Document:

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

    UNSECURED
      PROMISSORY NOTE

    
      
 

      
        	$500,000	
                 February
                  1, 2006

              
	 	
                 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 Stephen
      M. Merrick (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 Five
      Hundred Thousand Dollars
      ($500,000.00) 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 Febrary 1, 2011
      (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 per annum equal to Two Percent (2%)
      in
      excess of the Prime Rate until the first to occur of the Maturity Date or the
      date on which the entire principal balance hereof shall have been paid. For
      purposes of this Promissory Note, the “Prime Rate” shall mean the Prime Rate of
      interest payable as published in the Midwest Edition of the Wall Street Journal.
      The Prime Rate shall be determined and applied on the first day of each calendar
      quarter for so long as any of the principal amount hereof shall remain
      outstanding and such Prime Rate as determined at the first day of each such
      quarter shall be applicable for such quarter.

     

    
      
        
        

      

      
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    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.

    

    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) 12% 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 condi-tions, 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

     

    
      
        
        

      

      
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    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

    

    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 fore-close 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.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    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
      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 pro-vided 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.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    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.

    

    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 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.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    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

       

       

      
        
          
          

        

        
          6The
                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 February 1, 2006, to purchase 151,515 Shares of Common Stock
              on or
              before February 1, 2011	 
	 	 	 	 

    

    

 

    STOCK
      PURCHASE WARRANT

    TO
      PURCHASE COMMON STOCK OF

    CTI
      INDUSTRIES CORPORATION

    

    This
      certifies that, for value received, John
      H. Schwan,
      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 $3.30 per share (subject to adjustment as set forth in paragraph 3
      below) and at any time after the date hereof to and including February 1, 2011,
      151,515 (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.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    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 or stated
      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.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    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 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).

    

    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.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    (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
      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.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    (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.

    

    (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

        
          

        

      

      
        
        

      

    

    

    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 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.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    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
      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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    
 

    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
      1st day of February, 2006.

     

    
      	 	 	 
	 	
              CTI
                INDUSTRIES CORPORATION

            
	 
 	 
 	 
 
	 	By:  	/s/Howard
              W. Schwan
	 	
              
President
	 	 

    

     

    

    (CORPORATE
      SEAL)

    

    Attest:

     

        
      /s/Stephen M.
      Merrick                                 

    Secretary

     

    
 

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    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

        
          

        

      

      
        
        

      

    

    

    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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