Document:

SUBORDINATION
      AGREEMENT

    

    

    This
      SUBORDINATION AGREEMENT is entered into as of February 1, 2006 (the
      "Subordination Agreement"), by and among Stephen M. Merrick, an individual
      (the
      "Junior Lender"), whose address is 422 Rosiland Drive, Palatine, Illinois,
      CHARTER ONE BANK, N.A., a national banking association (the "Senior Lender"),
      whose address is 71 South Wacker Drive, Suite 2900, Chicago, Illinois 60606,
      and
      CTI Industries Corporation, an Illinois corporation (the "Borrower"), whose
      address is 22160 North Pepper Road, Barrington, Illinois 60010.

    

    R
      E C I T
      A L S:

    

    A. The
      Borrower and its United States subsidiaries are now or will be from time to
      time
      hereafter indebted in various sums to the Junior Lender pursuant to certain
      existing and/or future notes, agreements and instruments (collectively, the
      "Junior Debt Instruments").

    

    B. The
      Junior Lender desires that the Senior Lender extend and/or continue the
      extension of credit to the Borrower from time to time as the Senior Lender
      in
      its sole discretion may determine, and the Senior Lender has refused to consider
      the extension and/or continued extension of such credit until the "Junior Debt"
      (as defined below) is subordinated to the "Senior Debt" (as defined below)
      in
      the manner hereinafter set forth; and

    

    C. The
      extension and/or continued extension of credit, as aforesaid, by the Senior
      Lender is necessary or desirable to the conduct and operation of the business
      of
      the Borrower, and will inure to the benefit of the Junior Lender.

    

    NOW,
      THEREFORE, in consideration of the extension and/or continued extension of
      credit by the Senior Lender to the Borrower, as the Senior Lender may, in its
      sole discretion, determine, and for other good and valuable consideration to
      the
      Junior Lender, the receipt and sufficiency of which are hereby acknowledged,
      the
      Junior Lender and the Borrower hereby agree with the Senior Lender as
      follows:

    

    A
      G R E E
      M E N T S:

    

    1. Subordination.

    

    1.1 The
      Junior Lender hereby subordinates the indebtedness evidenced by the Junior
      Debt
      Instruments, and any and all other indebtedness now or at any time or times
      hereafter owing by the Borrower, or any successor or assign of the Borrower,
      including without limitation, a receiver, trustee or debtor-in-possession (the
      term "Borrower" as used hereinafter shall include any such successor or assign)
      to the Junior Lender, whether such indebtedness is absolute or contingent,
      direct or indirect and howsoever evidenced, including without limitation, all
      interest thereon, including pre-petition and post-petition interest, fees and
      expenses and any other charges, and any refinancings thereof (collectively,
      the
      "Junior Debt") to any and all indebtedness now or at any time hereafter owing
      by
      the Borrower to the Senior Lender, whether absolute or contingent, direct or
      indirect and howsoever evidenced, including, but not limited to, all
      pre-petition and post-petition interest thereon, fees, expenses and all other
      demands, claims, liabilities or causes of action for which the Borrower may
      now
      or at any time or times hereafter in any way be liable to the Senior Lender,
      whether under any agreement, instrument or document executed and delivered
      or
      made by the Borrower to the Senior Lender or otherwise, including any
      refinancings thereof (collectively, the "Senior Debt").

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    1.2 The
      Junior Lender hereby subordinates all security interests, liens, encumbrances
      and claims, whether now existing or hereafter arising, which in any way secure
      the payment of the Junior Debt (the "Junior Lender's Collateral") to all
      security interests, liens, encumbrances and claims, whether now existing or
      hereafter arising, which in any way secure the payment of the Senior Debt (the
      "Senior Lender's Collateral").

    

    1.3 The
      Junior Lender shall not take any action to enforce any of its liens on the
      Junior Lender's Collateral, and shall not ask for or receive from the Borrower
      or any other person or entity any security for the Junior Debt not specifically
      granted by the Junior Debt Instruments.

    

    1.4 The
      Junior Lender agrees that it shall have no right to possession of any assets
      included in the Junior Lender's Collateral or in the Senior Lender's Collateral,
      whether by judicial action or otherwise.

    

    1.5 The
      Junior Lender agrees to instruct the Borrower not to pay, and agrees not to
      accept payment of, or assert, demand, sue for or seek to enforce against the
      Borrower or any other person or entity, by setoff or otherwise, all or any
      portion of the Junior Debt with the exception that the Borrower may pay accrued
      interest (but no principal) on the Junior Debt Instruments at a per annum rate
      of interest not in excess of the rate in effect from time to time under the
      Junior Debt Instruments (which rate may not be increased without the prior
      written consent of the Bank); provided, however, that the Borrower shall not
      pay, and the Junior Lender shall not accept, any payments of the Junior Debt
      following the occurrence of a default under any of the loan documents evidencing
      the Senior Debt.

    

    1.6 The
      Junior Lender hereby assigns to the Senior Lender and subrogates to the Senior
      Lender all of the Junior Lender's right, title and interest in and to the Junior
      Debt and the Junior Lender's Collateral, and hereby irrevocably authorizes
      the
      Senior Lender (i) to collect, receive, enforce and accept any and all sums
      or
      distributions of any kind, whether cash, securities or other property, that
      may
      become due, payable or distributable on or in respect of the Junior Debt or
      the
      Junior Lender's Collateral, whether paid directly by the Borrower or paid or
      distributed in any liquidation, bankruptcy, arrangement, receivership,
      assignment, reorganization or dissolution proceedings or otherwise, and (ii)
      in
      the Senior Lender's sole discretion, to make, present and vote claims therefor
      in, and take such other actions as the Senior Lender deems necessary or
      advisable in connection with, any such proceedings, either in the Senior
      Lender's name or in the name of the Junior Lender, including, but not limited
      to, any election in any proceeding instituted under Chapter 11 of Title 11
      of
      United States Code (11 U.S.C. § 101 et. seq.) (the "Bankruptcy Code"); and
      agrees that upon the written request of the Senior Lender it will promptly
      assign, endorse and deliver to and deposit with the Senior Lender all
      agreements, instruments and documents evidencing the Junior Debt, including
      without limitation the Junior Debt Instruments.

     

    
      
        
        

      

      
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    1.7 The
      Junior Lender hereby agrees that all agreements, instruments and documents
      evidencing the Junior Debt and the Junior Lender's Collateral will be endorsed
      with proper notice of this Subordination Agreement as follows:

    

    "This
      Note is subordinated to all indebtedness now or hereafter owing by the maker
      to
      Charter One Bank, N.A., Chicago, Illinois, as provided in that certain
      Subordination Agreement dated as of January _____, 2006."

    

    The
      Junior Lender will promptly deliver to the Senior Lender a certified copy
      of
      the Junior Debt Instruments, as well as certified copies of all other
      agreements, instruments and documents hereafter evidencing any Junior Debt,
      in
      each case showing such endorsement.

    

    1.8 The
      Junior Lender agrees to receive and hold in trust for and promptly turn over
      to
      the Senior Lender, in the form received (except for the endorsement or
      assignment by the Junior Lender where necessary), any sums at any time paid
      to,
      or received by, the Junior Lender in violation of the terms of this
      Subordination Agreement and to reimburse the Senior Lender for all costs,
      including reasonable attorney's fees, incurred by the Senior Lender in the
      course of collecting said sums should the Junior Lender fail to voluntarily
      turn
      the same over to the Senior Lender as herein required.

    

    1.9 The
      Junior Lender hereby irrevocably makes, constitutes and appoints the Senior
      Lender (and any officer of the Senior Lender or any person designated by the
      Senior Lender for that purpose) as the Junior Lender's true and lawful proxy
      and
      attorney-in-fact (and agent-in-fact) in the Junior Lender's name, place and
      stead, with full power of substitution, to (i) take any and all actions as
      are
      permitted in this Subordination Agreement, (ii) execute such financing
      statements and other documents and to do such other acts as the Senior Lender
      may require to perfect and preserve the Junior Debt and the Junior Lender's
      Collateral, and (iii) carry out any remedy provided for in this Subordination
      Agreement. The Junior Lender hereby acknowledges that the constitution and
      appointment of such proxy and attorney-in-fact are coupled with an interest
      and
      are irrevocable. The Junior Lender hereby ratifies and confirms all that said
      attorney-in-fact may do or cause to be done by virtue of any provision of this
      Subordination Agreement.

    

    1.10 
      The
      Junior Lender agrees that it shall not modify or amend any agreement, instrument
      or document evidencing or securing the Junior Debt, including without limitation
      the Junior Debt Instruments, without the prior written consent of the Senior
      Lender.

    

    2. Representations.

    

    2.1 The
      Junior Lender represents and warrants to the Senior Lender that the Junior
      Lender has not assigned or otherwise transferred the Junior Debt or the Junior
      Lender's Collateral, or any interest therein to any person or entity, that
      the
      Junior Lender will make no such assignment or other transfer
      thereof.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    2.2 The
      Junior Lender represents and warrants to the Senior Lender that no default
      or of
      any event which, with the lapse of time, the giving of notice or both, would
      constitute a default under the Junior Debt or any instrument evidencing or
      securing the Junior Debt, has occurred and is continuing (a "Junior Debt
      Default"), and the Junior Lender further agrees to promptly provide the Senior
      Lender with written notice of any Junior Debt Default.

    

    2.3 The
      Junior Lender represents and warrants to the Senior Lender that a true and
      complete copy of all Junior Debt Instruments existing as of the date hereof
      have
      been delivered to the Senior Lender and that the amount of the Junior Debt
      is
      properly stated on the financial statements of Borrower delivered to Senior
      Lender.

    

    3. Further
      Agreements.

    

    3.1 The
      Junior Lender expressly waives all notice of the acceptance by the Senior Lender
      of the subordination and other provisions of this Subordination Agreement and
      all notices not specifically required pursuant to the terms of this
      Subordination Agreement, and the Junior Lender expressly waives reliance by
      the
      Senior Lender upon the subordination and other provisions of this Subordination
      Agreement as herein provided.

    

    3.2 The
      Junior Lender consents and agrees that all Senior Debt shall be deemed to have
      been made, incurred and/or continued at the request of the Junior Lender and
      in
      reliance upon this Subordination Agreement.

    

    3.3 The
      Junior Lender agrees that the Senior Lender has made no warranties or
      representations with respect to the due execution, legality, validity,
      completeness or enforceability of the documents, instruments and agreements
      evidencing the Senior Debt, that the Senior Lender shall be entitled to manage
      and supervise its financial arrangements with the Junior Lender in accordance
      with its usual practices, without impairing or affecting this Subordination
      Agreement.

    

    3.4 The
      Junior Lender agrees that the Senior Lender shall have no liability to the
      Junior Lender, and in particular, the Junior Lender hereby waives any claim
      which it may now or hereafter have against the Senior Lender arising out of
      (i)
      any and all actions which the Senior Lender takes or omits to take (including
      without limitation actions with respect to the creation, perfection or
      continuation of liens or security interests in any existing or future the Senior
      Lender's Collateral, actions with respect to the occurrence of an event of
      default under any documents, instruments or agreements evidencing the Senior
      Debt, actions with respect to the foreclosure upon, sale, release, or
      depreciation of, or failure to realize upon, any of the Senior Lender's
      Collateral and actions with respect to the collection of any claim for all
      or
      any part of the Senior Debt from any account debtor, guarantor or other person
      or entity) with respect to the documents, instruments and agreements evidencing
      the Senior Debt or to the collection of the Senior Debt or the valuation, use,
      protection or release of the Senior Lender's Collateral, (ii) the Senior
      Lender's election (whether on behalf of the Senior Lender or the Junior Lender)
      in any proceeding instituted under the Bankruptcy Code, and/or (iii) any
      borrowing or grant of a security interest under Section 364 of the Bankruptcy
      Code by the Borrower, as debtor-in-possession.

     

    
      
        
        

      

      
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    4. Further
      Assurances.
      The
      Junior Lender agrees that the Senior Lender, at any time and from time to time
      hereafter, may enter into such agreements with the Borrower as the Senior Lender
      may deem proper extending the time of payment of or renewing or otherwise
      altering the terms of all or any of the Senior Debt or affecting any of the
      Senior Lender's Collateral, and may sell or surrender or otherwise deal with
      any
      of the Senior Lender's Collateral, and may release any balance of funds of
      the
      Borrower with the Senior Lender, without notice to the Junior Lender and without
      in any way impairing or affecting this Subordination Agreement.

    

    5. Continuing
      Agreement.
      This
      Subordination Agreement shall be irrevocable and shall constitute a continuing
      agreement of subordination and shall be binding on the Junior Lender and its
      heirs, personal representatives, successors and assigns, and shall inure to
      the
      benefit of the Senior Lender, its successors and assigns until the Senior Lender
      has, in writing, notified the Junior Lender that all of the Senior Debt has
      been
      paid in full and all obligations arising in connection therewith have been
      discharged. The Senior Lender may continue, without notice to the Junior Lender,
      to lend monies, extend credit and make other accommodations to or for the
      account of the Borrower on the faith hereof. The Junior Lender hereby agrees
      that all payments received by the Senior Lender may be applied, reversed, and
      reapplied, in whole or in part, to any of the Senior Debt, without impairing
      or
      affecting this Subordination Agreement.

    

    6. No
      Reliance.
      The
      Junior Lender hereby assumes responsibility for keeping itself informed of
      the
      financial condition of the Borrower, any and all endorsers and any and all
      guarantors of the Senior Debt and the Junior Debt, and of all other
      circumstances bearing upon the risk of nonpayment of the Senior Debt and the
      Junior Debt that diligent inquiry would reveal, and the Junior Lender hereby
      agrees that the Senior Lender shall have no duty to advise the Junior Lender
      of
      information known to the Senior Lender regarding such condition or any such
      circumstances or to undertake any investigation. If the Senior Lender, in its
      sole discretion, undertakes, at any time or from time to time, to provide any
      information of the type described herein to the Junior Lender, the Senior Lender
      shall be under no obligation to subsequently update any such information or
      to
      provide any such information to the Junior Lender on any subsequent
      occasion.

    

    7. Senior
      Lender's Duty Limited.
      The
      rights granted to the Senior Lender in this Subordination Agreement are solely
      for its protection and nothing herein contained imposes on the Senior Lender
      any
      duties with respect to any property of either the Borrower or of the Junior
      Lender received by the Senior Lender beyond the duty to exercise reasonable
      care
      in the custody and preservation of such property while in the Senior Lender's
      possession. The Senior Lender shall have no duty to preserve rights against
      prior parties on any instrument or chattel paper received from the Borrower
      or
      the Junior Lender as collateral security for the Senior Debt or any portion
      thereof.

    

    8. No
      Marshalling.
      The
      Junior Lender, on its own behalf and on behalf of its successors and assigns
      hereby expressly waives all rights, if any, to require a marshalling of the
      Borrower's assets by the Senior Lender or to require that the Senior Lender
      first resort to some or any portion of any collateral for the Senior Debt before
      foreclosing upon, selling or otherwise realizing on any other portion
      thereof.

     

    
      
        
        

      

      
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    9. Reinstatement.
      To the
      extent that the Borrower makes a payment to the Senior Lender or the Senior
      Lender receives any payment or proceeds of the collateral securing the Senior
      Debt for the Borrower's benefit, which payment or proceeds or any part thereof
      are subsequently invalidated, declared to be fraudulent or preferential, set
      aside and/or required to be repaid to a trustee, receiver or any other party
      under any bankruptcy law, state or federal law, common law or equitable
      doctrine, then, to the extent of such payment or proceeds received and not
      retained by the Senior Lender, the Junior Lender's obligations intended to
      be
      satisfied thereby and this Subordination Agreement shall be reinstated and
      continue in full force and effect until full and final payment shall have been
      made to the Senior Lender. The Junior Lender agrees to hold in trust for the
      Senior Lender and promptly remit to the Senior Lender any payments received
      by
      the Junior Lender after such invalidated, rescinded or returned payment was
      originally made.

    

    10. Waiver
      In Writing.
      No
      waiver shall be deemed to be made by the Senior Lender of any of its rights
      hereunder unless the same shall be in writing signed on behalf of the Senior
      Lender and each such waiver, if any, shall be a waiver only with respect to
      the
      specific matter or matters to which the waiver relates and shall in no way
      impair the rights of the Senior Lender or the obligations of the Junior Lender
      to the Senior Lender in any other respect at any other time.

    

    11. Choice
      Of Law.
      This
      Subordination Agreement shall be governed and controlled by the internal laws
      of
      the State of Illinois.

    

    12. FORUM.
      TO
      INDUCE THE SENIOR LENDER TO ACCEPT THIS SUBORDINATION AGREEMENT, THE JUNIOR
      LENDER IRREVOCABLY AGREES THAT, SUBJECT TO THE SENIOR LENDER'S SOLE AND ABSOLUTE
      ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING
      OUT
      OF OR FROM OR RELATED TO THIS SUBORDINATION AGREEMENT SHALL BE LITIGATED IN
      COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. THE JUNIOR
      LENDER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE
      OR
      FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE. THE JUNIOR LENDER HEREBY
      IRREVOCABLY APPOINTS AND DESIGNATES THE SECRETARY OF STATE OF ILLINOIS, WHOSE
      ADDRESS IS SPRINGFIELD, ILLINOIS (OR ANY OTHER PERSON HAVING AND MAINTAINING
      A
      PLACE OF BUSINESS IN SUCH STATE WHOM THE JUNIOR LENDER MAY FROM TIME TO TIME
      HEREAFTER DESIGNATE UPON TEN (10) DAYS WRITTEN NOTICE TO THE SENIOR LENDER
      AND
      WHO THE SENIOR LENDER HAS AGREED IN ITS SOLE DISCRETION IN WRITING IS
      SATISFACTORY AND WHO HAS EXECUTED AN AGREEMENT IN FORM AND SUBSTANCE
      SATISFACTORY TO THE SENIOR LENDER AGREEING TO ACT AS SUCH ATTORNEY AND AGENT),
      AS THE JUNIOR LENDER'S TRUE AND LAWFUL ATTORNEY AND DULY AUTHORIZED AGENT FOR
      ACCEPTANCE OF SERVICE OF LEGAL PROCESS. THE JUNIOR LENDER AGREES THAT SERVICE
      OF
      SUCH PROCESS UPON SUCH PERSON SHALL CONSTITUTE PERSONAL SERVICE OF SUCH PROCESS
      UPON THE JUNIOR LENDER. THE JUNIOR LENDER HEREBY WAIVES ANY RIGHT IT MAY HAVE
      TO
      TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST THE JUNIOR LENDER
      BY THE SENIOR LENDER IN ACCORDANCE WITH THIS PARAGRAPH.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    13. WAIVER
      OF JURY TRIAL.
      THE
      JUNIOR LENDER AND THE SENIOR LENDER, AFTER CONSULTING OR HAVING HAD THE
      OPPORTUNITY TO CONSULT WITH COUNSEL, EACH KNOWINGLY, VOLUNTARILY AND
      INTENTIONALLY WAIVE IRREVOCABLY, THE RIGHT TO TRIAL BY JURY WITH RESPECT TO
      ANY
      ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS SUBORDINATION
      AGREEMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK GRANTING ANY
      FINANCIAL ACCOMMODATION TO THE BORROWER AND ENTERING INTO THIS SUBORDINATION
      AGREEMENT.

    

    14. Additional
      Borrower Agreements.

    

    14.1 The
      Borrower hereby agrees that until all Senior Debt is paid in full and all
      obligations arising in connection therewith have been satisfied, the Borrower
      will make no payments or distributions contrary to the provisions hereof and
      will do every other thing necessary to carry out such provisions. The Borrower
      will give the Senior Lender notice of any suit or action brought in violation
      of
      said agreement.

    

    14.2 The
      Borrower represents and warrants to the Senior Lender that no Junior Debt
      Default exists and agrees to promptly provide the Senior Lender with written
      notice of any Junior Debt Default.

    

    14.3 In
      the
      event of any violation of any of the provisions of this Subordination Agreement,
      then, at the election of the Senior Lender, any and all obligations of the
      Borrower to the Senior Lender shall immediately become due and payable and
      any
      and all agreements of the Senior Lender to make loans, advances or other
      financial accommodations to the Borrower shall immediately terminate,
      notwithstanding any provision hereof to the contrary.

    

    IN
      WITNESS WHEREOF, the Junior Lender, the Senior Lender and the Borrower have
      executed this Subordination Agreement as of the date set forth
      above.

    

    
      	 	
              JUNIOR
                LENDER:

            	 
	 	 	 
	 	
              /s/Stephen
                M. Merrick

            	 
	 	
              Stephen
                M. Merrick, individually

            	 
	 	 	 
	 	
              SENIOR
                LENDER:

            	 
	 	 	 
	 	
              CHARTER
                ONE BANK, N.A., a national banking association

            	 
	 	 	 
	 	 	 
	 	
              By:    
                 /s/Richard Bott

            	 
	 	
              Name:
                Richard Bott

            	
               

            
	 	
              Title:  
                Senior Vice-President

            	 

    

    

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    BORROWER'S
      CONSENT

    

    

    The
      Borrower hereby agrees and consents to the foregoing Subordination Agreement
      (and the terms thereof) and agrees to abide thereby and to keep, observe and
      perform the several matters and things therein intended to be kept, observed
      and
      performed by it, and specifically agrees not to make any payments contrary
      to
      the intention and terms of the Subordination Agreement.

    

    A
      breach
      of any of the terms or conditions contained in the Subordination Agreement
      shall
      constitute a default in any and all of the Senior Debt.

    

    Signed
      and delivered by the Borrower as of February _____, 2006.

     

    
    

    
      
        	 	
                BORROWER:

              	 
	 	 	 
	 	
                CTI
                  Industries Corporation, an Illinois corporation

              	 
	 	 	 
	 	 	 
	 	
                By:      /s/Howard
                  W. Schwan

              	 
	 	
                Name:
                  Howard W. Schwan

              	
                 

              
	 	
                Title:  
                  President

              	 

      

      
 

    

    
      
        
        

      

      
        8LIMITED
      CONTINUING UNCONDITIONAL GUARANTY

    

    

    This
      LIMITED CONTINUING UNCONDITIONAL GUARANTY dated as of February 1, 2006 (the
      “Guaranty”), is executed by John H. Schwan, individually (the “Guarantor”),
      whose address is 27 Watergate, South Barrington, Illinois 60010, to and for
      the
      benefit of CHARTER ONE BANK, N.A., a national banking association (together
      with
      any of its affiliate or subsidiary corporations, or their successors or assigns,
      being collectively referred to herein as the “Bank”), whose address is 71 South
      Wacker Drive, Suite 2900, Chicago, Illinois 60606.

    

    WHEREAS,
      CTI Industries Corporation, an Illinois corporation (the “Borrower”), whose
      address is 22160 North Pepper Road, Barrington, Illinois 60010, desires or
      may
      desire at some time and/or from time to time to obtain financial accommodations
      from the Bank; and

    

    WHEREAS,
      the Guarantor is a shareholder and creditor of the Borrower, and desires the
      Bank to extend or continue the extension of credit to the Borrower and the
      Bank
      has required that Guarantor execute and deliver this Guaranty to the Bank as
      a
      condition to the extension and continuation of credit by the Bank;
      and

    

    WHEREAS,
      the extension or continued extension of credit, as aforesaid, by the Bank is
      necessary and desirable to the conduct and operation of the business of the
      Borrower and will inure to the financial benefit of the Guarantor;

    

    NOW,
      THEREFORE, FOR VALUE RECEIVED, it is agreed that the preceding provisions and
      recitals are an integral part hereof and that this Guaranty shall be construed
      in light thereof, and in consideration of advances, credit or other financial
      accommodation heretofore afforded, concurrently herewith being afforded or
      hereafter to be afforded to the Borrower by the Bank, the Guarantor hereby
      unconditionally and absolutely guarantees to the Bank or other person paying
      or
      incurring the same, irrespective of the validity, regularity or enforceability
      of any instrument, writing, arrangement or credit agreement relating to or
      the
      subject of any such financial accommodation, the payment in full, promptly
      on
      demand of the Bank or such other person paying or incurring the same, of up
      to
      the principal amount of One Million and 00/100 Dollars ($1,000,000.00) (the
      “Guaranteed Debt”) of the Indebtedness (as hereinafter defined).

    

    As
      used
      herein, “Indebtedness” shall mean and include any and all indebtedness,
      obligations and liabilities of the Borrower to the Bank arising under and
      pursuant to that certain Loan and Security Agreement dated as of February 1,
      2006, executed by and between the Borrower and the Bank (as amended,
      supplemented or modified from time to time, the "Loan Agreement"), and as
      evidenced by the following promissory notes executed by Borrower in connection
      therewith as of the same date: Term Note in the original principal amount of
      Three Million Five Hundred Thousand and 00/100 Dollars ($3,500,000.00),
      Revolving Note in the maximum original principal amount of Six Million Five
      Hundred Thousand and 00/100 Dollars ($6,500,000.00) and Mortgage Note in the
      original principal amount of Two Million Eight Hundred Thousand and 00/100
      Dollars ($2,800,000.00), including any and all new or renewal notes issued
      in
      substitution or replacement therefor or any and all extensions, renewals or
      replacements thereof (collectively, the “Notes”); plus
      (b) all
      interest due or to become due on the Notes, plus
      (c) all
      costs, legal expenses and attorneys’ and paralegals’ fees of every kind
      (including those costs, expenses and fees of attorneys and paralegals who may
      be
      employees of the Bank or its indirect parent), paid or incurred by the Bank
      in
      endeavoring to collect the Indebtedness or any part thereof, or in enforcing
      its
      rights in connection with any collateral for the Notes, or in defending against
      any defense, counterclaim, setoff or crossclaim based on any act of commission
      or omission by the Bank with respect to the Notes, any collateral therefor,
      or
      in connection with any Repayment Claim (as hereinafter defined). It is hereby
      agreed that, while the liability of the Guarantor to the Bank under this
      Guaranty is limited to the Guaranteed Debt as set forth above, the Indebtedness
      is in no way limited as to dollar amount.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Under
      no
      circumstances shall the liability of the Guarantor hereunder be reduced by,
      from
      or as a result of any payment to or amount realized by the Bank from any rents,
      deposits, insurance proceeds, condemnation awards, proceeds from bankruptcy
      sale, foreclosure or any conveyance in lieu of foreclosure or from any other
      profits, avails, revenues or proceeds derived from any collateral for the
      Indebtedness or the Premises, and only payments made to the Bank by the
      Guarantor out of his personal funds not derived from the assets of the Borrower
      or the Premises after demand therefor by the Bank shall be applied against
      such
      liability.

    

    In
      case
      of the death of the Guarantor, or in case of any
      bankruptcy, reorganization, debt arrangement or other proceeding under any
      bankruptcy or insolvency law, any dissolution, liquidation or receivership
      proceeding is instituted by or against either the Borrower or the Guarantor,
      or
      any default by the Guarantor of any of the covenants, terms and conditions
      set
      forth herein, all of the Guaranteed Debt shall, without notice to anyone,
      immediately become due or accrued and all amounts due hereunder shall be
      payable, jointly and severally, by the Guarantor. The Guarantor hereby expressly
      and irrevocably: (a) waives, to the fullest extent possible, on behalf of
      himself and
      his successors
      and assigns (including any surety) and any other person, any and all rights
      at
      law or in equity to subrogation, reimbursement, exoneration, contribution,
      indemnification, set off or to any other rights that could accrue to a surety
      against a principal, a guarantor against a maker or obligor, an accommodation
      party against the party accommodated, a holder or transferee against a maker,
      or
      to the holder of a claim against any person, and which the Guarantor may have
      or
      hereafter acquire against any person in connection with or as a result of the
      Guarantor’s execution, delivery and/or performance of this Guaranty, or any
      other documents to which the Guarantor is a party or otherwise; (b) waives
      any
“claim” (as such term is defined in the United States Bankruptcy Code) of any
      kind against the Borrower, and further agrees that he shall
      not
      have or assert any such rights against any person (including any surety), either
      directly or as an attempted set off to any action commenced against the
      Guarantor by the Bank or any other person; and (c) acknowledges and agrees
      (i)
      that foregoing waivers are intended to benefit the Bank and shall not limit
      or
      otherwise affect the Guarantor’s liability hereunder or the enforceability of
      this Guaranty, (ii) that the Borrower and its successors and assigns are
      intended third party beneficiaries of the foregoing waivers, and (iii) the
      agreements set forth in this paragraph and the Bank’s rights under this
      paragraph shall survive payment in full of the Guaranteed Debt.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    All
      dividends or other payments received by the Bank on account of the Indebtedness,
      from whatever source derived, shall be taken and applied by the Bank toward
      the
      payment of the Guaranteed Debt and in such order of application as the Bank
      may,
      in its sole discretion, from time to time elect. The Bank shall have the
      exclusive right to determine how, when and what application of payments and
      credits, if any, whether derived from the Borrower or any other source, shall
      be
      made on the Indebtedness and such determination shall be conclusive upon the
      Guarantor.

    

    This
      Guaranty shall in all respects be continuing, absolute and unconditional, and
      shall remain in full force and effect with respect to the Guarantor until:
      (i)
      written notice from the Bank to the Guarantor by United States certified mail
      of
      its discontinuance as to the Guarantor; or (ii) until all Guaranteed Debt
      created or existing before receipt of either such notice shall have been fully
      paid. In case of the discontinuance of this Guaranty as to any Guarantor, this
      Guaranty shall nevertheless continue and remain in force against any other
      guarantor until discontinued as to such other guarantor as provided herein.
      In
      the event of the death or incompetency of
      the
      Guarantor, this Guaranty shall continue as to all of the Guaranteed Debt
      theretofore incurred by the Borrower even though the Indebtedness is renewed
      or
      the time of maturity of the Indebtedness is extended without the consent of
      the
      executors, administrators, successors or assigns of the Guarantor.

    

    No
      compromise, settlement, release or discharge of, or indulgence with respect
      to,
      or failure, neglect or omission to enforce or exercise any right against any
      other guarantor shall release or discharge the Guarantor.

    

    The
      Guarantor’s liability under this Guaranty shall in no way be modified, affected,
      impaired, reduced, released or discharged by any of the following (any or all
      of
      which may be done or omitted by the Bank in its sole discretion, without notice
      to anyone and irrespective of whether the Indebtedness shall be increased or
      decreased thereby): (a) any acceptance by the Bank of any new or renewal note
      or
      notes of the Borrower, or of any security or collateral for, or other guarantors
      or obligors upon, any of the Indebtedness; (b) any compromise, settlement,
      surrender, release, discharge, renewal, refinancing, extension, alteration,
      exchange, sale, pledge or election with respect to the Indebtedness, or any
      note
      by the Borrower, or with respect to any collateral under Section 1111 or take
      any action under Section 364, or any other section of the United States
      Bankruptcy Code, now existing or hereafter amended, or other disposition of,
      or
      substitution for, or indulgence with respect to, or failure, neglect or omission
      to realize upon, or to enforce or exercise any liens or rights of appropriation
      or other rights with respect to, the Indebtedness or any security or collateral
      therefor or any claims against any person or persons primarily or secondarily
      liable thereon; (c) any failure, neglect or omission to perfect, protect, secure
      or insure any of the foregoing security interests, liens, or encumbrances of
      the
      properties or interests in properties subject thereto; (d) the granting of
      credit from time to time by the Bank to the Borrower in excess of the amount,
      if
      any, to which the right of recovery under this Guaranty is limited (which is
      hereby expressly authorized); (e) any change in the Borrower’s name or the
      merger of the Borrower into another corporation; (f) any act of commission
      or
      omission of any kind or at any time upon the part of the Bank with respect
      to
      any matter whatsoever, other than the execution and delivery by the Bank to
      the
      Guarantor of an express written release or cancellation of this Guaranty; or
      (g)
      the payment in full of the Indebtedness. The Guarantor hereby consents to all
      acts of commission or omission of the Bank set forth above and agrees that
      the
      standards of good faith, diligence, reasonableness and care shall be measured,
      determined and governed solely by the terms and provisions hereof.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

    In
      order
      to hold the Guarantor liable hereunder, there shall be no obligation on the
      part
      of the Bank, at any time, to resort for payment from the Borrower or to anyone
      else, or to any collateral, security, property, liens or other rights and
      remedies whatsoever, all of which are hereby expressly waived by the
      Guarantor.

    

    The
      Guarantor hereby expressly waives diligence in collection or protection,
      presentment, demand or protest or in giving notice to anyone of the protest,
      dishonor, default, or nonpayment or of the creation or existence of any of
      the
      Indebtedness or of any security or collateral therefor or of the acceptance
      of
      this Guaranty or of extension of credit or indulgences hereunder or of any
      other
      matters or things whatsoever relating hereto.

    

    The
      Guarantor waives any and all defenses, claims and discharges of the Borrower,
      or
      any other obligor, pertaining to the Indebtedness, except the defense of
      discharge by payment in full. Without limiting the generality of the foregoing,
      the Guarantor will not assert, plead or enforce against the Bank any defense
      of
      waiver, release, discharge in bankruptcy, statute of limitations, res judicata,
      statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
      illegality or unenforceability which may be available to the Borrower or any
      other person liable in respect of any of the Indebtedness, or any setoff
      available against the Bank to the Borrower or any such other person, whether
      or
      not on account of a related transaction. The Guarantor expressly agrees that
      the
      Guarantor shall be and remain liable for any deficiency remaining after
      foreclosure of any mortgage or security interest securing the Guaranteed Debt,
      whether or not the liability of the Borrower or any other obligor for such
      deficiency is discharged pursuant to statute or judicial decision.

    

    So
      long
      as this Guaranty is continuing, the Guarantor covenants and agrees to furnish
      to
      the Bank or its authorized representatives information regarding the business
      affairs, operations and financial condition of the Guarantor, including, but
      not
      limited to, as soon as available, and in any event, within thirty (30) days
      after their filing, (i) copies of the federal income tax returns of the
      Guarantor, (ii) an annual personal financial statement in form and substance
      acceptable to the Bank, and (iii) such other information (including nonfinancial
      information) as the Bank may request, all in reasonable detail and prepared
      and
      certified as accurate by the Guarantor. The personal financial statements of
      the
      Guarantor furnished to the Bank at or prior to the execution and delivery of
      this Guaranty fairly present the financial condition of the Guarantor for the
      periods shown therein, and since the dates covered by the most recent of such
      financial statements, there has been no material adverse change in the
      Guarantor’s business operations or financial condition. The Guarantor agrees to
      advise the Bank immediately of any material adverse change in the financial
      condition, business operations or any other status of the Guarantor. Except
      as
      expressly shown on the most recent of such financial statements, the Guarantor
      (a) owns all of his assets
      free and clear of all liens; (b) is not a party to any litigation, nor is any
      litigation threatened to the knowledge of the Guarantor which would, if
      adversely determined, cause any material adverse change in his business
      or financial condition; and (c) has no delinquent tax liabilities, nor have
      any
      tax deficiencies been proposed against him.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

    To
      secure
      payment of the Guaranteed Debt, the Guarantor grants to the Bank a security
      interest in all property of the Guarantor delivered concurrently herewith or
      which is now, or at any time hereafter in transit to, or in the possession,
      custody, or control of the Bank, and all proceeds of all such property. The
      Guarantor agrees that the Bank shall have the rights and remedies of a secured
      party under the Uniform Commercial Code in effect in Illinois from time to
      time,
      with respect to all of the aforesaid property, including, without limitation
      thereof, the right to sell or otherwise dispose of any such property. The Bank
      may, without demand or notice of any kind to anyone, apply or set off any
      balances, credits, deposits, accounts, moneys or other indebtedness at any
      time
      credited by or due from the Bank to the Guarantor against the amounts due
      hereunder and in such order of application as the Bank may from time to time
      elect. Any notification of intended disposition of any property required by
      law
      shall be deemed reasonably and properly given if given in the manner provided
      by
      the applicable statute. The Guarantor hereby assigns and transfers to the Bank
      any and all cash, negotiable instruments, documents of title, chattel paper,
      securities, certificates of deposit, deposit accounts other cash equivalents
      and
      other assets of the Guarantor in the possession or control of the Bank for
      any
      purpose.

    

    PROVIDED
      THAT THE BANK ACTS IN GOOD FAITH IN A COMMERCIALLY REASONABLE MANNER, THE
      GUARANTOR WAIVES EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF WHICH
      THE GUARANTOR MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY THE BANK
      IN
      ENFORCING THIS GUARANTY. AS FURTHER SECURITY, ANY AND ALL DEBTS AND LIABILITIES
      NOW OR HEREAFTER ARISING AND OWING TO THE GUARANTOR BY THE BORROWER, OR TO
      ANY
      OTHER PARTY LIABLE TO THE BANK FOR THE INDEBTEDNESS, ARE HEREBY SUBORDINATED
      TO
      THE BANK’S CLAIMS AND ARE HEREBY ASSIGNED TO THE BANK. THE GUARANTOR HEREBY
      AGREES THAT THE GUARANTOR MAY BE JOINED AS A PARTY DEFENDANT IN ANY LEGAL
      PROCEEDING (INCLUDING, BUT NOT LIMITED TO, A FORECLOSURE PROCEEDING) INSTITUTED
      BY THE BANK AGAINST THE BORROWER. THE GUARANTOR AND THE BANK, AFTER CONSULTING
      OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH KNOWINGLY,
      VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY THE RIGHT TO TRIAL BY JURY
      WITH
      RESPECT TO ANY SUCH LEGAL PROCEEDING IN WHICH THE GUARANTOR AND THE BANK ARE
      ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK GRANTING
      ANY FINANCIAL ACCOMMODATION TO THE BORROWER AND ACCEPTING THIS
      GUARANTY.

    

    Should
      a
      claim (a “Repayment Claim”) be made upon the Bank at any time for repayment of
      any amount received by the Bank in payment of the Indebtedness, or any part
      thereof, whether received from the Borrower, the Guarantor pursuant hereto,
      or
      received by the Bank as the proceeds of collateral, by reason of: (i) any
      judgment, decree or order of any court or administrative body having
      jurisdiction over the Bank or any of its property; or (ii) any settlement or
      compromise of any such Repayment Claim effected by the Bank, in its sole
      discretion, with the claimant (including the Borrower), the Guarantor shall
      remain jointly and severally liable to the Bank for the amount so repaid to
      the
      same extent as if such amount had never originally been received by the Bank,
      notwithstanding any termination hereof or the cancellation of any note or other
      instrument evidencing the Indebtedness.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

    The
      Bank
      may, without notice to anyone, sell or assign the Indebtedness, or any part
      thereof, or grant participations therein, and in any such event each and every
      immediate or remote assignee or holder of, or participant in, all or any of
      the
      Indebtedness shall have the right to enforce this Guaranty, by suit or otherwise
      for the benefit of such assignee, holder, or participant, as fully as if herein
      by name specifically given such right herein, but the Bank shall have an
      unimpaired right, prior and superior to that of any such assignee, holder or
      participant, to enforce this Guaranty for the benefit of the Bank, as to any
      part of the Indebtedness retained by the Bank.

    

    Unless
      and until all of the Indebtedness has been paid in full, no release or discharge
      of any other person, whether primarily or secondarily liable for and obligated
      with respect to the Indebtedness, or the institution of bankruptcy,
      receivership, insolvency, reorganization, dissolution or liquidation proceedings
      by or against the Guarantor or any other person primarily or secondarily liable
      for and obligated with respect to the Indebtedness, or the entry of any
      restraining or other order in any such proceedings, shall release or discharge
      the Guarantor, or any other guarantor of the indebtedness, or any other person,
      firm or corporation liable to the Bank for the Indebtedness.

    

    All
      references herein to the Borrower and to the Guarantor, respectively, shall
      be
      deemed to include any successors or assigns, whether immediate or remote, to
      such and any executors or administrators to such individual.

    

    If
      this
      Guaranty contains any blanks when executed by the Guarantor, the Bank is hereby
      authorized, without notice to the Guarantor, to complete any such blanks
      according to the terms upon which this Guaranty is executed by the Guarantor
      and
      is accepted by the Bank.

    

    This
      Guaranty has been delivered to the Bank at its offices in Chicago, Illinois,
      and
      the rights, remedies and liabilities of the parties shall be construed and
      determined in accordance with the laws of the State of Illinois, in which State
      it shall be performed by the Guarantor.

    

    TO
      INDUCE
      THE BANK TO GRANT FINANCIAL ACCOMMODATIONS TO THE BORROWER, THE GUARANTOR
      IRREVOCABLY AGREES THAT ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY AS A RESULT
      OR IN CONSEQUENCE OF THIS GUARANTY SHALL BE INSTITUTED AND LITIGATED ONLY IN
      COURTS HAVING SITUS IN THE CITY OF CHICAGO, ILLINOIS. THE GUARANTOR HEREBY
      CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT
      LOCATED AND HAVING ITS SITUS IN CHICAGO, ILLINOIS, AND WAIVES ANY OBJECTION
      BASED ON FORUM NON CONVENIENS. THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE
      OF
      ANY AND ALL PROCESS, AND CONSENTS TO THE SERVICE OF PROCESS BY CERTIFIED MAIL,
      RETURN RECEIPT REQUESTED, DIRECTED TO THE GUARANTOR AT THE ADDRESS INDICATED
      IN
      THE BANK’S RECORDS IN THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF
      COURT OR OTHERWISE. FURTHERMORE, THE GUARANTOR WAIVES ALL NOTICES AND DEMANDS
      IN
      CONNECTION WITH THE ENFORCEMENT OF THE BANK’S RIGHTS HEREUNDER, AND HEREBY
      CONSENTS TO, AND WAIVES NOTICE OF THE RELEASE, WITH OR WITHOUT CONSIDERATION,
      OF
      THE BORROWER OR ANY OTHER PERSON RESPONSIBLE FOR PAYMENT OF THE INDEBTEDNESS,
      OR
      OF ANY COLLATERAL THEREFOR.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

    Wherever
      possible each provision of this Guaranty shall be interpreted in such manner
      as
      to be effective and valid under applicable law, but if any provision of this
      Guaranty shall be prohibited by or invalid under such law, such provision shall
      be ineffective to the extent of such prohibition or invalidity, without
      invalidating the remainder of such provision or the remaining provisions of
      this
      Guaranty.

    

    It
      is
      agreed that the Guarantor’s liability is independent of any other guaranties at
      any time in effect with respect to all or any part of the Indebtedness, and
      that
      the Guarantor’s liability hereunder may be enforced regardless of the existence
      of any such other guaranties.

    

    No
      delay
      on the part of the Bank in the exercise of any right or remedy shall operate
      as
      a waiver thereof, and no single or partial exercise by the Bank of any right
      or
      remedy shall preclude other or further exercise thereof, or the exercise of
      any
      other right or remedy. No modification, termination, discharge or waiver of
      any
      of the provisions hereof shall be binding upon the Bank, except as expressly
      set
      forth in a writing duly signed and delivered on behalf of the Bank.

    

    This
      Guaranty: (i) is valid, binding and enforceable in accordance with its
      provisions, and no conditions exist to the legal effectiveness of this Guaranty
      as to the Guarantor; (ii) contains the entire agreement between the Guarantor
      and the Bank; (iii) is the final expression of their intentions; and (iv)
      supersedes all negotiations, representations, warranties, commitments, offers,
      contracts (of any kind or nature, whether oral or written) prior to or
      contemporaneous with the execution hereof. No prior or contemporaneous
      representations, warranties, understandings, offers or agreements of any kind
      or
      nature, whether oral or written, have been made by the Bank or relied upon
      by
      the Guarantor in connection with the execution hereof.

    

    The
      term
“Guarantor” as used herein shall mean all parties signing this Guaranty, and the
      provisions hereof shall be binding upon the Guarantor, and each one of them,
      and
      all such parties, their respective executors, administrators, successors and
      assigns shall be jointly and severally obligated hereunder. This Guaranty shall
      inure to the benefit of the Bank and its successors and assigns.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    
 

    IN
      WITNESS WHEREOF, the Guarantor has executed and delivered this Limited
      Continuing Unconditional Guaranty as of the date set forth above.

    

    /s/John
      H. Schwan

    John
      H.
      Schwan, individually

     

     

     

    
      
         

      

      
        8

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