8.	Notes Payable and Capital Leases

Long term debt consists of:

	Dec. 31, 201 7			Dec. 31, 201 6
Mezzanine Note Payable with BMO Private Equity, balance due January 18, 2018, interest at 11.50% (effective rate of 15.56%)	$	-		$	5,000,000
Less: Remaining debt discount to be amortized					(113,000	)
Loan with Officer, payable on receipt, interest at 6.25%, balance paid January 2017, S/T		-			180,000
Mortgage Loan with BMO Harris, payable in monthly installments of $7,778 plus interest at prime (3.75%) plus a variable rate (based on loan covenants) of 0.75% (4.5%) at December 31, 2016 (amortized over 25 years)		-			1,711,000
Promissory Note with Clever Container shareholder(s) due 2018 L/T		-			81,000
Promissory Note from CTI to Clever Container shareholder S/T		-			45,000
Promissory Note with John Schwan due 2018 L/T		-			220,000
Term Loan with BMO Harris, payable in monthly installments of $22,323 beginning April 2012 plus interest at prime (3.75%) plus a variable rate (based on loan covenants) of 0.75% (4.5%) at December 31, 2016, (amortized over 5 years), balance due March 30, 2017.		-			67,000
Capital Lease with First American Equipment Finance, payable in monthly installments of $2,890 (amortized over 5 years).		3,000			36,000
Capital Lease with Wells Fargo, payable in monthly installments of $367 (amortized over 5 years).		2,000			6,000
Capital Lease with Wells Fargo, payable in monthly installments of $550 (amortized over 3 years).		-			3,000
Subordinated Notes (Officer ) due on demand, interest at 9% (see Notes 9, 12).		-			5,000
Subordinated Notes (Officer ) due on demand, interest at 8% (see Notes 9, 12).		-			802,000
Subordinated Notes (Officer ) due on demand, interest at prime (3.75%) plus 2% (5.75%) at December 31, 2016 (see Note 9).		-			609,000
Subordinated Notes (Officers) due on demand, interest at 4% , which consolidated prior Subordinated Notes (Officers)		1,507,000			-
Notes Payable (Affiliates) d ue 2015, interest at prime (3.25%) plus 0.25% (3.5%) at December 31, 2017 (see Note 12) (Related Party).		32,000			27,000
Promissory Note with Merrick Company due on demand, interest at 4.25% (Related Party).		76,000			83,000
Promissory Note with Schwan Leasing due on demand, interest at 4.25% (Related Party).		60,000			70,000
Notes Payable (Affiliate s) due 2021, interest at 11.75% (see Note 12) (Related Party).		41,000			47,000
Term Loan with PNC, payable in monthly installments of $100,000 amortized over 5 years, interest at 8.25%, balance due December 2022, which uses balloons and related equipment as collateral		6,000,000			-
Total long-term debt		7,721,000			8,879,000
Less current portion		(1,247,000	)		(1,938,000	)
Total Long-term debt, net of current portion	$	6,474,000		$	6,941,000

Until

December 2017,

we had in place a series of credit facility and related agreements with BMO Harris Bank, N.A. and BMO Private Equity (U.S.), (collectively, “BMO”), in the aggregate amount of approximately

$17

million. During

December 2017,

we terminated those agreements and fully

repaid all amounts owed BMO under those agreements, including the outstanding warrant note payable and associated fees and costs related to termination, as we entered in new financing agreements with PNC Bank, National Association (“PNC”). The “PNC Agreements” include a

million term loan and an

$18

million revolving credit facility, with a termination date of

December 2022.

Available credit under the Revolving Credit facility is determined by eligible receivables and inventory at CTI Industries (U.S.) and Flexo Universal (Mexico).

Certain terms of the PNC Agreements include:

●

Restrictive Covenants

: The Credit Agreement includes several restrictive covenants under which we are prohibited from, or restricted in our ability to:

Borrow money;

Pay dividends and make distributions;

Make certain investments;

Use assets as security in other transactions;

Create liens;

Enter into affiliate transactions;

Merge or consolidate; or

Transfer and sell assets.

●

Financial Covenants

: The Credit Agreement includes a series of financial covenants we are required to meet including:

We are required to maintain a "Leverage Ratio", which is defined as the ratio of (a) Funded Debt (other than the Shareholder Subordinated Loan) as of such date of determination to (b) EBITDA

(as defined in the PNC Agreements) for the applicable period then ended. The highest values for this ration allowed by the PNC Agreements are:

Fiscal Quarter Ratio

December 31, 2017	4.75	to	1.00
March 31, 2018	4.50	to	1.00
June 30, 2018	4.25	to	1.00
September 30, 2018	3.75	to	1.00
December 31, 2018	3.50	to	1.00
March 31, 2019	3.25	to	1.00
June 30, 2019	3.00	to	1.00
September 30, 2019 and thereafter	2.75	to	1.00

We are required to maintain a "Fixed Charge Coverage Ratio", which is defined as the ratio of (a) EBITDA for such fiscal period, minus Unfinanced Capital Expenditures made during such period, minus distributions (including tax distributions) and dividends made during such period, minus cash taxes paid during such period to (b) all Debt Payments made during such period. This ratio must

not

exceed

1.1

1.0

for any quarterly calculation.

The credit agreement provides for interest at varying rates in excess of the prime rate, depending on the level of senior debt to EBITDA over time. We also entered into a

swap agreement with PNC Bank to fix the rate of interest for

million of the notes over

years at

2.25%.

This contract was made at market value upon

December 14, 2017

execution and accounted for as a hedge.

Failure to comply with these covenants might cause us to pay a higher rate of interest (by

per the Agreements), or other penalties up to and including the availability of the credit facility itself, and thus might negatively impact our ability to remain a going concern. We believe that we were in compliance as of

December 31, 2017.