EXHIBIT 10.4

 

Payment of the indebtedness evidenced by this instrument or document and the
rights of the holder hereof are subordinated and subject to the rights of PNC
Bank, National Association, as Agent for certain Lenders, to the extent provided
in a Subordination Agreement dated as of December 14, 2017, between payee to
said lender.

 

PROMISSORY NOTE

 

FOR VALUE RECEIVED, and subject to the terms and conditions set forth herein,
CTI Industries Corporation, an Illinois corporation (the "Maker"), hereby
unconditionally promises to pay to the order of John H. Schwan or his assigns
(the "Noteholder", and together with the Maker, the "Parties"), the principal
amount of One Million Four Hundred Ninety-Eight Thousand Eight Hundred
Twenty-Two and 01/100 Dollars ($1,498,822.01) (the “Loan”) comprised of (a) One
Million Ninety-Nine Thousand Ninety and 76/100 Dollars ($1,099,090.76) on which
interest shall be paid at a rate of 6% per annum, and (b) Three Hundred
Ninety-Nine Thousand Seven Hundred Thirty-One and 25/100 Dollars ($399,731.25)
of existing accrued interest on which no interest shall be paid, all as provided
in this Promissory Note (the "Note", as the same may be amended, restated,
supplemented or otherwise modified from time to time in accordance with its
terms).

 

1.     Definitions. Capitalized terms used herein shall have the meanings set
forth in this Section 1.

 

"Applicable Rate" means the rate equal to Six percent (6%) per annum.

 

"Business Day" means a day other than a Saturday, Sunday or other day on which
commercial banks in Chicago, Illinois are authorized or required by law to
close.

 

"Default" means any of the events specified in Section 6 which constitutes an
Event of Default or which, upon the giving of notice, the lapse of time, or both
pursuant to Section 6 would, unless cured or waived, become an Event of Default.

 

"Default Rate" means, at any time, the Applicable Rate plus 2%.

 

"Event of Default" has the meaning set forth in Section 6.

 

"Governmental Authority" means the government of any nation or any political
subdivision thereof, whether at the national, state, territorial, provincial,
municipal or any other level, and any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions
of, or pertaining to, government (including any supranational bodies such as the
European Union or the European Central Bank).

 

 

 

 

"Law" as to any Person, means any law (including common law), statute,
ordinance, treaty, rule, regulation, policy or requirement of any Governmental
Authority and authoritative interpretations thereon, whether now or hereafter in
effect, in each case, applicable to or binding on such Person or any of its
properties or to which such Person or any of its properties is subject.

 

"Loan" has the meaning set forth in the introductory paragraph.

 

"Maker" has the meaning set forth in the introductory paragraph.

 

"Maturity Date" means December 31, 2023.

 

"Note" has the meaning set forth in the introductory paragraph.

 

"Noteholder" has the meaning set forth in the introductory paragraph.

 

"Order" as to any Person, means any order, decree, judgment, writ, injunction,
settlement agreement, requirement or determination of an arbitrator or a court
or other Governmental Authority, in each case, applicable to or binding on such
Person or any of its properties or to which such Person or any of its properties
is subject.

 

"Parties" has the meaning set forth in the introductory paragraph.

 

"Person" means any individual, corporation, limited liability company, trust,
joint venture, association, company, limited or general partnership,
unincorporated organization, Governmental Authority or other entity.

 

“Subordination Agreement” means that certain Subordination Agreement entered
into as of December 14, 2017, among Maker, Noteholder and PNC Bank, National
Association, as Agent for certain lenders.

 

2.     Final Payment Date; Optional Prepayments.

 

  2.1       Final Payment Date. The aggregate unpaid principal amount of the
Loan, all accrued and unpaid interest and all other amounts payable under this
Note shall be due and payable on the Maturity Date.

 

  2.2       Optional Prepayment. Subject to the Subordination Agreement, the
Maker may prepay the Loan in whole or in part at any time or from time to time
without penalty or premium by paying the principal amount to be prepaid together
with accrued interest thereon to the date of prepayment. No prepaid amount may
be reborrowed.

 

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3.     Interest.

 

  3.1       Interest Payment Dates. In accordance with Section 2.1, all interest
accruing hereunder shall be payable monthly, subject only to restrictions on
payment under the Subordination Agreement.

 

  3.2       Default Interest. If any amount payable hereunder is not paid when
due (without regard to any applicable grace periods), whether at stated
maturity, by acceleration or otherwise, such overdue amount shall bear interest
at the Default Rate from the date of such non-payment until such amount is paid
in full.

 

  3.3       Computation of Interest. All computations of interest shall be made
on the basis of a year of 365 days, and the actual number of days elapsed.
Interest shall accrue on the principal portion of this Note on the day on which
such Loan is made, and shall not accrue on the Loan on the day on which it is
paid. Interest shall not accrue on accrued and unpaid interest.

 

4.     Payment Mechanics.

 

  4.1       Manner of Payment. All payments of interest and principal shall be
made in lawful money of the United States of America no later than 3:00 PM
Central Time on the date on which such payment is due by wire transfer of
immediately available funds to the Noteholder's account at a bank specified by
the Noteholder in writing to the Maker from time to time.

 

  4.2       Business Day. Whenever any payment to be made hereunder shall be due
on a day that is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension will be taken into account in
calculating the amount of interest payable under this Note.

 

5.     Representations and Warranties. The Maker hereby represents and warrants
to the Noteholder on the date hereof as follows:

 

  5.1       Existence. The Maker is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Illinois.

 

  5.2       Power and Authority. The Maker has the power and authority, and the
legal right, to execute and deliver this Note and to perform its obligations
hereunder.

 

  5.3       Authorization; Execution and Delivery. The execution and delivery of
this Note by the Maker and the performance of its obligations hereunder have
been duly authorized by all necessary corporate action in accordance with all
applicable Laws. The Maker has duly executed and delivered this Note.

 

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  5.4       No Approvals. Other than consent by PNC Bank, which consent has been
given subject to the Subordination Agreement, no consent or authorization of,
filing with, notice to or other act by, or in respect of, any Governmental
Authority or any other Person is required in order for the Maker to execute,
deliver, or perform any of its obligations under this Note.

 

  5.5       No Violations. The execution and delivery of this Note and the
consummation by the Maker of the transactions contemplated hereby do not and
will not (a) violate any provision of the Maker's organizational documents; (b)
violate any Law or Order applicable to the Maker or by which any of its
properties or assets may be bound; or (c) constitute a default under any
material agreement or contract by which the Maker may be bound.

 

  5.6       Enforceability. The Note is a valid, legal and binding obligation of
the Maker, enforceable against the Maker in accordance with its terms except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.

 

6.     Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:

 

  6.1       Failure to Pay. The Maker fails to pay any monthly installment of
interest accruing hereunder unless such payment would violate the terms of the
Subordination Agreement.

 

  6.2       Breach of Representations and Warranties. Any representation or
warranty made or deemed made by the Maker to the Noteholder herein is incorrect
in any material respect on the date as of which such representation or warranty
was made or deemed made.

 

  6.3       Bankruptcy.  The following shall be considered acts of bankruptcy:

 

  (a)       the Maker commences any case, proceeding or other action (i) under
any existing or future law relating to bankruptcy, insolvency, reorganization,
or other relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (ii) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or the Maker
makes a general assignment for the benefit of its creditors;

 

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(b)       there is commenced against the Maker any case, proceeding or other
action of a nature referred to in clause (a) above which (i) results in the
entry of an order for relief or any such adjudication or appointment or (ii)
remains undismissed, undischarged or unbonded for a period of 60 days;

 

(c)       there is commenced against the Maker any case, proceeding or other
action seeking issuance of a warrant of attachment, execution or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief which has not been vacated, discharged, or stayed
or bonded pending appeal within 30 days from the entry thereof;

 

(d)       the Maker takes any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in clause
(a), (b) or (c) above; or

 

(e)       the Maker is generally not, or is unable to, or admits in writing its
inability to, pay its debts as they become due.

 

6.4       Default. The Maker shall be in default under, or shall have received
notice of default with respect to, any note, agreement, or instrument to which
Maker shall be a party and such notice of default shall not have been rescinded
or waived within ten (10) days from the date given.

 

7.     Remedies. Upon the occurrence of an Event of Default and at any time
thereafter during the continuance of such Event of Default, the Noteholder may
at his option, but subject to the Subordination Agreement by written notice to
the Maker (a) declare the entire principal amount of this Note, together with
all accrued interest thereon and all other amounts payable hereunder,
immediately due and payable and/or (b) exercise any or all of its rights, powers
or remedies under applicable law.

 

8.     Miscellaneous.

 

8.1       Notices.  All notices, requests or other communications required or
permitted to be delivered hereunder shall be delivered in writing to such
address as a Party may from time to time specify in writing.

 

8.2       Expenses. The Maker shall reimburse the Noteholder on demand for all
reasonable out-of-pocket costs, expenses and fees (including reasonable expenses
and fees of its counsel) incurred by the Noteholder in connection with the
transactions contemplated hereby including the negotiation, documentation and
execution of this Note and the enforcement of the Noteholder's rights hereunder.

 

8.3       Governing Law. This Note and any claim, controversy, dispute or cause
of action (whether in contract or tort or otherwise) based upon, arising out of
or relating to this Note and the transactions contemplated hereby shall be
governed by the laws of the State of Illinois.

 

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8.4       Submission to Jurisdiction.  

 

(a)       The Maker hereby irrevocably and unconditionally (i) agrees that any
legal action, suit or proceeding arising out of or relating to this Note may be
brought in the courts of the State of Illinois or of the United States of
America for the Northern District of Illinois and (ii) submits to the exclusive
jurisdiction of any such court in any such action, suit or proceeding. Final
judgment against the Maker in any action, suit or proceeding shall be conclusive
and may be enforced in any other jurisdiction by suit on the judgment.

 

(b)       Nothing in this Section 8.4 shall affect the right of the Noteholder
to (i) commence legal proceedings or otherwise sue the Maker in any other court
having jurisdiction over the Maker or (ii) serve process upon the Maker in any
manner authorized by the laws of any such jurisdiction.

 

8.5       Venue. The Maker irrevocably and unconditionally waives, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of venue of any action or proceeding arising out of
or relating to this Note in any court referred to in Section 8.4(a) and the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.

 

8.6       Waiver of Jury Trial. THE MAKER HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS NOTE OR THE
TRANSACTIONS CONTEMPLATED HEREBY WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY.

 

8.7       Successors and Assigns. Subject to the terms of the Subordination
Agreement, this Note may be assigned, transferred or negotiated by the
Noteholder to any Person at any time without notice to or the consent of the
Maker. The Maker may not assign or transfer this Note or any of its rights
hereunder without the prior written consent of the Noteholder. This Note shall
inure to the benefit of and be binding upon the parties hereto and their
permitted assigns.

 

8.8       Waiver of Notice. The Maker hereby waives presentment, protest, notice
of dishonor, notice of protest or nonpayment, notice of acceleration of maturity
and diligence in connection with the enforcement of this Note or the taking of
any action to collect sums owing hereunder.

 

8.9       Amendments and Waivers. No term of this Note may be waived, modified
or amended except by an instrument in writing signed by both of the parties
hereto. Any waiver of the terms hereof shall be effective only in the specific
instance and for the specific purpose given.

 

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IN WITNESS WHEREOF, the Maker has executed this Note as of December 14, 2017.

 

  CTI INDUSTRIES CORPORATION         By /s/ Stephen M. Merrick     Authorized
Officer         Name: Stephen M. Merrick         Title: CEO

 

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