Document:

EXHIBIT 10.12

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NO INTEREST IN THIS NOTE MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE.

                           CTI INDUSTRIES CORPORATION
                          9% UNSECURED PROMISSORY NOTE

$100,000                                                           March 3, 2003
                                                            Barrington, Illinois

      FOR VALUE RECEIVED, the undersigned, CTI Industries Corporation, an
Illinois corporation (the "Payor"), having its executive offices and principal
place of business at 22160 N. Pepper Road, Barrington, Illinois 60010, hereby
promises to pay to John H. Schwan (the "Payee"), having an address at 27
Watergate, South Barrington, Illinois 60010, at the Payee's address set forth
hereinabove or, at such other place as the Payee shall hereafter specify in
writing, the principal sum of One Hundred Thousand Dollars ($100,000) in legal
tender of the United States of America, in the amount and on the dates
hereinafter set forth.

      1. Interest and Payment

            1.1 Unpaid principal and interest due under this Promissory Note
      shall be payable in full by Payor or any successor holder of this
      Promissory Note on March 3, 2005 (the "Maturity Date").

            1.2 The unpaid principal amount hereof outstanding from time to time
      shall bear simple interest from the date hereof at the rate of 9% per
      annum until the first to occur of the Maturity Date or the date on which
      the entire principal balance hereof shall have been paid.

            1.3 Interest shall accrue and be payable on a calendar quarterly
      basis during such time as any portion of the principal amount of this
      Promissory Note shall be outstanding. Payments of interest shall be due
      and payable one calendar quarter in arrears, on or before the fifth day of
      each calendar month immediately following the expiration of any calendar
      quarter during which any portion of the principal amount of this
      Promissory Note shall be outstanding.

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            1.4 If payment of the principal amount hereof and interest accrued
      thereon is not made on or before the Maturity Date, interest shall
      thereafter accrue and be payable at an interest rate equal to the lesser
      of (i) 15% or (ii) the maximum rate permitted under applicable law.

            1.5 Payor shall be entitled to prepay all or any portion of the
      principal of this Promissory Note at any time and from time to time,
      without penalty, provided, however, that any such payment on this
      Promissory Note shall be first credited against any accrued and unpaid
      interest hereunder.

      2. Replacement of Promissory Note.

            2.1. In case this Promissory Note is mutilated, destroyed, lost or
      stolen, Payor shall, at its sole expense, execute, register and deliver, a
      new Promissory Note in exchange and substitution for this Promissory Note,
      if mutilated, or in lieu of and substitution for this Promissory Note, if
      destroyed, lost or stolen. In the case of destruction, loss or theft,
      Payee shall furnish to Payor indemnity reasonably satisfactory to Payor,
      and in any such case, and in the case of mutilation, Payee shall also
      furnish to Payor evidence to its reasonable satisfaction of the
      mutilation, destruction, loss or theft of this Promissory Note and of the
      ownership thereof. Any replacement Promissory Note so issued shall be in
      the same outstanding principal amount as this Promissory Note and dated
      the date to which interest shall have been paid on this Promissory Note,
      or if no interest shall have yet been paid, dated the date of this
      Promissory Note.

            2.2. Every Note issued pursuant to the provisions of Section 2.1
      hereof in substitution for this Promissory Note shall constitute an
      additional contractual obligation of Payor, whether or not Promissory Note
      shall be found at any time, or be enforceable by anyone.

      3. Events of Default. If any of the following conditions, events or acts
shall occur, this Promissory Note shall become immediately due and payable:

            3.1. The dissolution of Payor or any vote in favor thereof by the
      Board of Directors and stockholders of Payor; or

            3.2. Payor's insolvency, assignment for the benefit of creditors,
      application for or appointment of a receiver, filing of a voluntary or
      involuntary petition under any provision of the Federal Bankruptcy Code or
      amendments thereto or any other federal or state statute affording relief
      to debtors; or there shall be commenced against Payor any such proceeding
      or filed against Payor any such application or petition which proceeding,
      application or petition is not dismissed or withdrawn within sixty (60)
      days of commencement or filing as the case may be; or

            3.3. The failure by Payor to make any payment of any amount of
      principal on, or accrued interest under, this Promissory Note as and when
      the same shall become due and payable; or

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            3.4. The sale by Payor of all or substantially all of its assets
      (other than the sale of inventory in the ordinary course of business), or
      the merger or consolidation by Payor with or into another corporation,
      except for mergers or consolidations where Payor is the surviving entity
      or where the surviving entity expressly accepts and assumes all of the
      obligations of Payor under this Promissory Note; or

            3.5. The commencement of a proceeding to foreclose the security
      interest or lien in any property or assets to satisfy the security
      interest or lien therein of any secured creditor of Payor whose debt is in
      excess of $100,000; or

            3.6. The entry of a final judgment for the payment of money in
      excess of $100,000 by a court of competent jurisdiction against Payor,
      which judgment Payor shall not discharge (or provide for such discharge)
      in accordance with its terms within sixty (60) days of the date of entry
      thereof, or procure a stay of execution thereof within sixty (60) days
      from the date of entry thereof and, within such sixty (60) day period, or
      such longer period during which execution of such judgment shall have been
      stayed, appeal therefrom and cause the execution thereof to be stayed
      during such appeal; or

            3.7. Any attachment or levy, or the issuance of any note of eviction
      against the assets or properties of Payor involving an amount in excess of
      $100,000 which attachment, levy or issuance is not dismissed, bonded, or
      otherwise terminated within sixty (60) days of the effectiveness of such
      attachment, levy or issuance; or

            3.8 The default in the due observance or performance of any material
      covenant, condition or agreement on the part of Payor to be observed or
      performed pursuant to the terms of this Promissory Note and such default
      shall continue uncured for ten (10) days after written notice thereof,
      specifying such default, shall have been given to the Payor by the holder
      of said Promissory Note; then, in any such event and at any time
      thereafter (and, in the case of an event described in Subsection 3.5 or a
      default in payment of accrued interest and/or principal as described in
      Subsection 3.3, upon ten (10) days written notice), while such event is
      continuing, Payee shall have the right to declare an event of default
      hereunder ("Event of Default"), provided that upon the occurrence of an
      event described in Subsections 3.1 or 3.2 such event shall be deemed to be
      an Event of Default hereunder whether or not the Payee makes such a
      declaration (an "Automatic Default"), and the indebtedness evidenced by
      this Promissory Note shall immediately upon such declaration or Automatic
      Default become due and payable, both as to principal and interest, without
      presentment, demand, protest or other notice of any kind, all of which are
      hereby expressly waived, notwithstanding anything contained herein to the
      contrary.

      4. If any one or more defaults shall occur and be continuing, Payee may
proceed to protect and enforce such Payee's rights either by suit in equity or
by action at law, or both, whether for the specific performance of any covenant,
condition or agreement contained in this Promissory Note or in any agreement or
document referred to herein or in aid of the exercise of any power granted in
this Promissory Note or in any agreement or document referred to herein, or
proceed to enforce the payment of this Promissory Note or to enforce any other
legal or equitable right of Payee of this Promissory Note. No right or remedy
herein or in any other agreement or instrument conferred upon the holder of this
Promissory Note is intended to be exclusive of any other right or remedy, and

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each and every such right or remedy shall be cumulative and shall be in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.

      5. Unconditional Obligation; Fees; Waivers; Other.

            5.1. The obligations to make the payments provided for in this
      Promissory Note are absolute and unconditional and not subject to any
      defense, set-off, counterclaim, rescission, recoupment or adjustment
      whatsoever.

            5.2. No forbearance, indulgence, delay or failure to exercise any
      right or remedy with respect to this Promissory Note shall operate as a
      waiver, nor as an acquiescence in any default, nor shall any single or
      partial exercise of any right or remedy preclude any other or further
      exercise thereof or the exercise of any other right or remedy.

            5.3. This Promissory Note may not be modified except by a writing
      duly executed by Payor and Payee.

            5.4. Payor hereby expressly waives demand and presentment for
      payment, notice of payment, notice of dishonor, protest, notice of
      protest, bringing of suit, and diligence in taking any action to collect
      amounts called for hereunder, and shall be directly and primarily liable
      for the payment of all sums owing and to owing herein, regardless of and
      without notice, diligence, act or omission with respect to the collection
      of any amount called for hereunder.

            5.5. Payor shall bear all of its expenses, including attorneys' fees
      incurred in connection with the preparation of this Promissory Note.

      6. Restrictions on Transfer. By its acceptance of this Promissory Note,
Payee acknowledges that this Promissory Note has not been registered under the
securities laws of the United States of America or any state thereof and Payee
represents that this Promissory Note has been acquired for investment and no
interest in this Promissory Note may be offered for sale, sold, delivered after
sale, transferred, pledged, or hypothecated in the absence of registration and
qualification of this Promissory Note under applicable federal and state
securities laws or an opinion of counsel reasonably satisfactory to Payor that
such registration and qualification are not required. In addition, this
Promissory Note may only be transferred to a person deemed to be an "accredited
investor" as such term is defined under Rule 501(a) of Regulation D promulgated
under the Securities Act of 1933, as amended.

      7. Miscellaneous.

            7.1. The headings of the various paragraphs of this Promissory Note
      are for convenience of reference only and shall in no way modify any of
      the terms or provisions of this Promissory Note.

            7.2. All notices required or permitted to be given hereunder shall
      be in writing and shall be deemed to have been duly given when personally
      delivered, delivered by Federal

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      Express or other national overnight courier, three days after mailing if
      sent by registered or certified mail, return receipt requested, postage
      prepaid, or on the date of delivery if delivered by telecopy, receipt
      confirmed, provided that a confirmation copy is sent on the next business
      day by registered or certified mail, return receipt requested and postage
      prepaid, to the address of the intended recipient set forth in the
      preamble to this Promissory Note or at such other address as the intended
      recipient shall have hereafter given to the other party hereto pursuant to
      the provisions hereof.

            7.3. This Promissory Note and the obligations of Payor and the
      rights of Payee shall be governed by and construed in accordance with the
      laws of the State of Illinois, without regard to its conflicts of laws
      rules or principles, with respect to contracts made and to be fully
      performed therein.

            7.4. Any legal suit, action or proceeding arising out of or relating
      to this Promissory Note will be instituted exclusively in the Circuit
      Court of Cook County, Illinois, or in the United States District Court for
      the Northern District of Illinois, each and any of which shall apply
      Illinois law without reference to its conflicts of laws principles or
      rules. Payor and Payee (by accepting this Promissory Note) each waives any
      objection which Payor or Payee may have now or hereafter to the venue of
      any such suit, action or proceeding, and irrevocably consents to the
      jurisdiction of the Illinois Circuit Courts, County of Cook and the United
      States District Court for the Northern District of Illinois in any such
      suit, action or proceeding. Payor and Payee (by accepting this Promissory
      Note) each further agree to accept and acknowledge service of any and all
      process which may be served in any such suit, action or proceeding in the
      Illinois Circuit Courts, County of Cook or in the United States District
      Court for the Northern District of Illinois.

            7.5. This Promissory Note shall bind Payor and its successors and
      assigns.

                                       CTI INDUSTRIES CORPORATION

                                    By:    /s/ Howard W. Schwan
                                       ---------------------------------------
                                       Howard W. Schwan, President

ATTEST:

 /s/ Stephen M. Merrick
----------------------------------------
Stephen M. Merrick, Secretary

                                        5EXHIBIT 10.13

          The securities represented by this Warrant have not been
          registered under the Securities Act of 1933, and thus
          may not be transferred unless registered under that Act
          or unless an exemption from registration is available.

                                                   Warrant dated March 20, 2003,
                                                   to purchase 70,000 Shares of
                                                   Common Stock on or before
                                                   March 20, 2008.

                             STOCK PURCHASE WARRANT
                           TO PURCHASE COMMON STOCK OF
                           CTI INDUSTRIES CORPORATION

      This certifies that, for value received, Stephen M. Merrick, or his
assigns, is entitled to subscribe for and purchase from CTI INDUSTRIES
CORPORATION, an Illinois corporation (hereinafter called the "Company"), at a
price of $4.87 per share (subject to adjustment as set forth in paragraph 3
below) and at any time after the date hereof to and including March 20, 2008,
70,000 (subject to adjustment as set forth in paragraph 3 below) fully paid and
non- assessable shares of the Company's no par value common stock (hereinafter
referred to as the "Common Stock").

      This Warrant is subject to the following provisions, terms and conditions:

      1. Exercise; Issuance of Certificates; Payment for Shares. The rights
represented by this Warrant may be exercised by the holder hereof at any time
within the period specified above, in whole or in part (but not as to a
fractional share of Common Stock), by the surrender of this Warrant (properly
endorsed if required) at the principal office of the Company (or such other
office of the Company as it may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the Company) (a)
specifying the number of shares of Common Stock being purchased and (b)
accompanied by a check payable to the Company for the purchase price for such
shares. The Company agrees that the shares so purchased shall be deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. Certificates for the shares so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding ten days, after the rights represented by this Warrant shall have been
so exercised, and, unless this Warrant has expired, a new Warrant of like tenor,
representing the right to purchase the number of shares, if any, with respect to
which this Warrant shall not then have been exercised, shall also be delivered
to the holder hereof within such time.

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      2. Shares to be Fully Paid; Reservation of Shares. The Company covenants
and agrees:

            (a) that all shares of Common Stock which may be issued upon
      exercise of the rights represented by this Warrant will, upon issuance, be
      fully paid and nonassessable and free from all taxes, liens and charges
      with respect to the issue thereof;

            (b) without limiting the generality of the foregoing, that the
      Company will from time to time take all such action as may be required to
      assure that the par value, if any, per share of Common Stock is at all
      times equal to or less than the then effective Warrant Purchase Price (as
      hereinafter defined) per share of Common Stock issuable pursuant to this
      Warrant;

            (c) that, during the period within which the rights represented by
      this Warrant may be exercised, the Company will at all times have
      authorized, and reserved for the purpose of issue or transfer upon
      exercise of the rights evidenced by this Warrant, a sufficient number of
      shares of Common Stock to provide for the full exercise of the rights
      represented by this Warrant;

            (d) that the Company will take all such action as may be necessary
      to assure that the Common Stock issuable upon the exercise hereof may be
      so issued without violation of any applicable law or regulation; and

            (e) that the Company will not take any action which would result in
      any adjustment of the Warrant Purchase Price if (i) the total number of
      shares of Common Stock issuable after such action upon exercise of this
      Warrant, together with all shares of Common Stock then outstanding and all
      shares of Common Stock then issuable upon exercise of all Options (as
      hereinafter defined) and upon conversion of all Convertible Securities (as
      hereinafter defined) then outstanding, would exceed (ii) the total number
      of shares of Common Stock then authorized by the Company's Articles of
      Incorporation (all such issued and issuable Common Stock being called the
      "Potentially Outstanding Common Stock").

In the event any stock or securities of the Company other than Common Stock are
issuable upon the exercise hereof, the Company will take or refrain from taking
any action referred to in clauses (a) through (e) of this paragraph 2 as though
such clauses apply, equally, to such other stock or securities then issuable
upon the exercise hereof.

      3. Adjustments: Stock Dividends, Reclassification, Reorganization and
Merger Provisions.

      (a) If the Company increases or decreases the number of its issued and
outstanding shares of Common Stock, or changes in any way the rights and
privileges of such shares, by

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means of (i) the payment of a stock dividend or the making of any other
distribution on such shares payable in its Common Stock, (ii) a forward or
reverse stock split or other subdivision of shares, (iii) a consolidation or
combination involving its Common Stock, or (iv) a reclassification or
recapitalization involving its Common Stock, then the Exercise Price in effect
at the time of such action and the number of Warrant Securities purchasable
pursuant to this Warrant at that time shall be proportionately adjusted so that
the numbers, rights, and privileges relating to the Warrant Securities then
purchasable pursuant to this Warrant shall be increased, decreased or changed in
like manner, for the same aggregate purchase price as set forth in this Warrant,
as if the Warrant Securities purchasable pursuant to this Warrant immediately
prior to the event at issue had been issued, outstanding, fully paid and
nonassessable at the time of that event. As an example, if the Company were to
declare a two-for-one forward stock split or a 100 percent stock dividend, then
the unpurchased number of Warrant Securities subject to this Warrant would be
doubled and the Exercise Price for all unpurchased Warrant Securities would be
reduced by 50 percent. These adjustments would result in the Holder's rights
under this Warrant not being diluted by the stock split or stock dividend and
the Holder paying the same aggregate exercise price.

      If the Company shall declare a dividend payable in money on its Common
Stock and at substantially the same time shall offer to its shareholders a right
to purchase new shares of Common Stock from the proceeds of such dividend or for
an amount substantially equal to the dividend, all shares of Common Stock so
issued shall, for purposes of this Warrant, be deemed to have been issued as a
stock dividend.

      (b) If the Company pays or makes any dividend or other distribution upon
its Common Stock payable in securities or other property, excluding money or
shares of the Company's Common Stock but including (without limitation) shares
of any other class of the Company's stock or stock or other securities
convertible into or exchangeable for shares of Common Stock or any other class
of the Company's stock or other interests in the Company or its assets
("Convertible Securities"), a proportionate part of those securities or that
other property shall be set aside by the Company and delivered to the Holder in
the event that the Holder exercises this Warrant. The securities and other
property then deliverable to the Holder upon the exercise of this Warrant shall
be in the same ratio to the total securities and property set aside for the
Holder as the number of Warrant Securities with respect to which the Warrant is
then exercised is to the total Warrant Securities purchasable pursuant to this
Warrant at the time the securities or property were set aside for the Holder.

      If the Company shall declare a dividend payable in money on its Common
Stock and at substantially the same time shall offer to its shareholders a right
to purchase new shares of a class of stock (other than Common Stock),
Convertible Securities, property or other interests from the proceeds of such
dividend or for an amount substantially equal to the dividend, all shares of
stock, Convertible Securities, property or other interests so issued or
transferred shall, for purposes of this Warrant, be deemed to have been issued
as a dividend or other distribution subject to this subsection (b).

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      If the Company shall declare a dividend payable in money or shares of the
Company's Common Stock, and Holder has not fully exercised this Warrant, then,
subject to the provisions of Section 4 hereof, Holder shall only be permitted to
receive or participate in said dividends to the extent of his ownership of
Warrant Securities actually purchased hereunder.

      (c) If at any time the Company grants to its shareholders rights to
subscribe pro rata for additional securities of the Company, whether Common
Stock, Convertible Securities, or other classifications, or for any other
securities, property or interests that the Holder would have been entitled to
subscribe for if, immediately prior to such grant, the Holder had exercised this
Warrant, then the Company shall cause the Company also to grant to the Holder
the same subscription rights that the Holder would be entitled to if the Holder
had exercised this Warrant in full immediately prior to such grant.

      (d) The Company shall cause the Company to make effective provision so
that the Holder shall have the right thereafter, by the exercise of this
Warrant, to purchase for the aggregate Exercise Price described in this Warrant
the kind and amount of shares of stock and other securities, and property and
interests, as would be issued or payable with respect to or in exchange for the
number of Warrant Securities of the Company that are then purchasable pursuant
to this Warrant as if such Warrant Securities had been issued to the Holder
immediately before the occurrence of any of the following events: (i) the
reclassification, capital reorganization, or other similar change of outstanding
shares of Common Stock of the Company, other than as described and provided for
in subsection (a) above; (ii) the merger or consolidation of the Company with
one or more other corporations or other entities, other than a merger with a
subsidiary or affiliate pursuant to which the Company is the continuing entity
and the outstanding shares of Common Stock, including the Warrant Securities
purchasable pursuant to this Warrant, are not affected; or (iii) the spin-off of
assets to a subsidiary or an affiliated entity, or the sale, lease, or exchange
of a significant portion of the Company's assets, in a transaction pursuant to
which the Company's shareholders of record are to receive securities or other
interests in another entity. Any such provision made by the Company for
adjustments with respect to this Warrant shall be as nearly equivalent to the
adjustments otherwise provided for in this Warrant as is reasonably practicable.
The foregoing provisions of this subsection (d) shall similarly apply to
successive reclassifications, capital reorganizations and similar changes of
shares of Common Stock and to successive consolidations, mergers, spin-offs,
sales, leases or exchanges.

      (e) If any sale, lease or exchange of all, or substantially all, of the
Company's assets or business or any dissolution, liquidation or winding up of
the Company (a "Termination of Business") shall be proposed, the Company shall
cause effective provision to be made that the Company shall deliver written
notice to the Holder or Holders of this Warrant in accordance with Section 4
below as a condition precedent to the consummation of that Termination of
Business. If the result of the Termination of Business is that shareholders of
the Company are to receive securities or other interests of another entity, the
provisions of subsection (d) above shall apply. However, if the result of the
Termination of Business is that shareholders of the Company are to receive money
or property other than securities or other interests in another entity, the
Holder or

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Holders of this Warrant shall be entitled to exercise this Warrant prior to the
consummation of the event at issue and, with respect to any Warrant Securities
so purchased, shall be entitled to all of the rights of the other shareholders
of Common Stock with respect to any distribution by the Company in connection
with the Termination of Business. In the event no other entity is involved and
subsection (d) does not apply, all purchase rights under this Warrant shall
terminate at the close of business on the date as of which shareholders of
record of the Common Stock shall be entitled to participate in a distribution of
the assets of the Company in connection with the Termination of Business;
provided, that in no event shall that date be less than 30 days after delivery
to the Holder or Holders of this Warrant of the written notice described above
and in Section 4. If the termination of purchase rights under this Warrant is to
occur as a result of the event at issue, a statement to that effect shall be
included in that written notice.

      (f) Except as otherwise provided in this Section 3, upon any adjustment of
the Exercise Price, the Holder shall be entitled to purchase, at the new
Exercise Price, the number of shares of Common Stock, calculated to the nearest
full share, obtained by multiplying the number of Warrant Securities purchasable
pursuant to this Warrant immediately prior to the adjustment of the Exercise
Price by the Exercise Price in effect immediately prior to its adjustment and
dividing the product so obtained by the new Exercise Price.

      (g) If consideration other than money is received by the Company upon the
issuance or sale of Common Stock, Convertible Securities, or other securities or
interests, the fair market value of such consideration, as reasonably determined
by the Board of Directors of the Company, shall be used for purposes of any
adjustment required by this Section 3. The fair market value of such
consideration shall be determined as of the date of the adoption of the
resolution of the Board of Directors of the Company that authorizes the
transaction giving rise to the adjustment. In case of the issuance or sale of
Common Stock, Convertible Securities, or other securities or interests in
conjunction with the issuance or sale of other securities or property without a
separate allocation of the purchase price, the Board of Directors of the Company
shall reasonably determine an allocation of the consideration among the items
being issued or sold. The reclassification of securities other than Common Stock
into securities including Common Stock shall be deemed to involve the issuance
of that Common Stock for a consideration other than money immediately prior to
the close of business on the date fixed for the determination of shareholders
entitled to receive that Common Stock.

      The Company shall promptly deliver written notice of all such
determinations by its Board of Directors to the Holder or Holders of this
Warrant, and those determinations shall be final and binding on the Holder or
Holders.

      (h) The provisions of this Section 3 shall apply to successive events that
may occur from time to time but shall only apply to a particular event if it
occurs prior to the expiration of this Warrant either by its terms or by its
exercise in full.

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      (i) For purposes of subsections (a) and (b) above, Shares of the Company's
Common Stock owned or held at any relevant time by, or for the account of, the
Company, in its treasury or otherwise, shall not be deemed to be outstanding for
purposes of the calculations and adjustments described.

      4. Issue Tax. The issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant for any issuance tax in respect thereof.

      5. Closing of Books. The Company will at no time close its transfer books
against the transfer of this Warrant or of any shares of Common Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.

      6. No Voting Rights. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.

      7. Warrants Transferable. Subject to the restrictions referred to in the
legend set forth on the face of this Warrant, this Warrant and all rights
hereunder are transferable to any person, in whole or in part, without charge to
the holder hereof, at the office of the Company referred to in paragraph 1
above, by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable, and that the holder hereof,
when this Warrant shall have been so endorsed, may be treated by the Company and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding. Until such transfer on such books, however, the
Company may treat the registered holder hereof as the owner for all purposes.

      8. Transfer to Comply With the Securities Act of 1933.

            (a) All securities issued or issuable upon exercise of this Warrant,
      may not be offered, sold or transferred, in whole or in part, except in
      compliance with the Securities Act of 1933, as amended (the "Act"), and
      except in compliance with all applicable state securities statutes.

            (b) The Company may cause the following legend, or its equivalent,
      to be set forth on each certificate representing any security issued or
      issuable upon exercise of this Warrant to the extent such Common Stock has
      not been registered for sale by the Company.

            "The shares represented by this Certificate have not been registered
            under the Securities Act of 1933 ("the Act") and are 'restricted
            securities' as that

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            term is defined in Rule 144 under the Act. The shares may not be
            offered for sale, sold or otherwise transferred except pursuant to
            an effective registration statement under the Act or pursuant to an
            exemption from registration under the Act, the availability of which
            is to be established to the satisfaction of the Company."

      9. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon its surrender by the holder hereof at the office of the
Company referred to in paragraph 1 above, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of Shares which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the right to subscribe for and purchase such number of
shares as shall be designated by said holder hereof at the time of such
surrender.

      10. Descriptive Headings and Governing Law. The descriptive headings of
the several paragraphs of this Warrant are inserted for convenience of reference
only and do not constitute a part of this Warrant. This Warrant is being
delivered and is intended to be performed in the State of Illinois and shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of such State.

      11. Certain Covenants of the Company. So long as this Warrant remains
outstanding, in whole or in part, the Company will, unless the holder of this
Warrant otherwise consents in writing:

            (a) within 60 days after the end of each of the first three
      quarterly fiscal periods in each fiscal year of the Company, deliver to
      the holder of this Warrant (i) a consolidated balance sheet of the Company
      and its subsidiaries, if any, as at the end of such period, and (ii)
      consolidated statements of income and of surplus of the Company and its
      subsidiaries, if any, for such period and (in the case of the second and
      third such quarterly periods) for the period from the beginning of the
      current fiscal year to the end of such quarterly period, setting forth in
      each case in comparative form the consolidated figures for the
      corresponding periods of the previous fiscal year, all in reasonable
      detail and certified as prepared in accordance with generally accepted
      accounting principles consistently applied, subject to exchanges resulting
      from year-end audit adjustments, by the principal financial officer of the
      Company; and

            (b) within 90 days after the end of each fiscal year of the Company,
      deliver to the holder of this Warrant (i) a consolidated balance sheet of
      the Company and its subsidiaries, if any, as at the end of such year, and
      (ii) consolidated statements of income and of surplus of the Company and
      its subsidiaries, if any, for such year, setting forth in each case in
      comparative form the consolidated figures for the previous fiscal year,
      all in reasonable detail and accompanied by an opinion thereon of
      independent public accountants, which opinion shall state that such
      financial statements have been prepared in accordance with generally
      accepted accounting principles consistently applied and that the

                                        7

<PAGE>

      audit by such accountants in connection with such financial statements has
      been made in accordance with generally accepted auditing standards; and

            (c) as soon as practicable, notify the holder of this Warrant in
      writing of any potentially material adverse development concerning the
      Company; and permit such holder of his representative to examine the books
      and records of the company at any time during regular business hours and
      make copies of any portions thereof desired to be copied by such holder or
      his representative.

      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers under its corporate seal and this Warrant to be
dated this 20th day of March, 2003.

                                            CTI INDUSTRIES CORPORATION

                                            By: /s/ Howard W. Schwan
                                               ---------------------------------
                                                President

(CORPORATE SEAL)

Attest:

/s/ Stephen M. Merrick
----------------------------------
Secretary

                                        8

<PAGE>

                             SUBSCRIPTION AGREEMENT

                                                   Dated: ______________, 200_

To:   CTI Industries Corporation
      22160 N. Pepper Road
      Barrington, Illinois

      The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase shares of the Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant.

                                          Signature___________________________

                                          Address_____________________________

                                          ____________________________________

                                        9

<PAGE>

                                   ASSIGNMENT

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
all of the rights of the undersigned under the within Warrant, with respect to
the number of shares of Common stock set forth below, unto:

Name of Assignee            Address                          Number of Shares
----------------            -------                          ----------------

Dated: __________________, 200__

                                         Signature___________________________

                                         Witness_____________________________

                                       10

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