(the “Revolving Credit Commitment”, as such amount may be reduced pursuant to
the terms hereof)” with “(a) Twelve Million and 00/100 Dollars ($12,000,000.00)
(the “Revolving Credit Commitment”, as such amount may be reduced pursuant to
the terms hereof)”.

 

2

 

 

(b) Section 4.3 of the Credit Agreement is hereby amended to read in its
entirety as follows:

 

“ Section 4.3 Guaranties. The payment and performance of the Obligations shall
at all times be guaranteed by each direct and indirect domestic Subsidiary of
the Borrower pursuant to one or more guaranty agreements in form and substance
acceptable to the Bank (as the same may be amended, modified, or supplemented
from time to time, individually a “Subsidiary Guaranty” and collectively the
“Subsidiary Guaranties”).”

 

(c) The definition of “Applicable Rate” in section 5.1 of the Credit Agreement
is hereby amended to read in its entirety as follows:

 

“ “Applicable Rate” means the following amounts per annum set forth on Exhibit E
opposite the level (the “Level”) then in effect and based upon the Senior
Leverage Ratio, it being understood that the Applicable Rate for (a) LIBOR
Portions shall be the percentage set forth under the column “LIBOR Margin”;
(b) the Base Rate Portion shall be the percentage set forth under the column
“Base Rate Margin”; (c) the commitment fee described in Section 3.1(a) shall be
the percentage set forth under the column “Commitment Fee”; and (d) the letter
of credit fee described in Section 3.1(b) shall be the percentage set forth
under the column “Letter of Credit Fee”. The Applicable Rate shall be adjusted
quarterly, to the extent applicable, on the third (3rd) Business Day after the
Borrower provides or is required to provide the compliance certificate pursuant
to Section 8.5(j) for each fiscal quarter. Notwithstanding anything contained in
this definition to the contrary, (i) if the Borrower fails to deliver the
compliance certificate in accordance with the provisions of Section 8.5(j), then
the Applicable Rate shall be based upon the previously applicable Level until
the date such compliance certificate is actually delivered, whereupon the
Applicable Rate shall be determined by the then current Level (and if such
compliance certificate indicates a higher Level than previously applicable, the
Borrower shall forthwith pay to the Bank any additional amount if interest and
fees that would have been payable on any prior date had such compliance
certificate been delivered when required); (ii) no reduction to the Applicable
Rate shall become effective at any time when a Default or an Event of Default
has occurred and is continuing; and (iii) from the Third Amendment Date, until
the date on which the compliance certificate is required to be delivered for the
fiscal quarter ending June 30, 2012, the initial Applicable Rate on the date
hereof shall be based upon Level II. This paragraph shall not limit the rights
of the Bank with respect to Section 8.23(a).”

 

3

 

(d) The definition of “Borrowing Base” in section 5.1 of the Credit Agreement is
hereby amended to read in its entirety as follows:

 

“ “Borrowing Base” means, as of any time it is to be determined, the sum of: (a)
85% of the then outstanding unpaid amount of Eligible Receivables; plus (b) the
lesser of (i) $6,500,000 and (ii) 60% of the value (computed at the lower of
market or cost using the first-in/first-out method of inventory valuation
applied by the Borrower in accordance with GAAP) of Eligible Inventory; provided
that the Borrowing Base shall be computed only as against and on so much of the
Collateral as is included on the certificates to be furnished from time to time
by the Borrower pursuant to Section 8.5(a) hereof and, if required by the Bank
pursuant to any of the terms hereof or any Collateral Document, as verified by
such other evidence required to be furnished to the Bank pursuant hereto or
pursuant to any such Collateral Document.”

 

(e) The definition of “Equipment Loan Final Maturity Date” in section 5.1 of the
Credit Agreement is hereby amended to read in its entirety as follows:

 

“ “Equipment Loan Final Maturity Date” means July 18, 2017, or such earlier date
on which the Equipment Loan is declared to be or becomes due pursuant to
Section 9.2 or 9.3 hereof.”

 

(f) The definition of “Fixed Charge Coverage Ratio” in section 5.1 of the Credit
Agreement is hereby amended to read in its entirety as follows:

 

“ “Fixed Charge Coverage Ratio” means, with reference to any period, the ratio
of (a) the total for such period of (i) EBITDA, minus (ii) federal, state, and
local income taxes paid by the Borrower during such period, minus (iii) the sum
of all dividends declared by the Borrower during such period, minus (iv) the sum
of all payments made in connection with the purchase, redemption, or other
acquisition or retirement of any capital stock or other equity interests of the
Borrower (or any warrants, options or similar instruments to acquire the same),
minus (v) all Capital Expenditures which are not financed with Indebtedness for
Borrowed Money, to (b) Fixed Charges for such period.”

 

4

 

(g) The definitions of “Limited Guaranty” and “Limited Guaranties” in
section 5.1 of the Credit Agreement are hereby amended to read in their entirety
as follows:

 

“ “Limited Guaranty” and “Limited Guaranties” are as defined in this Agreement
as in effect immediately before giving effect to an Amendment No. 3 to Credit
Agreement dated as of the Third Amendment Date, between the Borrower, John H.
Schwan, Stephen M. Merrick, CTI Helium (as a Subsidiary Guarantor), and the
Bank. Each Limited Guaranty was released in connection with that amendment to
this Agreement.”

 

(h) The definition of “Loan Documents” in section 5.1 of the Credit Agreement is
hereby amended to read in its entirety as follows to delete the reference to the
Limited Guaranties:

 

“ “Loan Documents” means this Agreement, the Notes, the Applications, the
Guaranties, the Collateral Documents, and each other instrument or document to
be delivered hereunder or thereunder or otherwise in connection therewith.”

 

(i) The definition of “Mortgage Loan Final Maturity Date” in section 5.1 of the
Credit Agreement is hereby amended to read in its entirety as follows:

 

“ “Mortgage Loan Final Maturity Date” means July 18, 2017, or such earlier date
on which the Mortgage Loan is declared to be or becomes due pursuant to
Section 9.2 or 9.3 hereof.”

 

(j) The definition of “Obligations” in section 5.1 of the Credit Agreement is
hereby amended to read in its entirety as follows:

 

“ “Obligations” means (a) all obligations of the Borrower to pay principal and
interest on the Loans, all reimbursement obligations owing under the
Applications, all fees and charges payable hereunder, and all other payment
obligations of the Borrower arising under or in relation to any Loan Document,
in each case whether now existing or hereafter arising, due or to become due,
direct or indirect, absolute or contingent, and howsoever evidenced, held, or
acquired, and (b) without duplication of clause (a), all Credit Product
Obligations.”

 

5

 

(k) The definition of “Revolving Credit Termination Date” in section 5.1 of the
Credit Agreement is hereby amended to read in its entirety as follows:

 

“ “Revolving Credit Termination Date” means July 18, 2017, or such earlier date
on which the Revolving Credit Commitment is terminated in whole pursuant to
Section 3.4, 9.2, or 9.3 hereof.”

 

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

 

“ “BMO Mezzanine Debt” means all Indebtedness for Borrowed Money owing from the
Borrower to BMO Private Equity under and in accordance with the BMO Mezzanine
NWPA.

 

“BMO Mezzanine NWPA” means a Note and Warrant Purchase Agreement dated as of the
Third Amendment Date, between the Borrower and BMO Private Equity.

 

“BMO Private Equity” means BMO Private Equity (U.S.), Inc., a Delaware
corporation and an Affiliate of the Bank.

 

“Capital Expenditures” means, as to any Person and for any period, all
expenditures (whether paid in cash or other consideration) during such period,
without duplication, that are or should be included in additions to property,
plant, and equipment or similar items reflected in such Person’s consolidated
statement of cash flows for such period; provided that Capital Expenditures do
not include, for purposes of this Agreement, expenditures of proceeds of
insurance settlements, condemnation awards, and other settlements in respect of
lost, destroyed, damaged, or condemned assets to the extent such expenditures
are made to replace or repair such assets or otherwise to acquire assets useful
in the business of the Person.

 

“Credit Product Arrangements” means, collectively, Swap Contracts between the
Borrower and the Bank or Affiliate of the Bank and Treasury Management and Other
Services.

 

“Credit Product Obligations” means obligations of the Borrower arising under
Credit Product Arrangements and owing to the Bank or any Affiliate of the Bank.

 

6

 

“Permitted Holder” means (a) each of John H. Schwan and Stephen M. Merrick;
(b) in respect of John H. Schwan and subject to the qualifications set forth in
clause (d), the John H. Schwan Grantor Retained Annuity Trust dated August 13,
2009; (c) in respect of Stephen M. Merrick and subject to the qualifications set
forth in clause (d), The Merrick Company, LLC, an Illinois limited liability
company; and (d) any other trust or other estate-planning vehicle established
for the benefit of any individual identified in clause (a) or any other
individual having a relationship by blood (to the second degree of
consanguinity), marriage, or adoption to any individual identified in clause (a)
and in respect of which the applicable individual identified in clause (a)
serves as trustee or in a similar capacity.

 

“Swap Contract” means (a) any and all rate swap transactions, basis swaps,
credit derivative transactions, forward rate transactions, commodity swaps,
commodity options, forward commodity contracts, equity or equity index swaps or
options, bond or bond price or bond index swaps or options or forward bond or
forward bond price or forward bond index transactions, interest rate options,
forward foreign exchange transactions, cap transactions, floor transactions,
collar transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement; and (b) any and all transactions
of any kind, and the related confirmations, which are subject to the terms and
conditions of, or governed by, any form of master agreement published by the
International Swaps and Derivatives Association, Inc., any International Foreign
Exchange Master Agreement, or any other master agreement, including any such
obligations or liabilities under any such master agreement.

 

“Third Amendment Date” means July 17, 2012.

 

“Total Funded Debt” means, at any time the same is to be determined, the
aggregate of all Indebtedness for Borrowed Money of the Borrower and its
Subsidiaries, on a consolidated basis, at such time, plus all Indebtedness for
Borrowed Money of any other person or entity which is directly or indirectly
guaranteed by the Borrower or any of its Subsidiaries or which the Borrower or
any of its Subsidiaries has agreed (contingently or otherwise) to purchase or
otherwise acquire or in respect of which the Borrower or any of its Subsidiaries
has otherwise assured a creditor against loss. For purposes of this Agreement,
“Total Funded Debt” does not include any Excluded Flexo VIE Debt.

 

7

 

“Total Leverage Ratio” means, as of any time it is to be determined, the ratio
of Total Funded Debt at such time to EBITDA for the four fiscal quarters of the
Borrower then most recently ended.

 

“Treasury Management and Other Services” means (a) all arrangements for the
delivery of treasury management services; (b) all commercial credit card and
merchant card services; and (c) all other banking products or services, other
than Letters of Credit, in each case under clauses (a), (b), and (c) to or for
the benefit of the Borrower which are entered into or maintained with the Bank
or Affiliate of the Bank and which are not prohibited by the express terms of
the Loan Documents.”

 

(m) Section 5.1 of the Credit Agreement is hereby further amended by deleting
the definitions of “Individual Guarantors” and “Tangible Net Worth.”

 

(n) Section 6.6 of the Credit Agreement is hereby amended to read in its
entirety as follows to replace “December 31, 2009” with “December 31, 2011”:

 

“ Section 6.6 No Material Adverse Change. Since December 31, 2011, there has
been no change in the condition (financial or otherwise) or business prospects
of the Borrower or any Subsidiary except those occurring in the ordinary course
of business, none of which individually or in the aggregate have been materially
adverse.”

 

(o) Clause (iv) of section 7.2(a) of the Credit Agreement is hereby amended to
read in its entirety as follows to replace references to the Individual
Guarantors with references to Schwan and Merrick:

 

“ (iv) a Subordination Agreement from John H. Schwan and Stephen M. Merrick in
favor of the Bank, together with copies of the subordinated note and any other
loan documents executed in connection therewith;”

 

8

 

(p) Clause (b) of section 8.7 of the Credit Agreement is hereby amended to read
in its entirety as follows:

 

“ (b) [intentionally omitted];”

 

(q) Clause (e) of section 8.7 of the Credit Agreement is hereby amended to read
in its entirety as follows:

 

“ (e) the BMO Mezzanine Debt, in an aggregate principal amount not to exceed
$5,000,000 as of the Third Amendment Date, as reduced by permitted payments
thereon, and provided that the BMO Mezzanine Debt shall be Subordinated Debt;”

 

(r) Clause (f) of section 8.7 of the Credit Agreement is hereby amended to read
in its entirety as follows to replace references to the Individual Guarantors
with references to Schwan and Merrick:

 

“ (f) indebtedness of the Borrower and Flexo to John H. Schwan and Stephen M.
Merrick existing on the date hereof in an aggregate principal amount not to
exceed $3,035,000 on the date hereof, as reduced by payments thereon, and
provided that any indebtedness of the Borrower to John H. Schwan and Stephen M.
Merrick shall be Subordinated Debt;”

 

(s) Clause (d) of section 8.8 of the Credit Agreement is hereby amended to read
in its entirety as follows:

 

“ (d) [intentionally omitted];”

 

(t) Clause (g) of section 8.8 of the Credit Agreement is hereby amended to read
in its entirety as follows:

 

“ (g) Liens securing the indebtedness described in Section 8.7(e), and provided
that those Liens are subordinated to the Bank’s Liens pursuant to written
subordination provisions approved in writing by the Bank; and”

 

9

 

(u) Section 8.23 of the Credit Agreement is hereby amended to read in its
entirety as follows:

 

“Section 8.23 Financial Covenants.

 

(a) Senior Leverage Ratio. As of the last day of each fiscal quarter of the
Borrower (commencing June 30, 2010), the Borrower shall not permit the Senior
Leverage Ratio for the four fiscal quarters of the Borrower then ended to be
more than the amount set forth below for such fiscal quarter:

 

Fiscal Quarter Ending Level   March 31, 2010, June 30, 2010, September 30, 2010,
and December 31, 2010 3.50 to 1.00   March 31, 2011, and
June 30, 2011 3.25 to 1.00   September 30, 2011 3.00 to 1.00   December 31,
2011, March 31, 2012, June 30, 2012, and September 30, 2012 3.25 to 1.00  
December 31, 2012, and March 31, 2013 3.00 to 1.00   June 30, 2013, and
September 30, 2013 2.75 to 1.00   December 31, 2013, and
each fiscal quarter thereafter 2.50 to 1.00  

 

 

(b) Total Leverage Ratio. As of the last day of each fiscal quarter of the
Borrower (commencing June 30, 2012), the Borrower shall not permit the Total
Leverage Ratio for the four fiscal quarters of the Borrower then ended to be
more than the amount set forth below for such fiscal quarter:

10

 

 

 

 

Fiscal Quarter Ending Level   June 30, 2012 5.25 to 1.00   September 30, 2012
4.85 to 1.00   December 31, 2012, and March 31, 2013 4.60 to 1.00   June 30,
2013, and
September 30, 2013 4.35 to 1.00   December 31, 2013, and
each fiscal quarter thereafter 4.10 to 1.00  

 

 

 

 

(c) Fixed Charge Coverage Ratio. As of the last day of each fiscal quarter of
the Borrower (commencing with the fiscal quarter ending June 30, 2012), the
Borrower shall not permit the Fixed Charge Coverage Ratio for the four fiscal
quarters of the Borrower then ended to be less than 1.15 to 1.00.

 

(d) Capital Expenditures. Subject to the other terms of this Section 8.23(d),
the Borrower shall not, and shall not permit any of its Subsidiaries to, make or
commit to make, directly or indirectly, any Capital Expenditure if, after giving
effect thereto, the aggregate amount of all Capital Expenditures made by the
Borrower and its Subsidiaries would exceed (i) $4,000,000 in the fiscal year of
the Borrower ending on December 31, 2012, or (ii) $700,000 in any subsequent
fiscal year of the Borrower. If the amount of Capital Expenditures permitted to
be made by the Borrower and its Subsidiaries pursuant to the immediately
preceding sentence in any fiscal year of the Borrower is greater than the amount
of Capital Expenditures actually made by the Borrower and its Subsidiaries
during that fiscal year (without giving effect to any carry-forward permitted by
this sentence), then 50% of that excess amount (for that fiscal year, the
“Carried-Forward Amount”) may be carried forward and utilized by the Borrower
and its Subsidiaries to make Capital Expenditures solely in the immediately
succeeding fiscal year of the Borrower. If any portion of the Carried-Forward
Amount for any fiscal year of the Borrower is not used in the immediately
succeeding fiscal year of the Borrower to make Capital Expenditures, that
portion will not be included in any subsequent Carried-Forward Amount for, or
carried forward to, any subsequent fiscal year of the Borrower. In determining
any Carried-Forward Amount, the amount expended in any fiscal year of the
Borrower will first be deemed to be from the amount allocated to that fiscal
year (before giving effect to any Carried-Forward Amount). If in the fiscal year
of the Borrower ending December 31, 2012, the ERP system is not completed and
any portion of the $500,000 of budgeted Capital Expenditures for the ERP system
is not actually made, then the unspent portion may be carried forward to any
subsequent fiscal year of the Borrower (in addition to any Carried-Forward
Amount in respect of any such subsequent fiscal year) to complete that project.
If in the fiscal year of the Borrower ending December 31, 2012, the
latex-processing plant is not completed and any portion of the $1,500,000 of
budgeted Capital Expenditures for the latex-processing plant is not actually
made, then the unspent portion may be carried forward to any subsequent fiscal
year of the Borrower (in addition to any Carried-Forward Amount in respect of
any such subsequent fiscal year) to complete that project.”

 

11

 

(v) Section 9.1(l) of the Credit Agreement is hereby amended to read in its
entirety as follows:

 

“ (l) the occurrence of any of the following: (i) the Permitted Holders shall
cease to collectively own and control, directly and free and clear of all Liens
(other than (A) Liens existing as of the Third Amendment Date that have been
disclosed to the Bank and (B) Liens consented to in writing by the Bank), at
least thirty-seven percent (37%) of the issued and outstanding voting shares of
the capital stock or other equity interests of the Borrower at any time or the
voting power to elect a majority of the Borrower’s board of directors,
including, without limitation, as the result of the exercise by one or more
secured parties of one or more security interests in respect of any ownership
interest in the Borrower; (ii) the granting by any Permitted Holder, directly or
indirectly, after the Third Amendment Date and without the prior written consent
of the Bank, of a security interest in its ownership interest in the Borrower,
if the secured party’s exercise of remedies in respect of that security interest
could reasonably be expected to result in the occurrence of one or more events
of the kind described in clause (i); (iii) John H. Schwan and Stephen M. Merrick
shall cease to hold the titles of Chairman and Chief Financial Officer or
equivalent positions, respectively, of the Borrower; (iv) the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended) (other than the Individual
Guarantors) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 10% or more of either (x) the then
outstanding shares of common stock of the Borrower or (y) the combined voting
power of the then outstanding voting securities of the Borrower entitled to vote
generally in the election of Directors; or (v) the Borrower ceases to directly
own free and clear of all Liens (other than Liens permitted pursuant to
Section 8.8) 100% of the issued and outstanding shares of the capital stock or
other equity interests of its Subsidiaries, except as a result of intercompany
mergers or liquidations otherwise expressly permitted under this Agreement;”

 

12

 

(w) Exhibit D to the Credit Agreement is hereby amended to read in its entirety
as set forth in Exhibit D to this agreement.

 

(x) Exhibit E to the Credit Agreement is hereby amended to read in its entirety
as set forth in Exhibit E to this agreement.

 

(y) Exhibit F to the Credit Agreement is hereby amended to read in its entirety
as set forth in Exhibit F to this agreement.

 

5. Post-Closing Matters. 2) The Borrower shall complete each of the following
tasks and other items set forth below no later than any applicable time
specified below or any later date to which the Bank agrees in writing:

 

(1)the Borrower shall i) diligently pursue a release of liens or assignments of
intellectual property of the Borrower in favor of Cole Taylor Bank reflected on
records of the United States Patent and Trademark Office, and ii) deliver to the
Bank, promptly following any request from the Bank, evidence satisfactory to the
Bank that the Borrower is diligently pursuing that release;

 

(2)within 15 days after the date of this agreement, the Borrower shall deliver
to the Bank stock certificates evidencing 65% of the voting equity interests of
Flexo, together with undated executed blank stock powers therefor.

 

(b) The Borrower hereby acknowledges b) that default in the observance or
performance of any covenant set forth in section 5(a) will constitute an Event
of Default under the Credit Agreement; and c) that no grace or cure period will
apply in respect of any such default in the observance or performance of any
such covenant.

 

13

 

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

 

(1)consents to the execution by the Borrower and the Bank 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 Credit 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 Borrower under the Credit 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 Bank will not in any manner whatsoever
do any of the following:

 

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

 

(B)prejudice, waive, or be construed to impair, affect, prejudice, or waive the
rights and abilities of the Bank 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 Bank 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.

 

7. Representations and Warranties. To induce the Bank to enter into this
agreement, the Borrower hereby represents to the Bank as follows:

 

14

 

 

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

 

(2)that the execution and delivery of this agreement and the performance by the
Borrower of its obligations under the Credit 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 Borrower or of any
agreement binding upon the Borrower;

 

(3)that the Credit Agreement, as amended by this agreement, is a legal, valid,
and binding obligation of the Borrower, enforceable against the Borrower 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 Credit
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 Bank and except for changes
specifically permitted under the Credit Agreement, as amended by this agreement;

 

(5)that the Borrower has complied with and is in compliance with all of the
covenants set forth in the Credit Agreement, as amended by this agreement,
including the covenants stated in section 8 of the Credit Agreement; and

 

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

 

8. Conditions. The effectiveness of this agreement is subject to satisfaction of
the following conditions:

 

(1)that the Bank has received i) a copy of this agreement, duly executed by the
parties; ii) a Replacement Revolving Note in the form of Exhibit D attached
hereto, duly executed by the Borrower; iii) a copy of the BMO Mezzanine NWPA and
each of the other documents required to be delivered in accordance with
section 7.2 of the BMO Mezzanine NWPA, each duly executed by all applicable
Persons; iv) a subordination and intercreditor agreement in respect of the BMO
Mezzanine Debt, in form and substance satisfactory to the Bank, duly executed by
all applicable Persons; v) a favorable written opinion of counsel for the
Borrower in form and substance satisfactory to the Bank and its counsel; vi) an
amendment to the Pledge Agreement to reflect the certificate numbers and other
information relating to stock certificates evidencing 65% of the voting equity
interests of Flexo; vii) file-stamped UCC-3s terminating each of the following
UCC financing statements: (i) financing statement number 013124779, filed on
April 7, 2008, naming the Borrower as debtor and RBS Asset Finance, Inc., as the
secured party; (ii) financing statement number 013025754, filed on March 7,
2008, naming the Borrower as debtor and RBS Asset Finance, Inc., as the secured
party; (iii) financing statement number 012408080, filed on August 17, 2007,
naming the Borrower as debtor and RBS Asset Finance, Inc., as the secured party;
and (iv) financing statement number 012408072, filed on August 17, 2007, naming
the Borrower as debtor and RBS Asset Finance, Inc., as the secured party; and
viii) all other documents, certificates, resolutions, and opinions of counsel as
the Bank requests; and

 

15

 

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

 

9. 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 Credit 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 Credit 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 Credit Agreement and this
agreement.

 

(b) This agreement is a Loan 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 Bank.

 

(d) Except as specifically modified or amended by the terms of this agreement,
the terms and provisions of the Credit Agreement, the Subsidiary Guaranty, and
the other Loan Documents are incorporated by reference herein and in all
respects continue in full force and effect. The Borrower, 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
Credit Agreement and the other Loan Documents to which it is a party.

 

16

 

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

 

(f) The Borrower 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 Bank or any affiliate or parent of the Bank. The Borrower
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 Bank 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 Borrower 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 Bank arising out of, pursuant to, or pertaining in any
way to the Credit Agreement, any and all documents and instruments in connection
with or relating to the foregoing, or this agreement. The Borrower hereby
further covenants and agrees not to sue the Bank or assert any claims, defenses,
demands, actions, or liabilities against the Bank arising out of, pursuant to,
or pertaining in any way to the Credit 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]

17

 

 

The parties are signing this Amendment No. 3 to Credit Agreement as of the date
stated in the introductory clause.

  

  CTI Industries Corporation             By: /s/ Stephen M. Merrick       Name:
Stephen M. Merrick       Title: Executive Vice President and       Chief
Financial Officer             /s/ John H. Schwan      John H. Schwan            
  /s/ Stephen M. Merrick         Stephen M. Merrick                      
CTI Helium, Inc.              By:  /s/ Stephen M. Merrick       Name:  Stephen
M. Merrick       Title:  Executive Vice President and Chief Financial Officer   
                  BMO Harris BANK N.A.               By:  /s/ Timothy J. Moran  
    Name:  Timothy J. Moran       Title:  Senior Vice President Commercial
Middle Market   

  

 

 

Signature page to
Amendment No. 3 to Credit Agreement

 

18

 

 

Exhibit D

 

Replacement Revolving Note

 

   Chicago, Illinois $12,000,000.00   July 17, 2012

  

On the Revolving Credit Termination Date, for value received, the undersigned,
CTI Industries Corporation, an Illinois corporation (the “Borrower”), hereby
promises to pay to the order of BMO Harris Bank N.A., a national banking
association, successor to Harris N.A. (the “Bank”), at its office at 111 West
Monroe Street, Chicago, Illinois, the principal sum of (i) Twelve Million and
no/100 Dollars ($12,000,000.00), or (ii) such lesser amount as may at the time
of the maturity hereof, whether by acceleration or otherwise, be the aggregate
unpaid principal amount of all Revolving Loans owing from the Borrower to the
Bank under the Revolving Credit provided for in the Credit Agreement hereinafter
mentioned.

 

This Replacement Revolving Note (this “Note”) evidences Revolving Loans made and
to be made to the Borrower by the Bank under the Revolving Credit provided for
under that certain Credit Agreement dated as of April 29, 2010, between the
Borrower and the Bank (said Credit Agreement, as the same may be amended,
modified or restated from time to time, being referred to herein as the “Credit
Agreement”), and the Borrower hereby promises to pay interest at the office
described above on such Revolving Loans evidenced hereby at the rates and at the
times and in the manner specified therefor in the Credit Agreement.

 

This Note is issued by the Borrower under the terms and provisions of the Credit
Agreement and is secured by, among other things, the Collateral Documents, and
this Note and the holder hereof are entitled to all of the benefits and security
provided for thereby or referred to therein, to which reference is hereby made
for a statement thereof. This Note may be declared to be, or be and become, due
prior to its expressed maturity, voluntary prepayments may be made hereon, and
certain prepayments are required to be made hereon, all in the events, on the
terms and with the effects provided in the Credit Agreement. All capitalized
terms used herein without definition shall have the same meanings herein as such
terms are defined in the Credit Agreement.

 

The Borrower hereby promises to pay all costs and expenses (including attorneys’
fees) suffered or incurred by the holder hereof in collecting this Note or
enforcing any rights in any collateral therefor. The Borrower hereby waives
presentment for payment and demand. This Note shall be construed in accordance
with, and governed by, the internal laws of the State of Illinois without regard
to principles of conflicts of laws.

 

This Note constitutes a renewal and restatement of, and replacement and
substitution for, but is not a repayment of, that certain Revolving Note dated
April 29, 2010, in the maximum principal amount of Nine Million and 00/100
Dollars ($9,000,000.00), executed by the Borrower and made payable to the order
of the Bank (the “Original Note”), as referred to in the Credit Agreement. The
indebtedness evidenced by the Original Note is continuing indebtedness evidenced
hereby. Except as specifically provided by the terms hereof, the terms of the
Original Note are hereby merged into the terms hereof such that all security
interests, mortgages and assignments previously granted to secure the Original
Note are continuing and secure this Note. Nothing herein constitutes a payment,
settlement or novation of the Original Note, or releases or otherwise adversely
affects any lien, mortgage or security interest securing such indebtedness or
any rights of the Bank against any guarantor, surety or other party primarily or
secondarily liable for such indebtedness.

 

  CTI Industries Corporation           By: /s/ Stephen M. Merrick     Name:
Stephen M. Merrick     Title: Executive Vice President and       Chief Financial
Officer  

 

 

Exhibit E

 

Applicable Rate

 

Level

Senior

Leverage Ratio

LIBOR
Margin Base Rate
Margin

 

Commitment
Fee

Letter of

Credit Fee

I

Greater than or equal to

3.00 to 1.00

3.00% 0.50% 0.25% 2.50% II

Less than 3.00 to 1.00

but greater than

2.00 to 1.00

2.75% 0.25% 0.25% 2.25% III

Less than or equal to

2.00 to 1.00

2.50% 0.00% 0.25% 2.00%

 

 

 

Exhibit F

 

Borrowing Base Certificate

 

To: BMO Harris Bank N.A.

 

Pursuant to the terms of the Credit Agreement dated as of April 29, 2010,
between CTI Industries Corporation, an Illinois corporation, and you (the
“Credit Agreement”), we submit this Borrowing Base Certificate to you and
certify that the information set forth below and on any attachments to this
certificate is true, correct and complete as of the date of this certificate.

 

I. Borrowing Base     A. Accounts in Borrowing Base

 

1.         Gross Accounts     2.         Less     (a)        Owed by an account
debtor who is not located within the U.S.)            (b)        Owed by an
account debtor who is a Subsidiary, Affiliate, shareholder, director, officer,
or employee            (c)        Owed by an account debtor who is in an
insolvency or reorganization proceeding            (d)        Unpaid more than
ninety (90) days after the original invoice date            (e)       
Ineligible because of 25% taint factor            (f)        Otherwise
ineligible            Total Deductions
(sum of lines I.A.2(a) through I.A.2(f))            3.         Eligible Accounts
(line I.A.1 minus I.A.2)            4.         Accounts in Borrowing Base
(line I.A.3 x 0.85)           

 

B. Inventory in Borrowing Base

 

1.         Gross inventory of Finished Goods and Raw Materials           
2.         Less     (a)       Finished Goods and Raw Materials not located at
approved locations            (b)        Obsolete, slow moving, or not
merchantable            (c)        Otherwise ineligible                       
Total Deductions
(sum of lines I.B.2(a) through I.B.2(c))            3.         Eligible
Inventory (line I.B.1 minus line I.B.2)            4.         Eligible Inventory
included in Borrowing Base determination (line I.B.3 x 0.60)           

 

C. Inventory in Borrowing Base

  

1.         Inventory Cap $6,500,000            2.         Eligible Inventory
Line I.B.4            3.         Eligible Inventory in Borrowing Base
(Lesser of lines I.C.1 and I.C.2)           

 

D. Total Borrowing Base

 

(sum of lines I.A.4 and I.C.3)           

 

E.Revolving Credit Advances

 

1.         Revolving Loans            2.         Letters of Credit           
Total Revolving Credit Outstanding
(line I.E.1 plus line I.E.2)           

 

F.Unused Availability

 

(line I.D minus I.E)           

 

II.Accounts Receivable Aging

 

General Ledger Activity Accounts Receivable Aging A/R at                        
$                        Current                         Add
                        Sales $                         30-60 Days
                        Less                         Cash
(                        ) 60-90 Days                         Less
                        Cm’s (                        ) Over 90 Days __________
A/R at                         $                         Total
$                       

 

III.Accounts Payable Aging

 

Current       30-60 Days       60-90 Days        Total    

 

Withholding taxes have been paid through
______________________________________(date)

 

Dated as of this ____ day of __________________, ____.

 

 

  CTI Industries Corporation           By: /s/ Stephen M. Merrick     Name:
Stephen M. Merrick     Title: Executive Vice President and       Chief Financial
Officer  

22