Unassociated Document


     

    
      Exhibit
10.1

       

      Harris N.A.

      111 West Monroe Street

      Chicago, IL 60603

       

      April 8,
2010

       

      CTI
Industries Corporation

      


      


      Harris N.A. (“Harris” or “we”) appreciates the opportunity to discuss
your senior secured financing needs.  In reliance upon information and
materials that you have provided to us, we are pleased to provide the attached
Committed Summary of Terms and Conditions that outlines the structure of the
credit facilities (the "Facilities") that we think would be appropriate for you
to address these financing needs.  It is our understanding that any
credit proceeds provided would be used to refinance certain existing
indebtedness of the Borrower, and to provide financing for future working
capital needs of CTI Industries Corp. ("Borrower", or “CTI”).

       

      We look
forward to continuing our discussions with you regarding the
Facilities.  In addition, this letter and the attached Summary of
Terms and Conditions do not include all requirements and conditions that we
would have in connection with the outlined Facility.  Finally, the
contents of these documents should not be shared with any third party without
Harris’ prior written consent, except for potential equity and subordinated debt
investors, and advisors, management and regulatory bodies on a need-to-know
basis.  All persons who are informed of the contents of this letter
and the attached Summary of Terms and Conditions also need to be informed that
such contents are confidential and cannot be disclosed without Harris’ prior
written consent.

       

      We would
like to emphasize that Harris strives to combine product, structuring, and
industry expertise, with superior relationship banking in order to provide our
clients with value-added financing solutions.  We recognize the
importance CTI places on reliable partners, and we believe through our
responsive and disciplined approach to evaluating your financing needs, along
with our extensive experience in middle market lending, that we can help ensure
the success of your company.  Thank you for considering the financing
structure we have outlined, and we are enthusiastic about continuing discussions
with you regarding this transaction.

       

      
        	 	
                Very
      truly yours,

                 

                /s/
      David Knapp

                 

                Harris
      N.A.

                By:  David
      Knapp

                Title:
      Senior Vice President, Market
Manager

              


      

       

      
 

       

      
        
          	 
      	
                  Agreed
      to and accepted by: /s/ Stephen M. Merrick

                
	 	 
	 
      	
                  Printed
      Name and Title:  Chief Financial Officer

                
	 	 
	 
      	
                  Date:  April
      12, 2010

                


        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

        Summary
of Terms and Conditions

      

    

    
    

    
      
        
          

        

      

    

    
      	           
       
	  

              SUMMARY
      OF COMMITTED TERMS AND CONDITIONS

               

              APRIL
      2010

               

            


    

     

    
      
        	
                Borrower:

              	
                CTI Industries
      Corporation (the “Borrower”)

              
	 	 
	
                Lender:

              	
                Harris
      N.A. 

              
	 	 
	
                Facilities:

              	
                The
      following senior secured credit facilities (the “Facilities”) will be
      available on the terms and conditions set forth herein:

              
	 	 
	 
      	
                · $9,000,000 revolving
      credit facility (the “Revolver”) [with a
      $1,000,000 sublimit for the issuance of standby and commercial letters of
      credit].]

              
	 	 
	 
      	
                · Up to $2,500,000
      revolving equipment line of credit (the “Equipment
      Line”)

              
	 	 
	 
      	
                · $2,371,000 [or
      outstanding amount of mortgage with Charter One Bank at close] mortgage
      (the “Mortgage”)

              
	 	 
	 
      	
                · $817,000 [or
      the  amount outstanding at close] term loan (the “Term  Loan”)

              
	 	 
	
                Purpose:

              	
                ·
      Revolver: Refinance
      existing indebtedness with Charter One Bank, and finance working capital
      and general corporate purposes.

                 

                ·
      Equipment Line: Proceeds
      under this facility will be used to finance equipment purchases (to be
      based on a 100% advance on invoice amount).

                 

                ·
      Mortgage: Proceeds under
      this facility will be used to refinance existing indebtedness with Charter
      One Bank.

                 

                ·
      Term Note: Proceeds
      under this facility will be used to refinance existing
      indebtedness

              
	 	 
	
                Maturity:

              	
                ·
      Revolver: Three
      years

              
	 
      	
                 

                ·
      Equipment Line: One year
      draw period, with a three year maturity (from close)

              
	 
      	
                 

                ·
      Mortgage: Three
      years

              
	 
      	
                 

                ·
      Term  Loan: 1/31/11 (to match
      existing maturity)

              
	 	 
	
                Amortization:

              	
                ·
      Equipment Line: Payments
      will be interest only through Year 1, at which point all outstanding will
      be converted to a term loan with payments based on a 5-year amortization
      schedule with the remaining portion due at maturity.  Interest
      due monthly on Prime borrowings and at the end of each contract for LIBOR
      loans, with such payments to occur no less frequently than
      quarterly.

                 

                ·
      Mortgage: Principal
      payments will be based on a 25 year amortization schedule, with the
      remaining portion due at maturity.  Interest due monthly on
      Prime borrowings and at the end of each contract for LIBOR loans, with
      such payments to occur no less frequently than quarterly.

                 

                ·
      Term Loan: Shall
      continue to amortize as currently structured at Charter One Bank, with
      $700M annually, and maturity will remain at
  1/31/2011.

              


      

       

      
        
          
          

        

        
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          Summary
of Terms and Conditions

        

      

      
        
          
            

          

        

         

      

      
        	
                Guarantors:

              	
                Joint
      and several limited guarantees for both John Schwan and Steve Merrick of
      $1,750,000 each, at close.  Step downs will occur upon receipt
      of annual covenant compliance certificates AND so long as either Senior
      debt leverage is 0.25x below the required covenant level or an updated
      real estate appraisal is obtained and results  materially
      diminish our reliance on the guarantees:

                 

                ·
      After
      year 1, the personal guarantees will reduce down to $1,500,000
      each;

                 

                ·
      After
      year 2, the personal guarantees will reduce down to $1,000,000
      each;

                 

                All
      existing and future subsidiaries of the
      Borrower  (where  applicable)

              
	 	 
	
                Security:

              	
                The
      Revolver and Equipment Line will be secured by a first-priority perfected
      security interest in substantially all of the tangible and intangible
      assets of the Borrower and the Guarantors, whether now owned or hereafter
      acquired. The Mortgage Loan would be secured by a mortgage on the building
      and real property located in Barrington, IL.  The Equipment Term
      Loan would be secured by machinery and equipment (based on appraisal as of
      12/05).  A 65% pledge of the Flexo stock will be
      required.  All facilities will be cross-collateralized and
      cross-defaulted.

              
	 	 
	
                Availability:

              	
                Outstanding
      under the Revolver, [including any letters of credit], shall not exceed a
      borrowing base equal to the sum of up to 85% of eligible receivables and
      up to 60% of eligible raw material and finished goods
      inventory.  Total availability under the borrowing base relating
      to inventory will be capped at $5MM.

              
	 	 
	
                Interest
      Margins:

              	
                The
      applicable Base Rate and LIBOR Margins shall be the percentage per annum
      set forth in the Summary Pricing Matrix below for the appropriate
      Level.  The Level shall be determined quarterly by the reported
      Senior Leverage Ratio.  Pricing will be held at Level II until
      receipt of the [Date TBD] compliance certificate. Margins on all loans and
      fees may be increased by 2% per annum during the existence of an event of
      default if so required by the Lender.   See Exhibit A for
      Interest Rate options and fees.

              
	 
      	
              
	 	
                Summary
      Pricing Matrix

              
	 
      	 
      	
                Level I

              	
                Level II

              	
                Level
III

              
	 
      	
                Senior
      Leverage Ratio

              	
                >
      3.25

              	
                <
      3.25 but > 2.25

              	
                <  2.25

              
	 
      	
                Base
      Rate Margin

              	
                1.25%

              	
                0.75%

              	
                0.50%

              
	 
      	
                LIBOR
      Margin

              	
                3.75%

              	
                3.25%

              	
                3.00%

              
	 
      	
                Facility/Unused
      Fee

              	
                0.50%

              	
                0.25%

              	
                0.25%

              
	 	 	 	 	 
	
                Prepayments:

              	
                Loans
      bearing interest based on the Base Rate may be prepaid at any time without
      penalty with same-day written notice.  Loans bearing interest
      based on LIBOR may be repaid upon three business days’ written notice,
      subject to payment of usual and customary breakage costs for payments made
      prior to the last day of an interest
period.

              


      

       

       

      
        
          
          

        

        
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          Summary
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                Mandatory
      Prepayments:

              	
                1.   
      [70%] of the net proceeds of any sales or issuances of equity or debt
      securities by the Borrower or any Guarantor (with exceptions to be
      determined). The net proceeds would first be applied against the Equipment
      Line of Credit, with any remaining monies applied equally, as a percentage
      of debt, against all remaining outstanding obligations.

                 

                2.  
       [100%] of the net proceeds of (i) any sale or disposition of any
      assets (other than sales of inventory in the ordinary course of business)
      above a basket amount to be determined, and (ii) insurance and
      condemnation proceeds not otherwise reinvested.

                 

                3.    Any
      amount outstanding under the Revolver (including letters of credit and
      swing line loans, if applicable) in excess of the borrowing base must be
      immediately prepaid.

              
	 
      	 
	
                Representations
      & Warranties:

              	
                Usual
      and customary representations and warranties for facilities of this type,
      including but not limited to organization and qualification, subsidiaries,
      authorization and validity of loan documents, use of proceeds and margin
      stock, financial reports, no material adverse change, full disclosure,
      intellectual property, governmental authority and licensing, title to
      properties and assets, no material litigation, payment of taxes,
      governmental approvals, transactions with affiliates, Investment Company
      Act, ERISA, compliance with laws (including environmental), no violation
      of agreements, solvency, no broker’s fees, and absence of default or event
      of default.

              
	 	 
	
                Initial Conditions
      Precedent:

              	
                Usual
      and customary conditions precedent to the initial extensions of credit for
      facilities of this type, including but not limited
  to:

              


      

       

      
        	 
      	(i)	
                Agreement
      to subordinate current affiliated debt from Flexo to Harris
      Bank.

              
	 	 	 
	 	(ii) 	All
      legal, tax, and regulatory matters relating to the Facilities and any
      transactions financed with the proceeds thereof shall be satisfactory
      to   the Lender.
	 	 	 
	 	(iii)  	The
      negotiation of credit and security documents satisfactory to
      the  Lender.  Receipt of other customary closing
      documentation, including the legal opinion of counsel to the Borrower and
      Guarantors, acceptable to the Lender.
	 	 	 
	 	(iv) 	Perfection
      of liens on collateral.
	 	 	 
	 	(v)	Repayment
      and cancellation of existing credit facilities.
	 	 	 
	 	(vi)	Satisfaction
      with title and other matters relating to owned real estate, including
      receipt of title insurance, FIRREA-compliant real estate appraisals, real
      estate surveys, flood determinations, and [environmental studies including
      Phase I assessments.
	 	 	 
	 	(vii)	No
      material adverse change in the business, condition (financial or
      otherwise), operations, performance, properties, or prospects of the
      Borrower any of its subsidiaries or any Guarantor or the Target or any of
      its subsidiaries from that reflected in the 12/31/09 financial statements
      already received by the Lender.
	 	 	 
	 	(viii)	The
      Borrower shall, during the term of the Facilities, maintain all operating
      accounts at Harris or its affiliates.
	 	 	 
	 	(ix)	All
      payment, covenant, default, subordination, and other material terms and
      conditions of any subordinated debt and all material terms of any
      preferred equity shall be acceptable to the Lender.
	 	 	 
	 	(x)	Receipt
      of evidence satisfactory to the  Harris that the Borrower’s
      EBITDA for the most recently-ended twelve months (“LTM”) is at least
      $[4.0MM] prior to closing and indebtedness outstanding at the closing of
      the Facilities after giving effect to the initial loans
      thereunder.


      

       

      
        
          
          

        

        
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          Summary
of Terms and Conditions

        

      

      
        

      

       

      
        	
                Ongoing
      Conditions Precedent:

              	
                No
      Lender shall be required to make any extension of credit under the
      Facilities (including the initial extensions of credit)
      unless:

                 

                ·
      No
      default or event of default shall exist before or after giving effect to
      such extension of credit.

                 

                · All
      representations and warranties shall be true and correct.

                 

              
	
                Financial
      Covenants:

              	
                Financial
      covenants may include Minimum Tangible Net Worth, Maximum Senior Leverage
      Ratio, Minimum Fixed Charge Coverage

              
	 
      	
                 

                ·  Minimum Tangible Net
      Worth at all times of $[To be benchmarked at close] plus (if
      positive) 50% of net income for each calendar year.  Tangible
      Net Worth is defined as net worth less any goodwill and other intangibles
      plus subordinated debt.

              
	 
      	
                 

                · 
      Maximum Senior
      Leverage Ratio, defined as the ratio of Senior Funded Debt (which
      is defined as all indebtedness for borrowed money and guaranties of the
      same and including letters of credit at the full stated amount thereof,
      excluding indebtedness subordinated to the Facilities on terms acceptable
      to the Lender) as of the end of the most recent fiscal quarter, to EBITDA
      for the most recently-ended four fiscal quarters (TTM), of 3.50x at
      closing (test dates: 3/31/10, 6/30/10, 9/30/10, 12/31/10), with step downs
      to 3.25x at 3/31/11, with additional step down to 3.00x at 9/30/11 and
      final step down to 2.75x for 3/31/12 and remain
  thereafter.

              
	 
      	
                 

                ·  Minimum Fixed Charge
      Coverage Ratio, defined as the ratio of EBITDA less unfinanced
      capital expenditures, and declared dividends for the most recently-ended
      four fiscal quarters, to the sum of total debt principal and cash interest
      payments and cash taxes during the most recently-ended four fiscal
      quarters of 1.10x.

              
	 	 
	 
      	
                EBITDA
      is defined as the sum of net income, taxes, interest expense, depreciation
      and amortization and adjustments including certain add backs [TBD]. Final
      financial covenant definitions subject to the agreement of the Borrower
      and the Lender.

              
	 	 
	
                Other
      Covenants:

              	
                Usual
      and customary covenants for facilities of this type including but not
      limited to:

              
	 
      	
                 

                ·  Usual
      and customary affirmative and operational covenants including without
      limitation maintenance of business and properties, payment of taxes,
      insurance, inspection, formation and maintenance of subsidiaries, ERISA,
      compliance with laws, transactions with affiliates, no changes in fiscal
      year, no changes in nature of business, use of proceeds, and absence of
      contractual restrictions.

              


      

       

      
        
          
          

        

        
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          Summary
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                · 
      CTI
      will be allowed to make principal payments on subordinated debt as
      follows: Maximum semi-annual sub-debt principal reduction of 33% of excess
      cash flow (defined as excess cash flow after fixed charges to be defined
      in the loan documents, including declared dividends) will be allowed, and
      capped at $300,000 annually.

                 

                ·  Usual
      and customary restrictive covenants, including without limitation those
      regarding indebtedness (including capital leases) and guaranties; liens;
      operating leases; investments and acquisitions; loans and advances;
      mergers and consolidations; sales of assets; and dividends, stock
      repurchases and other restricted payments.

              
	 	 
	
                Reporting
      Requirements:

              	
                ·  Annual
      audited consolidated financial statements for the Borrower within 90 days
      of fiscal year end.

              
	 
      	
                 

                ·  Monthly
      company-prepared consolidated and consolidating financial statements for
      the Borrower within 30 days of month end.

              
	 
      	
                 

                ·  Quarterly
      covenant compliance certificates signed by the Borrower’s chief financial
      officer within 45 days of quarter end.

              
	 
      	
                 

                ·  A
      copy of the Borrower’s operating budget for the following fiscal year no
      later than 30 days after the end of each fiscal year.

              
	 
      	
                 

                · 
      Monthly
      borrowing base certificates signed by the Borrower’s chief financial
      officer within 15 days of month end.

                 

                ·  Field
      audits to be conducted annually at the Borrower’s expense during the
      term of the Facilities.

              
	 
      	
                 

                · 
      Other
      information and reports as may be reasonably requested by any
      Lender.  All reports and financial statements will be in form
      and scope reasonably acceptable to the  Lender, including
      comparison to budget and prior comparable period.

              
	 
      	
                 

                · 
      Notice
      of any change of control, material adverse change, default or event of
      default, or material adverse litigation or governmental
      proceeding.

              
	 
      	
                 

              
	
                Events
      of Default:

              	
                Usual
      and customary for facilities of this type, including but not limited to
      failure to pay any interest, principal, fees or other amounts when due,
      default under any covenant or agreement in any loan document, any loan
      document is repudiated or is no longer in force and effect, inaccurate or
      false representations or warranties, cross default with other debt
      agreements, insolvency, bankruptcy, ERISA, change of control and
      unsatisfied judgments.

              
	 	 
	
                Yield
      Protection:

              	
                Customary
      provisions protecting the Lender in the event of prepayment or failure to
      borrow (funding indemnity), unavailability of funding, capital adequacy
      requirements, and increased costs due to changes in law or
      regulation.  Payments to be made free and clear of taxes
      (subject to customary limitations and
  exceptions).

              


      

       

      
        
          
          

        

        
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            Summary
of Terms and Conditions

          

        

      

      
        
          

        

         

      

      
        	
                Expenses:

              	
                The
      Borrower shall pay all reasonable costs and expenses of  the
      Lender associated with the preparation, due diligence (including third
      party expenses), administration and syndication of the Facilities and loan
      documentation, including without limitation the legal fees
      of  the Lender’s counsel, regardless of whether the Facilities
      close.  Costs and expenses of the Lender, including without
      limitation their legal fees, in connection with any default or event of
      default or the enforcement of the loan documents to be reimbursed by the
      Borrower.

              
	 	 
	
                Commitment
      Expiration:

              	
                No
      later than 5/31/10

              
	 	 
	
                Indemnification:

              	
                The
      Lender will be indemnified against all losses, liabilities, claims,
      damages and expenses relating to or arising out of the loan documents, the
      transactions contemplated hereby or the Borrower’s use of loan proceeds,
      including without limitation environmental problems, such indemnity to
      include without limitation reasonable attorneys’ fees and settlement
      costs.

              
	 	 
	
                Governing
      Law:

              	
                State
      of Illinois.

              


      

       

      
        	
                April
      2010

              
	
                The
      information provided in this term sheet is for the confidential use of the
      Borrower and may not, without the prior written consent of the Lender, be
      disclosed to any other party other than the Borrower’s employees,
      attorneys and financial advisors (but not commercial lenders) with a need
      to know the same.

                 

                Finally,
      the Borrower will not attempt to obtain any other sort of debt financing
      (whether or not intended to replace the Facilities) at the same time as
      the Lender is working on closing the
Facilities.

              


      

       

      
        
          
          

        

        
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                  Confidential

                	
                  Summary
      of Terms and Conditions

                


        

        
          
            

          

           

        

      

      
        	
                Exhibit
      A: Interest Rate Options and Fees

              
	 
	
                Interest
      Rates:

              	
                At
      the Borrower’s option, each loan under the Facilities will bear interest
      at the following rates:

              
	 	 
	 
      	
                Lender’s
      Base Rate plus applicable Base Rate Margin set forth in the Summary
      Pricing Matrix. Base Rate shall be, for any day, the greatest of (i) 
      Lender’s prime commercial rate as in effect on such day, (ii) the sum of
      the Fed Funds rate for such day plus 1/2 of 1%, and (iii) the LIBOR
      Quoted Rate for such day plus 1.00% calculated on an actual
      day/[365/366-day basis] and payable [monthly/quarterly] in
      arrears.  LIBOR Quoted Rate shall be, for any day, Reserve
      adjusted LIBOR based upon LIBOR for an interest period of one month as
      reported on the LIBOR01 Page as of 11:00 a.m. (London, England time)
      on such day.

              
	 	 
	 
      	
                Reserve
      adjusted LIBOR plus the applicable LIBOR Margin set forth in the Summary
      Pricing Matrix, fixed for interest periods of one, two, three or six
      months, calculated on an actual day/360-day basis and payable on the last
      day of the applicable interest period, but in any case, at least
      quarterly.  LIBOR is defined, with respect to the interest
      period requested, as the rate per annum for deposits in U.S. Dollars as
      reported on the LIBOR 01 Page as of 11:00 a.m. (London, England time)
      2 business days prior to the first day of the interest
    period.

              
	 	 
	
                Commitment
      Fee:

              	
                The
      Borrower shall pay to  the Lender for the ratable benefit of
      the  Lender a commitment fee payable quarterly in arrears on the
      average daily unused amount of the Revolver.  Commitment fee
      rates are set forth in the Summary Pricing Matrix.

              
	 
      	 
	
                Upfront
      Fees:

              	
                None