Exhibit 10.7

 

CONSULTING AGREEMENT

 

THIS AGREEMENT is entered into effective as of January 1, 2013 by and among CTI
Industries Corporation, an Illinois corporation (the “Company”), having its
principal office in Lake Barrington, Illinois and Schwan Flexible Packaging,
L.L.C, an Illinois limited liability company (“Consultant”) and Howard W.
Schwan, an individual residing in Crystal Lake, Illinois (“Schwan”).

 

WHEREAS, the Company desires to retain Consultant to provide consulting services
to the Company and Consultant is willing to, and desires, to provide consulting
services to the Company pursuant to the terms hereof;

 

WHEREAS, Schwan is the sole shareholder of Consultant.

 

NOW, THEREFORE, in consideration of the premises and of the terms, covenants and
conditions hereinafter contained, the parties hereto agree as follows:

 

1.            Engagement of Consultant.

 

1.1           The Company does hereby appoint and engage the Consultant as its
consultant to provide services to the Company as provided herein for the
compensation and the term provided herein.

 

1.2           The Consultant hereby accepts the appointment and engagement by
the Company as a consultant and advisor to the Company with respect to the
matters specified herein for the compensation and the term provided herein.

 

2.            Services of Consultant.

 

2.1           Consultant shall provide services to the Company with respect to
the following matters:

 

(a)          Representation of the Company in connection with sales of products
by the Company to Dollar Tree Stores and Rapak, L.L.C.;

 

(b)          Representation of the Company in connection with efforts to obtain,
build and maintain sales of products and services by the Company to others;

 

(c)          Consulting and advice to the Company with respect to its products,
sources, materials, production, production methods, customers and markets as the
Company shall reasonably request from time to time.

 

 

 

 

2.2         The services of Consultant provided for herein shall be performed
principally by Schwan on behalf of Consultant. Consultant shall use commercially
reasonable efforts to maintain and enhance the sales of the Company to Dollar
Tree Stores and Rapak, L.L.C. during the term of this Agreement. Consultant
shall provide such written reports concerning Consultant’s services, customers
of the Company for whom Consultant has responsibility and transactions with such
customers, as the Company shall request from time to time.

 

2.3         In general, Consultant shall determine the time and location of the
services to be provided hereunder. During the term hereof, Consultant shall
devote such time and effort to the performance of the services provided for
herein so as to effectively perform such services and to accomplish the purposes
thereof; provided, however, that the parties agree Consultant shall perform
services hereunder for no more than 20 hours per month. Consistent with
Consultant’s other commitments, Consultant, through Schwan, shall travel to such
locations and provide services at such locations as the Company shall reasonably
request.

 

2.4         Consultant shall not be authorized to, and shall not make or enter
into, any contract or commitment for or on behalf of the Company.

 

3.            Compensation; Benefits.

 

3.1         As compensation for the services of Consultant hereunder, the
Company shall pay to Consultant:

 

3.1.1           The sum of $10,000 per month (the “Base Compensation”) each
month during the term hereof, such amount to be paid on the first day of each
month during the term;

 

3.1.2           An amount equal to .27% (.0027) of Net Sales of the Company to
Dollar Tree Stores during the term hereof;

 

3.1.3           An amount equal to .64% (.0064) of Net Sales of the Company to
Rapak, L.L.C. during the term hereof; and,

 

3.1.4           An amount equal to 2.5% (.025) of Net Sales of the Company to
customers obtained during the term hereof through the efforts of Consultant.

 

3.2         For purposes of this paragraph, the term Net Sales shall mean and
include the invoice amount for all product sold and invoiced by the Company to
the designated customer (i) excluding any amount invoiced for shipping,
handling, taxes or other services or expenses, (ii) less any and all amounts for
returns, discounts, allowances, service fees or charges.

 

3.3         The amounts payable to Consultant pursuant to paragraphs 3.1.2,
3.1.3 and 3.1.4 hereof shall be determined and paid on a calendar quarterly
basis each calendar quarter during the term hereof. Within 30 days after the
last day of each calendar quarter during the term hereof, the Company shall
(i) calculate and determine for such quarter (A) the amount of the Net Sales of
the Company to Dollar Tree Stores, Rapak L.L.C. and to each other customer
covered by Section 3.1.4 hereof and (B) the amount due to Consultant for such
quarter pursuant to paragraphs 3.1.2, 3.1.3 and 3.1.4, (ii) provide to
Consultant a report setting forth, separately with respect to each such
customer, the amount of the Net Sales and the amount due to Consultant for such
quarter, and (iii) make payment to Consultant for the amount due for such
quarter.

 

 

 

 

3.4           Consultant, and his authorized representatives shall have the
right, upon request, during the term of this Agreement and for one year
following the date of expiration of the term of this Agreement, upon reasonable
advance notice, to inspect the records of the Company relating to sales of the
Company to customers with respect to which amounts may be payable to Consultant
hereunder. In the event that the amounts determined to be due to Consultant for
any calendar quarter shall be more than the amounts reported and paid by the
Company for such calendar quarter, the Company shall pay to Consultant the
difference between the amounts due and the amounts actually paid within 30 days
of such determination. In the event that the amounts determined to be due to
Consultant for any calendar quarter shall be more than 10% greater than the
amount reported and paid by the Company, the Company shall reimburse Consultant
for his reasonable expenses related to the inspection of records and audit of
the amount due.

 

3.5           During the term of the Agreement, Schwan shall be entitled to
participate in the Company’s medical insurance coverage and the Company shall
pay the full cost of such coverage. The Company shall provide COBRA continuation
coverage to commence at the end of the term of this Agreement. If Company’s
insurer does not permit Schwan’s continued participation in the Company’s
medical insurance coverage during the term of the Agreement, or allow the
Company to provide COBRA continuation coverage commencing at the end of the
Agreement term, the Company shall purchase for Schwan during the Agreement term
and/or the COBRA continuation coverage period, as applicable, individual medical
insurance coverage substantially similar in all respects to the Company’s
medical insurance coverage.

 

3.6            During the term of the Agreement, the Company shall pay or
reimburse Schwan for the premiums on the life insurance policy covering Schwan
as of the date hereof.

 

3.7           During the term of the Agreement, the Company will reimburse
Consultant for the club dues of Schwan for up to two club memberships, up to an
aggregate annualized maximum amount of $10,000.

 

3.8           During the term of the Agreement, the Company shall provide an
office for the use of Consultant at a location mutually selected by the Company
and Consultant and shall provide administrative support for Consultant as
necessary to enable Consultant to perform the services provided for herein.

 

4.            Expenses. The Company shall reimburse Consultant for all
authorized expenses incurred by Consultant in the performance of services
hereunder, including expenses incurred for travel, meals during travel and
lodging. Consultant shall obtain prior authorization from the Company for any
travel expenses and for any single or related series of expenses in excess of
$500. Consultant shall maintain proper records of all expenses incurred for
which reimbursement is sought and shall provide expense reports, in the form
required by the Company, and copies of expense records to the Company.

 

 

 

 

5.            Independent Contractor. The Consultant shall at all times be an
independent contractor, and not a co-venturer, agent or employee of the Company.
In general, Consultant shall determine the location and time of services to be
performed by Consultant.

 

6.            Term and Termination.

 

6.1           The term of this Agreement shall commence on January 1, 2013 and
continue to December 31, 2014 at which time the consulting term of this
Agreement shall expire and terminate. At the expiration of the initial term of
this Agreement and each renewal term, the term of the Agreement automatically
shall be renewed for an additional term of 12 months, unless 30 days or more
prior to the expiration of such initial term or any renewal term either party
shall give notice to the other party of the termination of the Agreement at the
expiration of such initial term or renewal term. If such notice of termination
shall be given, the Agreement shall terminate at the expiration of the initial
term or renewal term for which such notice is given.

 

6.2           The Company shall be entitled to terminate this Agreement at any
time, by written notice, (i) in the event of an Event of Default by the
Consultant or (ii) without an Event of Default by the Consultant, provided that
the Company shall pay to Consultant, within 10 days of any termination without
an Event of Default, a lump sum payment equal to the remaining Base Compensation
due to Consultant for the initial term (or renewal term, as applicable). An
Event of Default with respect to Consultant shall mean and include (i) an
intentional and material breach by Consultant of the obligations of Consultant
under this Agreement that is not cured by Consultant after 30 days’ notice
thereof from the Company; or (ii) commission by Consultant of any act of theft,
fraud or embezzlement against the Company.

 

6.3           The Consultant shall be entitled to terminate this Agreement at
any time, by written notice, (i) in the Event of Default by the Company or a
Change in Control (each as defined below) or (ii) for any reason during any
renewal term upon 30 days notice.

 

7.            Confidentiality.

 

7.1           “Confidential Information” for purposes of this Agreement means
any and all information disclosed by the Company to Consultant, whether provided
or received orally or in writing, relating to or concerning the business,
projects, products, processes, formulas, know-how, techniques, designs or
methods of the Company, whether relating to research, development, manufacture,
purchasing, accounting, engineering, marketing, merchandising, selling or
otherwise. Without limitation, Confidential Information shall include all
know-how, technical information, inventions, ideas, concepts, processes and
designs relating to products of the Company, whether now existing or hereafter
developed, and all prices, customer or distributor names, customer or
distributor lists, marketing and other relationships, whether contractual or
not, between the Company, its suppliers, customers, distributors, employees,
agents, consultants and independent contractors.

 

7.2           Consultant agrees that he will not disclose any Confidential
Information to any person and will not use any Confidential Information for any
purpose other than in the performance of his duties for the Company, in the
course of business dealings with the Company, as authorized by the Company or as
required by law. Confidential Information shall not include information, which,
at the time, Consultant can show (i) is generally known to the public other than
as a result of disclosure by the Consultant or by other wrongful disclosure or
(ii) became known to the Consultant from a source other than the Company or any
of its Consultants, agents or representatives in a communication not involving a
wrongful disclosure.

 

 

 

 

7.3           Consultant agrees that, during the term hereof or while Consultant
shall receive compensation hereunder and after termination of his employment
with the Company for so long as the Confidential Information shall not be
generally known or generally disclosed (except by means of wrongful use or
disclosure), Consultant shall not use any Confidential Information, except on
behalf of the Company, or disclose any Confidential Information to any person,
firm, partnership, company, corporation or other entity, except in the course of
his duties for the Company, as authorized by the Company or as required by law.

 

7.4           Consultant acknowledges and agrees that the obligations under this
Section 7 shall survive expiration or termination of this Agreement and
Consultant shall continue to be bound by this provision as provided herein.

 

8.            Inventions.

 

8.1           “Inventions” shall mean discoveries, concepts, ideas, designs,
methods, formulas, know-how, techniques or any improvements thereon, whether
patentable or not, made, conceived or developed, in whole or in part, by
Consultant.

 

8.2           Consultant and Schwan covenant and agree to communicate and fully
disclose to the Company any and all Inventions made or conceived by either of
them during the performance of services for the Company with respect to product
development projects, if any, in which Consultant or Schwan are engaged on
behalf of the Company, and further agree that any and all such Inventions with
respect to product development projects on behalf of the Company which either
may conceive or make, during the term hereof, shall be at all times and for all
purposes regarded as acquired and held by them in a fiduciary capacity and
solely for the benefit of the Company. The provisions of this Section 8.2 shall
not apply to an invention for which no equipment, supplies, facilities,
Confidential Information or trade secret information of the Company was used and
which was developed entirely on the Consultant’s own time, unless the invention
relates to the product development projects, if any, in which Consultant or
Schwan are engaged on behalf of the Company.

 

8.3           Consultant acknowledges and agrees that the obligations under this
Section 8 shall survive termination of this Agreement and Consultant shall
continue to be bound by this provision as provided herein.

 

9.            Writings and Working Papers.

 

9.1           Consultant covenants and agrees that any and all letters,
pamphlets, drafts, memoranda or other writings of any kind written by him for or
on behalf of the Company or in the performance of Consultant’s duties hereunder,
Confidential Information referred to in Section 7.1 hereof and all notes,
records and drawings made or kept by him of work performed in connection with
Consultant’s retention by the Company shall be and are the sole and exclusive
property of the Company and the Company shall be entitled to any and all rights
relating thereto. Consultant also agrees that upon request he will place all
such notes, records and drawings in the Company’s possession and will not retain
with him without the written consent of a duly authorized officer of the Company
any notes, records, drawings, blueprints or other reproductions relating or
pertaining to or connected with his employment of the business, books,
textbooks, pamphlets, documents work or investigations of the Company.

 

 

 

 

9.2           Consultant acknowledges and agrees that the obligations under this
Section 9 shall survive termination of this Agreement and Consultant shall
continue to be bound by this provision as provided herein.

 

10.          Restrictive Covenants.

 

10.1       For purposes of this paragraph:

 

10.1.1           “Conflicting Organization” means any person, firm, company,
partnership, business, corporation, or other entity engaged in, or intending to
engage in, research, development, production, marketing or selling a Conflicting
Product.

 

10.1.2           “Conflicting Product” includes any balloon product, including
without limitation, latex, foil or clear plastic balloon product.

 

10.1.3           “Conflicting Film Product” means any film product
(i) incorporating a zipper closure, (ii) incorporating embossed film or
(iii) constituting a pouch or bag and utilizing evacuation means, to the extent
such product competes with, or is reasonably interchangeable as a substitute
for, any product produced, marketed or sold by the Company.

 

10.1.4           “Related Film Product” means and includes any and all film
products of the kind currently produced by the Company, and, in general,
includes any film product which competes with, or is reasonably interchangeable
as a substitute for, any film product which is currently produced or marketed by
the Company.

 

10.1.5           “Territory” shall mean the United States of America and its
possessions and territories.

 

10.2       Consultant and Schwan acknowledge and agree:

 

10.2.1           That the Company has developed, and is developing and
establishing, a valuable and extensive trade in its services and products,
including without limitation, latex, foil and clear balloons, bags and pouches
and printed and laminated films.

 

10.2.2           That the Company has developed, and is developing, at great
expense, technical information concerning its products, production and methods
of marketing and sale which are kept and protected as Confidential Information
and trade secrets and are of great value to the Company;

 

 

 

 

10.2.3           That, during the course of his employment with the Company and
during the term of this Agreement, Consultant has acquired and will acquire,
possession of Confidential Information.

 

10.2.4           That the conduct covered by the restrictive covenant in this
paragraph includes only a percentage of the total number of entities and
individuals who are customers or distributors or potential customers or
distributors of products with respect to which Consultant has knowledge or
expertise, that Consultant will be able to utilize his knowledge, experience and
expertise for an employer or otherwise while fully complying with the terms of
this paragraph and that the terms and conditions of this paragraph are
reasonable and necessary for the protection of the Company’s business and
assets.

 

10.3         Consultant agrees that, during the term of this Agreement, whether
as an employee, independent distributor, agent, officer, consultant, partner,
owner, shareholder or otherwise,

 

(i)          Consultant and Schwan will not, in the Territory, solicit for the
sale of, or participate with, provide services to, or be employed by any
Conflicting Organization which shall produce, market or sell, any Conflicting
Product;

 

(ii)         Consultant and Schwan will not, in the Territory, represent or
provide services to any person, firm, company or organization other than the
Company in connection with the development, marketing or sale of any Conflicting
Film Product;

 

(iii)        Consultant and Schwan will not offer or solicit any current
customer or business relationship of the Company, for the sale of any products
which are Conflicting Products, Conflicting Film Products or Related Film
Products;

 

(iv)        Consultant and Schwan will first offer to the Company, with any
prospective customer, the opportunity to provide and sell any Related Film
Product (which offer the Company shall respond to within 15 days of its receipt
thereof, and, if the Company fails to so timely respond, the Company shall be
deemed to have declined such offer); and

 

(v)         Consultant and Schwan will not solicit any current supplier of the
Company to become a supplier for any third party for Conflicting Products
without prior Company approval.

 

Subject to the terms of this paragraph and the other provisions of this
Agreement, the Company acknowledges and agrees that, during the term of this
Agreement, and thereafter, Consultant may provide services to persons or
entities other than the Company, including, without limitation, (i) the
development of products including film products and (ii) solicitation for the
sale of, marketing and distribution of film products.

 

 

 

 

10.4       Notwithstanding the foregoing, or anything herein to the contrary,
upon the occurrence of an Event of Default with respect to the Company or a
Change in Control (each as defined below), the Company acknowledges and agrees
that Consultant and Schwan shall no longer be bound by the obligations under
this Section 10 and may immediately thereafter provide services to persons or
entities other than the Company without any limitation.

 

10.5       For purposes of this Agreement an Event of Default with respect to
the Company shall include:

 

10.5.1           Any failure by the Company to perform its obligations to
Consultant or Schwan under this Agreement and (if such failure can be cured) the
failure by the Company to cure such failure within 30 days after written notice
thereof shall have been given to the Company by Consultant or Schwan;

 

10.5.2           During the term of the Agreement or thereafter, the Company:

 

(a)          making an admission in writing of its inability to pay its debts
generally as they become due,

 

(b)          filing a petition for relief under any chapter of Title 11 of the
United States Code or a petition to take advantage of any insolvency under the
laws of the United States of America or any state thereof,

 

(c)          making an assignment for the benefit of its creditors,

 

(d)          consenting to the appointment of a receiver of itself or of the
whole or any substantial part of its property,

 

(e)          suffering the entry of an order for relief under any chapter of
Title 11 of the United States Code, or

 

(f)          filing a petition or answer seeking reorganization under the
Federal Bankruptcy Laws or any other applicable law or statute of the United
States of America or any state thereof.

 

10.6         For purposes of this Agreement, a Change in Control shall mean any
one of the following events during the term of this Agreement or thereafter:

 

10.6.1           any “person” (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) becomes, after the date of this Agreement, a “beneficial owner” (as such
term is defined in Rule 13d-3 promulgated under the Exchange Act) (other than a
person presently owning in excess of 20% or more of the outstanding voting
securities of the Company, the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company’s then outstanding
securities; or

 

 

 

 

10.6.2           the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or other entity, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or

 

10.6.3           individuals who constitute the Board of Directors of the
Company (the “Board”) as of immediately following date of this Agreement (the
“Incumbent Board”) cease for any reason other than their deaths to constitute at
least a majority of the Board; provided that any individual who becomes a
director after the the date of this Agreement whose election or nomination for
election by the Company’s stockholders was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of Company (as such terms are used in Rule
14a-12(c) under the Exchange Act); or

 

10.6.4           the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company’s assets.

 

11.           Survival. All provisions of this Agreement provided herein to
survive expiration or termination of this Agreement, shall survive such
termination and the Company and Consultant shall continue to be bound by such
provisions in accordance with the terms thereof. Without limiting the foregoing,
the obligations of Consultant pursuant to Sections 7, 8 and 9 provided herein
shall survive such expiration or termination and during the term hereof and
thereafter Consultant and Schwan, individually, shall be bound, and continue to
be bound by such provisions in accordance with their terms.

 

12.           Benefit; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and to the successors in interest of
the Company and to the successors or assignees of Consultant. No rights or
obligations under this Agreement may be assigned by either party and any
attempted assignment thereof by a party shall be void.

 

13.           Severability. If any provision of this Agreement or any part
hereof or any application hereof to any person or circumstance shall be finally
determined by a court of competent jurisdiction to be invalid or unenforceable
to any extent, the remainder of this Agreement, or the remainder of such
provision or the application of such provision to persons or circumstances other
than those as to which it is be held invalid or unenforceable, shall not be
affected thereby and each provision of this Agreement shall remain in full force
and effect to the fullest extent permitted by law. The parties also agree that,
if any portion of this Agreement, or any part hereof or application hereof, to
any person or circumstance shall be finally determined by a court of competent
jurisdiction to be invalid or unenforceable to any extent, any court may so
modify the objectionable provisions so as to make it valid, reasonable and
enforceable.

 

 

 

 

14.           Notices. All notices, or other communications, required or
permitted to be given hereunder shall be in writing and shall be delivered
personally or mailed, certified mail, return receipt requested, to the party, as
follows:

 

If to the Company: Stephen M. Merrick   President   CTI Industries Corporation  
22160 N. Pepper Road   Barrington, IL 60010     If to Consultant or Schwan:    
    Howard W. Schwan   (at the address most recently   on file with the Company)

 

Any notice mailed in accordance with the terms hereof shall be deemed received
on the third day following the date of mailing. Either party may change the
address to which notices to such party may be given hereunder by serving a
proper notice of such change of address to the other party.

 

15.         Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior written or oral negotiations, representations, agreements,
commitments, contracts or understandings with respect thereto and no
modification, alteration or amendment to this Agreement may be made unless the
same shall be in writing and signed by both of the parties hereto.

 

16.         Waiver. No failure by either party to exercise any of such party’s
rights hereunder or to insist upon strict compliance with respect to any
obligation hereunder and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver by either party to demand exact
compliance with the terms hereof. Waiver by either party of any particular
default by the other party shall not affect or impair such party’s rights in
respect to any subsequent default of the same or of a different nature, nor
shall any delay or omission of either party to exercise any rights arising from
any default by the other party affect or impair such party’s rights as to such
default or any subsequent default.

 

17.         Governing Law. For purposes of construction, interpretation and
enforcement, this Agreement shall be deemed to have been entered into under the
laws of the State of Illinois and its validity, effect, performance,
interpretation, construction and enforcement shall be governed by and subject to
such laws.

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
September 24, 2012.

 

 

SCHWAN FLEXIBLE PACKAGING, L.L.C   CTI INDUSTRIES CORPORATION       By: /s/
Howard W. Schwan   By: /s/ Stephen M. Merrick   Howard W. Schwan     Stephen M.
Merrick   Managing Director     President

 

HOWARD W. SCHWAN   (Individually)       /s/ Howard W. Schwan