EXHIBIT 10.1

 

THIS WARRANT CONVERSION NOTE WAS ORIGINALLY ISSUED ON AUGUST 10, 2017, AND HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
ILLINOIS SECURITIES LAW OF 1953, AS AMENDED, AND IT MAY NOT BE SOLD OR OFFERED
FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN OPINION
FROM COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT
REQUIRED. The transfer of such security is subject to the conditions specified
herein.

 

This Warrant Conversion Note is subject to the terms of a Subordination and
Intercreditor Agreement dated as of July 17, 2012 (as amended, restated or
supplemented from time to time, the “Subordination Agreement”) between BMO
Private Equity (U.S.), Inc., a Delaware corporation, and BMO Harris Bank N.A.
(formerly known as Harris N.A.).

 

SENIOR SECURED SUBORDINATED WARRANT CONVERSION NOTE

 

Dated:  August 17, 2017 $797,881.31 Effective Date:  August 10, 2017  

 

FOR VALUE RECEIVED, CTI Industries Corporation, an Illinois corporation
(referred to herein as the “Borrower”), hereby promises to pay to the order of
BMO Private Equity (U.S.), Inc., a Delaware corporation, or its assignee (the
“Holder”), the principal amount of Seven Hundred Ninety-Seven Thousand Eight
Hundred Eighty-One and 31/100 Dollars ($797,881.31) (the “Original Principal
Amount”), together with interest thereon calculated from the effective date
hereof (the “Date of Issuance”), in accordance with the provisions of this
instrument (this “Warrant Conversion Note”). For purposes of this Warrant
Conversion Note, the term “Principal Balance” shall mean an amount equal to
(a) the sum of (i) the Original Principal Amount plus (ii) the aggregate amount
of Interest (as defined below) capitalized and added to principal under this
Warrant Conversion Note from time to time minus (b) all payments of principal
made by the Borrower from time to time pursuant to the terms of this Warrant
Conversion Note.

 

Reference is hereby made to that certain Note and Warrant Purchase Agreement
dated as of July 17, 2012 (as amended, restated or otherwise modified from time
to time, the “Purchase Agreement”), by and between the Borrower and the Holder.
This Warrant Conversion Note was issued pursuant to the terms of the Warrant.
This Warrant Conversion Note is the “Warrant Conversion Note” referred to in the
Purchase Agreement. The Purchase Agreement contains terms governing the rights
of the Holder of this Warrant Conversion Note and all provisions of the Purchase
Agreement are hereby incorporated herein in full by reference. Except as
otherwise indicated herein, capitalized terms used in this Warrant Conversion
Note have the same meanings set forth in the Purchase Agreement.

 

 

 

 

1.Payment of Interest. Except as otherwise expressly provided herein, the
Principal Balance of this Warrant Conversion Note shall bear interest (computed
on the basis of actual days elapsed in a 360-day year) at the rate of eleven and
50/100 percent (11.50%) per annum (“Interest”). Interest accruing on the
Principal Balance of this Warrant Conversion Note shall be compounded daily and
capitalized as principal on each day during the term hereof and shall be payable
in accordance with the payment schedule on Exhibit A attached hereto and made a
part hereof (assuming for purposes of Exhibit A that no portion of the Principal
Balance of this Warrant Conversion Note is prepaid and that this Warrant
Conversion Note is not accelerated prior to the Maturity Date). The Interest
accruing on the Principal Balance of this Warrant Conversion Note shall be
payable to the Holder in cash upon the payment in full of the entire outstanding
Principal Balance of this Warrant Conversion Note (whether on the Maturity Date
or as a result of the acceleration of the maturity thereof), or if a prepayment
of this Warrant Conversion Note is made, on the Principal Balance prepaid, and,
if payment in full is not paid when due, thereafter on demand. Unless prohibited
under applicable law, any accrued interest which is not paid on the date on
which it is due and payable shall bear interest at the same rate at which
interest is then accruing on the Principal Balance of this Note and, if
applicable, shall be compounded daily and capitalized as principal on each day
until such interest is paid. Any accrued interest which for any reason has not
theretofore been paid shall be paid in full on the date on which the final
principal payment on this Note is made. Interest shall accrue on any payment due
under this Note until such time as payment therefor is actually delivered to the
Holder. Notwithstanding anything to the contrary contained herein or in the
Purchase Agreement, while any Event of Default exists or after acceleration, the
Borrower shall pay interest (after as well as before entry of judgment thereon
to the extent permitted by law) on the Principal Balance of the Warrant
Conversion Note at the Default Rate and while in effect such interest accruing
on the Principal Balance of this Warrant Conversion Note shall be compounded
daily and capitalized as principal on each day.

 

2.Payment of Principal on Warrant Conversion Note.

 

(a)Scheduled Payment. The Principal Balance of this Warrant Conversion Note,
plus accrued and unpaid interest, shall be payable in full on January 18, 2018
(the “Maturity Date”).

 

(b)Optional Prepayments. Subject to the terms of Section 2(c) below, the
Borrower, at its option, may prepay all or any portion of this Warrant
Conversion Note on any scheduled quarterly payment date set forth in the Note
(as defined in the Purchase Agreement) at a prepayment price of one hundred
percent (100%) of the Principal Balance to be prepaid, plus accrued and unpaid
interest to the prepayment date.

 

(c)Prepayment Minimum. The Borrower, at its option, may at any time and from
time to time prepay all or any portion of the Principal Balance of this Warrant
Conversion Note, in minimum increments of $250,000, plus accrued and unpaid
interest to the prepayment date. Except as provided herein, this Warrant
Conversion Note may not be voluntarily prepaid by the Borrower.

 

 

 

 

(d)Notice of Prepayments. The Borrower shall give notice (which shall be
irrevocable) to the Holder of this Warrant Conversion Note of each prepayment
not later than 1:00 p.m. (Chicago time) on the Business Day that is not less
than two (2) Business Days preceding the date of prepayment, specifying the
aggregate Principal Balance to be prepaid and the prepayment date. Once any such
notice has been given, the Principal Balance specified in such notice, together
with all accrued and unpaid interest on the amount of each such prepayment to
the date of payment shall become due and payable on such date of payment.

 

(e)Mandatory Prepayments.

 

(i)In the event of a Change of Control, the Borrower will, at least thirty (30)
days and not more than sixty (60) days prior to such Change of Control, give
written notice thereof to the holder of this Warrant Conversion Note, which
shall contain a written irrevocable notice that the Borrower will prepay (a
“Prepayment Notice”), by a date (the “Prepayment Date”) specified in such notice
(which date shall be on or prior to the effective date of the Change of
Control), all of the Obligations under the Warrant Conversion Note held by the
holder in full (and not in part) in cash. Such notice may state that the
Borrower’s prepayment is conditioned upon the consummation of such Change of
Control. The Borrower shall pay to the holder the outstanding principal amount
of the Warrant Conversion Note, together with all accrued and unpaid interest
thereon.

 

(ii)Any notice by the Borrower to prepay the Warrant Conversion Note, and any
subsequent prepayment thereof pursuant to this Section 2(e), shall be
accompanied by an officer’s certificate (A) stating the principal amount of the
Warrant Conversion Note to be prepaid, (B) stating the Prepayment Date, (C)
stating the accrued interest on the Warrant Conversion Note to the Prepayment
Date to be prepaid, (D) certifying that the conditions of this Section 2(e) have
been fulfilled, and (E) specifying the nature of the Change of Control, the
transactions or proposed transactions resulting in such Change of Control and
the date or proposed date of the occurrence of such Change of Control.

 

3.Payment Schedule. Set forth as Exhibit A attached hereto is a schedule which
reflects the amount of Interest which accrues and shall be capitalized and added
to the Principal Balance pursuant to Section 1 above and the Principal Balance
of this Warrant Conversion Note at the beginning and at the end of each day
during the term of this Warrant Conversion Note (assuming for purposes of
Exhibit A that no portion of the Principal Balance of this Warrant Conversion
Note is prepaid and that this Warrant Conversion Note is not accelerated prior
to the Maturity Date). Upon any voluntary or mandatory prepayment of the
Principal Balance, the Interest reflected on Exhibit A attached hereto shall be
recomputed based upon the remaining Principal Balance. The Holder shall amend
Exhibit A hereto to reflect such recomputation and deliver the same to the
Borrower, and such amended Exhibit A shall constitute rebuttable presumptive
evidence of the Principal Balance owing and unpaid on this Warrant Conversion
Note and the interest accruing and payable thereafter under this Warrant
Conversion Note. The failure to amend Exhibit A hereto or to deliver the same to
the Borrower shall not, however, affect the obligations of the Borrower to pay
the Principal Balance and all accrued and unpaid interest on this Warrant
Conversion Note.

 

 

 

 

4.Transfer and Exchange; Replacement; Cancellation.

 

(a)Transfer and Exchange.

 

(i)Subject to the transfer conditions referred to in this Section 4 and in the
legends endorsed hereon, this Warrant Conversion Note and all rights hereunder
are transferable by the Holder, in whole or in part, without charge to the
Holder, upon surrender of this Warrant Conversion Note with a properly executed
assignment in form and substance reasonably acceptable to the Borrower at the
principal office of the Borrower.

 

(ii)Upon surrender of this Warrant Conversion Note for transfer or for exchange,
the Borrower, at its expense, will (subject to the conditions set forth herein)
execute and deliver in exchange therefor a new Warrant Conversion Note or
Warrant Conversion Notes, as the case may be, as requested by the Holder or
transferee, which aggregates the unpaid Principal Balance of such Warrant
Conversion Note, issued as the Holder or such transferee may request, dated so
that there will be no gain or loss of interest on such surrendered Warrant
Conversion Note and otherwise of like tenor. The issuance of new Warrant
Conversion Notes shall be made without charge to the Holder(s) of the
surrendered Warrant Conversion Note for any issuance tax in respect thereof or
other cost incurred by the Borrower in connection with such issuance.

 

(b)Replacement. Upon receipt of evidence reasonably satisfactory to the Borrower
(an affidavit of the Holder of this Warrant Conversion Note shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
this Warrant Conversion Note and, in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the Borrower
(provided that if the Holder is a financial institution or other institutional
investor, its own agreement shall be satisfactory), or, in the case of any such
mutilation, upon the surrender of this Warrant Conversion Note, the Borrower
shall (at its expense) execute and deliver, in lieu thereof, a new Warrant
Conversion Note of the same class and representing the same rights represented
by such lost, stolen, destroyed or mutilated Warrant Conversion Note dated so
that there will be no loss of interest on this Warrant Conversion Note.

 

 

 

 

5.Payments. All payments to be made to the Holder of this Warrant Conversion
Note shall be made by wire transfer to the Holder in lawful money of the United
States of America in same-day available funds. Any payment received by the
Holder of this Warrant Conversion Note after 1:00 p.m. (Chicago time) on any day
will be deemed to have been received on the next following Business Day.

 

6.Place of Payment. Payments of principal, interest and other amounts shall be
made by wire transfer of immediately available funds to the following account of
the Holder hereof:

 

ABA No.: 071 000 288

Account No.: 181-570-3

Account Name: BMO Private Equity (U.S.), Inc.

Bank: BMO Harris Bank N.A., Chicago, Illinois

Attention: Jason Swanson

 

or to such other account or to the attention of such other Person as specified
by the Holder in a prior written notice to either Borrower.

 

7.Business Days. If any payment is due, or any time period for giving notice or
taking action expires, on a day which is not a Business Day, the payment shall
be due and payable on, and the time period shall automatically be extended to,
the next Business Day immediately following, and interest shall continue to
accrue at the required rate hereunder until any such payment is made.

 

8.Governing Law. This Warrant Conversion Note shall be governed and construed in
accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Illinois.

 

9.Liabilities. In furtherance and not in limitation of the rights and remedies
of the Holder of this Warrant Conversion Note hereunder or at law, the Holder of
this Warrant Conversion Note may proceed under this Warrant Conversion Note
against the Borrower in its absolute and sole discretion for any of the
liabilities of the Borrower under this Warrant Conversion Note or any other
liability or obligation of the Borrower arising hereunder.

 

10.Events of Default. Upon the occurrence of any “Event of Default,” as
described and specified in the Purchase Agreement, the Holder shall have all of
the rights and remedies in accordance with, and as provided by, the terms hereof
and the Purchase Agreement. In addition, the Holder shall be entitled to recover
from the Borrower any and all costs and expenses, including reasonable
attorneys’ fees and court costs, incurred in enforcing its rights hereunder.

 

 

 

 

11.Usury Laws. It is the intention of the Borrower and the Holder of this
Warrant Conversion Note to conform strictly to all applicable usury laws now or
hereafter in force, and any interest payable under this Warrant Conversion Note
shall be subject to reduction to an amount not in excess of the maximum legal
amount allowed under the applicable usury laws as now or hereafter construed by
the courts having jurisdiction over such matters. If the maturity of this
Warrant Conversion Note is accelerated by reason of an election by the Holder
hereof resulting from an Event of Default, voluntary prepayment by the Borrower
or otherwise, then the earned interest may never include more than the maximum
amount permitted by law, computed from the date hereof until payment, and any
interest in excess of the maximum amount permitted by law shall be canceled
automatically and, if theretofore paid, shall at the option of the Holder hereof
either be rebated to the Borrower or credited on the Principal Balance of this
Warrant Conversion Note, or if this Warrant Conversion Note has been paid, then
the excess shall be rebated to the Borrower. The aggregate of all interest
(whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Warrant Conversion Note
shall under no circumstances exceed the maximum legal rate upon the Principal
Balance of this Warrant Conversion Note remaining unpaid from time to time. If
such interest does exceed the maximum legal rate, it shall be deemed a mistake
and such excess shall be canceled automatically and, if theretofore paid, at the
option of the Holder hereof either be rebated to the Borrowers or credited on
the Principal Balance of this Warrant Conversion Note, or if this Warrant
Conversion Note has been repaid, then such excess shall be rebated to the
Borrower.

 

12.Warrant Conversion Note in Registered Form. This Warrant Conversion Note is
in registered form within the meaning of that term under Section 163(f) of the
Code. The Borrower shall keep at its principal executive office a register in
which the Borrower shall provide for the registration and transfer of the
Warrant Conversion Note. The Holder of this Warrant Conversion Note, at such
Holder’s option, may in person or by duly authorized attorney surrender this
Warrant Conversion Note for exchange at the principal office of the Borrower,
accompanied by a written opinion of legal counsel who shall be reasonably
satisfactory to the Borrower, addressed to the Borrower and reasonably
satisfactory in form and substance to the Borrower’s counsel, to the effect that
the proposed exchange may be effected without registration under the Securities
Act of 1933, as amended, or under any applicable state securities laws, to
receive in exchange therefor a new Warrant Conversion Note or Warrant Conversion
Notes, as may be requested by such Holder, of the same series and in the same
aggregate unpaid principal amount as the aggregate unpaid principal amount of
the Warrant Conversion Note or Warrant Conversion Notes so surrendered. Each
such new Warrant Conversion Note shall be dated as of the date to which interest
has been paid on the unpaid principal amount of the Warrant Conversion Note or
Warrant Conversion Notes so surrendered and shall be in such principal amount
and registered in such name or names as such Holder may designate in writing.

 

 

 

 

13.Binding Agreement. This Warrant Conversion Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and the benefit of its successors and assigns, including any subsequent
holder of the Warrant Conversion Note. The Borrower may not assign its rights
hereunder without the written consent of the Holder. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby.

 

14.Fee Amount. For the avoidance of doubt, the Borrower hereby acknowledges and
agrees that, based on the Date of Issuance of this Warrant Conversion Note, the
fee referenced in Section 3 of Amendment No. 5 shall be in an amount equal to
$3,425.17.

 

[SIGNATURE PAGE FOLLOWS]

 

 

 

 

Senior Secured Subordinated Warrant Conversion Note Signature Page

 

IN WITNESS WHEREOF, the Borrower has caused this Warrant Conversion Note to be
executed and delivered by a duly authorized officer as of the date first written
above.

 

  CTI INDUSTRIES CORPORATION       By: /s/ Timothy S. Patterson   Name: Timothy
S. Patterson   Title: CFO

 

 

 

 

EXHIBIT A

 

(See attached)