Exhibit 10.5
 
Pledge Agreement
 
This Pledge Agreement (this “Agreement”) is dated as of April 29, 2010, between
CTI Industries Corporation, an Illinois corporation (the “Pledgor”), and Harris
N.A., a national banking association (the “Secured Party”), in connection with
the Credit Agreement described below.
 
Preliminary Statement

A.           The Pledgor has requested that the Secured Party from time to time
extend credit or otherwise make financial accommodations available to or for the
account of the Pledgor, including, without limitation, pursuant to the terms of
that certain Credit Agreement dated as of April 29, 2010, between the Pledgor
and the Secured Party, as the same may from time to time be amended, modified or
restated (the “Credit Agreement”; capitalized terms used herein and not
otherwise defined shall have the meanings given such terms in the Credit
Agreement).
B.           As a condition to extending credit or otherwise making financial
accommodations available to or for the account of the Pledgor, the Secured Party
requires, among other things, that the Pledgor pledge and assign to the Secured
Party and grant to the Secured Party a security interest in all of the Pledged
Collateral (as defined below), whether now owned or hereafter acquired, to
secure prompt payment and full performance of the Secured Obligations (as
defined below).
Now, Therefore, in consideration of the benefits accruing to the Pledgor, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1.       DEFINITIONS
 
As used herein, the following terms have the meanings set forth below:
 
Pledged Collateral:  collectively, (a) those certain shares of capital stock or
other equity interests owned beneficially and, if applicable, of record by the
Pledgor listed on Schedule I attached hereto and made a part hereof (provided
that the Pledged Collateral shall not include more than 65% of any voting
capital stock or other voting equity interests of foreign issuers owned
beneficially and, if applicable, of record by the Pledgor), and all cash,
dividends, other securities, instruments, rights, and other property at any time
and from time to time received or receivable in respect thereof or in exchange
for all or any part thereof, including without limitation, dividends,
distributions, warrants, profits, rights to subscribe, rights to return of its
contribution, conversion rights, liquidating dividends, and other rights
(subject to Section 6.1 below); (b) all other property hereafter delivered to
the Secured Party (or any agent or bailee holding on behalf of the Secured
Party) by the Pledgor in substitution for or in addition to any of the
foregoing, and all certificates and instruments representing or evidencing such
other property and all cash, dividends, other securities, instruments, rights,
and other property at any time and from time to time received or receivable in
respect thereof or in exchange for all or any part thereof, including without
limitation, dividends, distributions, warrants, profits, rights to subscribe,
conversion rights, liquidating dividends, and other rights; and (c) all proceeds
of all of the foregoing.
 
Secured Obligations: (a) any and all indebtedness, obligations and liabilities
of whatsoever kind and nature of the Pledgor to the Secured Party (whether
arising before or after the filing of a petition in bankruptcy), whether direct
or indirect, absolute or contingent, due or to become due, and whether now
existing or hereafter arising and howsoever held, evidenced or acquired, and
whether several, joint or joint and several; and (b) any and all expenses and
charges, legal or otherwise, suffered or incurred by the Secured Party in
collecting or enforcing any of such indebtedness, obligations or liabilities or
in realizing on or protecting or preserving any security therefor, including,
without limitation, the lien and security interest granted hereby.
 
1

--------------------------------------------------------------------------------

 
SECTION 2.          PLEDGED COLLATERAL
 
2.1.           Pledge of Collateral.  The Pledgor hereby pledges and assigns to
the Secured Party and grants to the Secured Party a security interest in all of
the Pledged Collateral, whether now owned or hereafter acquired, to secure
prompt payment and full performance of the Secured Obligations.
 
2.2.           Delivery of Certificates. All certificates or instruments
representing or evidencing the Pledged Collateral must be delivered to and held
by or on behalf of the Secured Party pursuant to this Agreement and must be in
suitable form for transfer by delivery, or accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Secured Party.  The Secured Party has the right, at any time
after an Event of Default (as defined herein) has occurred and is continuing, in
its reasonable discretion and without notice to the Pledgor, to transfer to or
to register any or all of the Pledged Collateral in the name of the Secured
Party or any of its nominees.  In addition, the Secured Party has the right at
any time to exchange certificates or instruments representing or evidencing any
or all of the Pledged Collateral for certificates or instruments of smaller or
larger denominations.
 
2.3.           Dividends and Replacement Stock.  Except as provided in Section
6.1 below, in the event that the Pledgor receives any cash, dividends, other
securities, instruments, rights, or other property at any time and from time to
time received or receivable in respect of any of the Pledged Collateral, or in
exchange for all or any part thereof, including without limitation, dividends,
distributions, warrants, profits, rights to subscribe, conversion rights,
liquidating dividends, and other rights, the Pledgor acknowledge that the same
will be received IN TRUST for the Secured Party and will immediately deliver the
same to the Secured Party in original form of receipt, together with any stock
or bond powers, assignments, endorsements, or other documents or instruments as
the Secured Party may request to establish, protect, or perfect the Secured
Party’s interest in respect of such Pledged Collateral.
 
SECTION 3.          REPRESENTATIONS AND WARRANTIES
 
3.1.           General Representations and Warranties.  To induce the Secured
Party to enter into the Credit Agreement and the other Loan Documents, the
Pledgor represents and warrants that:
 
3.1.1.      Ownership of Pledged Collateral.  The Pledgor is the sole legal,
beneficial, and, if applicable, record owner of the Pledged Collateral (or, in
the case of after-acquired Pledged Collateral, will be the sole such owner
thereof), having good and marketable title thereto, free of all liens, security
interests, encumbrances, or claims of any kind other than those in favor of the
Secured Party under this Agreement.
 
3.1.2.      Securities Act.  All capital stock or other equity interests
constituting Pledged Collateral: (a) have been duly and validly issued in
compliance with (or pursuant to a valid exception from) all applicable laws
(including without limitation, if applicable, the Securities Act of 1933, as
amended (the “Securities Act”)); (b) if applicable, are fully paid,
non-assessable, and free of preemptive rights; (c) are not subject to any
restrictions upon the voting rights or upon the transfer thereof other than the
Securities Act, any applicable “blue sky” laws or other similar foreign laws (if
applicable); (d) constitute (i) all capital stock or other equity interests of
the domestic issuers, if any, of the Pledged Collateral owned beneficially and
of record by the Pledgor and (ii) no more than 65% of the voting capital stock
or other voting equity interests of the foreign issuers of the Pledged
Collateral; and (e) include the percentages of the issued and outstanding
capital stock or other equity interests as set forth on Schedule I attached
hereto.
 
2

--------------------------------------------------------------------------------

 
3.1.3.      Representations and Warranties in Credit Agreement and Security
Agreement Incorporated. Without limiting any of the foregoing representations
and warranties, the Pledgor represents and warrants that each of the
representations and warranties set forth in the Credit Agreement and in the
Security Agreement are true, correct, and complete as written.
 
3.2.           Complete Disclosure.  No Loan Document contains any untrue
statement of a material fact regarding the Pledgor or its properties, nor fails
to disclose any material fact regarding the Pledgor or its properties necessary
to make the statements contained therein not materially misleading.  There is no
fact or circumstance that the Pledgor has failed to disclose to the Secured
Party in writing that could reasonably be expected to have a Material Adverse
Effect.
 
SECTION 4.         COVENANTS
 
4.1.           Covenants of Pledgor.  Until all of the Secured Obligations, both
for principal and interest, have been fully paid and satisfied and all
agreements of the Secured Party to extend credit to or for the account of the
Pledgor have expired or otherwise have been terminated, the Pledgor shall:
 
4.1.1.      Protect Pledged Collateral.  Preserve and protect the Pledged
Collateral.
 
4.1.2.      No Liens.  Not create, incur, assume, or permit to exist any liens,
encumbrances, security interests, levies, assessments, or charges on or in any
of the Pledged Collateral, except liens permitted by the Loan Documents.
 
4.1.3.      No Sales.  Not sell, encumber, or otherwise dispose of or transfer
any Pledged Collateral, or any right or interest therein and will: (a) cause the
issuer(s) of the Pledged Collateral not to issue any other voting stock in
addition to or in substitution for the Pledged Collateral, except to the
Pledgor, or in connection with outstanding stock options or with the prior
written consent of the Secured Party; and (b) pledge hereunder, immediately upon
the Pledgor’s acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of the issuers of the Pledged
Collateral.
 
4.1.4.      Defend Title.  Appear in and defend, at the Pledgor’s own expense,
any action or proceeding that may affect the Pledgor’s title to or the Secured
Party’s interest in the Pledged Collateral.
 
4.1.5.      Taxes on Pledged Collateral.  Promptly pay and discharge all taxes,
assessments, and governmental charges or levies imposed on the Pledgor or any of
the Pledged Collateral before the same become delinquent.
 
4.1.6.      Further Assurances.  Procure or execute and deliver, from time to
time, in form and substance satisfactory to the Secured Party, any stock powers,
bond powers, endorsements, assignments, financing statements, estoppel
certificates, or other writings deemed necessary or appropriate by the Secured
Party to perfect, maintain, or protect the Secured Party’s security interest in
the Pledged Collateral and the priority thereof, and take such other action and
deliver such other documents, instruments, and agreements pertaining to the
Pledged Collateral as the Secured Party may reasonably request to effectuate the
intent of this Agreement.
 
4.1.7.      Advances.  If the Secured Party gives value to enable the Pledgor to
acquire rights in or use of any Pledged Collateral, use such value only for such
purpose.
 
3

--------------------------------------------------------------------------------

 
4.1.8.      Records and Other Information. Keep separate, accurate, and complete
records of the Pledged Collateral and provide the Secured Party with access
thereto with the right to make extracts therefrom and provide the Secured Party
with such other information pertaining to the Pledged Collateral as the Secured
Party may reasonably request from time to time.
 
SECTION 5.          AUTHORIZED ACTION BY THE SECURED PARTY
 
5.1.           Attorney-in-Fact.  The Pledgor hereby irrevocably appoints the
Secured Party as its attorney-in-fact to do (but the Secured Party shall not be
obligated to and shall not incur any liability to the Pledgor or any third party
for failure to do) any act that the Pledgor is obligated by this Agreement to
do, and (subject to Section 6.1 below) to exercise such rights and powers as the
Pledgor might exercise with respect to the Pledged Collateral, including without
limitation, the right to:
 
(a)  Collect by legal proceedings or otherwise and endorse, receive, and receipt
for all payments, proceeds and other sums and property now or hereafter payable
on or in respect of proceeds, and other sums and property now or hereafter
payable on or in respect of the Pledged Collateral, including dividends,
profits, and interest payments;
 
(b)  Enter into any extension, reorganization, deposit, merger, or consolidation
agreement or other agreement pertaining to any of the Pledged Collateral, and in
connection therewith, to: (i) deposit or surrender control of the Pledged
Collateral thereunder; (ii) accept other property in exchange therefor; and
(iii) do and perform such acts and things as the Secured Party may deem proper;
and any money or property secured in exchange therefor will be applied to the
Secured Obligations or held by the Secured Party pursuant to the provisions of
this Agreement;
 
(c)  Protect and preserve the Pledged Collateral;
 
(d)  Transfer the Pledged Collateral to its own or its nominee’s name; and
 
(e)  Make any compromise, settlement, or adjustment, and take any action the
Secured Party deems advisable, with respect to the Pledged Collateral.
 
5.2.           Reimbursement. The Pledgor agrees to reimburse the Secured Party
upon demand for any costs and reasonable expenses, including attorneys’ fees,
that the Secured Party may incur while acting as the Pledgor’s attorney-in-fact
under this Agreement, all of which costs and expenses are included in the
Secured Obligations and are payable upon demand.  It is further agreed and
understood between the parties hereto that such care as the Secured Party gives
to the safekeeping of its own property of like kind constitutes reasonable care
of the Pledged Collateral when in the Secured Party’s possession; provided,
however, that the Secured Party will not be required to make any presentment,
demand, or protest, or give any notice and need not take any action to preserve
any rights against any prior party or any other person in connection with the
Secured Obligations or with respect to the Pledged Collateral.
 
5.3.           Irrevocable Interests.  All the foregoing powers authorized in
this Section 5, being coupled with an interest, are irrevocable so long as any
of the Secured Obligations are outstanding.
 
4

--------------------------------------------------------------------------------

 
SECTION 6.        TRANSFER, VOTING, DIVIDENDS, ETC.
 
6.1.         Prior to Event of Default.  Notwithstanding any other provision of
this Agreement, so long as no Event of Default (as defined herein) has occurred
and is continuing:
 
(a)  The Pledgor is entitled to exercise all voting powers pertaining to all
shares of stock and other securities constituting the Pledged Collateral for all
purposes not inconsistent with the terms of this Agreement;
 
(b)  The Pledgor is entitled to receive and retain all dividends (other than
shares of stock or liquidating dividends) and all interest payments payable in
respect of the Pledged Collateral; provided, that such dividends or interest
payments are permitted by the terms of the Credit Agreement and the other Loan
Documents; and provided, further, however, that all shares of stock or property
representing shares of stock or liquidating dividends or a distribution or
return of capital upon or in respect of the shares of stock constituting the
Pledged Collateral or resulting from a split-up, revision, or reclassification
of the Pledged Collateral or received in exchange therefor, as a result of a
merger, consolidation, or otherwise, must be paid or transferred directly to the
Secured Party immediately upon receipt thereof by the Pledgor and be retained by
the Secured Party as Pledged Collateral hereunder; and
 
(c)  In order to permit the Pledgor to exercise such voting powers and to
receive such dividends, the Secured Party will, if necessary and upon the
written request of the Pledgor, from time to time, execute and deliver to the
Pledgor appropriate proxies.
 
6.2.         During Event of Default.  If any Event of Default (as defined
herein) has occurred and while the same is continuing:
 
(a)           The Secured Party or its nominee or nominees may, if the Secured
Party so elects by written notice to the Pledgor, have the sole and exclusive
right to exercise all voting powers pertaining to the shares of stock
constituting Pledged Collateral, and may exercise such powers in such manner as
the Secured Party may elect, and the Pledgor hereby grants the Secured Party an
irrevocable proxy, coupled with an interest, to vote such shares of stock;
provided, however, that such proxy will terminate upon termination of the
Secured Party’s security interest in the Pledged Collateral; and
 
(b)           All dividends and other distributions and profits made upon or in
respect of the Pledged Collateral and all interest payments must be paid
directly to and be retained by the Secured Party as Pledged Collateral hereunder
(or applied to the Secured Obligations, consistent with the terms of the Credit
Agreement and the Security Agreement).
 
5

--------------------------------------------------------------------------------

 
SECTION 7.        DEFAULT AND REMEDIES
 
7.1.         Events of Default.  Any “Event of Default” as defined in the Credit
Agreement shall be an “Event of Default” hereunder.
 
7.2.         Remedies upon Default.  If an Event of Default described in Section
9.1(j) of the Credit Agreement occurs with respect to the Pledgor, then to the
extent permitted by applicable law, all Secured Obligations shall become
automatically due and payable by the Pledgor, without any action by the Secured
Party or notice of any kind.  In addition, or if any other Event of Default
exists, the Secured Party may in its discretion do any one or more of the
following from time to time (upon such notice to the Pledgor as may be required
by applicable law after giving effect to the agreements and waivers contained
herein):
 
(a)           declare any Secured Obligations immediately due and payable,
whereupon they shall be due and payable without diligence, presentment, demand,
protest, or notice of any kind, including notice of intent to accelerate and
notice of acceleration, all of which are hereby waived by the Pledgor to the
fullest extent permitted by law;
 
(b)           settle, compromise, or release, on terms acceptable to the Secured
Party, in whole or in part, any amounts owing on the Pledged Collateral, and to
extend the time of payment, in the Secured Party’s name or in the name of the
Pledgor, in respect thereof;
 
(c)           apply to the payment of the Secured Obligations, or collect the
Pledged Collateral, notwithstanding any forfeiture of interest or loss of other
rights of the Pledgor against any obligor on the Pledged Collateral resulting
from such action;
 
(d)           sell or otherwise dispose of all or any part of the Pledged
Collateral in accordance with applicable law, either at public or private sale,
on any broker’s board or securities exchange, in lots or in bulk, for cash, on
credit, or otherwise, with or without representations or warranties, and upon
such terms as are acceptable to the Secured Party; and
 
(e)           exercise any other default rights or remedies afforded under the
Credit Agreement, any other Loan Document, or any other agreement, by law, at
equity or otherwise, including the rights and remedies of a secured party under
the Uniform Commercial Code of the State of Illinois as in effect from time to
time.
 
7.3.        Application of Proceeds.  The net cash proceeds resulting from the
collection, liquidation, sale, or other disposition of the Pledged Collateral
will be applied first to the expenses (including all attorneys’ fees) of
holding, storing, preparing for sale, selling, collecting, liquidating, and the
like, including any brokerage commissions and stamp or transfer taxes, and then
to the satisfaction of all Secured Obligations, application as to any particular
obligation or indebtedness or against principal or interest to be in the Secured
Party’s absolute discretion.
 
6

--------------------------------------------------------------------------------

 
7.4.        Securities Act.  If by reason of any prohibition contained in the
Securities Act, as now or hereafter in effect, or in applicable Illinois or
other state securities laws, as now or hereafter in effect, or in any rules or
regulations pertaining to any of the foregoing laws, the Secured Party believes
in its sole judgment that it is compelled to resort to one or more private sales
of shares of stock constituting Pledged Collateral to a single purchaser or a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such securities for their own account, for investment and not with a
view to the distribution or resale thereof, the Pledgor acknowledges and agrees
that private sales of such Pledged Collateral may be held notwithstanding that
such sales may be at prices and on other terms less favorable to the Pledgor
than if such Pledged Collateral were sold at public sale.  The Pledgor further
agrees that the Secured Party has no obligation to delay the sale of any such
Pledged Collateral for the period of time necessary to permit registration of
the Pledged Collateral, even if the issuer thereof would, or should, agree to
register such Pledged Collateral for public sale under applicable securities
laws.  The Pledgor specifically agrees that private sales made under the
foregoing circumstances shall be deemed to have been made in a “commercially
reasonable” manner.
 
7.5.        Duty of Secured Party.  The Secured Party is not under any duty or
obligation whatsoever to collect any dividends, interest, profits, or other
payments due or accruing in respect of the Pledged Collateral or to take any
action to preserve rights in connection with any Pledged Collateral, including
without limitation, making or giving any presentment, demands for performance,
notices of non-performance, protests, notices of protest, or notices of dishonor
in connection with any Pledged Collateral.
 
7.6.        Return; Acquittance.  The Secured Party may deliver any Pledged
Collateral to the Pledgor at any time and the receipt thereof by the Pledgor
will be a complete and full acquittance in respect of the Pledged Collateral so
delivered, and the Secured Party will thereafter be discharged from any
liability or responsibility therefor.
 
7.7.        Remedies Cumulative; No Waiver.
 
7.7.1.       Cumulative Rights.  All covenants, conditions, provisions,
warranties, guaranties, indemnities, and other undertakings of the Pledgor
contained in the Loan Documents are cumulative and not in derogation or
substitution of each other.  In particular, the rights and remedies of the
Secured Party are cumulative, may be exercised at any time and from time to
time, concurrently or in any order, and shall not be exclusive of any other
rights or remedies that the Secured Party may have, whether under any agreement,
by law, at equity, or otherwise.
 
7.7.2.       Waivers.  The failure or delay of the Secured Party to require
strict performance by the Pledgor with any terms of the Loan Documents, or to
exercise any rights or remedies with respect to Pledged Collateral or otherwise,
shall not operate as a waiver thereof nor as establishment of a course of
dealing.  All rights and remedies shall continue in full force and effect until
all of the Secured Obligations, both for principal and interest, have been fully
paid and satisfied and all agreements of the Secured Party to extend credit to
or for the account of the Pledgor have expired or otherwise have been
terminated.  No modification of any terms of any Loan Documents (including any
waiver thereof) shall be effective, unless such modification is specifically
provided in a writing directed to the Pledgor and executed by the Secured Party,
and such modification shall be applicable only to the matter specified.  No
waiver of any Default or Event of Default shall constitute a waiver of any other
Default or Event of Default that may exist at such time, unless expressly
stated.  If the Secured Party accepts performance by the Pledgor under any Loan
Document in a manner other than that specified therein, or during any Default or
Event of Default, or if the Secured Party shall delay or exercise any right or
remedy under any Loan Document, such acceptance, delay, or exercise shall not
operate to waive any Default or Event of Default nor to preclude exercise of any
other right or remedy.
 
7

--------------------------------------------------------------------------------

 
SECTION 8.        MISCELLANEOUS
 
8.1.         Successors and Assigns.  All of the rights, privileges, remedies
and options given to the Secured Party hereunder shall inure to the benefit of
its successors and assigns, and all the terms, conditions, covenants,
agreements, representations and warranties of and in this Agreement shall bind
the Pledgor and its legal representatives, successors and assigns, provided that
the Pledgor may not assign its rights or delegate its duties hereunder without
the Secured Party’s prior written consent.
 
8.2.         Notices and Communications.  Except as otherwise specified herein,
all notices hereunder shall be in writing (including, without limitation, notice
by telecopy) and shall be given to the relevant party at its address or
telecopier number set forth below (or, if no such address is set forth below, at
the address of the Pledgor as shown on the records of the Secured Party), or
such other address or telecopier number as such party may hereafter specify by
notice to the other given by courier, by United States certified or registered
mail, by telecopy or by other telecommunication device capable of creating a
written record of such notice and its receipt.  Notices hereunder shall be
addressed:
 
to the Pledgor at:
to the Secured Party at:
   
CTI Industries Corporation
Harris N.A.
22160 North Pepper Road
111 West Monroe Street – 5W
Barrington, Illinois 60010
Chicago, Illinois 60603
Attention:          Stephen M. Merrick
Attention:           Timothy J. Moran
Telephone:       (847) 620-1308
Telephone:         (312) 461-2633
Facsimile:          _______________________
Facsimile:          (312) 502-3922
   
with a copy to:
with a copy to:
   
Vanasco, Genelly & Miller
McGuireWoods LLP
33 North LaSalle Street, Suite 2200
77 West Wacker Drive, Suite 4100
Chicago, Illinois 60602
Chicago, Illinois 60601
Attention:           Gerald Miller
Attention:           Arthur B. Muir
Telephone:         (312) 786-5100
Telephone:         (312) 750-3595
Facsimile:          (312) 786-5111
Facsimile:          (312) 698-4568

Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been received
by the sender, (ii) if given by mail, five (5) days after such communication is
deposited in the mail, certified or registered with return receipt requested,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the addresses specified in this Section.

8.3.         Performance of Secured Obligations.  The Secured Party may, in its
discretion at any time and from time to time, at the Pledgor’s expense, pay any
amount or do any act required of the Pledgor hereunder or otherwise lawfully
requested by the Secured Party to (a) enforce any Loan Document or collect any
Secured Obligations; (b) protect, insure, maintain, or realize upon any Pledged
Collateral; or (c) defend or maintain the validity or priority of the Secured
Party’s Liens in any Pledged Collateral, including any payment of a judgment,
insurance premium, warehouse charge, finishing or processing charge, or landlord
claim, or any discharge of a Lien.  All payments, costs, and expenses (including
extraordinary expenses) of the Secured Party under this Section shall be
reimbursed to the Secured Party by the Pledgor, on demand, with interest from
the date incurred to the date of payment thereof at the rate of interest
applicable to Base Rate Portions during the existence of any Event of
Default.  Any payment made or action taken by the Secured Party under this
Section shall be without prejudice to any right to assert an Event of Default or
to exercise any other rights or remedies under the Loan Documents.
 
8

--------------------------------------------------------------------------------

 
8.4.         Severability.  In the event and to the extent that any provision
hereof shall be deemed to be invalid or unenforceable by reason of the operation
of any law or by reason of the interpretation placed thereon by any court, this
Agreement shall to such extent be construed as not containing such provision,
but only as to such locations where such law or interpretation is operative, and
the invalidity or unenforceability of such provision shall not affect the
validity of any remaining provisions hereof, and any and all other provisions
hereof which are otherwise lawful and valid shall remain in full force and
effect.
 
8.5.         Cumulative Effect; Conflict of Terms.  The provisions of this
Agreement and the other the Loan Documents are cumulative.  The parties
acknowledge that the Loan Documents may use several limitations, tests, or
measurements to regulate similar matters, and they agree that these are
cumulative and that each must be performed as provided.  Except as otherwise
provided in another Loan Document (by specific reference to the applicable
provision of this Agreement), if any provision contained herein is in direct
conflict with any provision in another Loan Document, the provision herein shall
govern and control.
 
8.6.         Counterparts.  This Agreement may be executed in any number of
counterparts, and by different parties hereto on separate counterpart signature
pages, and all such counterparts taken together shall be deemed to constitute
one and the same instrument.  The Pledgor acknowledges that this Agreement is
and shall be effective upon its execution and delivery by the Pledgor to the
Secured Party, and it shall not be necessary for the Secured Party to execute
this Agreement or any other acceptance hereof or otherwise to signify or express
its acceptance hereof.
 
8.7.         Entire Agreement.  Time is of the essence of the Loan
Documents.  The Loan Documents constitute the entire contract among the parties
relating to the subject matter hereof, and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof.
 
8.8.         Governing Law.  This Agreement shall be deemed to have been made in
the State of Illinois and shall be governed by, and construed in accordance
with, the laws of the State of Illinois.  Section headings used in this
Agreement are for convenience of reference only and are not a part of this
Agreement for any other purpose.
 
8.9.         Consent to Forum; Waivers.  The Pledgor hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Northern
District of Illinois and of any Illinois State court sitting in the City of
Chicago for purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. The Pledgor irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.  The Pledgor and the Secured Party each
hereby irrevocably waives any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
 
8.10.       Advice of Counsel.  The Pledgor acknowledges that it has either
obtained the advice of counsel or has had the opportunity to obtain such advice
in connection with the terms and provisions of this Agreement.
 
[Remainder of Page Intentionally Left Blank]

9

--------------------------------------------------------------------------------

 
In Witness Whereof, the parties hereto have caused this Agreement to be duly
executed and delivered in Chicago, Illinois, as of the date and year first above
written.

   
CTI Industries Corporation
       
By: 
/s/ Stephen M. Merrick
   
Executive Vice-President and Chief Financial
Officer
         
Harris N.A.
       
By: 
/s/ Timothy J. Moran
   
Senior Vice-President

 

--------------------------------------------------------------------------------

SCHEDULE I

Issuer and Jurisdiction of its
Organization
 
Class of Equity
 
Certificate
No(s).
   
Number of
Shares/Units
   
% of
Outstanding
Equity
 
Flexo Universal, S.A. de C.V. (Mexico)
 
Series A
 
*
   
32,500
   
65%
                         
Flexo Universal, S.A. de C.V. (Mexico)
 
Series B
 
2
   
1,480,400
   
97.9%
 

*  To be provided post-closing.

11

--------------------------------------------------------------------------------