PRODUCTION
      AND SUPPLY AGREEMENT

    


    


    THIS
      AGREEMENT is made and entered into this 17th
      day of
      March, 2006 by and between ITW SPACEBAG (“ITW”) a division of Illinois Tool
      Works Inc. and CTI INDUSTRIES CORPORATION, an Illinois corporation
      (“CTI”).

    


    WHEREAS,
      CTI is engaged in the development, production and sale of plastic films and
      pouches;

    


    WHEREAS,
      ITW is engaged in the development, production, marketing and sale of, among
      other things, storage pouches;

    


    WHEREAS,
      for some time, CTI has produced film and pouches for ITW and utilizes converting
      machines located at CTI’s premises which are owned by ITW for the production of
      pouches for ITW;

    


    WHEREAS,
      CTI has developed and owns certain technology, including certain patent rights
      related to the storage pouches;

    


    WHEREAS,
      the parties desire to enter into an agreement pursuant to which, without
      limitation, (i) CTI will produce and sell film to ITW for use in the production
      of storage pouches and (ii) CTI will produce and sell storage pouches to
      ITW.

    


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

    


    1. Definitions
      of Terms.
      The
      following terms shall, for purposes of this Agreement, have the meanings set
      forth in this paragraph:

    


    1.1
       “Affiliate”
      shall mean any person or entity controlling, controlled by or under common
      control with a party to this Agreement.

    


    1.2 “Competitive”
      shall have the meaning provided in Section 2.3 hereof;

    


    1.3 “Confidential
      Information” shall have the meaning provided in Section 11.5
      hereof;

    


    1.4 “CTI”
      shall mean CTI Industries Corporation and its Affiliates.

    


    1.5 “Film”
      shall mean flexible film material which may be composed of and include nylon,
      polyethylene and such other components as shall be specified by the
      parties;

     

    
      
        
        

      

      
        
        

        
          

        

      

       

      1.6 “ITW”
        shall mean the ITW Space Bag Division of Illinois Tool Works Inc. and its
        Affiliates;

    

    


    1.7 “ITW
      Equipment” shall have the meaning provided in Section 4.1 hereof.

    


    1.8 “Extra
      Large Space Bags” shall mean bags identified as such by ITW;

    


    1.9 “Qualified
      Film” shall have the meaning provided in Section 2.2 hereof;

    


    1.10 “Roll-Up
      Bags” shall mean Space Bags incorporating a one-way valve and intended to be
      rolled-up by the user to evacuate air;

    


    1.11 “Space
      Bags” shall mean pouches intended for the storage and compression of personal
      and household items, generally of the kind of product presently sold and
      distributed by ITW and identified as Space Bags®. 

    


    2. Sale
      and Purchase of Film.

    


    2.1 Sale
      and Purchase.
      Subject
      to and on the terms and conditions of this Agreement, and for the term provided
      herein, CTI agrees to produce, sell and supply to ITW, and ITW agrees to
      purchase from CTI all of its requirements for Qualified Film for the
      manufacture, conversion or processing of Extra Large Space Bags in North America
      (U.S., Canada and Mexico), whether or not such manufacture, conversion or
      processing is by ITW or by any other party for ITW. This Agreement does not
      specify a minimum quantity of Qualified Film to be purchased by ITW, nor does
      this Agreement obligate ITW to purchase any specific quantity of Qualified
      Film.
      The purchase of Qualified Film pursuant to this Agreement will be by purchase
      order issued from time to time by ITW.

    


    2.2 Qualification.
      To be
“Qualified Film” and the obligation of ITW to purchase Qualified Film from CTI
      in accordance with Section 2.1 hereof shall be subject to the condition and
      requirements that:

     

    
      	
            	a.	
              The
                film shall have been qualified to be utilized for the production
                of Extra
                Large Space Bags on ITW’s
                equipment;

            


    

     

    
      	
            	b.	
              CTI’s
                pricing for the Film shall be
                Competitive.

            


    

     

    With
      respect to qualification of film for purposes of Section 2.2a., promptly upon
      the execution of this Agreement, CTI shall submit film samples to ITW and ITW
      promptly shall perform such testing and other procedures with respect to such
      samples as ITW deems appropriate. ITW shall make a determination that the film
      samples meet ITW’s specifications within 60 days after the submission thereof by
      CTI to ITW. Film of a particular specification, once determined to be qualified,
      shall remain qualified at all times during the term of the Agreement so long
      as
      it continues to meet ITW’s specifications; provided, however, that if film of a
      different specification shall be introduced by CTI, ITW shall be entitled to
      determine the qualification of such film prior to any obligation to
      purchase.

    


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    2.3 Determination
      of Pricing for Qualified Film.
      The
      determination of CTI’s pricing for Qualified Film as being Competitive shall be
      made in accordance with the provisions of this Section 2.3. Within thirty (30)
      days after the date of this Agreement, and separately at the time film is first
      qualified by ITW pursuant to Section 2.2 hereof, CTI shall provide a price
      quotation to ITW with respect to the Qualified Film. CTI shall be bound to
      such
      pricing until it shall have submitted a revised price quotation for Qualified
      Film to ITW. CTI shall be entitled to submit to ITW a revised price quotation
      for Qualified Film at any time after 180 days from the submission of a prior
      price quotation for Qualified Film. Within thirty (30) days after CTI shall
      have
      submitted a price quotation to ITW for Qualified Film, ITW shall advise CTI
      if
      the quotation is accepted or if ITW has determined that the pricing quoted
      by
      CTI is not Competitive to an Alternative Quotation. For purposes of determining
      whether a price quoted by CTI is “Competitive” in relation to a price quoted by
      an alternative supplier (“Alternative Quotation”): (i) the alternative supplier
      shall have submitted a written quotation for film, (ii) the quotation shall
      include price and all other material terms, (ii) the material terms of the
      quotation shall not materially differ from the terms quoted by CTI, (iii) the
      quotation shall be binding on the alternative supplier for a period of at least
      180 days, (iv) the specifications for the film on which the quotation is made
      shall have the same or better specifications as the Qualified Film on which
      CTI
      shall have provided its quotation. CTI’s price quotation for Qualified Film
      shall be considered Competitive if it is equal to or less than 105% of the
      price
      quoted in the Alternative Quotation. If CTI elects not to make a Competitive
      price quote, ITW shall be free to purchase Qualified Film from a third party.
      

    


    2.4 Film
      Specifications.
      With
      respect to Qualified Film to be provided by CTI to ITW pursuant to Section
      2.1
      hereof, the parties shall determine and communicate, by written notice, the
      specifications for such Qualified Film. 

    


    2.5 Other
      Film Purchases.
      In
      addition to the Qualified Film which ITW shall purchase from CTI pursuant to
      Section 2.1 hereof, ITW may, as it shall determine in its sole discretion,
      purchase from CTI Film produced or processed by CTI during the term of this
      Agreement. The purchase of such additional Film will be by purchase order issued
      from time to time by ITW at such prices, specifications and other terms as
      the
      parties shall agree. Except as otherwise provided by purchase order or
      otherwise, the purchase and sale of such Film shall be subject to the terms
      of
      this Agreement.

    


    
      
        
        

      

      
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    3. Sale
      and Purchase of Bags

    


    3.1 Purchase
      of Bags.
      During
      the term of this Agreement, ITW shall purchase all of its requirements for
      Roll-Up Bags for sale in North America (the United States, Canada and Mexico)
      from CTI and CTI agrees to manufacture and sell Roll-Up Bags for ITW as ordered
      by ITW from time to time. During the term of the Agreement, ITW may purchase
      Space Bags other than Roll-Up Bags from CTI and CTI agrees to manufacture and
      sell such Space Bags to ITW in accordance with purchase orders of ITW submitted
      to CTI from time to time and with the terms of this Agreement. The amount and
      timing of the purchase by ITW from CTI of Space Bags other than Roll-Up Bags
      shall be within the sole discretion of ITW.

    


    3.2 Quantities.
      No
      specific or minimum amount of purchases of Roll-Up Bags is specified in this
      Agreement. ITW shall provide to CTI, no less often than on a calendar quarter
      basis, a non-binding estimate of the volume of Roll-Up Bags which ITW projects
      for purchase from CTI over the six month period following the date of the
      estimate. For the period from the date of this Agreement to December 31, 2006,
      ITW estimates that it will purchase Roll-Up Bags from CTI at the approximate
      annual rate of 7,000,000 units.

    


    3.3 Pricing.
      The
      prices at which CTI shall sell Roll-Up Bags to ITW shall be as
      follows:

     

    
      	
            	i.	
              The
                initial prices for Roll-Up Bags which shall be in effect from the
                date
                hereof to December 1, 2006, shall be as set forth on Schedule A
                hereto;

            


    

     

    
      	
            	ii.	
              The
                parties agree to negotiate the pricing for Roll-Up Bags on an annual
                basis
                taking into account raw materials costs, current market pricing,
                savings
                to CTI which may arise from the use of production equipment provided
                by
                ITW to CTI and other relevant
                factors;

            


    

     

    
      	
            	iii.	
              On
                or before September 1, 2006, and on or before September 1 of each
                year
                thereafter during the term of this Agreement, or any renewal term,
                CTI
                shall submit to ITW by written notice proposed pricing to be effective
                from December 1 of such year to November 30 of the following
                year.

            


    

     

    
      	
            	iv.	
              Within
                thirty (30) days after having received such notice of proposed pricing,
                ITW shall give notice to CTI of its acceptance or rejection of such
                proposal. If ITW shall accept CTI’s proposed pricing, such pricing shall
                be in effect and binding on the parties for the period from December
                1 of
                such year to November 30 of the following year. If ITW shall not
                give
                notice of rejection of CTI’s proposed pricing within the time provided for
                such notice, CTI’s proposed pricing shall be deemed accepted by ITW. If
                ITW shall reject CTI’s proposed pricing, the parties shall negotiate in
                good faith to reach agreement on pricing to be in effect for the
                designated period.

            


    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    
      	
            	v.	
              In
                the event that the parties are unable to agree on pricing for the
                designated period:

            


    

    
      	
            	a.	
              The
                pricing in effect for the prior period shall remain in
                effect;

            


    

    
      	
            	b.	
              Either
                party shall be entitled to terminate this Agreement upon one hundred
                eighty (180) days notice at any
                time.

            


    

     

    Pricing
      for Space Bags other than Roll-Up Bags shall be as the parties shall negotiate
      and determine from time to time.

    


    3.4 Modification
      to Roll-Up Bags.
      ITW
      may, from time to time, during the term hereof, make modifications or changes
      to
      the design or specifications of Roll-Up Bags. ITW shall give notice to CTI
      of
      each modification or change specifying the same in writing. CTI shall utilize
      its best efforts to make provision for the production of Roll-Up Bags
      incorporating such modifications or changes within ninety (90) days after
      receiving notice and detailed specifications therefore. The parties agree that,
      with respect to each modification or change in a Roll-Up Bag design or
      specification, the price to ITW for such item will be adjusted consistent with
      the actual change in materials cost for such item, as closely as can be
      determined by the parties. In connection with any change in design or
      specification by ITW, ITW shall purchase at actual cost CTI’s inventory of
      Roll-Up Bags made from the prior design or specifications, or all raw materials
      specifically identified for use to make Roll-Up Bags of the prior design or
      specifications. 

    


    4. ITW
      Means
      of Production.

    


    4.1 ITW
      Equipment.
      In
      connection with the production of Space Bags for ITW, it is contemplated and
      agreed between the parties that CTI shall have the possession and use of certain
      items of equipment, tools and fixtures supplied to CTI by ITW. CTI acknowledges
      and agrees that (i) it currently has possession, in its plant at Barrington,
      Illinois, all of the items of equipment, tools and fixtures designated in
      Schedule B hereto and (ii) title to all of such items of equipment, tools and
      fixtures are in the name of ITW and ITW has and retains the sole right of
      ownership and possession thereof, subject only to CTI’s right to possession and
      use thereof as is permitted pursuant to the terms of this Agreement. During
      the
      term of this Agreement, ITW may, in its sole discretion and cost, and subject
      to
      the consent of CTI, determine to deliver additional items of equipment, tools
      or
      fixtures to CTI for use by CTI in the manufacture of Space Bags for ITW. At
      the
      time of delivery to CTI of each such additional item, and at the time CTI shall
      deliver any items on Schedule B to ITW, Schedule B hereto shall be amended
      to
      add or delete the item. All items on Schedule B in the possession of CTI from
      time to time shall be referred to as “ITW Equipment.”

    


    4.2 Possession
      and Use of ITW Equipment.
      CTI
      shall be entitled to maintain possession of all items of ITW Equipment and
      to
      use the same in accordance with the terms of this Agreement, free of any rent
      or
      other charge by ITW. CTI shall maintain all items of ITW Equipment in its
      possession in good working order, subject to ordinary wear and tear from normal
      and intended use; provided, however, that (i) CTI shall not be obligated to
      incur expense with respect to any one machine in any six month period in excess
      of $5,000 to repair or maintain such machine and (ii) in the event CTI shall
      determine that expenditures in excess of $5,000 shall be desirable or necessary,
      CTI shall so inform ITW and shall make such expenditures and shall perform
      such
      maintenance, modification, improvement or repair if so requested by ITW and
      if
      ITW shall agree to reimburse CTI for such expenditures. Notwithstanding the
      foregoing, CTI will be responsible for, and agrees to pay, all costs to repair
      any damage to ITW Equipment that is caused by CTI. During the term of this
      Agreement, ITW authorizes CTI to use each item of ITW Equipment in its
      possession, in such manner and to such extent as CTI shall determine, in the
      production of Space Bags for ITW. CTI is not authorized to, and shall not use,
      any item of ITW Equipment in connection with any research or development
      activity of CTI, except as ITW may specifically authorize in writing. Without
      the express written consent of ITW, CTI shall not use any of the ITW Equipment
      for any purpose other than the manufacture of Space Bags for ITW.

    


    
      
        
        

      

      
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    4.3 Risk
      of Loss; Insurance.
      At all
      times while CTI shall be in possession of an item of ITW Equipment, CTI shall
      bear the risk of loss of such item due to fire, theft or other casualty and
      shall maintain insurance coverage with respect to all of such items of at least
      $1,000,000.00 naming ITW as loss payee. . 

    


    4.4 Right
      of CTI to Return ITW Equipment.
      CTI
      shall have the right to return any item of ITW Equipment to ITW at any time
      in
      its sole discretion. If CTI shall determine to return an item of ITW Equipment
      to ITW, CTI shall give notice to ITW of its intent to do so sixty (60) days
      prior to the date such item shall be shipped to ITW. CTI may, at ITW’s request,
      agree to maintain an item of ITW Equipment it wishes to return to ITW at its
      plant for such time as it determines subject to the agreement of ITW to pay
      to
      CTI rent for the area of CTI’s facility occupied by such equipment.

    


    4.5 Return
      of ITW Equipment. The
      procedure and terms for return to ITW of ITW Equipment shall be in accordance
      with this paragraph. With respect to any item of ITW Equipment to be returned
      to
      ITW:

     

    
      	
            	i.	
              CTI
                shall, or shall arrange for a third party to, disassemble, crate,
                and
                prepare the item for
                shipping;

            


    

     

    
      	
            	ii.	
              With
                respect to any item requiring disassembly, CTI may retain the services
                of
                a third party for such action provided that it has obtained ITW’s consent
                to the cost; ITW shall be responsible for payment for such services
                to the
                extent it has given its
                approval;

            


    

     

    
      	
            	iii.	
              CTI,
                or the retained third party, shall place the item to be returned
                at the
                shipping dock at CTI, in proper condition for shipping, on the date
                designated for the return of the item to
                ITW;

            


    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    
      	
            	iv.	
              ITW
                shall be responsible to arrange for shipping, to ITW’s plant or designated
                site, of each item to be returned to ITW and shall be responsible
                for all
                costs of shipping;

            


    

     

    
      	
            	v.	
              All
                risk of loss related to items of ITW Equipment shall pass to ITW
                at the
                time of delivery of the same by CTI to the
                transporter.

            


    

     

    5. Terms
      of Manufacture, Sale and Delivery.

    


    5.1 Purchase
      Orders.
      From
      time to time, ITW shall place written purchase orders with CTI for Film,
      Qualified Film, Space Bags or Roll-Up Bags. Each purchase order shall specify
      with respect to each item ordered (i) the item, (ii) the quantity of the item
      ordered, (iii) the unit and total price, (iv) a delivery date and (v) a
      destination for delivery. Subject to the provisions hereof, CTI shall use
      reasonable commercial efforts to produce and deliver all items ordered pursuant
      to purchase order. CTI shall be entitled to reject a purchase order by notice
      given within ten (10) days after the date of receipt of such order (i) with
      respect to any order for Film, other than Qualified Film, (ii) with respect
      to
      any order for Space Bags, other than Roll-Up Bags or (iii) for any order with
      respect to which CTI shall determine that it is unable to produce and deliver
      the items ordered within the time provided in the purchase order.
      Notwithstanding any obligation of ITW herein to purchase any item from CTI,
      if
      CTI shall reject any purchase order, ITW shall be entitled to produce such
      item,
      or to purchase such item from a third party, in the amount specified in the
      purchase order to CTI. If CTI shall fail to reject a purchase order in the
      manner and time provided herein, CTI shall be deemed to have accepted the same.
      No purchase order shall vary the terms of this Agreement.

    


    5.2 Production.
      CTI
      shall produce Film, Qualified Film, Space Bags or Roll-Up Bags, in accordance
      with purchase orders submitted by ITW to CTI from time to time, and accepted
      by
      CTI, subject and pursuant to the terms of this Agreement. All products
      manufactured by CTI hereunder shall conform substantially to the specifications
      therefor, as provided herein, or if not provided herein as specified by ITW
      in
      the purchase order and as accepted by CTI. 

    


    5.3 Delivery.
      The
      terms for all items produced by CTI and purchased by ITW hereunder shall be
      F.O.B. CTI’s plant. ITW shall be responsible for all costs of delivery and for
      insurance of all product shipped during delivery. ITW may designate the means
      of
      shipping. In the absence of such designation, CTI shall designate the means
      of
      shipping and arrange for shipping of the product to the designated destination.
      Title and risk of loss for all product sold hereunder shall pass to ITW when
      the
      product is delivered to the shipper.

    


    5.4 Lead
      Time.
      The
      parties shall develop and establish written delivery schedules for Roll-Up
      Bags
      and Qualified Film based upon various quantity levels. CTI shall utilize
      reasonable commercial efforts to produce and deliver Roll-Up Bags and Qualified
      Film, as ordered from time to time by ITW, in accordance with such delivery
      schedules. Each purchase order shall specify a delivery date for the goods
      ordered. If an item ordered shall not be covered by a delivery schedule
      established hereunder, CTI shall, within 10 days after receipt of such order,
      give notice to ITW of the date upon which delivery of the items ordered can
      be
      made. If CTI shall fail to provide such notice, CTI shall be deemed to have
      accepted the delivery date specified in the purchase order.

    


    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    5.5 Cancellation
      or Modification of Orders.
      From
      and after the date of receipt of a purchase order by CTI hereunder, ITW shall
      not be entitled to cancel or modify a purchase order, without the express
      written consent of CTI, and shall be bound to accept delivery of, and make
      payment for, all items ordered.

    


    5.6 Quality
      Control and Standards. CTI
      shall
      employ equipment, machinery, production methods and manufacturing quality
      control procedures with respect to all products manufactured by CTI for ITW
      hereunder, including but not limited to, inspections and testing from time
      to
      time as is customary in the industry and shall maintain records of all such
      inspection and testing for a period of no less than two (2) years. Such records
      shall be made available to ITW for inspection no more than twice each year
      during the term of this Agreement at reasonable times during working hours
      and
      upon reasonable prior notice. At the request of ITW, the parties shall develop
      written quality control procedures with respect to each product manufactured
      by
      CTI for ITW hereunder and CTI shall employ such procedures for its quality
      control inspection and testing.

    


    5.7 Inspection
      and Testing.
      All
      products manufactured and sold hereunder shall be subject to inspection and
      testing by ITW at reasonable times and places. All products sold and delivered
      hereunder shall be deemed accepted if not inspected and rejected by ITW within
      ten (10) days after the date of receipt thereof by an ITW facility. Whether
      or
      not ITW Inspects or tests products delivered to ITW hereunder shall not cause
      or
      effect a loss or waiver of any rights of ITW for breach of warranty
      hereunder.

    


    5.8 Books
      and Records.
      CTI
      shall keep and maintain in its offices accurate books and records relating
      to
      the production of products, inspection and testing thereof and performance
      of
      its obligations hereunder, including without limitation, any and all licenses,
      permits, approvals and corporate documents required or obtained in connection
      with this Agreement or the performance thereof. All accounting books and records
      shall be maintained in accordance with applicable generally accepted accounting
      principles consistently applied. The duly authorized representative of ITW
      shall
      have the right, no more than once each year during the term hereof, at
      reasonable times during regular business hours and upon reasonable advance
      notice, to inspect and make copies of CTI’s books and records, solely as
      relating to CTI’s production of products, quality control actions or
      performance, under this Agreement. All of such books and records shall be deemed
      Confidential Information hereunder and shall be treated as such in accordance
      with the provisions of this Agreement relating to Confidential
      Information.

    


    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    5.9. Insurance.
      CTI
      shall maintain commercial general liability insurance, including a contractual
      liability endorsement, in the amount of $1,000,000 per occurrence and $2,000,000
      in the aggregate. CTI shall provide ITW with evidence of such insurance together
      with a certificate naming ITW, its affiliates, officers, directors, employees
      and agents as additional insureds. The certificate shall specify that ITW shall
      be given at least thirty (30) days prior written notice by the insurer in the
      event of any material modification, cancellation or termination of
      coverage.

    


    6. Invoices,
      Payment Terms.

    


    6.1 Invoices.
      CTI
      shall
      be entitled to, and shall, issue and deliver to ITW an invoice with respect
      to
      product ordered by ITW, and produced by CTI, at the time of shipment thereof
      to
      ITW. Unless otherwise agreed, all prices for products sold hereunder shall
      be
      exclusive of shipping costs and all national, federal, state or local, use,
      sales, excise, occupational or other similar tax. If CTI shall pay any amount
      for shipping or tax in connection with any transaction, CTI shall be entitled
      to
      include the amount thereof on the invoice to ITW.

    


    6.2 Payment
      Terms.
      Payment
      of all invoices issued by CTI hereunder to ITW shall be due and payable within
      thirty (30) days of the date of the invoice.

    


    6.3 Interest.
      The
      amount of any invoice outstanding more than thirty (30) days after the date
      thereof that is not in dispute shall bear interest at the rate of 10% per
      annum.

    


    6.4 Suspension
      of CTI’s Obligations.
      In the
      event that the amount due by ITW to CTI more than thirty (30) days from the
      date
      of invoice shall exceed the sum of $250,000, and for so long as such amount
      due
      over thirty (30) days shall remain outstanding, the obligations of CTI to
      manufacture and deliver product hereunder shall be suspended, provided that
      CTI
      has given ITW at least 10 days prior notice of such past due payment and an
      opportunity to cure the non-payment.

    


    7. Warranties

    


    7.1 CTI
      Warranties

    


    7.1.1 CTI
      warrants that products produced and sold by it to ITW hereunder shall (i)
      conform substantially to any specification for such product provided herein
      or
      agreed to by the parties and (ii) be free of defects in design, workmanship
      and
      materials;

    


    7.1.2 CTI
      warrants that it has the right to sell and transfer the products sold hereunder
      to ITW free of all defects in title, liens or encumbrances.

    


    7.2 Remedies.
      Except
      as provided in Section 10, ITW’s sole remedy with respect to a breach of
      warranty hereunder shall be, at ITW’s election, the return and credit for, or
      replacement of, any defective items. With respect to any item as to which ITW
      shall claim a breach of warranty, ITW shall return the same to CTI. CTI shall
      be
      responsible for the cost of freight, insurance or other charges for the return
      to CTI of defective product manufactured and sold by it. Except as provided
      in
      Section 10, in no event shall either party be responsible or liable for
      exemplary damages or consequential damages in the nature of lost profits, lost
      sales, diminished goodwill, lost opportunity or similar economic
      damages.

    


    
      
        
        

      

      
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    7.3 Inspection.
      The
      warranties provided herein shall survive, and shall not be affected by, any
      inspection, delivery or payment with respect to the defective
      product.

    


    7.4 Disclaimer.
      EXCEPT
      WITH RESPECT TO ANY EXPRESS WARRANTIES PROVIDED HEREIN, CTI DISCLAIMS ALL
      WARRANTIES WITH RESPECT TO PRODUCT SOLD HEREUNDER, INCLUDING ANY WARRANTY OF
      MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

    


    8. Term
      and Termination.

    


    8.1 This
      Agreement shall be for a term commencing on April 1, 2006 and expiring on March
      31, 2010. At the expiration of the initial term the Agreement may be extended
      by
      mutual agreement of the parties. 

    


    8.2 Either
      party shall be entitled to terminate this Agreement prior to the expiration
      of
      the initial term, or any renewal term, as follows:

    


    8.2.1 Upon
      written notice of termination given during the initial term eighteen months
      in
      advance of the date of such termination;

    


    8.2.2 Upon
      written notice of termination to a party, effective on the giving of such notice
      in the event of an Event of Default with respect to the other party. An “Event
      of Default” shall mean a breach or failure to perform by a party of any
      obligation of this Agreement on its part to be performed and the failure of
      such
      party to cure such breach or non-performance within thirty (30) days after
      notice thereof, specifying the breach or non-performance, shall have been given
      to such party. A breach of warranty shall not constitute an Event of Default
      if
      CTI shall provide credit or replacement for the product as to which there shall
      be a breach of warranty.

    


    8.2.3
      Upon five (5) days prior written notice to the other party in the event of
      the
      other’s Bankruptcy, defined for purposes of this Agreement as (i) an assignment
      for the benefit of creditors, (ii) the filing of an voluntary petition in
      bankruptcy, (iii) an adjudication of bankruptcy or insolvency, (iv) the filing
      of a petition or answer seeking any reorganization, arrangement, composition,
      readjustment, liquidation, dissolution or similar relief under any statute,
      law
      or regulation, (v) the filing of an answer or other pleading admitting or
      failing to content the material allegations of a petition filed against any
      party hereto in any bankruptcy proceeding, (vi) a party seeking, consenting
      to
      or acquiescing in the appointment of a trustee, receiver or liquidator of all
      or
      any substantial part of the party’s properties, or (vii) the failure to dismiss,
      within sixty (60) days after its commencement, any proceeding against such
      other
      party seeking reorganization, arrangement composition, readjustment,
      liquidation, dissolution or similar relief under any statute, law or
      regulation.

    


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    8.4 Effect
      of Termination.

    


    8.4.1 Upon
      the
      termination of this Agreement as provided herein, except as provided herein,
      all
      rights and obligations of the parties hereto shall cease and terminate;
      provided, however that:

     

    a.
      All
      rights and obligations hereunder providing or intended to survive the
      termination of this Agreement shall survive such termination and shall continue
      in full force and effect;

    


    b. All
      rights or obligations which shall have accrued to the date of such termination
      shall survive the termination.

    


    8.4.2 Upon
      termination of the Agreement, CTI shall cease any use of equipment or property
      of ITW and shall return the same to ITW in accordance with the provisions
      hereof. 

    


    9. Non-Competition

    


    9.1 During
      the term of this Agreement and until the expiration of the initial term or
      any
      renewal term hereof, or the termination of the Agreement in accordance with
      Section 8 hereof, CTI agrees that it will not manufacture or sell any products
      similar to or the same as Space Bags for any person or entity other than
      ITW.

    


    9.2 ITW
      acknowledges that CTI is engaged in the business of the development,
      manufacture, distribution and sale of pouches and containers for a variety
      of
      purposes and nothing herein shall be intended or deemed to limit or restrict
      the
      right of CTI to engage in such activities during the term hereof, or thereafter,
      with respect to any product, container or pouch except as expressly provided
      and
      defined herein. Without limiting the generality of the foregoing, it is
      understood and agreed that Section 9.1 of this Agreement shall not apply to
      the
      development, manufacture, distribution or sale of pouches for the storage or
      packaging of food, liquids or commercial or industrial items, but shall apply
      to
      the pouches intended for the storage and compression of commercial or industrial
      items.

    


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    10. Indemnity.

    


    10.1 Indemnity
      by CTI .
      CTI
      will at all times be deemed to be performing as an independent contractor and
      not as an agent or employee of ITW. The acts and omissions of CTI’s employees
      and agents and subcontractors of any tier will be deemed to be those of CTI.
      CTI
      will defend, indemnify and hold harmless ITW and its directors, officers,
      employees, agents, employees, successors and assigns from and against any and
      all liability, damages, losses, claims, demands, judgments, costs and expenses
      of every nature and kind by reason of injury to or death of any person or damage
      to or destruction of property to the extent arising out of or incidental to
      or
      in any way resulting from defects in the products that are the subject of this
      Agreement as the result of the tortious acts or omissions of CTI its employees,
      subcontractors or agents in performance under this Agreement. CTI will not
      be
      responsible for any such losses, liabilities, claims, judgments, costs, demands
      and expense to the extent caused by the negligence or willful misconduct of
      ITW,
      its directors, officer or employees. If a claim is filed against ITW for which
      CTI is to be responsible under this provision, ITW will promptly notify CTI
      in
      writing of such claim.

    


    10.2 Indemnity
      by ITW.
      ITW
      will at all times be deemed to be performing as an independent contractor and
      not as an agent or employee of CTI. The acts and omissions of ITW’s employees
      and agents and subcontractors of any tier will be deemed to be those of ITW.
      ITW
      will defend, indemnify and hold harmless CTI, its directors, officers,
      employees, agents, employees, successors and assigns from and against any and
      all liability, damages, losses, claims, demands, judgments, costs and expenses
      of every nature and kind by reason of injury to or death of any person or damage
      to or destruction of property to the extent arising out of or incidental to
      or
      in any way resulting from defects in the products that are the subject of this
      Agreement as the result of the tortious acts or omissions of ITW, its employees,
      subcontractors or agents in performance under this Agreement. ITW will not
      be
      responsible for any such losses, liabilities, claims, judgments, costs, demands
      and expense to the extent caused by the negligence or willful misconduct of
      CTI,
      its directors, officer or employees. If a claim is filed against CTI for which
      ITW is to be responsible under this provision, CTI will promptly notify ITW
      in
      writing of such claim.

     

    11. Intellectual
      Property; Confidential Information.

    


    11.1 Intellectual
      Property.
      Each
      party expressly acknowledges and agrees that, except as may be specifically
      provided in this or other agreement, neither party shall acquire, retain or
      appropriate for its own use any right, title, license or interest in or to
      any
      patent, trademark, tradename, copyright, trade secret, Confidential Information
      or other intellectual property right of the other party. Neither party shall
      take any action that might impair in any way any right, title or interest of
      the
      other party in any such intellectual property.

    


    11.2 Use
      of Trade Names and Marks.
      Neither
      party shall use any logo, name, trademark, trade name or service mark of the
      other party except as may be expressly authorized by the other
      party.

    


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    11.3 Inventions;
      Developments.

    


    11.3.1 CTI
      may,
      at the express written request and direction of ITW, for such compensation
      as
      the parties shall agree, engage in research and development activities with
      respect to pouches, films or other matters. ITW shall be the sole owner of
      any
      and all patents (domestic and foreign), inventions, trade secrets or other
      proprietary rights which are conceived or developed by CTI in the performance
      of
      such research and development and they will be treated as work made for hire
      under applicable law or otherwise assigned from CTI to ITW. At the request
      of
      ITW, CTI shall take any and all necessary or appropriate action, and shall
      execute and deliver to ITW all such documents as may be necessary or appropriate
      to perfect the ownership interest of ITW in any such items.

    


    11.3.2 The
      parties acknowledge that each party may engage in research and development,
      including without limitation with respect to films, pouches, valves or closures.
      Except as expressly provided herein or in other written agreement, the parties
      agree that each party shall be and remain the sole owner of any and all patents
      (domestic or foreign), inventions, trade secrets, trademarks, trade names or
      other intellectual property rights independently made, conceived or developed
      by
      or for such party during the term hereof or otherwise and, except as otherwise
      provided herein or in other written agreement, neither party shall have any
      right, license, title or interest in or to any such independently developed
      intellectual property arising from any such developments; provided, however,
      CTI
      agrees that, in connection with any patent issued with respect to any invention
      independently made or conceived by or for CTI during the term of this Agreement
      any claim of which covers any element of a Space Bag, the parties agree to
      discuss the possibility of a license on commercially reasonable terms when
      so
      requested by ITW. 

    


    11.4 Confidential
      Information.

    


    11.4.1 “Confidential
      Information” shall mean and include information, consisting of or concerning or
      relating to (i) product design or composition, (ii) product components, (iii)
      methods of production, (iv) equipment design or use, (v) sources of supply,
      (vi)
      research or development, (vii) financial information or (vii) other information
      deemed by the party providing the information to be confidential which (A)
      has
      been exchanged by the parties prior to the date hereof, (B) is contained in
      a
      document market “Confidential”, (C) is orally communicated by one party to
      another and is identified by the party providing such information as being
      Confidential Information by written communication to the other party given
      within ten (10) days after the date the information is provided orally or (D)
      by
      reason of the nature and treatment of the information as confidential by the
      disclosing party, shall be deemed confidential. Information is not Confidential
      Information (a) if it is already public on the date of this agreement; (b)
      if it
      becomes public other than through a breach of this agreement; or (c) if it
      is
      information that ITW or CTI develops independently without using the other
      party’s Confidential Information. If ITW or CTI receives non-public information
      about the other party from another source, it should assume that the information
      is Confidential Information unless it has written confirmation to the contrary
      from the other party.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    11.4.2 During
      the term of this Agreement, and thereafter for so long as the information
      remains confidential, each party agrees to maintain as confidential all
      Confidential Information of the other party communicated to it and not to use
      such information except as is authorized and appropriate in the performance
      of
      this Agreement or to disclose such Confidential Information to any person except
      (i) to its own employees and agents, who have a need to know as required for
      performance of the party’s obligations hereunder or (ii) as shall be expressly
      authorized in writing by the disclosing party.

    


    11.4.3 Each
      party shall take all steps necessary or appropriate to protect Confidential
      Information of the other party against unauthorized disclosure or use. It is
      further understood and agreed that money damages may not be a sufficient remedy
      for any breach of this confidentiality agreement and that the non-breaching
      party may be entitled to seek specific performance and injunctive or other
      equitable relief as a remedy for any such breach. Each party agrees to waive
      any
      requirement for the securing or posting of any bond in connection with such
      remedy. Such remedy shall not be deemed to be the exclusive remedy, but shall
      be
      in addition to all other remedies available at law or equity. 

     

    12. Arbitration.

    


    12.1 Agreement
      to Arbitrate.
      The
      parties agree that any dispute, controversy or claim arising out of or relating
      to this Agreement, or to the interpretation, performance, breach or termination
      thereof (other than disputes related to Confidential Information, intellectual
      property rights and cross-claims or counterclaims arising in pending
      litigation), shall be resolved by binding arbitration under the Commercial
      Rules
      and Regulations of American Arbitration Association (“AAA”), as amended from
      time to time. The arbitration will be conducted in the city of Chicago,
      Illinois. The appointing authority will be the AAA. The number of arbitrators
      will be three (3), who shall constitute the “arbitral panel”.

    


    12.2 Notice
      of Arbitration.
      The
      arbitration will begin on the date on which the notice of demand for arbitration
      is delivered to the responding party (the “Respondent”) at the address appearing
      for that party for notices herein. The party giving notice of the arbitration
      will include the following and any other information required by the AAA: (a)
      a
      demand that the dispute be submitted to arbitration; (b) the names and domiciles
      of the parties; (c) a reference to this Agreement and this arbitration
      provision; (d) a description of the failure to perform an obligation under
      this
      Agreement and of the petitions and amounts claimed.

    


    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    12.3 Certain
      Procedures; Confidentiality.
      The
      arbitration shall be conducted in accordance with the Commercial Rules of
      Arbitration of the AAA. The parties shall be entitled to all discovery in
      accordance with the Federal Rules of Civil Procedure, including document
      production, interrogatories and depositions. At least fifteen (15) days prior
      to
      the date of the hearing, the parties will deliver to the arbitrator: (i) the
      names and addresses of any witness that they intend to present; (ii) the
      documents that will be submitted at the hearing; and (iii) a description of
      any
      other evidence to be presented in the arbitration. The parties agree to continue
      performing their respective obligations under this Agreement during the
      resolution of any dispute regarding the Agreement. All the matters regarding
      or
      submitted to the arbitral panel during any arbitration proceeding herein will
      be
      treated as Confidential Information and any and all arbitrators will maintain
      its confidentiality.

    


    12.4 Interim
      Relief.
      The
      parties expressly agree that prior to the selection of the arbitral panel,
      nothing in this Agreement shall prevent the parties from applying to a court
      that would otherwise have jurisdiction for provisional or interim measures.
      After the arbitral panel is selected, it shall have sole jurisdiction to hear
      such applications, except that the parties agree that any measure ordered by
      the
      arbitral panel may be immediately and specifically enforced by a court otherwise
      having jurisdiction over the parties.

     

    12.5 Arbitral
      Award.
      The
      arbitral panel’s award will be issued no later than ten (10) days after the
      beginning of the arbitration hearing. The award will be final and binding,
      without additional recourse, and will be the exclusive remedy of the parties
      for
      all claims, counterclaims, issues or accountings presented or pleaded to the
      arbitral panel. The arbitral tribunal will render its award strictly in
      accordance with this Agreement and does not have authority to change or diverge
      from any provision of this Agreement. The arbitral panel may impose
      indemnification measures as part of the award. The arbitral award will (i)
      be
      granted and paid in United States Dollars exclusive of any tax, deduction or
      offset and (ii) include interest from the date the award is rendered until
      it is
      fully paid, computed at the then prevailing prime rate. 

    


    12.6 Judgment
      on Award. Judgment
      upon the arbitral award may be entered in any court of competent jurisdiction.
      The parties submit themselves to the jurisdiction of the courts of the states
      of
      Illinois for purposes of enforcing any interim or final award of the arbitral
      panel. Any additional costs, fees or expenses incurred in enforcing the arbitral
      award shall be charged against the party that resists its
      enforcement.

    


    12.7 Expenses
      of Arbitration.
      In any
      arbitration proceeding hereunder, each party shall bear the expenses of its
      witnesses. All other costs of arbitration, including, without limitation, the
      fees and expenses of the arbitral panel, the cost of the record or transcripts
      thereof, if any, administrative fees, and all other fees and costs shall be
      allocated to the parties to the arbitration as determined by the arbitral
      panel.

    


    12.8 Law
      Applicable.
      Notwithstanding anything to the contrary contained herein, the law applicable
      to
      the validity of this Section 12 regarding arbitration, the conduct of the
      arbitration, including any resort to a court for provisional or interim
      remedies, the enforcement of any award and any other question of arbitration
      law
      or procedure, shall be the Untied States Federal Arbitration Act, 9 U.S.C Sec.1,
      et
      seq.

    


    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    13. Compliance
      with Laws.
      The
      parties will comply with the provisions of all laws and all orders, rules and
      regulations issued thereunder applicable to this Agreement and performance
      pursuant to this Agreement. Products will be manufactured, labeled, packaged,
      sold and shipped in accordance with all applicable laws, orders, rules and
      regulations.

    


    14. Legal
      Relationships.
      ITW and
      CTI each represents and warrants to the other that they have entered into no
      agreements, nor are subject to any obligations, which prevent them from entering
      into and performing this Agreement. It is understood and agreed that ITW and
      CTI
      are, and at all times during the effective period of this Agreement will remain,
      independent contractors. This Agreement will not be construed as creating any
      relationship between ITW and CTI’s employees. CTI’s employees will not be
      entitled as a result of this Agreement to any benefits under any employee
      benefit plan ITW presently has in effect or may put into effect nor will CTI
      employees be considered employees of ITW for the purpose of any tax or
      contribution levied by any federal, state or local government. At no time will
      either party represent to any third party that it is the agent of the other
      for
      any reason whatsoever. ITW and CTI further covenant that no authorization will
      be given to any employee to act for the other party. Without limiting the
      foregoing, CTI and ITW agree that they will not, during or after the term of
      this Agreement, represent themselves as acting for the other party or without
      the other party’s name. 

    


    15. Waiver
      of Terms and Conditions, Survival.

    


    15.1 No
      Waiver.
      The
      failure of ITW or CTI in any one or more instances to insist upon performance
      of
      any of the terms and conditions of this Agreement, or to exercise any right
      or
      privilege contained in this Agreement or the waiver of any breach of the terms
      or conditions of this Agreement will not be construed as thereafter waiving
      any
      such terms, conditions, rights or privileges, and the same will continue and
      remain in force and effect as if no waiver had occurred. 

    


    15.2 Survival.
      Either
      party’s obligations under this Agreement which by their nature or terms would
      continue beyond the termination, expiration or cancellation of this Agreement
      will survive termination, expiration or cancellation of this Agreement including
      but not limited to Section 7, Warranties; Section 10, Indemnity; Section 11.5,
      Confidential Information; and Section 12, Arbitration.

    


    16. Miscellaneous.

    


    16.1 Authority;
      No Conflict.
      Each
      party executing this Agreement represents and warrants to the other parties
      (i)
      that it has the absolute and unrestricted right, power, authority, and capacity
      to execute and deliver this Agreement and that, upon execution and delivery
      thereof by other parties, this Agreement will constitute the legal, valid and
      binding obligation of such party, and (ii) that the execution and delivery
      of
      this Agreement and the performance of the transactions contemplated hereby,
      will
      not, directly or indirectly (with or without notice or lapse of time),
      contravene, conflict with, or result in a violation of any provision of the
      organizational documents or board or shareholder action of such party, and
      (iii)
      that such party is not, and will not be, required to give any notice to obtain
      any consent from any third party in connection with the execution and delivery
      of this Agreement or the consummation or performance of any of the transactions
      contemplated hereby. 

    


    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    16.2 Force
      Majeure.
      The
      parties will not be considered in default or liable for any failure to perform
      their obligations under this Agreement if such failure arises out of an act
      of
      nature, war, strikes, lockouts, trade disputes, fires, quarantine restrictions,
      Governmental action or by causes beyond the reasonable control of the affected
      party. Any affected party will immediately notify the other in writing if a
      force majeure event delays performance and will state the revised date for
      performance. Should CTI be unable to perform because of a force majeure event
      continues for a period in excess of 30 days, ITW will not be obligated to
      purchase, at a later date, that portion of the product ordered that CTI is
      unable to deliver because of a force majeure event, and during the period of
      CTI’s inability to perform ITW will be free to purchase any products covered by
      this Agreement from another source. 

    


    16.3 Severability.
      If any
      provision of this Agreement or the application of any such provision to any
      person or circumstance, is declared judicially to be invalid, unenforceable
      or
      void, such decision will not have the effect of invalidating or voiding the
      remainder of this Agreement, it being the intent and agreement of the parties
      that this Agreement will be deemed to have been amended by modifying such
      provision to the extent necessary to render it valid, legal and enforceable
      while preserving its intent or, if such modification is not possible, by
      substituting therefor another provision that is legal and enforceable and that
      achieves the same objective.

    


    16.4 Assignment.
      Neither
      party will assign this Agreement or any rights, responsibilities, or obligations
      in this Agreement, without the express written approval of the other (which
      consent will not be unreasonably withheld) and any attempted assignment in
      violation of this provision shall be void; provided, however, that no consent
      will be required in the event of a transfer of all or substantially all of
      the
      assets or business of either party to an affiliate or as part of a
      reorganization, merger or spin off.

     

    16.5 Notices.
      All
      notices required or permitted by or made pursuant to this Agreement shall in
      writing and shall be sent by facsimile, electronic mail with confirmation of
      receipt, commercial courier service for next day delivery, or by delivery to
      a
      reliable international air courier to the addresses set forth in this Section
      16.5. Any notices shall be deemed effectively given when received by the other
      party.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    
      
        	If
                to ITW:	
                ITW
                  Space Bag

              


      

      
        	 	
                720
                  Airway Road

              


      

      
        	 	
                San
                  Diego, CA 92154

              


      

      
        	 	
                Attn:
                  General Manager

              


      

       

      
        	If
                to CTI:	
                CTI
                  Industries Corporation

              


      

      
        	 	
                22160
                  N. Pepper Road

              


      

      
        	 	
                Barrington,
                  IL 60010

              


      

      
        	 	
                Attn:
                  President

              


      

      
        	 	
                Fax:
                  847-382-1219

              


      

    

     

    16.6 Subject
      Headings.
      The
      subject headings of this Agreement are included for purposes of convenience
      only
      and shall not affect the construction or interpretation of any of its
      provisions.

    


    16.7 Counterparts.
      This
      Agreement may be executed in several duplicate originals, each of which shall
      be
      deemed an original but all of which together shall constitute one and the same
      instrument.

    


    16.8 Governing
      Law.
      This
      Agreement has been entered into within the State of Illinois and this Agreement
      shall be governed by, and construed and interpreted in accordance with, the
      laws
      of that jurisdiction, as applicable to contracts which are executed and
      delivered in that jurisdiction, and which are to be performed wholly within
      that
      jurisdiction, without taking into account provisions thereof regarding choice
      or
      conflict of laws.

    


    16.9 Entire
      Agreement and Modification.
      This
      Agreement and the attachments to this Agreement and made a part of this
      Agreement sets forth the entire Agreement of the Parties with respect to the
      subject matter of this Agreement and supersedes and merges all prior agreements
      and understandings, whether written or oral. No amendment, modification, or
      waiver of any provisions of this Agreement or consent to any departure therefrom
      will be effective unless in writing signed by duly authorized officers or
      representatives of both parties.

     

    [THE
      REMAINDER OF THIS PAGE INTENTIONALLY BLANK]

     

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEROF, the parties hereto have executed this Agreement as of the day
      and year first above written.

     

    
      	 	 	 
	 	ITW
              SPACEBAG
	 
 	 
 	 
 
	 	By:  	/s/ Steve
              Henn
	 	
              
Steve
              Henn, General Manager
	 	 


    

     

    
      	 	 	 
	 	CTI
              INDUSTRIES CORPORATION
	 
 	 
 	 
 
	 	By:  	/s/ Howard
              Schwan
	 	
              
Howard
              Schwan, President
	 	 


    

    


    
      
        
        

      

      19