LIMITED CONTINUING UNCONDITIONAL GUARANTY

This LIMITED CONTINUING UNCONDITIONAL GUARANTY dated as of February 1, 2006 (the
“Guaranty”), is executed by Stephen M. Merrick, individually (the “Guarantor”),
whose address is 422 Rosiland Drive, Palatine, Illinois, to and for the benefit
of CHARTER ONE BANK, N.A., a national banking association (together with any of
its affiliate or subsidiary corporations, or their successors or assigns, being
collectively referred to herein as the “Bank”), whose address is 71 South Wacker
Drive, Suite 2900, Chicago, Illinois 60606.

WHEREAS, CTI Industries Corporation, an Illinois corporation (the “Borrower”),
whose address is 22160 North Pepper Road, Barrington, Illinois 60010, desires or
may desire at some time and/or from time to time to obtain financial
accommodations from the Bank; and

WHEREAS, the Guarantor is a shareholder and creditor of the Borrower, and
desires the Bank to extend or continue the extension of credit to the Borrower
and the Bank has required that Guarantor execute and deliver this Guaranty to
the Bank as a condition to the extension and continuation of credit by the Bank;
and

WHEREAS, the extension or continued extension of credit, as aforesaid, by the
Bank is necessary and desirable to the conduct and operation of the business of
the Borrower and will inure to the financial benefit of the Guarantor;

NOW, THEREFORE, FOR VALUE RECEIVED, it is agreed that the preceding provisions
and recitals are an integral part hereof and that this Guaranty shall be
construed in light thereof, and in consideration of advances, credit or other
financial accommodation heretofore afforded, concurrently herewith being
afforded or hereafter to be afforded to the Borrower by the Bank, the Guarantor
hereby unconditionally and absolutely guarantees to the Bank or other person
paying or incurring the same, irrespective of the validity, regularity or
enforceability of any instrument, writing, arrangement or credit agreement
relating to or the subject of any such financial accommodation, the payment in
full, promptly on demand of the Bank or such other person paying or incurring
the same, of up to the principal amount of One Million and 00/100 Dollars
($1,000,000.00) (the “Guaranteed Debt”) of the Indebtedness (as hereinafter
defined).

As used herein, “Indebtedness” shall mean and include any and all indebtedness,
obligations and liabilities of the Borrower to the Bank arising under and
pursuant to that certain Loan and Security Agreement dated as of February 1,
2006, executed by and between the Borrower and the Bank (as amended,
supplemented or modified from time to time, the "Loan Agreement"), and as
evidenced by the following promissory notes executed by Borrower in connection
therewith as of the same date: Term Note in the original principal amount of
Three Million Five Hundred Thousand and 00/100 Dollars ($3,500,000.00),
Revolving Note in the maximum original principal amount of Six Million Five
Hundred Thousand and 00/100 Dollars ($6,500,000.00) and Mortgage Note in the
original principal amount of Two Million Eight Hundred Thousand and 00/100
Dollars ($2,800,000.00), including any and all new or renewal notes issued in
substitution or replacement therefor or any and all extensions, renewals or
replacements thereof (collectively, the “Notes”); plus (b) all interest due or
to become due on the Notes, plus (c) all costs, legal expenses and attorneys’
and paralegals’ fees of every kind (including those costs, expenses and fees of
attorneys and paralegals who may be employees of the Bank or its indirect
parent), paid or incurred by the Bank in endeavoring to collect the Indebtedness
or any part thereof, or in enforcing its rights in connection with any
collateral for the Notes, or in defending against any defense, counterclaim,
setoff or crossclaim based on any act of commission or omission by the Bank with
respect to the Notes, any collateral therefor, or in connection with any
Repayment Claim (as hereinafter defined). It is hereby agreed that, while the
liability of the Guarantor to the Bank under this Guaranty is limited to the
Guaranteed Debt as set forth above, the Indebtedness is in no way limited as to
dollar amount.
 
 
 

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Under no circumstances shall the liability of the Guarantor hereunder be reduced
by, from or as a result of any payment to or amount realized by the Bank from
any rents, deposits, insurance proceeds, condemnation awards, proceeds from
bankruptcy sale, foreclosure or any conveyance in lieu of foreclosure or from
any other profits, avails, revenues or proceeds derived from any collateral for
the Indebtedness or the Premises, and only payments made to the Bank by the
Guarantor out of his personal funds not derived from the assets of the Borrower
or the Premises after demand therefor by the Bank shall be applied against such
liability.

In case of the death of the Guarantor, or in case of any bankruptcy,
reorganization, debt arrangement or other proceeding under any bankruptcy or
insolvency law, any dissolution, liquidation or receivership proceeding is
instituted by or against either the Borrower or the Guarantor, or any default by
the Guarantor of any of the covenants, terms and conditions set forth herein,
all of the Guaranteed Debt shall, without notice to anyone, immediately become
due or accrued and all amounts due hereunder shall be payable, jointly and
severally, by the Guarantor. The Guarantor hereby expressly and irrevocably: (a)
waives, to the fullest extent possible, on behalf of himself and his successors
and assigns (including any surety) and any other person, any and all rights at
law or in equity to subrogation, reimbursement, exoneration, contribution,
indemnification, set off or to any other rights that could accrue to a surety
against a principal, a guarantor against a maker or obligor, an accommodation
party against the party accommodated, a holder or transferee against a maker, or
to the holder of a claim against any person, and which the Guarantor may have or
hereafter acquire against any person in connection with or as a result of the
Guarantor’s execution, delivery and/or performance of this Guaranty, or any
other documents to which the Guarantor is a party or otherwise; (b) waives any
“claim” (as such term is defined in the United States Bankruptcy Code) of any
kind against the Borrower, and further agrees that he shall not have or assert
any such rights against any person (including any surety), either directly or as
an attempted set off to any action commenced against the Guarantor by the Bank
or any other person; and (c) acknowledges and agrees (i) that foregoing waivers
are intended to benefit the Bank and shall not limit or otherwise affect the
Guarantor’s liability hereunder or the enforceability of this Guaranty, (ii)
that the Borrower and its successors and assigns are intended third party
beneficiaries of the foregoing waivers, and (iii) the agreements set forth in
this paragraph and the Bank’s rights under this paragraph shall survive payment
in full of the Guaranteed Debt.
 
 
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All dividends or other payments received by the Bank on account of the
Indebtedness, from whatever source derived, shall be taken and applied by the
Bank toward the payment of the Guaranteed Debt and in such order of application
as the Bank may, in its sole discretion, from time to time elect. The Bank shall
have the exclusive right to determine how, when and what application of payments
and credits, if any, whether derived from the Borrower or any other source,
shall be made on the Indebtedness and such determination shall be conclusive
upon the Guarantor.

This Guaranty shall in all respects be continuing, absolute and unconditional,
and shall remain in full force and effect with respect to the Guarantor until:
(i) written notice from the Bank to the Guarantor by United States certified
mail of its discontinuance as to the Guarantor; or (ii) until all Guaranteed
Debt created or existing before receipt of either such notice shall have been
fully paid. In case of the discontinuance of this Guaranty as to any Guarantor,
this Guaranty shall nevertheless continue and remain in force against any other
guarantor until discontinued as to such other guarantor as provided herein. In
the event of the death or incompetency of the Guarantor, this Guaranty shall
continue as to all of the Guaranteed Debt theretofore incurred by the Borrower
even though the Indebtedness is renewed or the time of maturity of the
Indebtedness is extended without the consent of the executors, administrators,
successors or assigns of the Guarantor.

No compromise, settlement, release or discharge of, or indulgence with respect
to, or failure, neglect or omission to enforce or exercise any right against any
other guarantor shall release or discharge the Guarantor.

The Guarantor’s liability under this Guaranty shall in no way be modified,
affected, impaired, reduced, released or discharged by any of the following (any
or all of which may be done or omitted by the Bank in its sole discretion,
without notice to anyone and irrespective of whether the Indebtedness shall be
increased or decreased thereby): (a) any acceptance by the Bank of any new or
renewal note or notes of the Borrower, or of any security or collateral for, or
other guarantors or obligors upon, any of the Indebtedness; (b) any compromise,
settlement, surrender, release, discharge, renewal, refinancing, extension,
alteration, exchange, sale, pledge or election with respect to the Indebtedness,
or any note by the Borrower, or with respect to any collateral under Section
1111 or take any action under Section 364, or any other section of the United
States Bankruptcy Code, now existing or hereafter amended, or other disposition
of, or substitution for, or indulgence with respect to, or failure, neglect or
omission to realize upon, or to enforce or exercise any liens or rights of
appropriation or other rights with respect to, the Indebtedness or any security
or collateral therefor or any claims against any person or persons primarily or
secondarily liable thereon; (c) any failure, neglect or omission to perfect,
protect, secure or insure any of the foregoing security interests, liens, or
encumbrances of the properties or interests in properties subject thereto; (d)
the granting of credit from time to time by the Bank to the Borrower in excess
of the amount, if any, to which the right of recovery under this Guaranty is
limited (which is hereby expressly authorized); (e) any change in the Borrower’s
name or the merger of the Borrower into another corporation; (f) any act of
commission or omission of any kind or at any time upon the part of the Bank with
respect to any matter whatsoever, other than the execution and delivery by the
Bank to the Guarantor of an express written release or cancellation of this
Guaranty; or (g) the payment in full of the Indebtedness. The Guarantor hereby
consents to all acts of commission or omission of the Bank set forth above and
agrees that the standards of good faith, diligence, reasonableness and care
shall be measured, determined and governed solely by the terms and provisions
hereof.
 
 
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In order to hold the Guarantor liable hereunder, there shall be no obligation on
the part of the Bank, at any time, to resort for payment from the Borrower or to
anyone else, or to any collateral, security, property, liens or other rights and
remedies whatsoever, all of which are hereby expressly waived by the Guarantor.

The Guarantor hereby expressly waives diligence in collection or protection,
presentment, demand or protest or in giving notice to anyone of the protest,
dishonor, default, or nonpayment or of the creation or existence of any of the
Indebtedness or of any security or collateral therefor or of the acceptance of
this Guaranty or of extension of credit or indulgences hereunder or of any other
matters or things whatsoever relating hereto.

The Guarantor waives any and all defenses, claims and discharges of the
Borrower, or any other obligor, pertaining to the Indebtedness, except the
defense of discharge by payment in full. Without limiting the generality of the
foregoing, the Guarantor will not assert, plead or enforce against the Bank any
defense of waiver, release, discharge in bankruptcy, statute of limitations, res
judicata, statute of frauds, anti-deficiency statute, fraud, incapacity,
minority, usury, illegality or unenforceability which may be available to the
Borrower or any other person liable in respect of any of the Indebtedness, or
any setoff available against the Bank to the Borrower or any such other person,
whether or not on account of a related transaction. The Guarantor expressly
agrees that the Guarantor shall be and remain liable for any deficiency
remaining after foreclosure of any mortgage or security interest securing the
Guaranteed Debt, whether or not the liability of the Borrower or any other
obligor for such deficiency is discharged pursuant to statute or judicial
decision.

So long as this Guaranty is continuing, the Guarantor covenants and agrees to
furnish to the Bank or its authorized representatives information regarding the
business affairs, operations and financial condition of the Guarantor,
including, but not limited to, as soon as available, and in any event, within
thirty (30) days after their filing, (i) copies of the federal income tax
returns of the Guarantor, (ii) an annual personal financial statement in form
and substance acceptable to the Bank, and (iii) such other information
(including nonfinancial information) as the Bank may request, all in reasonable
detail and prepared and certified as accurate by the Guarantor. The personal
financial statements of the Guarantor furnished to the Bank at or prior to the
execution and delivery of this Guaranty fairly present the financial condition
of the Guarantor for the periods shown therein, and since the dates covered by
the most recent of such financial statements, there has been no material adverse
change in the Guarantor’s business operations or financial condition. The
Guarantor agrees to advise the Bank immediately of any material adverse change
in the financial condition, business operations or any other status of the
Guarantor. Except as expressly shown on the most recent of such financial
statements, the Guarantor (a) owns all of his assets free and clear of all
liens; (b) is not a party to any litigation, nor is any litigation threatened to
the knowledge of the Guarantor which would, if adversely determined, cause any
material adverse change in his business or financial condition; and (c) has no
delinquent tax liabilities, nor have any tax deficiencies been proposed against
him.
 
 
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To secure payment of the Guaranteed Debt, the Guarantor grants to the Bank a
security interest in all property of the Guarantor delivered concurrently
herewith or which is now, or at any time hereafter in transit to, or in the
possession, custody, or control of the Bank, and all proceeds of all such
property. The Guarantor agrees that the Bank shall have the rights and remedies
of a secured party under the Uniform Commercial Code in effect in Illinois from
time to time, with respect to all of the aforesaid property, including, without
limitation thereof, the right to sell or otherwise dispose of any such property.
The Bank may, without demand or notice of any kind to anyone, apply or set off
any balances, credits, deposits, accounts, moneys or other indebtedness at any
time credited by or due from the Bank to the Guarantor against the amounts due
hereunder and in such order of application as the Bank may from time to time
elect. Any notification of intended disposition of any property required by law
shall be deemed reasonably and properly given if given in the manner provided by
the applicable statute. The Guarantor hereby assigns and transfers to the Bank
any and all cash, negotiable instruments, documents of title, chattel paper,
securities, certificates of deposit, deposit accounts other cash equivalents and
other assets of the Guarantor in the possession or control of the Bank for any
purpose.

PROVIDED THAT THE BANK ACTS IN GOOD FAITH IN A COMMERCIALLY REASONABLE MANNER,
THE GUARANTOR WAIVES EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF
WHICH THE GUARANTOR MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY THE BANK
IN ENFORCING THIS GUARANTY. AS FURTHER SECURITY, ANY AND ALL DEBTS AND
LIABILITIES NOW OR HEREAFTER ARISING AND OWING TO THE GUARANTOR BY THE BORROWER,
OR TO ANY OTHER PARTY LIABLE TO THE BANK FOR THE INDEBTEDNESS, ARE HEREBY
SUBORDINATED TO THE BANK’S CLAIMS AND ARE HEREBY ASSIGNED TO THE BANK. THE
GUARANTOR HEREBY AGREES THAT THE GUARANTOR MAY BE JOINED AS A PARTY DEFENDANT IN
ANY LEGAL PROCEEDING (INCLUDING, BUT NOT LIMITED TO, A FORECLOSURE PROCEEDING)
INSTITUTED BY THE BANK AGAINST THE BORROWER. THE GUARANTOR AND THE BANK, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY THE RIGHT TO TRIAL BY
JURY WITH RESPECT TO ANY SUCH LEGAL PROCEEDING IN WHICH THE GUARANTOR AND THE
BANK ARE ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK
GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWER AND ACCEPTING THIS
GUARANTY.

Should a claim (a “Repayment Claim”) be made upon the Bank at any time for
repayment of any amount received by the Bank in payment of the Indebtedness, or
any part thereof, whether received from the Borrower, the Guarantor pursuant
hereto, or received by the Bank as the proceeds of collateral, by reason of: (i)
any judgment, decree or order of any court or administrative body having
jurisdiction over the Bank or any of its property; or (ii) any settlement or
compromise of any such Repayment Claim effected by the Bank, in its sole
discretion, with the claimant (including the Borrower), the Guarantor shall
remain jointly and severally liable to the Bank for the amount so repaid to the
same extent as if such amount had never originally been received by the Bank,
notwithstanding any termination hereof or the cancellation of any note or other
instrument evidencing the Indebtedness.
 
 
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The Bank may, without notice to anyone, sell or assign the Indebtedness, or any
part thereof, or grant participations therein, and in any such event each and
every immediate or remote assignee or holder of, or participant in, all or any
of the Indebtedness shall have the right to enforce this Guaranty, by suit or
otherwise for the benefit of such assignee, holder, or participant, as fully as
if herein by name specifically given such right herein, but the Bank shall have
an unimpaired right, prior and superior to that of any such assignee, holder or
participant, to enforce this Guaranty for the benefit of the Bank, as to any
part of the Indebtedness retained by the Bank.

Unless and until all of the Indebtedness has been paid in full, no release or
discharge of any other person, whether primarily or secondarily liable for and
obligated with respect to the Indebtedness, or the institution of bankruptcy,
receivership, insolvency, reorganization, dissolution or liquidation proceedings
by or against the Guarantor or any other person primarily or secondarily liable
for and obligated with respect to the Indebtedness, or the entry of any
restraining or other order in any such proceedings, shall release or discharge
the Guarantor, or any other guarantor of the indebtedness, or any other person,
firm or corporation liable to the Bank for the Indebtedness.

All references herein to the Borrower and to the Guarantor, respectively, shall
be deemed to include any successors or assigns, whether immediate or remote, to
such and any executors or administrators to such individual.

If this Guaranty contains any blanks when executed by the Guarantor, the Bank is
hereby authorized, without notice to the Guarantor, to complete any such blanks
according to the terms upon which this Guaranty is executed by the Guarantor and
is accepted by the Bank.

This Guaranty has been delivered to the Bank at its offices in Chicago,
Illinois, and the rights, remedies and liabilities of the parties shall be
construed and determined in accordance with the laws of the State of Illinois,
in which State it shall be performed by the Guarantor.

TO INDUCE THE BANK TO GRANT FINANCIAL ACCOMMODATIONS TO THE BORROWER, THE
GUARANTOR IRREVOCABLY AGREES THAT ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY AS
A RESULT OR IN CONSEQUENCE OF THIS GUARANTY SHALL BE INSTITUTED AND LITIGATED
ONLY IN COURTS HAVING SITUS IN THE CITY OF CHICAGO, ILLINOIS. THE GUARANTOR
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL
COURT LOCATED AND HAVING ITS SITUS IN CHICAGO, ILLINOIS, AND WAIVES ANY
OBJECTION BASED ON FORUM NON CONVENIENS. THE GUARANTOR HEREBY WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS, AND CONSENTS TO THE SERVICE OF PROCESS BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE GUARANTOR AT THE
ADDRESS INDICATED IN THE BANK’S RECORDS IN THE MANNER PROVIDED BY APPLICABLE
STATUTE, LAW, RULE OF COURT OR OTHERWISE. FURTHERMORE, THE GUARANTOR WAIVES ALL
NOTICES AND DEMANDS IN CONNECTION WITH THE ENFORCEMENT OF THE BANK’S RIGHTS
HEREUNDER, AND HEREBY CONSENTS TO, AND WAIVES NOTICE OF THE RELEASE, WITH OR
WITHOUT CONSIDERATION, OF THE BORROWER OR ANY OTHER PERSON RESPONSIBLE FOR
PAYMENT OF THE INDEBTEDNESS, OR OF ANY COLLATERAL THEREFOR.
 
 
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Wherever possible each provision of this Guaranty shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Guaranty shall be prohibited by or invalid under such law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Guaranty.

It is agreed that the Guarantor’s liability is independent of any other
guaranties at any time in effect with respect to all or any part of the
Indebtedness, and that the Guarantor’s liability hereunder may be enforced
regardless of the existence of any such other guaranties.

No delay on the part of the Bank in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by the Bank of
any right or remedy shall preclude other or further exercise thereof, or the
exercise of any other right or remedy. No modification, termination, discharge
or waiver of any of the provisions hereof shall be binding upon the Bank, except
as expressly set forth in a writing duly signed and delivered on behalf of the
Bank.

This Guaranty: (i) is valid, binding and enforceable in accordance with its
provisions, and no conditions exist to the legal effectiveness of this Guaranty
as to the Guarantor; (ii) contains the entire agreement between the Guarantor
and the Bank; (iii) is the final expression of their intentions; and (iv)
supersedes all negotiations, representations, warranties, commitments, offers,
contracts (of any kind or nature, whether oral or written) prior to or
contemporaneous with the execution hereof. No prior or contemporaneous
representations, warranties, understandings, offers or agreements of any kind or
nature, whether oral or written, have been made by the Bank or relied upon by
the Guarantor in connection with the execution hereof.

The term “Guarantor” as used herein shall mean all parties signing this
Guaranty, and the provisions hereof shall be binding upon the Guarantor, and
each one of them, and all such parties, their respective executors,
administrators, successors and assigns shall be jointly and severally obligated
hereunder. This Guaranty shall inure to the benefit of the Bank and its
successors and assigns.

 
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IN WITNESS WHEREOF, the Guarantor has executed and delivered this Limited
Continuing Unconditional Guaranty as of the date set forth above.

/s/Stephen M. Merrick
Stephen M. Merrick, individually

 
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