EXHIBIT 10.26

                         SUBSCRIPTION AND LOAN AGREEMENT


         SUBSCRIPTION AND LOAN AGREEMENT made and entered into as of January 26,
1998 by and among CTI INDUSTRIES CORPORATION,  a corporation organized under the
laws of the State of Delaware,  U.S.A.  ("CTI") and PULIDOS Y  TERMINADOS  FINOS
S.A. DE C.V., a corporation  organized  under the laws of Mexico (the "Company")
and Alpes Promotora  Inmobiliaria  S.A. de C.V., Juan Manuel Carrillo  Coronado,
Pablo  Gortazar de Oyarzabal,  Francisco  Hernandez  Herrera,  Jose A. Hernandez
Amaya, Enrique Mora Velasco, Rosa Maria Velasco, Enrique Mora Hernandez,  Manuel
Mora Velasco,  Ricardo Mora Velasco,  Roberto Mora Velasco, Rosana Mora Velsaco,
Veronica Mora Velasco,  Alejandra  Mora Velasco,  Claudia Mora Velasco and Maria
Guadalupe Mora Velasco (collectively the "Stockholders").

                                  DECLARATIONS

I.       Whereas  the  Company  is  engaged  in  manufacture  and  sale of latex
         balloons;

II.      Whereas the  Company has  authorized  1,928,364  shares,  no par value,
         which represent 100% of the capital stock of the Company.

III.     Whereas  the actual  shareholders  who enter into this  Agreement  have
         1,060,600 no par value shares  subscribed and fully paid.  Those shares
         represent actually 55% of the whole capital stock of the Company. These
         shares are the only A shares  authorized  up to this moment to exercise
         patrimonial and corporate rights of the Company.

IV.      The Company has B shares in treasury which were  previously  authorized
         but not  paid.  They  were not paid but  authorized  by  virtue  of the
         increase of capital stock by means of the shareholders' general meeting
         which  took  place on May 2, 1997 (a copy of which  action is  attached
         hereto as Exhibit A). The increase of capital stock is  represented  by
         867,764 no par value shares ("B shares").  These shares will  represent
         45% of the remaining capital stock as soon as they are paid.

V.       The  parties  desire to enter into an  agreement  pursuant to which CTI
         will  subscribe  and pay for, and will  purchase,  and the Company will
         issue and deliver to CTI,  the  867,764 B shares,  CTI will loan to the
         Company  the  sum of US  $850,000  secured  by an  interest  in a trust
         holding title to certain balloon  manufacturing  equipment and CTI will
         lease to the Company certain balloon manufacturing equipment.

NOW THEREFORE, IT IS HEREBY AGREED, AS FOLLOWS:




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                                   ARTICLE ONE
                                  Transactions

         1.1      Subscription

                  1.1.1 Subject to and on the terms and  conditions  hereinafter
         provided,  CTI does hereby agree to  subscribe  for and to purchase and
         pay for,  and the  Company  agrees to sell,  issue and  deliver to CTI,
         effective on February 1, 1998, 867,764 B Shares of the Company,  no par
         value.

                  1.1.2  The  Company  has  867,764 B Shares  in  treasury.  The
         867,764 B Shares to be  subscribed  for and  purchased  hereunder  were
         authorized by the Shareholders  General Meeting which took place on May
         2, 1997,  a copy of which is attached  hereto as Exhibit A but were not
         then subscribed and paid.  Such B Shares,  when issued and delivered to
         CTI hereunder, will represent 45% of the capital stock of the Company.

                  1.1.3 The purchase price for the B Shares to be subscribed for
         and  purchased  by CTI  hereunder  shall be US  $800,000.  The  Company
         acknowledges  that CTI has loaned to the  Company,  for which notes are
         outstanding,  the  sum of US  $400,000  ("Pre-Closing  Notes").  At the
         Closing,  CTI will pay the full amount of the purchase  price for the B
         Shares to be purchased hereunder as follows:

                  (a)      The sum of US $400,000  by  delivery to the  Company,
                           and cancellation, of the Pre-Closing Notes;

                  (b)      The sum of US $400,000 by check of CTI payable to the
                           Company in the amount of US $400,000.

         1.2      Loan

                  1.2.1 Subject to and on the terms and conditions  hereof,  CTI
         agrees, at Closing,  to advance and loan to the Company,  the sum of US
         $850,000.

                  1.2.2 The terms of the loan shall be as follows:

                           (a)      The loan  shall be  evidenced  by a  Secured
                                    Promissory  Note in the form attached hereto
                                    as Exhibit B.

                           (b)      The loan  shall be for a term of 60  months.
                                    At the  expiration  of the term  the  entire
                                    principal balance, and all accrued interest,
                                    on the  loan  shall  be due and  payable  in
                                    full.  The  principal  amount  of  the  loan
                                    outstanding  from  time to time  shall  bear
                                    interest  at the rate of nine  (9%)  percent
                                    per annum.

                           (c)      Prior to the expiration  of  the term of the
                                    loan, the Company shall



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                                    make payments to the  Company on the Secured
                                    Promissory Note as follows:

                                    (1)     The  Company  shall  pay  to  CTI an
                                            amount  equal to seven (7%)  percent
                                            of  the   Purchase   Price   of  all
                                            Products  ordered  by CTI  from  the
                                            Company.   Payment  of  such  amount
                                            shall be due at the time delivery is
                                            provided for in the  purchase  order
                                            of CTI for the  Products.  At  CTI's
                                            election,  payment  may be  made  of
                                            such  amount  by  deduction  of  the
                                            amount  due to CTI from the  Company
                                            from the  invoice of the Company for
                                            the  Products  purchased by CTI from
                                            the  Company.  The  designation  and
                                            quantity of Products  ordered by CTI
                                            from the  Company  at any  time,  or
                                            from  time to time,  shall be within
                                            the sole discretion of CTI.

                                            Notwithstanding the other provisions
                                            of this paragraph, the Company shall
                                            pay to CTI on the  last  day of each
                                            calender  quarter during the term of
                                            the  Secured   Promissory   Note  an
                                            amount  equal to the  greater of (a)
                                            US $30,000, less all amounts paid by
                                            the Company to CTI under the Secured
                                            Promissory Note during such calender
                                            quarter  or  (b) if  payments  shall
                                            have  been  made   under  the  Notes
                                            provided  for  in  paragraph  5.1(h)
                                            hereof, US $60,000, less all amounts
                                            paid by the Company to CTI under the
                                            Secured   Promissory  Note  and  the
                                            Equipment Lease Agreement.

                                            All payments  made by the Company to
                                            CTI  under  the  Secured  Promissory
                                            Note shall be credited first against
                                            all  interest  accrued and unpaid to
                                            the  date  of the  payment  and  the
                                            balance,  if any,  shall be credited
                                            to principal.

                                    (2) For purposes of this paragraph:

                                            (A)      "Purchase Price" shall mean
                                                     the aggregate amount of the
                                                     purchase   price   for  all
                                                     units of  Products  ordered
                                                     by CTI at any time;

                                            (B)      "Products"  shall  mean any
                                                     and all products  presently
                                                     manufactured     by     the
                                                     Company,  and  any  and all
                                                     products  which the Company
                                                     may   manufacture  or  sell
                                                     during   the  term  of  the
                                                     Secured Promissory Note.

                                    (3)     Once each  calender  quarter  during
                                            the term of the Note, within 15 days
                                            after the last day of such  quarter,
                                            CTI shall



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                                            provide to the  Company a  statement
                                            setting  forth all payments  made by
                                            the Company,  separately, (a) during
                                            the quarter  and (b) from  inception
                                            of  the  note  to the  end  of  such
                                            quarter,  showing the  allocation of
                                            the   payments   to   interest   and
                                            principal and the principal  balance
                                            remaining.  Unless the Company shall
                                            give  notice to the  Company  of any
                                            objection to, or disagreement  with,
                                            such  report  within  15 days  after
                                            receipt  thereof,  the  payments and
                                            allocations  as  set  forth  in  the
                                            report   shall  be  binding  on  the
                                            parties.

                           (c)      The Secured Promissory Note shall be secured
                                    by  an   assignment  to  the  Company  of  a
                                    beneficial  interest in a bank trust. At the
                                    time  of  the  Closing,  the  Company  shall
                                    transfer all right,  title and interest to a
                                    bank  satisfactory to CTI, in trust, in five
                                    units   of   latex   balloon   manufacturing
                                    equipment  (such  units to include two units
                                    presently  under lease to the  Company  from
                                    BanOro) and the three units purchased by the
                                    Company from Commercializadora Hecht S.A. de
                                    C.V. The parties shall enter into a security
                                    agreement,  in form satisfactory to the CTI,
                                    pursuant to which the beneficial interest in
                                    such  trust  shall be  assigned  to CTI,  as
                                    security for the  obligations of the Company
                                    to CTI under the  Secured  Promissory  Note.
                                    The form of the  security  agreement,  trust
                                    and  assignment   are  attached   hereto  as
                                    Exhibits C, D and E.

                           (d)      With respect to the Secured Promissory Note,
                                    there shall be an Event of Default  upon the
                                    occurrence   of  any  one  or  more  of  the
                                    following events:

                                    (1)     The  Company  shall fail to make any
                                            payment under the Secured Promissory
                                            Note  when due and  within  ten (10)
                                            days  after  notice of such  failure
                                            shall have been given;

                                    (2)     The Company shall fail to perform or
                                            observe any  covenant,  condition or
                                            agreement under this Agreement,  the
                                            Secured    Promissory    Note,   the
                                            security agreement, trust agreement,
                                            the Equipment Lease Agreement or the
                                            Shareholders   Agreement   and  such
                                            failure shall  continue for a period
                                            of  twenty  (20) days  after  notice
                                            thereof shall have been given to the
                                            Company;

                                    (3)     Any  representation or warranty made
                                            by  the  Company  herein  or in  any
                                            certificate, agreement, statement or
                                            document furnished by the Company in
                                            connection   with  this   Agreement,
                                            including  without  limitation,  any
                                            financial  information,  shall prove
                                            to be false or incorrect in any



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                                material respect;

                                    (4)     The  commencement of any bankruptcy,
                                            insolvency,             arrangement,
                                            reorganization,        receivership,
                                            liquidation    or   other    similar
                                            proceedings   by  or   against   the
                                            Company or any of its  properties or
                                            business,  or the  appointment  of a
                                            trustee,  receiver,   liquidator  or
                                            custodian  for the Company or any of
                                            its  properties or business,  or the
                                            making by the  Company  of a general
                                            assignment  or deed of trust for the
                                            benefit of its creditors.

         1.3      Lease

                  1.3.1  Reference is made to that certain  Agreement  among the
         Company and CTI dated September 8, 1995, as amended ("1995 Agreement").
         The parties agree that, at the time of Closing,  the 1995  Agreement is
         amended  so that the  purchase  of two units of  balloon  manufacturing
         equipment  ("CTI  Machines")  provided  for in  paragraph  2 thereof is
         canceled and  terminated  and all right,  title and interest in the CTI
         Machines  shall  thereupon  be held solely by CTI. As the result of the
         provisions hereof, the Company shall not be obligated to pay to CTI the
         purchase  price for the CTI  Machines as provided in paragraph 2 of the
         1995 Agreement.

                  1.3.2 At the time of Closing,  CTI and the Company shall enter
         into an Equipment Lease  Agreement,  a copy of which is attached hereto
         as Exhibit F,  pursuant to which CTI shall lease to the Company the CTI
         Machines.  The term of the Equipment  Lease Agreement shall be a period
         of 84 months from February 1, 1998.

                  1.3.3 The lease payments due to CTI from the Company  pursuant
         to the Equipment Lease Agreement shall be as follows:

                           (a)      The Company shall pay to CTI an amount equal
                                    to five (5%) percent of the  Purchase  Price
                                    of all  Products  ordered  by CTI  from  the
                                    Company. Payment of such amount shall be due
                                    at the time  delivery is provided for in the
                                    purchase  order of CTI for the Products.  At
                                    CTI's election,  payment may be made of such
                                    amount by deduction of the amount due to CTI
                                    from the  Company  from the  invoice  of the
                                    Company for the  Products  purchased  by CTI
                                    from  the  Company.   The   designation  and
                                    quantity of Products ordered by CTI from the
                                    Company  at any time,  or from time to time,
                                    shall be within the sole discretion of CTI.

                           (b)      For purposes of this paragraph:

                                    (1)     "Purchase   Price"  shall  mean  the
                                            aggregate  amount  of  the  purchase
                                            price  for  all  units  of  Products
                                            ordered by CTI at



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                                            any time;

                                    (2)     "Products"  shall  mean  any and all
                                            products  presently  manufactured by
                                            the   Company,   and   any  and  all
                                            products   which  the   Company  may
                                            manufacture  or sell during the term
                                            of the Equipment Lease Agreement.

                           (c)      Nothwithstanding any other provision hereof,
                                    at the date of the last  payment  due to CTI
                                    under the  Equipment  Lease  Agreement,  the
                                    Company  shall pay to CTI an amount equal to
                                    US $540,593 less the aggregate amount of the
                                    payments  previously  made  to  CTI  by  the
                                    Company under the Equipment Lease Agreement.

         1.4      Pre-Closing Notes.

                  1.4.1 The parties  acknowledge  that the CTI has  advanced and
         loaned to the Company the aggregate  amount of US $400,000 and that the
         Company has issued and delivered to the Company four  Promissory  Notes
         therefore,  each in the principal  amount of US $100,000  ("Pre-Closing
         Notes").  The  Pre-Closing  Notes  shall bear  interest  from and after
         November  30,  1997 at the rate of 18% per  annum.  In the event that a
         closing shall occur  hereunder,  payment of the principal amount of the
         Pre-Closing  Notes shall be made by cancellation of the same as part of
         the  purchase  price  for the B Shares as  provided  in  paragraph  1.1
         hereof.  If the Closing  hereunder shall not occur,  and for so long as
         there shall be no Event of Default under the Pre-Closing Notes, payment
         of the Pre-Closing  Notes shall be made from time to time in the amount
         of the purchase price of goods ordered by CTI from the Company.  At the
         election  of CTI,  payment  on the Pre-  Closing  Notes  may be made by
         deduction  from the purchase  price of goods  purchased by CTI from the
         Company  and  delivered  to CTI,  all or any  portion of such  purchase
         price.  Payments under the Pre-Closing Notes shall be credited first to
         accrued interest thereon and then to principal.

                  1.4.2 An Event of  Default  with  respect  to the  Pre-Closing
         Notes shall occur if any payment due under the Pre-Closing  Notes shall
         not be made  when due and  within  ten (10) days  after  notice of such
         non-payment  shall  have been given to the  Company  or if the  Company
         shall fail or refuse to perform  its  obligations  with  respect to the
         Closing  hereunder.  In the event of an Event of  Default,  the  entire
         principal  balance and all accrued  interest on the  Pre-Closing  Notes
         immediately  shall become due and payable.  In the event of an Event of
         Default with respect to the  Pre-Closing  Notes,  the Company  shall be
         obligated  to  pay  all of  CTI's  costs  of  collection,  including  a
         reasonable sum for its attorneys fees.

         1.5 Closing  Date.  The parties agree that the Closing shall take place
on January 26, 1998,  provided that if CTI's closing  conditions as set forth in
Article 5 hereof have not occurred or been satisfied, or have been waived, as of
such  date,  the  Closing  shall be  extended  until such  conditions  have been
occurred, or been satisfied or waived. Notwithstanding the above, if the


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conditions have not occurred, been satisfied or waived by February 28, 1998, CTI
shall have the right to  terminate  this  Agreement  and not to proceed with the
Closing and to require payment of the  Pre-Closing  Notes in accordance with its
terms and the terms provided herein.

         1.6      Closing   Deliveries.    At   the Closing,  the  certificates,
documents and other contracts  described  herein,  as specified  below,  will be
delivered:

                  1.6.1 The Company shall deliver to CTI:

                           (1)      Certificates  evidencing 867,764 B Shares of
                                    the Company  duly  executed  and dated as of
                                    February 1, 1998;

                           (2)      The Secured Promissory Note duly executed by
                                    the Company;

                           (3)      Each  of  the  following   agreements   duly
                                    executed by the Company and all shareholders
                                    of  the  Company  as   indicated:   Security
                                    Agreement,  Bank Trust Agreement,  Equipment
                                    Lease Agreement and Shareholders Agreement;

                           (4)      A copy of the  minutes  of the  Shareholders
                                    General   Action  of  May  2,   1997,   duly
                                    certified  by the  Secretary  of the Company
                                    that  such  action  was  duly,  validly  and
                                    properly taken at the  shareholders  meeting
                                    of the  Company on May 2, 1997 and that such
                                    meeting was properly called and convened;

                           (5)      Certified copies of minutes of the directors
                                    and shareholders of the Company  authorizing
                                    and approving this Agreement and each of the
                                    agreements  provided  for  herein,  and  the
                                    execution,  delivery and performance of each
                                    of them;

                           (6)      A copy of the Corporate  Charter as provided
                                    herein duly  executed  by the  Company  with
                                    evidence of the proper  filing  thereof with
                                    the appropriate governmental authority;

                           (7)      Copies  of the duly  executed  notes to Juan
                                    Manuel Carrillo Coronado,  Alpes and Pavi as
                                    provided  in  paragraph  5.1(h)  hereof  and
                                    copies  of  the   Subordination   Agreements
                                    executed by each of such persons;

                           (8)      A bill of sale or other proper documentation
                                    executed by BanOro transferring title to the
                                    leased   units  of   balloon   manufacturing
                                    equipment to the Company;

                           (9)      A copy of an executed  release or  statement
                                    by BanOro  acknowledging full payment of the
                                    lease and loan of the Company



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                                    with   BanOro   and  any   and   all   other
                                    obligations of the Company to BanOro;

                           (10)     A copy  of a duly  entered  order  of  court
                                    having  jurisdiction   terminating  for  all
                                    purposes   the    suspension    of   payment
                                    proceedings related to the Company.

                           (11)     Documents in form  acceptable to the Company
                                    evidencing  title in the  Company of the CTI
                                    Balloon Machines.

                  1.6.2    CTI shall deliver to the Company:

                           (1)      Checks of CTI  payable to the Company in the
                                    aggregate amount of US $1,250,000;

                           (2)      The canceled Pre-Closing Notes;

                           (3)      Copies  of the  resolutions  of the Board of
                                    Directors of CTI, certified by the Secretary
                                    of CTI,  authorizing  this Agreement and the
                                    transactions provided for herein.


         1.7 Further  Assurances.  At or after the Closing,  and without further
consideration, the Stockholders and the Company shall execute and deliver to CTI
such further  instruments of conveyance and transfer and such other documents as
CTI may  reasonably  request to more  effectively  consummate  the  transactions
provided for herein.

         1.8 Language.  This Agreement has been prepared and signed initially in
an English version,  and a Spanish version will be prepared,  with the intent of
providing an  identical  agreement  in the Spanish  language,  and signed by all
parties also.  Both versions of the Agreement  shall be the effective  agreement
among the  parties;  provided  that,  in the  event of a  conflict  between  the
versions, the Spanish version shall control.

                                   ARTICLE TWO
       Representations and Warranties of the Company and the Stockholders

         The Company and each of the Stockholders, jointly and severally, hereby
represent and warrant to CTI as follows:

         2.1 Organization.  The Company is a corporation duly organized, validly
existing,  and in good standing  under the laws of Mexico and has full corporate
power to own its properties and to conduct its business as presently  conducted.
The Company is duly, authorized,  qualified or licensed to do business in Mexico
or abroad or other  jurisdiction in which its assets are located or in which its
business or operations as presently conducted make such qualification necessary.



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         2.2  Authority.  The  Company  has  granted  all  requisite  power  and
authority to execute, deliver and perform this Agreement and all other documents
and  instruments  contemplated  by this  Agreement to its  representatives  Juan
Manuel Carrillo  Coronado and Enrique Mora Velasco.  The  Stockholders  have all
requisite  power and authority to execute,  deliver,  and perform this Agreement
and all other  documents and instruments  contemplated  by this  Agreement.  The
execution,  delivery and performance of this Agreement and related  documents by
the Company and the Stockholders  have been authorized by all necessary  action,
corporate or otherwise.  The obligations undertaken hereunder by the Company and
the Stockholders are legal, valid and binding obligations.

         2.3 Corporate Records.  The Company and the Stockholders have delivered
to CTI true,  correct and complete copies of the  certificate of  incorporation,
bylaws, minutes books and stock record books of the Company. The minute books of
the Company  contain  complete and accurate  minutes or consents  reflecting all
actions taken by the directors  (including any committees) and security  holders
of the Company.

         2.4  Capitalization.  The Company  currently has an authorized  capital
stock of  1,928,364  shares of which  1,060,600  are A shares and  867,764 are B
shares. There are no outstanding options,  warrants,  convertible  securities or
other rights, agreements,  arrangements,  or commitments obligating the Company,
any  Stockholder  or any other  Person (as  defined  below) to issue or sell any
securities  or ownership  interests in the Company.  There are no  stockholders'
agreements,  voting agreements,  voting trusts, or similar agreements binding on
any  Stockholder or applicable to any of the Shares.  The "B" Shares when issued
to CTI hereunder shall represent 45% of the then  outstanding  shares of capital
stock of the Company.

         2.5 Title to the Shares.  The Shares are duly issued treasury shares in
accordance with Article 216 of the General Law of Business  Organizations  ("Ley
General  de  Socladades  Mercantiles").  The B Shares  are free and clear of any
lien, pledge, security interest, liability, charge or other encumbrance or claim
of any Person (a "Lien").  Upon issuance of the certificates for the B Shares at
the Closing, CTI will acquire the entire legal and beneficial  interest,  in all
of the B Shares, free and clear of any Liens.

         2.6 No  Violation.  Neither  the  execution  or the  delivery  of  this
Agreement  and  its  attachments  nor  the   consummation  of  the  transactions
contemplated by this Agreement  including without limitation the subscription of
the  Shares by CTI will  conflict  with or  result in the  breach of any term or
provision  of, or  violate,  or  constitute  a default  under,  or result in the
creation of any Lien on the Company's  assets  pursuant to, or relieve any third
party of any  obligation  to the  Company,  give any  third  party  the right to
terminate  or  accelerate  any  obligation  under or increase  the rights of any
person under or increase the liabilities or obligation of the Company under, any
charter  provision,  bylaws,  Material  Agreement (as defined in Section  2.18),
Permit (as defined in 2.13),  order,  law or  regulation to which the Company or
any  of  the  Stockholders  is a  party  or by  which  the  Company,  any of the
Stockholders,  or  any  of  their  respective  assets  is in any  way  bound  or
obligated,  except  for  violations  or  beaches  that would not have a material
adverse effect on the Company or its assets. For purposes of this Agreement, the
term  "Material  Adverse  Effect"  shall mean such effect as would (I) cause the
Company not to be able to operate


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immediately after Closing in the business,  currently conducted, or contemplated
by CTI, absent any expenditure that is not specifically  provided for herein, or
(ii) preclude the consummation of any transaction contemplated herein.

         2.7  Financial  Statements.  Attached  as  Schedule  2.7 is a true  and
complete  copy of the unaudited  balance  sheet,  statement of income,  and cash
flows of the Company ( the  "Financial  Statements")  for the five months ending
and as of November 30, 1997 (the Balance Sheet Date"). The Financial  Statements
present fairly the financial condition of the Company at the dates specified and
the results of its operations  for the periods  specified and have been prepared
in accordance with Mexican Generally Accepted  Accounting  Principles  ("MGAAP")
consistently applied, subject in the case of the unaudited statements to changes
resulting from normal period-end  adjustments for recurring accruals (which will
not have a material  adverse  effect on the financial  condition of the Company)
and to the absence of footnote  disclosure  and other  presentation  items.  The
Financial  Statements  do not  contain  any items of a special  or  nonrecurring
nature,  except as expressly stated in the Financial  Statements.  The Financial
Statements  have been prepared from the books and records of the Company,  which
accurately  and  fairly  reflect  all  the   transactions  of  acquisitions  and
dispositions of assets by, and incurrence of liabilities by the Company.

         2.8 Absence of Undisclosed Liabilities. The Company will have no direct
or indirect debts, obligations or liabilities of any nature, whether absolute or
contingent,  accrued or unaccrued,  asserted or unasserted, known or unknown, or
otherwise and whether due or to become due, (collectively "Liabilities"), except
for (I)  liabilities  specifically  identified  in the  Financial  Statements as
"current  liabilities"  in  accordance  with  MGAAP and that are not  related to
indebtedness  for  borrowed  money,  (ii)  obligations  to be  performed  in the
ordinary course of business since the Balance Sheet Date, and (iii)  obligations
set forth in Schedule 2.8.

         2.9 Absence of Material  Adverse Change.  Since the Balance Sheet Date,
except as specifically  contemplated by this Agreement,  there has not been: (a)
any material adverse change in the condition  (financial or otherwise),  results
of operations,  business,  prospects,  assets,  or Liabilities of the Company or
with  respect  to the  manner in which the  Company  conducts  its  business  or
operations;  (b) any payment or transfer of assets (including without limitation
any  dividend,  stock  repurchase,  or other  distribution  or any  repayment of
indebtedness ) to any of the  Stockholders or their respective  affiliates;  (c)
any  breach or  default  (or  event  that  with  notice  or lapse of time  would
constitute a breach or default),  termination,  or threatened  termination under
any Material Agreement;  (d) any material theft, damage,  destruction,  casualty
loss, condemnation, or eminent domain proceeding affecting the Company's assets,
whether or not covered by insurance;  (e) any sale,  assignment,  or transfer of
any of the assets of the Company,  except in the ordinary course of business and
consistent  with past  practices;  (f) any  waiver by the  Company of any rights
related to the Company's business, operations, or assets, except in the ordinary
course of business; (g) any other transaction,  agreement, or commitment entered
into by the Company or any of the Stockholders affecting the Company's business,
operations or assets,  except in the ordinary  course of business and consistent
with past practices; or (h) any agreement or understanding to do or resulting in
any of the foregoing.


                                       10

<PAGE>



         2.10 Taxes. Except as set forth in Schedule 2.10, all required federal,
state,  local, and other tax returns,  notices,  and reports  (including without
limitation income, property, sales, use, franchise, withholding, social security
tax returns)  relating to or involving  transactions  with the Company have been
accurately prepared and duly and timely filed, and all taxes required to be paid
with  respect to the periods  covered by any such returns have been timely paid.
No tax  deficiency  has been proposed or assessed  against the Company,  and the
Company  has not  executed  any  waiver of any  statute  of  limitations  on the
assessment  or collection of any tax. No tax audit,  action,  suit,  proceeding,
investigation,  or claim is now pending or, to the  knowledge  of the Company or
any of the  Stockholders,  threatened  against  the  Company,  and no  issue  or
question has been raised (and is currently  pending ) by any taxing authority in
connection  with the Company's tax returns or reports.  The Company has withheld
or  collected  from each payment to its  employees  the full amount of all taxes
required to be withheld or  collected  therefrom  and has paid all such taxes to
the proper tax  receiving  officers  or  authorized  depositories.  Neither  the
Stockholders  nor the Company  has given or been  requested  to give  waivers or
extensions  (or is or would be  subject  to a waiver or  extension  given by any
other Person) of any statute of limitations  relating to the payment of taxes of
the Company or for which the Company may be liable.

         2.11 Litigation. Except as described in Schedule 2.11 hereto, there are
no pending,  or to the knowledge of the Company or the Stockholders,  threatened
lawsuits,   administrative  proceedings,  or  reviews,  or  formal  or  informal
complaints  or  investigations  by  any  individual,  corporation,  partnership,
Governmental  Body,  or other  entity ( a  "Person")  against or relating to the
Company or any of its directors,  employees,  or agents (in their  capacities as
such) or to which any assets of the  Company  are  subject.  The  Company is not
subject to or bound by any currently existing judgment, order, writ, injunction,
or decree.

         2.12 Compliance with Laws. The Company is currently complying with, and
has at all times complied with, and the use,  operation,  and maintenance of its
assets comply with and have at all times  complied with, and neither the Company
nor its  assets  nor the use,  operation,  or  maintenance  of its  assets is in
violation or contravention of, any applicable statute,  law, ordinance,  decree,
order,  rule, or regulation of any Governmental Body, except for violations that
would not have a material adverse effect on the Company or its assets.

         2.13  Permits.  The Company  owns and  possesses  for each  appropriate
Governmental  Body all right,  title,  and  interest in all  permits,  licenses,
authorizations,  approvals,  quality  certifications,   franchises,  all  rights
(individually,  "Permit", collectively "Permits") issued by an Governmental Body
necessary to conduct its  business,  except where the failure to obtain a Permit
would not have a material  adverse effect on the Company or its assets.  Each of
such Permits is described in Schedule 2.13 hereto.  No loss or expiration of any
such Permit is pending,  or to the knowledge of the Company or the Stockholders,
threatened or enforceable, other than expiration in accordance with the terms of
Permits that may be renewed in the ordinary course of business without lapsing.

         2.14  Environmental  Matters.  The Company is not in  violation  of any
environmental law that could have a material adverse effect on the Company,  its
assets or its business.


                                       11
<PAGE>



         2.15  Employee   Matters.   The   consummation   of  the   transactions
contemplated  by this Agreement and  attachments  hereto will not accelerate the
time of payment or vesting or  increase  the amount of  compensation  due to any
director,  officer or employee  (present or former) of the Company.  The Company
has never experienced, and neither the Company nor the Stockholders know or have
reasonable  grounds to know of any basis for, any strike,  labor  trouble,  work
stoppage,  slowdown or other  interference with or impairment of the business of
the Company.

         2.16 Title to Assets.  Set forth in Schedule  2.16 hereto is a complete
list (including the street address,  where  applicable) of (I) all real property
currently  owned by the  Company;  (ii) all real  property  currently  leased or
otherwise used by the Company,  (iii) all real property formerly owned leased or
otherwise  used by the  Company,  indicating  the  nature of any  facilities  or
operations  of the  Company  on  such  property  and  the  date  and  manner  of
disposition;  (iv) each  vehicle  owned or leased by the  Company,  and (v) each
asset  owned or leased by the  Company  with a book value or fair  market  value
greater than U.S.  $5,000.  The Company has good and marketable  title to all of
its assets,  including  without  limitation,  the assets listed on Schedule 2.16
(other  than  those  described  in (iii)  above),  the assets  reflected  on the
Financial  Statements  and all assets  used by the Company in the conduct of its
business  (except for assets  disposed  of since the  Balance  Sheet Date in the
ordinary course of business for fair value to Persons that are not affiliates of
the Company or any of the  Stockholders  and consistent  with past practices and
except for assets held under  leases or licenses  disclosed  pursuant to Section
2.18); and all such assets are owned free and clear of any Liens, except for (A)
minor  imperfections  of title and encumbrances  that do not materially  detract
from or  interfere  with  the use or  value of such  properties;  and (B)  liens
securing liabilities of the Company reflected on the Financial Statements.

         2.17 Condition of Properties. Except as set forth in Schedule 2.17, all
facilities, machinery, equipment, fixture, vehicles, and other tangible property
owned, leased or used by the Company are in good operating condition and repair,
normal wear and tear  excepted,  are  reasonably fit and usable for the purposes
for which they are being used,  will not likely require major overhaul or repair
in the  foreseeable  future,  are  adequate  and  sufficient  for the  Company's
business, and conform with all applicable laws, rules and regulations, except as
would not have a  material  adverse  effect on the  Company or its  assets.  The
Company  maintains  policies  of  insurance  issued by  insurers  of  recognized
responsibility  insuring  the Company and its assets and  business  against such
losses  and  risks,  and in  such  amounts,  as are  customary  in the  case  of
corporations of established reputation engaged in the same or similar businesses
and similarly situated.

         2.18     Material Agreements.

                  (I) Schedule  2.18 lists each  agreement  (whether  written or
         oral and including all  amendments)  to which a Company is a party or a
         beneficiary  or by which  the  Company  or any of its  assets  is bound
         (collectively the "Material Agreements"),  including without limitation
         (A) any real estate  leases;  (B) any agreement that is material to the
         business,  operations  or prospects of the Company;  (C) any  agreement
         evidencing,  securing,  or otherwise  relating to any  indebtedness for
         which the Company is liable; (D)


                                       12
<PAGE>



         any  capital  or  operating  leases  or  conditional  sales  agreements
         relating to vehicles, equipment or other assets of the Company; (E) any
         supply or  manufacturing  agreements or arrangements  pursuant to which
         the Company is entitled or obligated to require any assets from a third
         party;  (F) any insurance  policies;  (G) any  employment,  consulting,
         non-competition,  separation,  collective  bargaining,  union  or labor
         agreements or  arrangements;  (H) any agreement with or for the benefit
         of any of the  Stockholders,  any director,  officer or employee of the
         Company or any affiliate or family  member of such Person,  and (I) any
         other  agreement or arrangement  pursuant to which the Company could be
         required to make or entitle to receive aggregate  payments in excess of
         U.S.
         $5,000.

                  (ii) The  Stockholders and the Company have delivered to CTI a
         copy of each Material  Agreement.  Except as described in Schedule 2.18
         (A) each  Material  Agreement is valid,  binding,  and in full force in
         effect and  enforceable in accordance  with its terms;  (B) the Company
         has performed all its obligations  under each Material  Agreement,  and
         there  exists no breach or default  (or event that with notice of lapse
         of the time would  constitute  a breach or default)  under any Material
         Agreement;  (C) there has been no  termination  or notice of default or
         any  threatened  termination  under any Material  Agreement  and (D) no
         consent of any Person is required in connection  with the  transactions
         contemplated  by this  Agreement in order to preserve the rights of the
         Company under or to prevent any  disadvantage to the Company in respect
         of any Material Agreement.

         2.19 Intellectual Property Rights. Except as set forth in Schedule 2.19
there are not other registered patents, trademarks,  service marks, trade names,
and copyrights, and applications for, and licenses (to or from the Company) with
respect  to,  any  of  the  foregoing  (collectively   "Registered  Intellectual
Property"),  owned by the  Company or with  respect to which the Company has any
rights.

         2.20  Subsidiaries and Investments.  Except as set forth in Schedule in
2.20 the Company does not own any direct or indirect  equity or debt interest in
any other Person, including,  without limitation,  any interest in a partnership
or joint  venture  (other than with CTF  International),  and the Company is not
obligated or committed to acquire any such interest.

         2.21 Competing Interests.  None of the Company,  Stockholders,  nor any
director, officer, relatives, or affiliate of any of such Persons owns, directly
or  indirectly,  an  interest in any Person  that is a  competitor  for the same
business,  customer,  or supplier of the Company or that  otherwise has business
dealings  with the Company  other than  Comercializadora  Hecht SA de CV and CTF
International SA de CV.

         2.22 Illegal or Unauthorized Payments; Political Contributions. Neither
the Company,  nor any of its officers,  directors,  employees,  agents, or other
representatives  or, to the  knowledge of the Company or the  Stockholders,  any
other Person with which the Company is or has been affiliated or associated, has
directly or indirectly, made or authorized any payment, contribution, or gift of
money, property, or services, whether or not in contravention of



                                       13
<PAGE>



applicable law, (a) as a kickback or bribe to any Person or (b) to any political
organization,  or the holder of or any  aspirant to any  elective or  appointive
public  office,  except for person  political  contributions  not  involving the
direct or indirect use of funds of the Company. The Company has not violated any
federal or state antitrust  statutes,  rules or regulations,  including  without
limitation those relating to unfair  competition,  price fixing, bid rigging, or
collusion.

         2.23  Governmental  Consents.  Schedule  2.23 sets forth all  consents,
approvals,  orders  or  authorizations  of,  or  registrations,  qualifications,
designations, declarations, or filing with Governmental Body that is required on
the  part of the  Company  or any of the  Stockholders  in  connection  with the
transactions contemplated by this Agreement or attachments hereto.

         2.24 No  Misrepresentations;  Adverse Information.  The Company and the
Stockholders  have disclosed to CTI all facts and information known to them that
would be material to a purchase of the  Convertible  Notes.  Neither the Company
nor the  Stockholders  have  received any  appraisal,  report,  or other similar
information  relating  to the value or  condition  of the  Company or any of its
assets. The  representations,  warranties and statements made by the Company and
the  Stockholders  in or pursuant to this Agreement  (including the Schedules to
this Agreement) are true, complete,  and correct in all material respects and do
not  contain  any  untrue  statement  of a  material  fact or omit to state  any
material fact necessary to make any such representation, warranty, or statement,
under the circumstances in which it is made, not misleading. Neither the Company
nor  the   Stockholders   have  any  information  or  knowledge  of  any  change
contemplated in any applicable law, ordinances or restrictions,  or any judicial
or  administrative  action,  which would have a material adverse effect upon the
business or assets of the Company, or its value.


                                  ARTICLE THREE
                      Representations and Warranties of CTI

         CTI represents and warrants to the Company as follows:

         3.1  Organization.   CTI  is  a  corporation  duly  organized,  validly
existing, and in good standing under the laws of Delaware, U.S.A.

         3.2  Authority.  CTI has all requisite  power and authority to execute,
deliver,  and  perform  under  this  Agreement.  The  execution,  delivery,  and
performance of this  Agreement by CTI has been duly  authorized by all necessary
action, corporate or otherwise, on the part of CTI. This Agreement has been duly
executed and delivered by CTI and is a legal,  valid,  and binding  agreement of
CTI enforceable against CTI in accordance with its terms.

         3.3 No Violation.  The  execution,  delivery,  and  performance of this
Agreement by CTI will not  conflict  with or result in the breach of any term or
provision of, or violate or constitute a default under, any charter provision or
bylaw or under any material  agreement,  instrument,  order,  law, or regulation
which CTI is a party or by which CTI is any way bound or obligated



                                       14

<PAGE>



                                  ARTICLE FOUR
                            Covenants and Agreements


         4.1  Release  of  the  Stockholders.  Each  of  the  Stockholders,  for
themselves and their respective heirs,  executors,  administrators,  successors,
and assigns,  hereby fully and unconditionally release and forever discharge and
hold harmless each of the Company, CTI and their respective employees, officers,
directors,  successors,  and assigns  from any and all claims,  demands  losses,
costs,   expenses   (including   reasonable   attorneys'   fees  and  expenses),
obligations,  liabilities,  and  damages of every  kind and  nature  whatsoever,
whether  or not  now  existing  or  known,  relating  in any  way,  directly  or
indirectly,  to the Company, that such Stockholder may now have or may hereafter
claim to have  against  the  Company,  CTI or any of such  employees,  officers,
directors,  successors, or assigns; provided that the foregoing release will not
affect any obligations of CTI to the  Stockholders  under this  Subscription and
Loan  Agreement  or the  attachments  thereto  nor will it  affect  any  current
obligation  of the  Company  to  the  Stockholders  as  shown  on the  Financial
Statements.

         4.2  Publicity.  CTI and the Company will  cooperate with each other in
the  development  and  distribution  of  all  news  releases  and  other  public
disclosures relating to the transactions contemplated by this Agreement. Neither
CTI on the one hand,  nor the  Stockholders  or the Company,  on the other hand,
will issue or make, or allow to have issued or made, any press release or public
announcement concerning the transactions  contemplated by this Agreement without
the advance  approval in writing of the form and substance  thereof by the other
parties,  unless  otherwise  required  by  applicable  legal or  stock  exchange
requirements.

         4.3   Transaction   Costs.   The  Company  will  pay  all   attorneys',
accountants',  finders', brokers', investment banking and other fees, costs, and
expenses incurred by the Company or the Stockholders prior to the Closing, or by
the  Stockholders   after  the  Closing  in  connection  with  the  preparation,
negotiation, execution, and performance of this Agreement and attachments hereto
or any of the  transactions  contemplated  by  this  Agreement  and  attachments
hereto.  CTI  will  pay  all  attorneys',   accountants',   finders',  brokers',
investment  banking  and  other  fees,  costs  and  expenses  that it  incurs in
connection with the preparation,  negotiation, execution and performance of this
Agreement or any of the transactions contemplated by this Agreement.

         4.4  Nondisclosure.  Each of the  Stockholders  acknowledges and agrees
that all customer,  prospects,  and marketing  lists,  sales data,  intellectual
property,   proprietary   information,   and  trade   secrets  of  the   Company
(collectively,  "Confidential  Information") are valuable,  special,  and unique
assets  and are and  will  be  owned  exclusively  by the  Company.  Each of the
Stockholders  agrees to treat the  Confidential  Information as confidential and
not  disclose  any  Confidential  Information  to any  Person or make use of any
Confidential  Information for such Stockholder's own purposes or for the benefit
of any other Person (other than the Company).

         4.5 Use of Proceeds. The Company shall use the proceeds of the payments
made to it by CTI hereunder solely as follows:


                                       15

<PAGE>



                  4.5.1 US $815,000 paid to BanOro in full and final payment and
         satisfaction of all  indebtedness  of the Company to BanOro,  including
         without  limitation  under any and all existing notes,  leases or other
         contracts, commitments or evidences of indebtedness. In connection with
         such  payment,  the Company  shall  receive  from BanOro (a) a full and
         complete release of any and all liabilities,  claims and obligations of
         the Company to BanOro or any of its  affiliates  and (b) a bill of sale
         or other appropriate document  transferring to the Company title to the
         two units of balloon manufacturing equipment presently leased by BanOro
         to the  Company,  free  and  clear  of any and  all  liens,  claims  or
         encumbrances.

                  4.5.2 US $150,000 to Juan Manuel Carrillo  Coronado in partial
         payment of the outstanding obligations of the Company to him;

                  4.5.3 US $253,362 to  Commercializadora  Hecht S.A. de C.V. as
         full and final  payment for the three St. Louis  balloon  manufacturing
         machines  accompanied by a bill of sale or other document  executed and
         delivered by Hecht transferring title to such items of equipment to the
         Company free and clear of any and all liens, claims or encumbrances;

                  4.5.4 The balance (US $31,638) for general corporate operating
         purposes consistent with the budget approved by the parties.

         4.6 Accountants.  The Company shall have retained prior to Closing, and
shall retain and utilize,  Coopers & Lybrand as the independent auditors for the
Company unless CTI shall otherwise provide its written consent.

         4.7 Budget.  Prior to the Closing, the Company and CTI shall agree on a
budget for the operations of the Company for fiscal 1998.

         4.9 Sale of  Balloons.  The  Company  agrees that the terms of the 1995
Agreement,  as amended,  respecting  the sale of balloons to CTI shall remain in
full  force and  effect  and that,  for the ten year term  provided  in the 1995
Agreement,  as amended,  the Company shall sell balloons  exclusively to CTI for
resale in the United States and all of the following countries in Europe: United
Kingdom, Ireland, Netherlands,  Belgium, Germany, Denmark, Austria, Switzerland,
Italy, Spain, Portugal,  Sweden,  France,  Greece, Norway and Finland;  provided
however, that, if during any quarter in which any of the principal amount of the
Secured  Promissory  Note shall be outstanding  (a) the aggregate  amount of the
purchases  of balloons by CTI from the Company  shall be less than US  $425,000,
(b) no payments  shall be made by the Company with respect to the notes provided
for in paragraph  5.1(h) hereof,  and (c) CTI shall not waive, for such quarter,
the payment of the minimum amount of $30,000, then for a period of one year from
the last day of such  quarter,  the Company  shall be entitled to sell  balloons
directly to customers situated in the designated countries of Europe.





                                       16

<PAGE>


                                  ARTICLE FIVE
                               Closing Conditions

         5.1 Conditions to Obligations of CTI. The obligations of CTI under this
Agreement  are  subject to the  satisfaction  at or prior to the  Closing of the
following  conditions,  but compliance  with any such condition may be waived by
CTI in writing:

                  (a) An order shall have been entered  terminating  the pending
         suspension of payments proceedings involving the Company.

                  (b) All  obligations of the Company to BanOro,  and any of its
         affiliates (including without limitation under the outstanding loan and
         lease of the Company with BanOro) shall have been  satisfied or paid in
         full with the payment to BanOro of the sum of US $815,000.

                  (c) All  representations and warranties of the Company and the
         Stockholders  contained in this Agreement and the  attachments  thereto
         must be true and  correct  in all  material  respects  at and as of the
         Closing  with  the same  effect  as  though  such  representations  and
         warranties were made at and as of the Closing.

                  (d) The Company and the  Stockholders  must have performed and
         complied with all the covenants  and the  agreements  and satisfied the
         conditions required by this Agreement to be performed, complied with or
         satisfied  by  them  at or  prior  to the  Closing,  including  without
         limitation,  the delivery of all items required to be delivered by them
         pursuant to Section 1.6.

                  (e) The Company,  and the Stockholders  where required,  shall
         have executed and delivered to the Company the Secured Promissory Note,
         the Security Agreement,  the Bank Trust Agreement,  the Equipment Lease
         Agreement.

                  (f) The Company and all  Shareholders  shall have executed and
         delivered to the Company the Shareholders  Agreement a copy of which is
         attached hereto as Exhibit G;

                  (g) The  corporate  charter  of the  Company  shall  have been
         amended,  and such  amendments  duly  executed  and filed,  in the form
         attached hereto as Exhibit H.

                  (h) The Company shall have issued and delivered to Juan Manuel
         Carrillo Coronado, Alpes and Pavi promissory notes in the form attached
         hereto as Exhibit I in the aggregate  principal amounts of (I) to JMCC,
         US  $445,779.69,  (ii) Alpes,  US $35,964.30 and (iii) US  $303,070.01.
         Each of JMCC,  Alpes and Pavi shall have  executed and delivered to the
         Company and CTI forms of  Subordination  Agreement in the form attached
         hereto as Exhibit J and each shall have  executed and  delivered to CTI
         and the Company an  acknowledgment  and agreement  that,  except as set
         forth in such notes and the payment to be made to JMCC at the  Closing,
         the Company is not indebted to any of them, any of their  affiliates or
         any member of the family of JMCC in any amount.




                                       17

<PAGE>



                  (I) There must be no pending or  threatened  litigation in any
         court or any proceeding  before or by an Governmental  Body against any
         of the  Stockholders,  the  Company or CTI to  restrain  or prohibit or
         obtain  damages or other relief with  respect to this  Agreement or the
         attachments hereto or the consummation of the transactions contemplated
         by this Agreement or the attachments thereto.

                  (j) All necessary  contractual and governmental  consents will
         be obtained to comply with the applicable laws and regulations.

                  (k) The  satisfactory  completion  of due  diligence  audit by
        counsel of CTI.

                  (l)  The  Stockholders  must  have  delivered  to CTI a  legal
         opinion of their  counsel dated on or before the date of Closing in the
         form of Exhibit J and  addressing  such other matters as CTI reasonably
         requests.

                  (m) All documents and proceedings  related to the Closing must
         be satisfactory in form and substance to CTI.

         5.2  Conditions to  Obligations of  Stockholders  and the Company.  The
obligation of the  Stockholders and the Company under this Agreement are subject
to the  satisfaction  at or prior to Closing of the  following  conditions,  but
compliance  with any such conditions may be waived by the  Stockholders  and the
Company in writing:

                  (a) All  representations  and  warranties  of CTI contained in
         this Agreement must be true and correct in all material respects at and
         as of the Closing  with the same effect as though such  representations
         and warranties were made at and as of the Closing.

                  (b) CTI must have  performed  and complied  with the covenants
         and agreements and satisfied the conditions  required by this Agreement
         to be  performed,  complied  with,  or  satisfied by it or prior to the
         Closing,  including  without  limitation,  the  delivery  of all  items
         required to be delivered by CTI pursuant to Section 1.6.

                  (c) All necessary  governmental consents,  approvals,  orders,
         and   authorizations   must  have  been   obtained  and  all  necessary
         governmental notices have been given with respect to this Agreement and
         attachments thereto and the transactions contemplated by this Agreement
         and its attachments.

                                   ARTICLE SIX
                                 Indemnification


         6.1  Indemnification  of CTI. The Company and the Stockholders  jointly
and  severally,  will  indemnify  and hold  CTI,  its  subsidiaries,  and  their
respective  affiliates,  directors,  officers,  employees,  and agents ("the CTI
Parties")   harmless  from  any  and  all  liabilities,   obligations,   claims,
contingencies, damages, costs, diminution in value of the B Shares, and



                                       18
<PAGE>



expenses,  including  all  court  costs  and  reasonable  attorneys'  fees  (the
"Claims"), that any CTI Party may suffer or incur as a result of or relating to:

                  (a)  the  breach  or  inaccuracy,  or any  alleged  breach  or
         inaccuracy,  of any of the representations,  warranties,  covenants, or
         agreements made by the Company or the Stockholders in this Agreement or
         any attachment or pursuant to this Agreement or any attachment; and

                  (b) any lawsuit,  claim,  or proceeding of any nature existing
         at or prior to the Closing, or arising out of any act or transaction of
         the  Stockholders  or the Company  occurring  prior to the Closing,  or
         arising out of facts or  circumstances  that existed at or prior to the
         Closing that is related to the Company,  its assets or the operation of
         its business.

         6.2  Defense of Claims.  Except as set forth  below,  if any lawsuit or
enforcement  action is filed  against  any CTI Party  entitled to the benefit of
indemnity   hereunder,   written  notice  thereof  describing  such  lawsuit  or
enforcement  action in reasonable  detail and indicating the estimated amount of
the  reasonably  foreseeable  Claims (which  estimate  shall in no way limit the
amount of indemnification the CTI Party is entitled to receive hereunder), shall
be given to the Stockholders as promptly as practicable (and in any event within
three days,  after the service of the  citation or summons);  provided  that the
failure  of any CTI Party to give  timely  notice  shall not affect is rights to
indemnification hereunder except to the extent that the Stockholders demonstrate
that the CTI Party's  failure to so notify the  Stockholders  with such ten (10)
day period increased the Claims with respect to which the CTI Party is otherwise
entitled to indemnification. Upon receipt of such notice, the Stockholders shall
have the right, but not the obligation, to undertake the defense of or, with the
consent of the CTI Party (which consent may not be  unreasonably  withheld),  to
settle or compromise  such claim. If the  Stockholders  elect to defend any such
asserted  liability  and to assume all  obligations  contained in Section 6.1 to
indemnify the CTI Party, then the Stockholders shall so notice the CTI Party and
shall  be  entitled  if they  so  elect,  to take  control  of the  defense  and
investigation  of such  lawsuit or action and to employ and engage  attorneys of
their own choice to handle and defend the same, at the Stockholders'  sole cost,
risk and expense, and such CTI Party shall cooperate in all reasonable respects,
at the Stockholders' sole cost, risk and expense, with the Stockholders and such
attorneys in the investigation  trial, and defense of such lawsuit or action and
any appeal arising therefrom;  provided however,  that the CTI Party may, at its
own cost and expense,  participate in such investigation,  trial and the defense
of such lawsuit or action and any appeal arising therefrom.  If the Stockholders
promptly notify the CTI Party that they intend to defend the claim and to assume
all  obligations  contained in Section 6.1 to indemnify  the CTI Party,  the CTI
Party shall not pay, settle or compromise  such claim without the  Stockholders'
consent (which consent shall not be unreasonably  withheld). If the Stockholders
elect not to defend the Claim of the CTI Party, The CTI Party may, but shall not
be obligated to,  undertake  the defense of or, with the consent of  Stockholder
(which  consent may not be  unreasonably  withheld),  settle or compromise  such
claim, on behalf, for the account, and at the risk, of the Stockholders.

         6.3      Survival.  All  representations  and  warranties  made  in  or
pursuant to this


                                       19

<PAGE>



Agreement  will survive the  execution  and delivery of this  Agreement  and the
consummation of the  transactions  contemplated  by this Agreement,  and will be
unaffected  by any notice,  investigation,  or  knowledge to the  contrary.  All
statements contained in any Schedule, certificate,  attachments hereto, or other
writing  delivered  in  connection  with  this  Agreement  or  the  transactions
contemplated  by this Agreement will constitute  representations  and warranties
under this  Agreement.  Each party agrees that no other party to this  Agreement
will be under any duty,  express or implied,  to make any  investigation  of any
representation  or warranty made by any other party to this Agreement,  and that
no failure to so investigate will be considered  negligent or unreasonable.  All
Statements contained in any schedule, certificate, or other writing delivered in
connection  with  this  Agreement  or  the  transactions  contemplated  by  this
Agreement will constitute representations and warranties under this Agreement.

                                  ARTICLE SEVEN
                            Noncompetition Agreement


         7.1  Noncompetition.  Each of the Stockholders  hereby agree to refrain
for a period of two years after the Closing (the "Non-Compete Period"), directly
or indirectly, as an employee, consultant,  advisor, referring source, agent of,
or investor in, any Person from:

                  (a) engaging in the  manufacture,  sale,  or  distribution  of
         latex  balloons (the  "Business")  within 200 kilometers of any city in
         which the Company, its subsidiaries, or their respective successors and
         assigns engage in the Business at such time (the "Territory");

                  (b)  directly  or  indirectly  influencing  or  attempting  to
         influence  any  customer  or  potential  customer of the  Company,  its
         subsidiaries,  or their  respective  successors and assigns to purchase
         products  related to the Business  from any person other than  Company,
         its subsidiaries, or their respective successors and assigns.

                  (c)  employing  or  attempting  to employ or  solicit  for any
         employment  competitive with the Company,  its  subsidiaries,  or their
         respective  successors and assigns any individuals who are employees of
         the Company,  its  subsidiaries,  or their  respective  successors  and
         assigns at any time at which any  Stockholders  employs or  attempts to
         employ or solicit such  individuals  (or were employees of the Company,
         its subsidiaries, or their respective successors and assigns within one
         year prior to such time) or  influence  or seek to  influence  any such
         employees to leave the Company's its subsidiaries', or there respective
         successors' or assigns' employment;

provided that all  provisions of (a) above will not apply to (I) any  investment
in  publicly  traded  securities  constituting  less than 2% of the  outstanding
securities  in such class,  or (ii) to the  ownership  of an interest in, or the
provision of services to Hecht. Each of the Stockholders  acknowledges that such
Stockholder's obligations under this Article Seven are a material inducement and
condition to CTI entering into this Agreement and  performing  the  transactions
contemplated by this Agreement.  Each of the Stockholders acknowledges that this
Section 7.1 is


                                       20
<PAGE>



necessary  to  protect  the  interest  of CTI and its  affiliates  and  that the
restrictions and remedies contained in this Agreement are reasonable in light of
the  consideration  and other value the Stockholders  have accepted  pursuant to
this  Agreement.  If any  provision  of this  Section 7.1 should be found by any
court of competent  jurisdiction to be  unenforceable by reason of its being too
broad as to the period of time, territory,  and/or scope, then and in that even,
such provision will nevertheless  remain valid and fully effective,  but will be
considered to be amended so that the period of time, territory, and/or scope set
forth will be changed to be the maximum period of time,  the largest  territory,
and/or the broadest scope,  as the case may be, that would be found  enforceable
by such court.  Should any Person violate this Section 7.1 the period of time of
the Non-Compete Period will automatically be extended for a period of time equal
to the period of time such  person  began such  violation  until such  violation
permanently ceases.

         7.2  Liquidated  Damages.  In the event of a violation  of this Article
Seven,  will be entitled to  liquidated  damages  from the  Stockholders  in the
amount of U.S. $1,000.00 per day for each day the violation continues.


                                  ARTICLE EIGHT
                                  Miscellaneous


         8.1  Notices.  Any  notice or  communication  given or made under or in
connection with the matters contemplated by this Subscription and Loan Agreement
shall be in writing and shall be delivered  personally  or sent by courier or by
facsimile. Any such notice or communication shall be addressed to the registered
office or principal  place of business of the  relevant  party as set out herein
and otherwise as provided  herein and, if so addressed,  shall be deemed to have
been duly given or made as follows:

         (a)      if sent by  personal delivery, upon delivery  and signature of
                  the relevant party atthe address;

         (b)      if sent by facsimile when  received  and confirmed by the same
                  means.

The relevant address and facsimile number of each party for the purposes of this
Subscription and Loan Agreement is:


Name of Party                                                 Facsimile Number
-------------                                                 ----------------

CTI Industries Corporation                                    (847) 382-1219
22160 N. Pepper Road
Barrington Illinois U.S.A. 60010

Company and Stockholders                                      (3) 633-1406
c/o Enrique Mora Velasco
Hugo Vazquez Reyes, No.33
Fracc. Ind. Belenes C.P.
450100 Zapopan, Jalisco
Mexico

with a copy to:

Juan Manuel Carrillo Coronado

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

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



                                       21
<PAGE>




         A party  shall  notify the other  parties  of a change in such  party's
name, relevant address or facsimile number for the purpose of this paragraph.

         For the avoidance of doubt,  the parties  agree that the  provisions of
this paragraph shall not apply in relation to the service of any writ,  summons,
order,  judgment  or  other  document  related  to or  in  connection  with  any
proceedings or action arising out of this Subscription and Loan Agreement.

         8.2 Attorneys'  Fees and Costs.  If attorneys'  fees or other costs are
incurred to secure  performance of any obligations  under this Agreement,  or to
establish  damages  for the  breach of this  Agreement  or to  obtain  any other
appropriate  relief,  whether by way of prosecution  or defense,  the prevailing
party will be entitled to recover reasonable  attorneys' fees and costs incurred
in connection therewith.

         8.3 No Brokers.  Each party to this  Agreement  represents to the other
party that it has not incurred and will not incur any  liability  for  brokerage
fees  or  agents'   commissions  in  connection   with  this  Agreement  or  the
transactions  contemplated by this Agreement,  and agrees that it will indemnify
and hold harmless the other parties against any claim for brokerage and finders'
fees or agents'  commissions in connection  with the negotiation or consummation
of the transactions contemplated by this Agreement.

         8.4  Counterparts.  This Agreement may be executed in counterparts  for
the  convenience  of the parties to this  Agreement,  all of which together will
constitute one and the same instrument.

         8.5 Assignment Neither this Agreement nor any of the rights, interests,
or  obligations  under this  Agreement  will be  assigned  or  delegated  by the
Company,  the Stockholders or CTI without the prior written consent of the other
parties;  except  that CTI may  assign its  rights  and  obligations  under this
Agreement to any direct or indirect  subsidiary  of CTI.  This  Agreement is not
intended  to confer any rights or  benefits  to any person  (including,  without
limitation,  any  employees  of the  Company)  other  than the  parties  to this
Agreement.

         8.6  Entire  Agreement.   This  Agreement  and  the  related  documents
contained as Exhibits and Schedules to this Agreement or expressly  contemplated
by this Agreement  contain the entire  understanding  of the parties relating to
the subject matter of this Agreement and



                                       22

<PAGE>



supersede all prior written or oral and all contemporaneous  oral agreements and
understandings  relating to the subject  matter of this  Agreement and supersede
all  prior  written  or  oral  and  all  contemporaneous   oral  agreements  and
understandings relating to the subject matter of this Agreement.  This Agreement
cannot be modified or amended except in writing signed by the party against whom
enforcement is sought.  The Exhibits and Schedules to this Agreement are by this
Agreement  incorporated  by reference into and made a part of this Agreement for
all purposes.

         8.7 Governing Law. This Agreement will be governed by and construed and
interpreted in accordance with the laws of the United Mexican States.

         8.9 Arbitration. Except as otherwise specifically set forth herein, the
parties agree to submit any and all disputes  relating to this  Subscription and
Loan  Agreement  to final and  binding  arbitration.  Any such  dispute  will be
resolved by arbitration in accordance with the Commercial  Arbitration  Rules of
the  International  Chamber of  Commerce  applied by the  Chamber of Commerce of
Mexico City, or if at the date such dispute arises, there is an arbitration body
with the same faculties and equal characteristics, by the Chamber of Commerce of
Guadalajara  City,  then the latter one will be the appropriate  authority.  All
arbitration  proceedings  shall  take  place  in  Mexico  City or in the City of
Guadalajara.  All arbitration  proceedings will be conducted in both English and
Spanish.  Unless the  parties  agree  otherwise,  within  thirty (30) days after
initiation of an arbitration hereunder the Company and the Stockholders,  on the
one hand, and CTI on the other hand,  will  designate an arbitrator  pursuant to
the Commercial  Code rules.  The two appointed  arbitrators  will then appoint a
neutral  arbitrator in the matter  prescribed in the Commercial Code rules.  The
parties  also agree that  judgment of a court of competent  jurisdiction  may be
entered upon any award made pursuant to arbitration hereunder.





                                       23

<PAGE>



         IN WITNESS  WHEREOF,  the parties to this  Agreement have executed this
Agreement as of the date first above written.


                              CTI INDUSTRIES CORPORATION


                              By:            /s/ Stephen M. Merrick
                                       ---------------------------------------
                                       Stephen M. Merrick, CEO


                              PULIDOS & TERMINADOS FINOS S.A. de C.V.


                              By:            /s/ Enrique Mora Velasco
                                       ---------------------------------------
                                        Enrique Mora Velasco


                              By:            /s/ Juan Manuel Carrillo Coronado
                                       ---------------------------------------
                                       Juan Manuel Carrillo Coronado





                                       24

<PAGE>



STOCKHOLDERS:



/s/ Juan Manuel Carrillo Coronado            /s/ Pablo Gortazar de Oyarzabal
---------------------------------            -------------------------------
Juan Manuel Carrillo Coronado,               Pablo Gortazar de Oyarzabal
31,819 shares                                90,150 shares


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

---------------------------------            ------------------------------- 
Address                                      Address


---------------------------------            ------------------------------- 
Francisco Hernandez Herrera,                 Jose Antonio Hernandez Amaya
30,771 shares                                30,771 shares


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

---------------------------------            ------------------------------- 
Address                                      Address


/s/ Enrique Mora Velasco                     
---------------------------------            -------------------------------  
Enrique Mora Velasco 92,313 Shares           Rosa Maria Valasco de Mora 15,986 
                                             Shares                            
                                              
---------------------------------            -------------------------------

---------------------------------            ------------------------------- 
Address                                      Address


------------------------------               ------------------------------
Enrique Mora Hernandez, 58,297 Shares        Manuel Mora Velasco, 5,289 Shares


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

---------------------------------            ------------------------------- 
Address                                      Address


------------------------------               ------------------------------
Ricardo Mora Velasco 5,289 Shares            Roberto Mora Velasco, 5,289 Shares


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

---------------------------------            ------------------------------- 
Address                                      Address



                                       25
<PAGE>


------------------------------               ------------------------------
Rosana Mora Velasco, 5,289 Shares            Veronica Mora Velasco, 5,289 Shares


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

---------------------------------            ------------------------------- 
Address                                      Address


------------------------------               ------------------------------
Alejandra Mora Velasco, 5,289 Shares         Claudia Mora Velasco, 5,289 Shares


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

---------------------------------            ------------------------------- 
Address                                      Address


Alpes Promotora Inmobiliria SA de CV         ______________________________
668,182 shares                               Maria Guadalupe Mora Velasco
                                             5,289 shares
By___________________________

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

                                             -------------------------------
                                             Address










                                       26