EXHIBIT 10.1

 

CREDIT AGREEMENT

 

THIS AGREEMENT is entered into as of February 20, 2004 by and between SUMMA
INDUSTRIES, a Delaware corporation (“Summa”), KVP FALCON PLASTIC BELTING, INC.,
a California corporation, PLASTRON INDUSTRIES, INC., a Delaware corporation,
LEXALITE INTERNATIONAL CORPORATION, a Delaware corporation, CALNETICS
CORPORATION, a California corporation, KVP HOLDINGS, INC., a Delaware
corporation, PLASTIC SPECIALTIES, INC., a Mississippi corporation, FULLERTON
HOLDINGS, INC., a California corporation, AQUARIUS BRANDS, INC., a California
corporation, NY-GLASS PLASTICS, INC., a California corporation, and CENTRAL
VALLEY MANUFACTURING, INC., a California corporation (Summa and the foregoing
companies may be referred to collectively as “Borrowers” and individually as a
“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

 

RECITALS

 

Borrowers have requested that Bank extend or continue credit to Borrowers as
described below, and Bank has agreed to provide such credit to Borrowers on the
terms and conditions contained herein.

 

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Bank and Borrowers hereby agree as follows:

 

ARTICLE I

CREDIT TERMS

 

SECTION 1.1.                               LINE OF CREDIT.

 

(a)              Line of Credit.  Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrowers from time to time up
to and including February 1, 2007, not to exceed at any time the aggregate
principal amount of Twenty-five Million Dollars ($25,000,000.00) or such
limitation as may be imposed by the Borrowing Base set forth below (“Line of
Credit”).  The proceeds of the Line of Credit shall be used to refinance
Borrowers’ debt with Comerica Bank and thereafter for Borrowers’ working capital
and general corporate needs. Borrowers’ obligation to repay advances under the
Line of Credit shall be evidenced by a promissory note executed by Borrowers,
dated as of February 20, 2004 (“Line of Credit Note”), all terms of which are
incorporated herein by this reference.

 

(b)             Limitation on Borrowings. If the average daily principal balance
of the Line of Credit, including without limitation outstanding advances and
outstanding Letters of Credit (as defined below) for any month hereafter,
commencing with the month ending February 29, 2004, exceeds Fifteen Million
Dollars ($15,000,000.00), then (1) not later than twenty (20) days after and as
of the end of such month Borrowers shall provide Bank with the certifications,
agings and collateral reports set forth in Section 4.3(e) below, and (2)
thereafter outstanding borrowings under the Line of Credit, including without
limitation outstanding advances and outstanding Letters of Credit, to a maximum
of the principal amount set forth above, shall not at any time exceed the
Borrowing Base (as defined below); provided, however, that if the Borrowing Base
is established in accordance with the foregoing and at a subsequent month-end

 

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the average daily balance of the Line of Credit, including without limitation
outstanding advances and outstanding Letters of Credit for any month thereafter,
is less than or equal to Fifteen Million Dollars ($15,000,000.00), then such
Borrowing Base requirement shall be canceled, subject to its reinstatement in
accordance with the foregoing if the average daily balance of the Line of Credit
for any  month subsequently exceeds Fifteen Million Dollars ($15,000,000.00) .

 

As used herein, “Borrowing Base” means an aggregate of eighty percent (80%) of
Borrowers’ eligible accounts receivable, plus fifty-five percent (55%) of the
value of Borrowers’ eligible inventory (exclusive of work in process, inventory
which is obsolete, unsaleable or damaged, any inventory located outside of the
United States, or any inventory in which Bank does not have a perfected security
interest of first priority), with value defined as the lower of cost or market. 
The Borrowing Base, when required in accordance with the foregoing, shall be
determined by Bank upon receipt and review of all collateral reports required
hereunder and such other documents and collateral information as Bank may from
time to time require.

 

Borrowers acknowledge that the foregoing advance rates used in the Borrowing
Base were established by Bank with the understanding that, among other items,
the aggregate of all returns, rebates, discounts, credits and allowances for the
three (3) months preceding any such Borrowing Base determination shall be less
than five percent (5%) of Borrowers’ gross sales for said period.  If such
dilution of Borrowers’ accounts for the three (3) months preceding any such
Borrowing Base determination exceeds five percent (5%) of Borrowers’ gross sales
for said period, or if there at any time exists any other matters, events,
conditions or contingencies which Bank reasonably believes may affect payment of
any portion of Borrowers’ accounts, Bank, in its sole discretion, may reduce the
foregoing advance rate against eligible accounts receivable to a percentage
appropriate to reflect such additional dilution and/or establish additional
reserves against Borrowers’ eligible accounts receivable.

 

As used herein, “eligible accounts receivable” shall consist solely of trade
accounts created in the ordinary course of a Borrower’s business, upon which
such Borrower’s right to receive payment is absolute and not contingent upon the
fulfillment of any condition whatsoever, and in which Bank has a perfected
security interest of first priority, and shall not include:

 

(i)                                 any account which is more than ninety (90)
days past due;

 

(ii)                              that portion of any account for which there
exists any right of setoff, defense or discount (except regular discounts
allowed in the ordinary course of business to promote prompt payment) or for
which any defense or counterclaim has been asserted;

 

(iii)                           any account which represents an obligation of
any state or municipal government or of the United States government or any
political subdivision thereof (except accounts which represent obligations of
the United States government and for which the assignment provisions of the
Federal Assignment of Claims Act, as amended or recodified from time to time,
have been complied with to Bank’s satisfaction);

 

(iv)                          any account which represents an obligation of an
account debtor located in a foreign country, except for (1) an account from an
account debtor located in a Canadian province or territory, so long as, in
Bank’s determination, such Canadian jurisdiction recognizes Bank’s first
priority security interest in and right to collect such account as a consequence
of any security agreements and UCC filings in favor of Bank, and (2) other
foreign accounts owing from account debtors listed on Schedule 1.1(b)

 

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attached hereto, so long as (I) the amount owing from any one such listed
account debtor does not exceed five percent (5%) of the total accounts
receivable of Borrowers, and (II) the amount owing from all of the listed
account debtors does not exceed the lesser of $2,000,000.00 or ten percent (10%)
of the total accounts receivable of Borrowers;

 

(v)                             any account which arises from the sale or lease
to or performance of services for, or represents an obligation of, an employee,
affiliate, partner, member, parent or subsidiary of any Borrower;

 

(vi)                          that portion of any account, which represents
interim or progress billings or retention rights on the part of the account
debtor;

 

(vii)                       any account which represents an obligation of any
account debtor when twenty percent (20%) or more of Borrowers’ accounts from
such account debtor are not eligible pursuant to (i) above;

 

(viii)                    that portion of any account from an account debtor
which represents the amount by which Borrowers’ total accounts from said account
debtor exceeds twenty-five percent (25%) of Companies’ total accounts;

 

(ix)                            any account deemed ineligible by Bank when Bank,
in its sole discretion, deems the creditworthiness or financial condition of the
account debtor, or the industry in which the account debtor is engaged, to be
unsatisfactory.

 

(c)              Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue or cause
an affiliate to issue  sight commercial and standby letters of credit for the
account of Borrowers to finance Borrowers’ and Subsidiaries’ general corporate
needs (each, a “Letter of Credit” and collectively, “Letters of Credit”);
provided however, that the aggregate undrawn amount of all outstanding Letters
of Credit shall not at any time exceed Ten Million Dollars ($10,000,000.00). 
The form and substance of each Letter of Credit shall be subject to approval by
Bank, in its sole discretion.  Each commercial Letter of Credit shall be issued
for a term not to exceed one hundred fifty (150) days, as designated by
Borrowers, and each standby Letter of Credit shall be issued for a term not to
exceed three hundred sixty-five (365) days, as designated by Borrowers; provided
however, that no Letter of Credit shall have an expiration date beyond the
maturity date of the Line of Credit.  The undrawn amount of all Letters of
Credit shall be reserved under the Line of Credit and shall not be available for
borrowings thereunder.  Each Letter of Credit shall be subject to the additional
terms and conditions of the Letter of Credit agreements, applications and any
related documents required by Bank in connection with the issuance thereof. 
Each drawing paid under a Letter of Credit shall be deemed an advance under the
Line of Credit and shall be repaid by Borrowers in accordance with the terms and
conditions of this Agreement applicable to such advances; provided however, that
if advances under the Line of Credit are not available, for any reason, at the
time any drawing is paid, then Borrowers shall immediately pay to Bank the full
amount drawn, together with interest thereon from the date such drawing is paid
to the date such amount is fully repaid by Borrowers, at the rate of interest
applicable to advances under the Line of Credit.

 

(d)             Borrowing and Repayment.  Borrowers may from time to time during
the term of the Line of Credit borrow, partially or wholly repay their
outstanding borrowings, and reborrow, subject to all of the limitations, terms
and conditions contained herein or in the Line of Credit

 

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Note; provided however, that the total outstanding borrowings under the Line of
Credit shall not at any time exceed the maximum principal amount of the Line of
Credit or such other limitation as may be set forth above.

 

SECTION 1.2.                               TERM LOAN.

 

(a)              Term Loan.  Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make a loan to Borrowers in the principal
amount of Five Million Dollars ($5,000,000.00) or such lesser amount as may be
required to comply with the limitation set forth below (“Term Loan”).  The
proceeds of the Term Loan shall be used to refinance Borrowers’ existing
non-real estate term debt with Comerica Bank.  Borrowers’ obligation to repay
the Term Loan shall be evidenced by a promissory note executed by Borrowers,
dated as of February 20, 2004 (“Term Note”), all terms of which are incorporated
herein by this reference.  The Term Loan shall be funded concurrently with the
initial advance under the Line of Credit.

 

(b)             Repayment.  Principal and interest on the Term Loan shall be
repaid in accordance with the provisions of the Term Note.

 

(c)              Prepayment.  Borrowers may prepay principal on the Term Loan
solely in accordance with the provisions of the Term Note.

 

(d)             Limitation on Borrowing.  The principal amount of the Term Loan
shall not exceed eighty percent (80%) of the orderly liquidation value of the
equipment of Borrowers in existence as of the date of this Agreement, as
determined by Bank on the basis of such appraisal as Bank may require.

 

SECTION 1.3.                               INTEREST/FEES.

 

(a)              Interest.                                The outstanding
principal balances of the Line of Credit and the Term Loan shall bear interest
at the rate of interest set forth in each promissory note or other instrument or
document executed in connection therewith. The amount of each drawing paid under
any Letter of Credit shall bear interest from the date such drawing is paid to
the date such amount is fully repaid by Borrowers in accordance with
Section1.1(c) above.

 

(b)             Computation and Payment.  Interest shall be computed on the
basis of a 360-day year, actual days elapsed.  Interest shall be payable at the
times and place set forth in each promissory note or other instrument or
document required hereby.

 

(c)              Unused Commitment Fee.  Borrowers shall pay to Bank a fee equal
to one quarter percent (0.25%) per annum (computed on the basis of a 360-day
year, actual days elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a quarterly basis by Bank and shall be
due and payable by Borrower in arrears on the last day of each quarter.

 

(d)             Commercial Letter of Credit Fees.  Borrowers shall pay to Bank
fees upon the issuance of each commercial Letter of Credit, upon the payment or
negotiation of each drawing under any commercial Letter of Credit and upon the
occurrence of any other activity with respect to any commercial Letter of Credit
(including without limitation, the transfer, amendment or cancellation of any
commercial Letter of Credit) determined in accordance with Bank’s standard fees
and charges then in effect for such activity.

 

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(e)              Standby Letter of Credit Fees. Borrowers shall pay to Bank the
following fees (i) fees for the issuance of each Standby Letter of Credit equal
to a percentage per annum (computed on the basis of a 360-day year, actual days
elapsed) of the face amount thereof, which issuance fees shall be payable in
arrears on a quarterly basis on the last day of each quarter, and (ii) fees upon
the payment or negotiation of each draft under any Standby Letter of Credit and
fees upon the occurrence of any other activity with respect to any Standby
Letter of Credit (including without limitation, the transfer, amendment or
cancellation of any Standby Letter of Credit) determined in accordance with
Bank’s standard fees and charges then in effect for such activity.  The
aforesaid percentage for calculating the issuance fee for a standby Letter of
Credit shall be equal to the LIBOR margin applicable to advances under the Line
of Credit at the time such Standby Letter of Credit is issued.

 

SECTION 1.4.                               COLLECTION OF PAYMENTS.  Borrowers
authorize Bank to collect all principal, interest and fees due under each credit
subject hereto by charging the deposit account number 4100059377 maintained by
Summa with Bank, or any other deposit account maintained by Summa or any other
Borrower with Bank, for the full amount thereof.  Should there be insufficient
funds in any such deposit account that is so debited by Bank to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrowers.

 

SECTION 1.5.                               COLLATERAL.

 

As security for all indebtedness of Borrowers to Bank, each Borrower shall grant
to Bank security interests in its personal property, now owned or hereafter
acquired, including without limitation each Borrower’s accounts receivable,
rights to payment, general intangibles, deposit accounts, documents,
instruments, chattel paper, inventory and equipment; provided, however, that
such collateral shall not include the Preferred Stock Sinking Fund Account (as
defined below).

 

The foregoing security interests shall be of first priority, subject to such
purchase money security interests in favor of other creditors in specific items
of equipment (i) as may be in existence as of the date of this Agreement and
disclosed by Borrowers to Bank in writing prior to the date hereof, or (ii) as
may arise hereafter and be permitted under Section 5.7 below.

 

As used herein, “Preferred Stock Sinking Fund Account” means that certain
investment account to be opened by Summa, which will be funded by not more than
$7,868,000.00, to be used by Summa for the redemption of its preferred stock.

 

All of the foregoing security interests shall be evidenced by and subject to the
terms of such security agreements, financing statements and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank. 
Borrowers shall reimburse Bank immediately upon demand for all costs and
expenses incurred by Bank in connection with any of the foregoing security,
including without limitation, filing and recording fees and costs of appraisals
and audits.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES

 

Each Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue

 

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in full force and effect until the full and final payment, and satisfaction and
discharge, of all obligations of Borrowers to Bank subject to this Agreement.

 

SECTION 2.1.                               LEGAL STATUS.  Each Borrower is a
corporation, duly organized and existing and in good standing under the laws of
the State of its incorporation, and is qualified or licensed to do business (and
is in good standing as a foreign corporation, if applicable) in all
jurisdictions in which such qualification or licensing is required or in which
the failure to so qualify or to be so licensed could have a material adverse
effect on it.

 

As used herein, “Subsidiary” shall mean any corporation or other entity of which
at least a majority of the securities or other ownership interests having
ordinary voting power for the election of directors or other persons performing
similar functions are owned directly or indirectly by any Borrower and/or by one
or more of any Borrower’s Subsidiaries.  As used herein, “Subsidiaries” shall
mean each Subsidiary.

 

As used herein, “Foreign Subsidiary” shall mean any Subsidiary which is
organized under the laws of a jurisdiction outside of the United States of
America.

 

Attached hereto as Schedule 2.1 is a complete and accurate list of all
Subsidiaries as of the date of this Agreement, showing each Subsidiary’s name,
nature, status (active or inactive), jurisdiction of incorporation and
ownership.  As set forth therein, as of the date of this Agreement, Summa owns
one hundred percent (100%) of the stock of each other Borrower and each
Subsidiary other than Plastron Industries, Inc., which is ninety percent (90%)
owned by Summa.

 

Each Subsidiary is a corporation, duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation or formation,
as the case may be, and is qualified or licensed to do business (and is in good
standing as a foreign corporation, if applicable) in all jurisdictions in which
such qualification or licensing is required or in which the failure to so
qualify or to be so licensed could have a material adverse effect on it.

 

SECTION 2.2.                               AUTHORIZATION AND VALIDITY.  This
Agreement and each promissory note, contract, instrument and other document
required hereby or at any time hereafter delivered to Bank in connection
herewith (collectively, the “Loan Documents”) have been duly authorized, and
upon their execution and delivery in accordance with the provisions hereof will
constitute legal, valid and binding agreements and obligations of Borrowers and
Subsidiaries or the party which executes the same, enforceable in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors’ rights generally and or by equitable principles relating to
enforceability.

 

SECTION 2.3.                               NO VIOLATION.  The execution,
delivery and performance by each Borrower and each Subsidiary of each of the
Loan Documents to which any of them is a party do not violate any provision of
any law or regulation, or contravene any provision of the Articles of
Incorporation or By-Laws of any Borrower or any Subsidiary, or result in any
breach of or default under any contract, obligation, indenture or other
instrument to which any Borrower or any Subsidiary is a party or by which any
Borrower or any Subsidiary may be bound.

 

SECTION 2.4.                               LITIGATION.  There are no pending, or
to the best of Borrowers’ knowledge threatened, actions, claims, investigations,
suits or proceedings by or before any governmental authority, arbitrator, court
or administrative agency which are reasonably likely to

 

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have a material adverse effect on the financial condition or operation of any
Borrower or any Subsidiary other than those disclosed by Borrowers to Bank in
writing prior to the date hereof.

 

SECTION 2.5.                               CORRECTNESS OF FINANCIAL STATEMENT. 
The financial statement of Borrowers and Subsidiaries dated November 30, 2003, a
true copy of which has been delivered by Borrowers to Bank prior to the date
hereof, (a) is complete and correct and presents fairly the financial condition
of Borrowers and Subsidiaries as of said date, (b) discloses all liabilities of
Borrowers and Subsidiaries as of said date that are required to be reflected or
reserved against under generally accepted accounting principles, whether
liquidated or unliquidated, fixed or contingent, and (c) has been prepared in
accordance with generally accepted accounting principles consistently applied,
except as noted therein.  Since the date of such financial statement there has
been no material adverse change in the financial condition of any Borrower or
any Subsidiary, nor has any Borrower or any Subsidiary mortgaged, pledged,
granted a security interest in or otherwise encumbered any of its assets or
properties except in favor of Bank or as otherwise permitted by Bank under this
Agreement or in another writing.

 

SECTION 2.6.                               INCOME TAX RETURNS.  Borrowers have
no knowledge of any pending assessments or adjustments of any Borrower’s or any
Subsidiary’s income tax payable with respect to any year, except as heretofore
disclosed by Borrower to Bank in writing.

 

SECTION 2.7.                               NO SUBORDINATION.  There is no
agreement, indenture, contract or instrument to which any Borrower or any
Subsidiary is a party or by which any Borrower or Subsidiary may be bound that
requires any of their indebtedness to Bank in connection with this Agreement or
any of the other Loan Documents to be subordinated in right to payment to any
indebtedness of any Borrower or any Subsidiary to any other person or entity.

 

SECTION 2.8.                               PERMITS, FRANCHISES.  Each Borrower
and each Subsidiary possess, and will hereafter possess, all permits, consents,
approvals, franchises and licenses required and rights to all trademarks, trade
names, patents, and fictitious names, if any, necessary to enable each of them
to conduct the business in which it is now engaged in compliance with applicable
law.

 

SECTION 2.9.                               ERISA.  Each Borrower and each
Subsidiary are in compliance in all material respects with all applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended or
recodified from time to time (“ERISA”); no Borrower or Subsidiary has violated
any provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by any Borrower or any Subsidiary (each, a “Plan”);
no Reportable Event as defined in ERISA has occurred and is continuing with
respect to any Plan initiated by any Borrower or any Subsidiary; each Borrower
and each Subsidiary have met their minimum funding requirements under ERISA with
respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
generally accepted accounting principles.

 

SECTION 2.10.                         OTHER OBLIGATIONS.  No Borrower or
Subsidiary is in default on any obligation for borrowed money, any purchase
money obligation or any other material lease, commitment, contract, instrument
or obligation.

 

SECTION 2.11.                         ENVIRONMENTAL MATTERS.  Except as
disclosed by Borrowers to Bank in writing prior to the date hereof, Borrowers
and Subsidiaries are in compliance in all material respects with all applicable
federal or state environmental, hazardous waste, health and safety statutes, and
any rules or regulations adopted pursuant thereto, which govern or

 

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affect any of their operations and/or properties, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal
Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances
Control Act, as any of the same may be amended, modified or supplemented from
time to time.  None of the operations of any Borrower or any Subsidiary is the
subject of any federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to a release of any
toxic or hazardous waste or substance into the environment.  To the best of each
Borrower’s knowledge, no Borrower or Subsidiary has any material contingent
liability in connection with any release of any toxic or hazardous waste or
substance into the environment.

 

ARTICLE III

CONDITIONS

 

SECTION 3.1.                               CONDITIONS OF INITIAL EXTENSION OF
CREDIT.  The obligation of Bank to extend any credit contemplated by this
Agreement is subject to the fulfillment to Bank’s satisfaction of all of the
following conditions:

 

(a)              Approval of Bank Counsel.  All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank’s counsel.

 

(b)             Documentation.  Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:

 

(i)                              This Agreement and each promissory note or
other instrument or document required hereby.

(ii)                           Corporate borrowing resolution and third party
collateral resolution for each Borrower.

(iii)                        Security agreement from each Borrower.

(iv)                       Letter of Credit Agreements as required hereunder.

(v)                          Copies of the formation documents of each Borrower
and Subsidiary, as Bank may require.

(vi)                       Such other documents as Bank may require under any
other Section of this Agreement, including without limitation such documents as
Bank may require to perfect its security interests in accordance with this
Agreement.

 

(c)              Financial Condition.  There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of any
Borrower or any Subsidiary, nor any material decline, as determined by Bank, in
the market value of any collateral required hereunder or a substantial or
material portion of the assets of any Borrower or any Subsidiary.

 

(d)             Insurance.  Borrowers shall have delivered to Bank evidence of
insurance coverage on all property of each Borrower and each Subsidiary, in
form, substance, amounts, covering risks and issued by companies satisfactory to
Bank, and where required by Bank, with loss payable endorsements in favor of
Bank.

 

(e)              Appraisals.  Bank shall have obtained, at Borrowers’ cost, an
appraisal of the equipment supporting the Term Loan, issued by an appraiser
acceptable to Bank and in form, substance and reflecting values satisfactory to
Bank.

 

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(f)                Projections.  Borrowers shall have delivered to Bank their
consolidated projections (for Borrowers and any Subsidiary) for the next fiscal
year.

 

SECTION 3.2.                               CONDITIONS OF EACH EXTENSION OF
CREDIT.  The obligation of Bank to make each extension of credit requested by
Borrowers hereunder shall be subject to the fulfillment to Bank’s satisfaction
of each of the following conditions:

 

(a)              Compliance.  The representations and warranties contained
herein and in each of the other Loan Documents shall be true on and as of the
date of the signing of this Agreement and on the date of each extension of
credit by Bank pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such date, and on
each such date, no Event of Default as defined herein, and no condition, event
or act which with the giving of notice or the passage of time or both would
constitute such an Event of Default, shall have occurred and be continuing or
shall exist.

 

(b)             Documentation.  Bank shall have received all additional
documents which may reasonably be required in connection with such extension of
credit.

 

ARTICLE IV

AFFIRMATIVE COVENANTS

 

Each Borrower covenants that so long as Bank remains committed to extend credit
to Borrowers pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrowers to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrowers
subject hereto, unless Bank otherwise consents in writing:

 

SECTION 4.1.                               PUNCTUAL PAYMENTS.  Each Borrower
shall punctually pay all principal, interest, fees or other liabilities due
under any of the Loan Documents at the times and place and in the manner
specified therein, and immediately upon demand by Bank, the amount by which the
outstanding principal balance of any credit subject hereto at any time exceeds
any limitation on borrowings applicable thereto.

 

SECTION 4.2.                               ACCOUNTING RECORDS.  Each Borrower
shall, and shall cause each Subsidiary to, maintain adequate books and records
in accordance with generally accepted accounting principles consistently
applied, and permit any representative of Bank, at any reasonable time, to
inspect, audit and examine such books and records, to make copies of the same,
and to inspect the properties of each Borrower and each Subsidiary.

 

SECTION 4.3.                               FINANCIAL STATEMENTS.  Each Borrower
shall provide to Bank all of the following, in form and detail satisfactory to
Bank:

 

(a)              not later than 90 days after and as of the end of each fiscal
year, an audited consolidated financial statement of Summa (and the other
Borrowers and each Subsidiary), prepared by a certified public accountant
reasonably acceptable to Bank, to include balance sheet, income statement and
statement of cash flows, together with its 10-K report;

 

(b)             not later than 45 days after and as of the end of each first,
second and third fiscal quarter, and not later than 60 days after and as of the
end of each fourth fiscal quarter, a consolidated financial statement of Summa
(and the other Borrowers and each Subsidiary),

 

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prepared by Borrowers, to include balance sheet, income statement, statement of
cash flows and if applicable, its 10-Q report;

 

(c)              not later than August 31 of each year, consolidated projections
of Summa (and the other Borrowers and each Subsidiary) for the following fiscal
year, to include projected balance sheet and income statement;

 

(d)             not later than 45 days after and as of the end of each first,
second and third fiscal quarter, and not later than 60 days after and as of the
end of each fourth fiscal quarter, an inventory collateral report, an aged
listing of accounts receivable and accounts payable, and a reconciliation of
accounts, with the foregoing prepared on a consolidated basis for Borrowers;

 

(e)              not later than 20 days after and as of the end of each month
when Borrowers are required to maintain the Borrowing Base, a borrowing base
certificate, an inventory collateral report, an aged listing of accounts
receivable and accounts payable, and a reconciliation of accounts, with the
foregoing prepared on a consolidated basis for Borrowers;

 

(f)                from time to time such other information as Bank may
reasonably request, including without limitation a list of the names and
addresses of all account debtors of each Borrower.

 

SECTION 4.4.                               COMPLIANCE.  Each Borrower shall, and
shall cause each Subsidiary to, preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of each of their businesses; and comply with the provisions of all
documents pursuant to which each of them  is organized and/or which govern the
continued existence of each of them and with the requirements of all laws,
rules, regulations and orders of any governmental authority applicable to any of
them and/or any of their businesses.

 

SECTION 4.5.                               INSURANCE.  Each Borrower shall, and
shall cause each Subsidiary to, maintain and keep in force insurance of the
types and in amounts customarily carried in similar lines of business, including
but not limited to fire, extended coverage, public liability, flood, property
damage and workers’ compensation, with all such insurance carried with companies
and in amounts satisfactory to Bank, and deliver to Bank from time to time at
Bank’s request schedules setting forth all insurance then in effect.

 

SECTION 4.6.                               FACILITIES.  Each Borrower shall, and
shall cause each Subsidiary to, keep all properties useful or necessary to each
of their businesses in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be reasonably preserved and maintained.

 

SECTION 4.7.                               TAXES AND OTHER LIABILITIES.  Each
Borrower shall, and shall cause each Subsidiary to, pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation federal and state income taxes and state
and local property taxes and assessments, except such (a) as any of them may in
good faith contest or as to which a bona fide dispute may arise, and (b) for
which they have made provision, to Bank’s reasonable satisfaction, for eventual
payment thereof in the event any Borrower or any Subsidiary is obligated to make
such payment.

 

SECTION 4.8.                               LITIGATION.  Each Borrower shall, and
shall cause each Subsidiary to, promptly give notice in writing to Bank of any
litigation pending or threatened against any Borrower or any Subsidiary with a
specified claim in excess of $500,000.00.

 

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SECTION 4.9.                               FINANCIAL CONDITION.  Each Borrower
shall maintain its financial condition on a consolidated basis with the other
Borrowers and each Subsidiary as follows using generally accepted accounting
principles consistently applied and used consistently with prior practices
(except to the extent modified by the definitions herein):

 

(a)              Adjusted Current Ratio not less than 0.90 to 1.0 at any time
from and including February 29, 2004 up to but not including August 31, 2007,
and not less than 1.00 to 1.0 at any time on or after August 31, 2007, with
“Adjusted Current Ratio” defined as total current assets minus cash and
marketable securities deposited in the Preferred Stock Sinking Fund (as defined
in Section 1.5 above) divided by total current liabilities.  For the purpose of
the foregoing, outstanding advances under the Line of Credit (but not the
undrawn amount of outstanding Letters of Credit) shall be included as current
liabilities (whether or not such advances would be classified as a current
liability per GAAP).

 

(b)             Tangible Net Worth not less than the Minimum Amount at any time
on or after February 29, 2004, with “Tangible Net Worth” defined as the
aggregate of total stockholders’ equity (plus Preferred Stock of Summa if it is
not included in calculating such equity under GAAP) plus subordinated debt less
any intangible assets, and with the “Minimum Amount” defined as follows:  from
and including February 29, 2004, up to but not including the August 31, fiscal
year end, the Minimum Amount is $23,500,000.00.  Commencing with the August 31,
2004 fiscal year end, the Minimum amount shall be adjusted upward on a
cumulative basis as follows:  commencing as of the August 31, 2004 fiscal year
end and continuing on each fiscal year end thereafter, the Minimum Amount shall
be increased by fifty percent (50%) of Borrowers’ and Subsidiaries’ consolidated
net profit after taxes for the fiscal year ending on such date (with no
reduction in the event of a loss for any such fiscal year), minus the amount of
Preferred Stock redemptions during such fiscal year (with no reduction if the
amount of such Preferred Stock redemptions for such fiscal year exceeds fifty
percent (50%) of Borrower’s and Subsidiaries consolidated net profit after taxes
for such fiscal year).

 

(c)              Total Liabilities divided by Adjusted Tangible Net Worth not
greater than 2.00 to 1.0 at any time from and including February 29, 2004, up to
and including August 30, 2004, not greater than 2.25 to 1.0 at any time from and
including August 31, 2004 up to and including August 30, 2006, not greater than
2.50 to 1.00 at any time from and including August 31, 2006 up to and including
August 30, 2007, not greater than 2.25 to 1.0 at any time from and including
August 31, 2007 up to and including August 30, 2008, and not greater than 2.00
to 1.0 at any time on or after August 31, 2008, with “Total Liabilities” defined
as the aggregate of current liabilities and non-current liabilities less
subordinated debt, and with “Adjusted Tangible Net Worth” defined as the
aggregate of total stockholders’ equity (plus Preferred Stock of Summa if it is
not included in calculating such equity under GAAP) plus subordinated debt, less
any intangible assets.

 

(d)             Net income after taxes not less than $1.00 on a quarterly basis
as of each fiscal quarter end, commencing with the February 29, 2004 fiscal
quarter end.

 

(e)              EBITDA Coverage Ratio determined on a rolling four fiscal
quarter basis as of the each fiscal quarter end, not less than 1.50 to 1.00 from
and including the four fiscal quarter period ending February 29, 2004 up to but
not including the four fiscal quarter period ending August 31, 2005, and not
less than 2.00 to 1.00 at any fiscal quarter end on or after August 31, 2005,
with “EBITDA” defined as net profit before tax plus interest expense (net of
capitalized interest expense), depreciation expense and amortization expense,
and with “EBITDA

 

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Coverage Ratio” defined as EBITDA divided by the aggregate of total interest
expense plus the current maturity of long-term debt for such four fiscal quarter
period.

 

SECTION 4.10.                         NOTICE TO BANK. Each Borrower shall
promptly (but in no event more than five (5) days after the occurrence of each
such event or matter) give written notice to Bank in reasonable detail of: 
(a) the occurrence of any Event of Default, or any condition, event or act which
with the giving of notice or the passage of time or both would constitute an
Event of Default; (b) any change in the name or the organizational structure of
any Borrower or any Subsidiary; (c) the occurrence and nature of any Reportable
Event or Prohibited Transaction, each as defined in ERISA, or any funding
deficiency with respect to any Plan; (d) any termination or cancellation of any
insurance policy which any Borrower or any Subsidiary is required to maintain,
or any uninsured or partially uninsured loss through liability or property
damage, or through fire, theft or any other cause affecting any Borrower’s or
any Subsidiary’s property in excess of an aggregate of $500,000.00; or (e) the
commencement of a borrowing relationship between a Foreign Subsidiary and a
lender (other than Bank) which is permitted under Section 5.2(e) below.

 

 

ARTICLE V

NEGATIVE COVENANTS

 

Each Borrower further covenants that so long as Bank remains committed to extend
credit to Borrowers pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrowers to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrowers subject hereto, without Bank’s prior written consent:

 

SECTION 5.1.                               USE OF FUNDS.  Each Borrower will not
use any of the proceeds of any credit extended hereunder except for the purposes
stated in Article I hereof.

 

SECTION 5.2.                               OTHER INDEBTEDNESS.  Each Borrower
will not, and will not permit any Subsidiary to, create, incur, assume or permit
to exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrowers and
Subsidiaries to Bank, (b) any other liabilities of Borrowers and Subsidiaries
existing as of, and disclosed to Bank in writing prior to, the date hereof, (c)
purchase money indebtedness incurred hereafter by a Borrower or a Subsidiary in
connection with the acquisition by such company in the ordinary course of
business of equipment and real property, (d) borrowings hereafter by a Borrower
or a Subsidiary from another Borrower or Subsidiary in the ordinary course of
business, and (e) borrowings hereafter by a Foreign Subsidiary in the ordinary
course of business from a lender (other than Bank) in the jurisdiction where
such Foreign Subsidiary is organized.   The parties acknowledge that this
Section 5.2(c) does not apply to trade debt and accounts payable incurred in the
ordinary course of business.  Notwithstanding anything to the contrary in this
Section 5.2, all obligations of Borrowers and Subsidiaries to Comerica Bank
shall be repaid in full and terminated concurrently with the initial extension
of credit hereunder, except for such existing real-estate secured term loans
from Comerica Bank as are heretofore approved by Bank.

 

SECTION 5.3.                               MERGER, CONSOLIDATION, TRANSFER OF
ASSETS.  Each Borrower will not, and will not permit any Subsidiary to, merge
into or consolidate with any other entity, except for (a) the merger of any
Borrower into Summa (with Summa as the survivor), (b)

 

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the merger of any Borrower other than Summa into any other Borrower which is a
wholly-owned Subsidiary of Summa (with such other Borrower as the survivor), (c)
the merger of any Subsidiary of any Borrower into such Borrower (with such
Borrower as the survivor), and (d) the merger of any corporation into any
Borrower or any wholly-owned Subsidiary of any Borrower (with such Borrower or
wholly-owned Subsidiary as the survivor) as part of a Permitted Acquisition (as
defined below); make any substantial change in the nature of any Borrower’s or
any Subsidiary’s business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity, except for mergers which
are permitted hereunder and Permitted Acquisitions; nor sell, lease, transfer or
otherwise dispose of all or a substantial or material portion of any Borrower’s
or any Subsidiary’s assets except in the ordinary course of business.

 

As used herein, “Permitted Acquisitions” means any acquisition by any Borrower
or any wholly-owned Subsidiary of any Borrower of (a) all or substantially all
of the operating assets of any person or entity, or (b) all or substantially all
of the stock of any corporation (so that such corporation becomes a wholly-owned
Subsidiary); provided, however, that all of the following conditions are
satisfied:

 

(i)                 The assets, entity or line of business which is acquired is
in a substantially similar line of business as that of Borrowers and
Subsidiaries as their businesses are conducted on the date of this Agreement.

 

(ii)              The acquisition is consummated in compliance with applicable
law.

 

(iii)           There is no Event of Default, nor any act, condition or event
which with the giving of notice or the passage of time or both would constitute
an Event of Default, and no such Event of Default or potential Event of Default
would result after giving effect to the acquisition.

 

(iv)          Borrowers give Bank at least thirty (30) days prior notice of the
acquisition;

 

(v)             Borrowers furnish Bank with copies of such documents and with
such information pertaining to the acquisition as Bank may require, including
without limitation copies of any acquisition agreement and formation documents
of any acquired company.

 

(vi)          The aggregate consideration (valuing any non-cash consideration at
its fair market value, and including without limitation the amount of all
liabilities assumed or acquired) does not exceed Ten Million Dollars
($10,000,000.00) for all such acquisitions in the aggregate during any fiscal
year.

 

(vii)       In the case of the acquisition of a U.S. corporation, such
corporation shall become one of the Borrowers under this Agreement and such
corporation and the other Borrowers shall execute and/or deliver to Bank such
documents as Bank may reasonably require to evidence such relationship.  In
connection therewith, such corporation shall grant Bank a security interest in
its personal property assets on the same terms as specified herein for
Borrowers.

 

SECTION 5.4.                               GUARANTIES.  Each Borrower will not,
and will not permit any Subsidiary to, guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets as security for, any
liabilities or obligations of any other person or entity, except (a) any of the
foregoing in favor of Bank, and (b) any of the foregoing existing as of, and
disclosed by Borrowers to Bank in writing, prior to the date hereof. 
Notwithstanding anything to the contrary in this Section 5.4,

 

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any of the foregoing guaranties, third party pledges and third party security
interests in favor of Comerica Bank shall be terminated concurrently with the
initial extension of credit hereunder.

 

SECTION 5.5.                               LOANS, ADVANCES, INVESTMENTS.  Each
Borrower will not, and will not permit any Subsidiary to, make any loans or
advances to or investments in any person or entity, except (a) any of the
foregoing existing as of, and disclosed to Bank in writing prior to, the date
hereof, (b)  loans made hereafter by a Borrower or a Subsidiary to another
Borrower or Subsidiary in the ordinary course of business, and (c) Permitted
Acquisitions.

 

SECTION 5.6.                               DIVIDENDS, DISTRIBUTIONS.  Each
Borrower will not, and will not permit any Subsidiary to, declare or pay any
dividend or distribution either in cash, stock or any other property on any
Borrower’s or any Subsidiary’s stock now or hereafter outstanding, nor redeem,
retire, repurchase or otherwise acquire any shares of any class of any
Borrower’s or any Subsidiary’s stock now or hereafter outstanding; provided
however, that (1) any Subsidiary of Summa may pay cash dividends to Summa, (2)
Summa may pay lawful cash dividends to its shareholders on its common stock and
make lawful repurchases its common stock so long as all such payments and
repurchases during any fiscal year to not exceed, in the aggregate, the lesser
of Two Million Dollars ($2,000,000.00) or the consolidated net profit after
taxes of Summa for such fiscal year (determined in accordance with GAAP), and
(3) Summa may make lawful redemptions of its preferred stock; provided, however,
that no payment or redemption under the preceding subdivisions (2) or (3) of
this paragraph shall be made if there exists any Event of Default, or any act,
condition or event which with the giving of notice or the passage of time or
both would constitute such an Event of Default, or if any such Event of Default
would result after giving effect to such transaction

 

SECTION 5.7.                               PLEDGE OF ASSETS.  Each Borrower will
not, and will not permit any Subsidiary to, mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of any Borrower’s
or any Subsidiary’s assets now owned or hereafter acquired, except (a) any of
the foregoing in favor of Bank, (b) any of the foregoing which is existing as
of, and disclosed to Bank in writing prior to, the date hereof, (c) purchase
money security interests hereafter granted by a Borrower or a Subsidiary to a
creditor to secure purchase money indebtedness permitted under Section 5.2(c)
above, and (d) security interests hereafter granted by a Foreign Subsidiary in
its assets to a lender (other than Bank) to secure borrowings by such Foreign
Subsidiary from such lender which are permitted under Section 5.2(e) above.

 

ARTICLE VI

EVENTS OF DEFAULT

 

SECTION 6.1.                               The occurrence of any of the
following shall constitute an “Event of Default” under this Agreement:

 

(a)              Any Borrower shall fail to pay within five (5) days of the date
when due any principal, interest, fees or other amounts payable under any of the
Loan Documents.

 

(b)             Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by any Borrower or any
other party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.

 

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(c)              Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence; provided,
however, that in the case of a default which by its nature can be cured under
the following covenants of this Agreement, such default shall continue for a
period of twenty (20) days from Borrowers receipt of written notice thereof from
Bank:  Section 4.2 as it relates to the maintenance of adequate books and
records in accordance with GAAP; Section 4.3 as it relates to Bank’s
satisfaction with the form and detail of the reporting thereunder; section 4.4;
Section 4.5; Section 4.6; and Section 4.7 as it relates to making provision to
Bank’s reasonable satisfaction for payment of the amount referenced therein.

 

(d)             Any default in the payment or performance of any obligation, or
any defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which any Borrower or any
Subsidiary has incurred any debt or other liability to any person or entity,
including Bank; provided, however, that any cure period applicable thereto has
expired and in the case of a default or defined event of default under the terms
of indebtedness to a person or entity other than Bank such indebtedness is in
excess of $500,000.00, individually or in the aggregate for all such defaults by
all of such companies combined.

 

(e)              The filing of a notice of judgment lien against any Borrower or
any Subsidiary; or the recording of any abstract of judgment against any
Borrower or any Subsidiary in any county in which such Borrower or such
Subsidiary has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of any Borrower or any Subsidiary; or the entry of a judgment against any
Borrower or any Subsidiary provided, however, that such judgments, liens,
levies, writs, executions and other process involve debts of or claims against
any or all of such companies in excess of $500,000.00, individually or in the
aggregate for all such items against all of said companies combined,  and within
thirty (30) days after the creation thereof, or at least five (5) days prior to
the date on which any assets could be lawfully sold in satisfaction thereof,
such debt or claim is not satisfied or stayed pending appeal and insured against
in a manner satisfactory to Bank.

 

(f)                Any Borrower or any Subsidiary shall become insolvent, or
shall suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment for
the benefit of creditors; any Borrower or any Subsidiary shall file a voluntary
petition in bankruptcy, or seeking reorganization, in order to effect a plan or
other arrangement with creditors or any other relief under the Bankruptcy Reform
Act, Title 11 of the United States Code, as amended or recodified from time to
time (“Bankruptcy Code”), or under any state or federal law granting relief to
debtors, whether now or hereafter in effect; or any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other relief for debtors
is filed or commenced against any Borrower or any Subsidiary and such
involuntary petition or proceeding is unopposed by such Borrower or Subsidiary
or is not dismissed within sixty (60) days of its commencement, or any Borrower
or any Subsidiary shall file an answer admitting the jurisdiction of the court
and the material allegations of any involuntary petition; or any Borrower or any
Subsidiary shall be adjudicated a bankrupt, or an order for relief shall be
entered against any Borrower or any Subsidiary by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors.

 

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(g)             There shall exist or occur any event or condition which Bank in
good faith believes impairs the prospect of payment or performance by any
Borrower or any Subsidiary of its obligations under any of the Loan Documents.

 

(h)             The dissolution or liquidation of any Borrower or any
Subsidiary; or any Borrower or any Subsidiary, or any of their directors,
stockholders or members, shall take action seeking to effect the dissolution or
liquidation of any such Borrower or Subsidiary.

 

(i)                 Summa at any time ceases to own one hundred percent (100%)
of each Subsidiary other than Plastron Industries, Inc.; or Summa at any time
ceases to own at least ninety percent (90%) of Plastron Industries, Inc.

 

SECTION 6.2.                               REMEDIES.  Upon the occurrence of any
Event of Default:  (a) all indebtedness of Borrowers under each of the Loan
Documents, any term thereof to the contrary notwithstanding, shall at Bank’s
option and without notice become immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are hereby
expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend
any further credit under any of the Loan Documents shall immediately cease and
terminate; and (c) Bank shall have all rights, powers and remedies available
under each of the Loan Documents, or accorded by law, including without
limitation the right to resort to any or all security for any credit subject
hereto and to exercise any or all of the rights of a beneficiary or secured
party pursuant to applicable law.  All rights, powers and remedies of Bank may
be exercised at any time by Bank and from time to time after the occurrence of
an Event of Default, are cumulative and not exclusive, and shall be in addition
to any other rights, powers or remedies provided by law or equity.

 

ARTICLE VII

MISCELLANEOUS

 

SECTION 7.1.                             NO WAIVER.  No delay, failure or
discontinuance of Bank in exercising any right, power or remedy under any of the
Loan Documents shall affect or operate as a waiver of such right, power or
remedy; nor shall any single or partial exercise of any such right, power or
remedy preclude, waive or otherwise affect any other or further exercise thereof
or the exercise of any other right, power or remedy.  Any waiver, permit,
consent or approval of any kind by Bank of any breach of or default under any of
the Loan Documents must be in writing and shall be effective only to the extent
set forth in such writing.

 

SECTION 7.2.                               NOTICES.  All notices, requests and
demands which any party is required or may desire to give to any other party
under any provision of this Agreement must be in writing delivered to each party
at the following address:

 

BORROWERS:

 

Summa Industries

 

 

21250 Hawthorne Blvd., Suite 500

 

 

Torrance, California 90503

 

 

 

BANK:

 

WELLS FARGO BANK, NATIONAL ASSOCIATION

 

 

South Bay Regional Commercial Banking Office

 

 

111 West Ocean Blvd.

 

 

3rd Floor

 

 

Long Beach, California 90802

 

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or to such other address as any party may designate by written notice to all
other parties.  Each such notice, request and demand shall be deemed given or
made as follows:  (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.

 

SECTION 7.3.                               COSTS, EXPENSES AND ATTORNEYS’ FEES. 
Subject to the last sentence regarding the right of the prevailing party in an
action hereunder to recover its fees and costs from the non-prevailing party,
Borrowers shall pay to Bank immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable attorneys’
fees (to include outside counsel fees and all allocated costs of Bank’s in-house
counsel), expended or incurred by Bank in connection with (a) the negotiation
and preparation of this Agreement and the other Loan Documents, Bank’s continued
administration hereof and thereof, and the preparation of any amendments and
waivers hereto and thereto, (b) the enforcement of Bank’s rights and/or the
collection of any amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Documents, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity.  Notwithstanding
the foregoing or any similar provision in any other Loan Document, the
prevailing party in any action to enforce this Agreement or any of the other
Loan Documents shall be entitled to recover its reasonable attorneys’ fees and
costs incurred in connection with such action from the non-prevailing party.

 

SECTION 7.4.                               SUCCESSORS, ASSIGNMENT.  This
Agreement shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties; provided however, that Borrowers may not assign or transfer any
interest hereunder without Bank’s prior written consent.  Bank reserves the
right to sell, assign, transfer, negotiate or grant participations in all or any
part of, or any interest in, Bank’s rights and benefits under each of the Loan
Documents.  In connection therewith, Bank may disclose all documents and
information which Bank now has or may hereafter acquire relating to any credit
subject hereto, any Borrower or its business, any Subsidiary or the business of
such Subsidiary, or any collateral required hereunder.

 

SECTION 7.5.                               ENTIRE AGREEMENT; AMENDMENT.  This
Agreement and the other Loan Documents constitute the entire agreement between
Borrowers and Bank with respect to each credit subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof.  This Agreement may be amended or modified only in
writing signed by each party hereto.

 

SECTION 7.6.                               NO THIRD PARTY BENEFICIARIES.  This
Agreement is made and entered into for the sole protection and benefit of the
parties hereto and their respective permitted successors and assigns, and no
other person or entity shall be a third party beneficiary of, or have any direct
or indirect cause of action or claim in connection with, this Agreement or any
other of the Loan Documents to which it is not a party.

 

SECTION 7.7.                               TIME.  Time is of the essence of each
and every provision of this Agreement and each other of the Loan Documents.

 

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SECTION 7.8.                               SEVERABILITY OF PROVISIONS.  If any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.

 

SECTION 7.9.                               COUNTERPARTS.  This Agreement may be
executed in any number of counterparts, each of which when executed and
delivered shall be deemed to be an original, and all of which when taken
together shall constitute one and the same Agreement.

 

SECTION 7.10.                         GOVERNING LAW.  This Agreement shall be
governed by and construed in accordance with the laws of the State of
California.

 

SECTION 7.11.  JOINT AND SEVERAL LIABILITY.

 

(a)              Borrowers have determined and represent to Bank that it is in
the best interests of Borrowers and Subsidiaries and in pursuance of their
legitimate business purposes to induce Bank to extend credit pursuant to this
Agreement.  Borrowers acknowledge and represent that the businesses conducted by
each Borrower and each Subsidiary are related, the availability of the
commitments provided for herein benefits Borrowers and Subsidiaries, and
advances and other credit extensions made hereunder will inure to the benefit of
Borrowers and Subsidiaries, individually and as a group.

 

(b)             Borrowers have determined and represent to Bank that each of
Borrowers and of Subsidiaries has, and after giving effect to the transactions
contemplated by this Agreement will have, assets having a fair saleable value in
excess of its debts, after giving effect to any rights of contribution or
subrogation which may be available to each such company, and each of Borrowers
and of Subsidiaries has, and will have, access to adequate capital for the
conduct of its business and the ability to pay its debts as such debts mature.

 

(c)              Each Borrower agrees that it is jointly and severally liable to
Bank for, and each Borrower agrees to pay to Bank when due the full amount of,
all indebtedness now existing or hereafter arising to Bank under or in
connection with the Line of Credit and all modifications, extensions and
renewals thereof, including without limitation all advances requested by or
disbursed to any Borrower under the Line of Credit, all interest which accrues
thereon, all payments due to Bank in connection with any Letter of Credit issued
by Bank or any affiliate of Bank at the request of or for the account of any
Borrower under the Line of Credit, including but not limited to the obligation
of any Borrower to reimburse Bank for the amount of any draft paid under any
such Letter of Credit and all interest which accrues thereon, and all fees,
costs and expenses chargeable to Borrowers or any of them in connection with the
Line of Credit.

 

(d)             The liability of each Borrower for the Line of Credit shall be
reinstated and revived and the rights of Bank shall continue if and to the
extent that for any reason any amount at any time paid on account of the Line of
Credit is rescinded or must otherwise be restored by Bank, whether as a result
of any proceedings in bankruptcy or reorganization or otherwise, all as though
such amount had not been paid.

 

(e)              Each Borrower authorizes Bank, without notice to or demand on
such Borrower, and without affecting such Borrower’s liability for the Line of
Credit, from time to time to:  (i) alter, compromise, extend, accelerate or
otherwise change the time for payment of, or otherwise change the terms of, the
liabilities and obligations of any other Borrower or any other person or entity
to Bank on account of the Line of Credit; (ii) take and hold security from any
other Borrower or any other person or entity for the payment of the Line of
Credit, and exchange,

 

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enforce, waive, subordinate or release any such security; (iii) apply such
security and direct the order or manner of sale thereof, including without
limitation, a non-judicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Bank in its discretion may determine;
(iv) release or substitute any one or more of the endorsers or any guarantors of
the Line of Credit, or any other party obligated thereon; and (v) apply payments
received by Bank from any other Borrower to indebtedness of such other Borrower
to Bank other than the Line of Credit.

 

(f)                Each Borrower represents and warrants to Bank that it has
established adequate means of obtaining from each other Borrower and
Subsidiaries on a continuing basis financial and other information pertaining to
each such company’s financial condition, and each Borrower agrees to keep
adequately informed from such means of any facts, events or circumstances which
might in any way affect its risks hereunder.  Each Borrower further agrees that
Bank shall have no obligation to disclose to it any information or material
about any other Borrower or any Subsidiary which is acquired by Bank in any
manner.

 

(g)             Each Borrower waives any right to require Bank to: (i) proceed
against any other Borrower or any other person or entity; (ii) marshal assets or
proceed against or exhaust any security held from any other Borrower or any
other person or entity; (iii) pursue any other remedy in Bank’s power; (iv)
apply payments received by Bank from any other Borrower to the Line of Credit;
or (v) make any presentments or demands for performance, or give any notices of
nonperformance, protests, notices of protest or notices of dishonor in
connection with the Line of Credit.

 

(h)             Each Borrower waives any defense to its liability for the Line
of Credit based upon or arising by reason of: (i) any disability or other
defense of any other Borrower or any other person or entity ; (ii) the cessation
or limitation from any cause whatsoever, other than payment in full, of the
liability of any other Borrower or any other person or entity for the Line of
Credit; (iii) any lack of authority of any officer, director, partner, agent or
other person acting or purporting to act on behalf of any other Borrower or any
other party or any defect in the formation of any other Borrower or any other
party; (iv) the application by any other Borrower of the proceeds of the Line of
Credit for purposes other than the purposes intended or understood by Bank or
any Borrower; (v) any act or omission by Bank which directly or indirectly
results in or aids the discharge of any other Borrower or any other party by
operation of law or otherwise, or which in any way impairs or suspends any
rights or remedies of Bank against any other Borrower or any other party; (vi)
any impairment of the value of any interest in any security for the Line of
Credit, including without limitation, the failure to obtain or maintain
perfection or recordation of any interest in any such security, the release of
any such security without substitution, and/or the failure to preserve the value
of, or to comply with applicable law in disposing of, any such security; or
(vii) any modification of the obligations or liabilities of any other Borrower
or any other party for the Line of Credit, including without limitation the
renewal, extension, acceleration or other change in time for payment of, or
other change in the terms of, the indebtedness of any other Borrower for the
Line of Credit, including increase or decrease of the rate of interest thereon. 
Until the Line of Credit and all indebtedness of each Borrower to Bank arising
under or in connection with this Agreement shall have been paid in full, no
Borrower shall have any right of subrogation.  Each Borrower waives all rights
and defenses it may have arising out of (A) any election of remedies by Bank,
even though that election of remedies, such as a non-judicial foreclosure with
respect to any security for the Line Credit, destroys its rights of subrogation
or its rights to proceed against any other Borrower or any other person or
entity for reimbursement, or (B) any loss of rights it may suffer by reason of
any rights, powers or remedies of any other Borrower in connection with any
anti-deficiency laws or any other laws limiting, qualifying or discharging any
Borrower’s indebtedness for the Line of Credit, whether by operation of law or
otherwise.  Until the Line of Credit and all indebtedness of each

 

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Borrower to Bank arising under or in connection with this Agreement shall have
been paid in full, each Borrower waives any right to enforce any remedy which
Bank now has or may hereafter have against any other Borrower or any other
person or entity, and waives any benefit of, or any right to participate in, any
security now or hereafter held by Bank.

 

(i)                 If any of the waivers herein is determined to be contrary to
any applicable law or public policy, such waiver shall be effective only to the
extent permitted by law.

 

(j)                 It is the position of the Borrowers that each Borrower and
each Subsidiary benefit from the Line of Credit that has been made available by
Bank under this Agreement and from each extension of credit thereunder,
regardless of whether such credit is disbursed to a joint account of Borrowers
or to or for the account of any Borrower.

 

SECTION 7.12.                         ARBITRATION.

 

(a)              Arbitration.  The parties hereto agree, upon demand by any
party, to submit to binding arbitration all claims, disputes and controversies
between or among them (and their respective employees, officers, directors,
attorneys, and other agents), whether in tort, contract or otherwise arising out
of or relating to in any way (i) the credit facilities and related Loan
Documents which are the subject of this Agreement and its negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, enforcement, default or
termination; or (ii) requests for additional credit.

 

(b)             Governing Rules.  Any arbitration proceeding will (i) proceed in
a location in California selected by the American Arbitration Association
(“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in any of
the documents between the parties; and (iii) be conducted by the AAA, or such
other administrator as the parties shall mutually agree upon, in accordance with
the AAA’s commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA’s optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to, as
applicable, as the “Rules”).  If there is any inconsistency between the terms
hereof and the Rules, the terms and procedures set forth herein shall control. 
Any party who fails or refuses to submit to arbitration following a demand by
any other party shall bear all costs and expenses incurred by such other party
in compelling arbitration of any dispute.  Nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded to
it under 12 U.S.C. §91 or any similar applicable state law.

 

(c)              No Waiver of Provisional Remedies, Self-Help and Foreclosure. 
The arbitration requirement does not limit the right of any party to (i)
foreclose against real or personal property collateral; (ii) exercise self-help
remedies relating to collateral or proceeds of collateral such as setoff or
repossession; or (iii) obtain provisional or ancillary remedies such as
replevin, injunctive relief, attachment or the appointment of a receiver, before
during or after the pendency of any arbitration proceeding.  This exclusion does
not constitute a waiver of the right or obligation of any party to submit any
dispute to arbitration or reference hereunder, including those arising from the
exercise of the actions detailed in sections (i), (ii) and (iii) of this
paragraph.

 

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(d)             Arbitrator Qualifications and Powers.  Any arbitration
proceeding in which the amount in controversy is $5,000,000.00 or less will be
decided by a single arbitrator selected according to the Rules, and who shall
not render an award of greater than $5,000,000.00.  Any dispute in which the
amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of
a panel of three arbitrators; provided however, that all three arbitrators must
actively participate in all hearings and deliberations.  The arbitrator will be
a neutral attorney licensed in the State of California or a neutral retired
judge of the state or federal judiciary of California, in either case with a
minimum of ten years experience in the substantive law applicable to the subject
matter of the dispute to be arbitrated.  The arbitrator will determine whether
or not an issue is arbitratable and will give effect to the statutes of
limitation in determining any claim.  In any arbitration proceeding the
arbitrator will decide (by documents only or with a hearing at the arbitrator’s
discretion) any pre-hearing motions which are similar to motions to dismiss for
failure to state a claim or motions for summary adjudication.  The arbitrator
shall resolve all disputes in accordance with the substantive law of California
and may grant any remedy or relief that a court of such state could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award.  The arbitrator shall also have the power to award recovery
of all costs and fees, to impose sanctions and to take such other action as the
arbitrator deems necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the California Rules of Civil Procedure or
other applicable law.  Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction.  The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.

 

(e)              Discovery.  In any arbitration proceeding discovery will be
permitted in accordance with the Rules.  All discovery shall be expressly
limited to matters directly relevant to the dispute being arbitrated and must be
completed no later than 20 days before the hearing date and within 180 days of
the filing of the dispute with the AAA.  Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party’s presentation and that no alternative means for
obtaining information is available.

 

(f)                Class Proceedings and Consolidations.  The resolution of any
dispute arising pursuant to the terms of this Agreement shall be determined by a
separate arbitration proceeding and such dispute shall not be consolidated with
other disputes or included in any class proceeding.

 

(g)             Payment Of Arbitration Costs And Fees.  The arbitrator shall
award all costs and expenses of the arbitration proceeding.

 

(h)             Real Property Collateral; Judicial Reference.  Notwithstanding
anything herein to the contrary, no dispute shall be submitted to arbitration if
the dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable.  If any
such dispute is not submitted to arbitration, the dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638.  A referee with the

 

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qualifications required herein for arbitrators shall be selected pursuant to the
AAA’s selection procedures.  Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.

 

(i)                 Miscellaneous.  To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA.  No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation.  If more than one agreement for arbitration by or between the
parties potentially applies to a dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the dispute
shall control.  This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.

 

SECTION 7.13.                         CONFLICTING PROVISIONS.  In the event of
an express conflict between any provision of this Agreement and any provision in
another Loan Document, the provision in this Agreement shall prevail.  In this
regard, the broader or more inclusive  description of collateral in any security
agreement that is part of the Loan Documents shall not be considered in conflict
with the narrower or less inclusive description of collateral in this Agreement.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.

 

WELLS FARGO BANK, NATIONAL ASSOCIATION

 

By:

 

/s/ Tom Sigurdson

 

 

 

Title:

 

Vice President

 

 

 

 

 

SUMMA INDUSTRIES

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

 

Title:

 

Vice President

 

 

 

 

 

KVP FALCON PLASTIC BELTING, INC.

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

 

Title:

 

Vice President

 

 

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PLASTRON INDUSTRIES, INC.

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

 

Title:

 

Vice President

 

 

 

 

 

LEXALITE INTERNATIONAL CORPORATION

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

 

Title:

 

Vice President

 

 

 

 

 

CALNETICS CORPORATION

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

 

Title:

 

Vice President

 

 

 

 

 

KVP HOLDINGS, INC.

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

 

Title:

 

Vice President

 

 

 

PLASTIC SPECIALTIES, INC.

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

 

Title:

 

Vice President

 

 

 

 

 

FULLERTON HOLDINGS, INC.

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

 

Title:

 

Vice President

 

 

 

 

 

AQUARIUS BRANDS, INC.

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

 

Title:

 

Vice President

 

 

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NY-GLASS PLASTICS, INC.

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

 

Title:

 

Vice President

 

 

 

 

 

CENTRAL VALLEY MANUFACTURING, INC.

 

 

 

By:

 

/s/ Trygve M. Thoresen

 

 

Title:

 

Vice President

 

 

 

Certain Schedules and Exhibits to this Agreement have been omitted from this
filing, and the issuer agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the Securities and Exchange Commission upon request.

 

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