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)