ExhibitNo. 10.1

 

CREDITAGREEMENT

             THIS AGREEMENT is entered into as of October 1, 2000 byand between ROTONICS MANUFACTURING INC., a Delaware ("Borrower"), and WELLS FARGO BANK, NATIONALASSOCIATION ("Bank").

 

RECITALS

             Borrower has requested that Bank extend or continuecredit to Borrower as described below, and Bank has agreed to provide suchcredit to Borrower on the terms and conditions contained herein.

             NOW, THEREFORE, for valuable consideration, the receiptand sufficiency of which are hereby acknowledged, Bank and Borrower herebyagree as follows:

 

ARTICLEICREDIT TERMS

             SECTION 1.1.  LINEOF CREDIT.

             (a)         Lineof Credit.  Subject to the terms andconditions of this Agreement, Bank hereby agrees to make advances to Borrowerfrom time to time up to and including October 1, 2002, not to exceed at anytime the aggregate principal amount of Seven Million Dollars ($7,000,000.00)("Line of Credit"), the proceeds of which shall be used for workingcapital requirements.  Borrower'sobligation to repay advances under the Line of Credit shall be evidenced by apromissory note substantially in the form of Exhibit A attached hereto("Line of Credit Note"), all terms of which are incorporated hereinby this reference.

             (b)        Letterof Credit Subfeature.  As a subfeatureunder the Line of Credit, Bank agrees from time to time during the term thereofto issue standby letters of credit for the account of Borrower to supportobligations to GSC Industries LLC, seller of Rotocast (each, a "Letter ofCredit" and collectively, "Letters of Credit"); providedhowever, that the form and substance of each Letter of Credit shall be subjectto approval by Bank, in its sole discretion; and provided further, that theaggregate undrawn amount of all outstanding Letters of Credit shall not at anytime exceed Two Million Eight Hundred Thousand Dollars ($2,800,000.00).   No Letter of Credit shall have anexpiration date beyond February 1, 2003. The undrawn amount of all Letters ofCredit shall be reserved under the Line of Credit and shall not be availablefor borrowings thereunder.  Each Letterof Credit shall be subject to the additional terms and conditions of the Letterof Credit Agreement and related documents, if any, required by Bank in connectionwith the issuance thereof (each, a "Letter of Credit Agreement" andcollectively, "Letter of Credit Agreements").  Each draft paid by Bank under a Letter ofCredit shall be deemed an advance under the Line of Credit and shall be repaidby Borrower in accordance with the terms and conditions of this Agreementapplicable to such advances; provided however, that if advances under the Lineof Credit are not available, for any reason, at the time any draft is paid byBank, then Borrower shall immediately pay to Bank the full amount of such draft,together with interest thereon from the date such amount is paid by Bank to thedate such amount is fully repaid by Borrower, at the rate of interestapplicable to advances under the Line of Credit.  In such event Borrower agrees that Bank, in its sole discretion,may debit any account maintained by Borrower with Bank for the amount of anysuch draft.

             (c)         Borrowing and Repayment.  Borrower may from time to time during theterm of the Line of Credit borrow, partially or wholly repay its outstandingborrowings, and reborrow, subject to all of the limitations, terms andconditions contained herein or in the Line of Credit Note; provided however,that the total outstanding borrowings under the Line of Credit shall not at anytime exceed the maximum principal amount available thereunder, as set forthabove.

 

             SECTION 1.2.  TERMLOAN A.

             (a)         TermLoan A.  Subject to the terms andconditions of this Agreement, Bank hereby agrees to make a loan to Borrower inthe principal amount of Six Million Fifty Thousand  Dollars ($6,050,000.00) ("Term Loan A"), the proceedsof which shall be used to payoff existing debt with Bank.  Borrower's obligation to repay Term Loan Ashall be evidenced by a promissory note substantially in the form ofExhibit B attached hereto ("Term Note A"), all terms of whichare incorporated herein by this reference. Bank's commitment to grant Term Loan A shall terminate on November 1,2000.

             (b)        Repayment.  The principal amount of Term Loan A shall berepaid in accordance with the provisions of Term Note A.

             (c)         Prepayment.  Borrower may prepay principal on Term Loan Asolely in accordance with the provisions of Term Note A.

 

             SECTION 1.3.  TERMLOAN B.

             (a)         TermLoan B.  Bank has made a loan toBorrower in the original principal amount of Two Million Dollars($2,000,000.00) ("Term Loan B"), on which the outstanding principalbalance as of the date hereof is  OneMillion Eight Hundred Twenty-six Thousand Six Hundred Sixty-six and 58/100Dollars ($1,826,666.58).  Borrower'sobligation to repay Term Loan B  isevidenced by a promissory note substantially in the form of Exhibit Cattached hereto ("Term Note B"), all terms of which are incorporatedherein by this reference.  Any referencein Term Note B to any prior loan agreement between Bank and Borrower shall bedeemed a reference to this Agreement. Subject to the terms and conditions of this Agreement, Bank herebyconfirms that Term Loan B remains in full force and effect.

             (b)        Repayment.  The principal amount of Term Loan B shall berepaid in accordance with the provisions of Term Note B.

             (c)         Prepayment.  Borrower may prepay principal on Term Loan Bsolely in accordance with the provisions of Term Note B.

 

             SECTION 1.4.  TERMCOMMITMENT.

             (a)         TermCommitment.  Subject to the termsand conditions of this Agreement, Bank hereby agrees to make advances toBorrower from time to time up to and including October 1, 2001, not to exceedthe aggregate principal amount of One Million Two Hundred Thousand Dollars($1,200,000.00) ("Term Commitment"), the proceeds of which shall beused to finance Borrower's capital expenditures, and which shall be convertedon October 1, 2001, to a term loan, as described more fully below.  Borrower's obligation to repay advancesunder the Term Commitment shall be evidenced by a promissory note substantiallyin the form of Exhibit D attached hereto ("Term CommitmentNote"), all terms of which are incorporated herein by this reference.
             (b)        Limitationon Borrowings.  Notwithstanding anyother provision of this Agreement, the aggregate amount of all outstandingborrowings under the Term Commitment shall not at any time exceed a maximum ofeighty percent (80%) of the cost of each item of new equipment purchased withthe proceeds thereof, as evidenced by the seller's invoice..

             (c)         Borrowingand Repayment.  Borrower may fromtime to time during the period in which Bank will make advances under the TermCommitment borrow and partially or wholly repay its outstandingborrowings,  provided that amountsrepaid may not be reborrowed, subject to all the limitations, terms andconditions contained herein; provided however, that the total outstandingborrowings under the Term Commitment shall not exceed the maximum principalamount available thereunder, as set forth above.  The outstanding principal balance of the Term Commitment shall bedue and payable in full on October 1, 2001; provided however, that so long as Borrower is in compliance on said datewith all terms and conditions contained herein and in any other documentsevidencing the Credits, Bank agrees to restructure repayment of saidoutstanding principal balance so that principal shall be amortized over five(5) years and shall be repaid in sixty (60) monthly installments, as set forthin the promissory note executed by Borrower on said date to evidence the newrepayment schedule.

             (d)        Prepayment.  Borrower may prepay principal on the TermCommitment solely in accordance with the provisions of the Term CommitmentNote.

 

             SECTION 1.5.  INTEREST/FEES.

             (a)        Interest.            The outstanding principal balance ofeach credit subject hereto shall bear interest at the rate of interest setforth in each promissory note or other instrument executed in connectiontherewith.

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

             (c)         Letterof Credit Fees.  Borrower shall payto Bank (i) fees upon the issuance of each Letter of Credit equal to onepercent (1.0%) per annum (computed on the basis of a 360-day year, actual dayselapsed) of the face amount thereof, and (ii) fees upon the payment ornegotiation by Bank of each draft under any Letter of Credit and fees upon theoccurrence of any other activity with respect to any Letter of Credit(including without limitation, the transfer, amendment or cancellation of anyLetter of Credit) determined in accordance with Bank's standard fees andcharges then in effect for such activity.

 

                           SECTION 1.6.  COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all principal, interest and fees dueunder each credit subject hereto by charging Borrower's deposit account number4624-074191 with Bank, or any other deposit account maintained by Borrower withBank, for the full amount thereof. Should there be insufficient funds in any such deposit account to payall such sums when due, the full amount of such deficiency shall be immediatelydue and payable by Borrower.

 

             SECTION 1.7.  COLLATERAL.

             As security for all indebtedness of Borrower to Bankunder the Line of Credit, Term Loan A and the Term Commitment, Borrower herebygrants to Bank security interests of first priority in all Borrower's accountsreceivable, other rights to payment, general intangibles, inventory andequipment.

             As security for all indebtedness of Borrower to Bankunder the Line of Credit, Term Loan A and the Term Commitment, Borrower shall cause Rotocast Plastic Productsof Tennessee, Inc. to grant to Bank security interest of first priority in alltheir accounts receivable, other rights to payment general intangibles,inventory and equipment.

             As security for all indebtedness of Borrower to Bank,under Term Loan B, Borrower hereby grants to Bank a lien of not less than firstpriority on that certain real property located at 736-738 and 740-746 BirginalDrive, Bensenville, Illinois 60106 and Highway I-35 at FM 1306, Gainesville,Texas 76240.

             All of the foregoing shall be evidenced by and subjectto the terms of such security agreements, financing statements, deeds of trustand other documents as Bank shall reasonably require, all in form and substancesatisfactory to Bank.  Borrower shallreimburse Bank immediately upon demand for all costs and expenses incurred byBank in connection with any of the foregoing security, including withoutlimitation, filing and recording fees and costs of appraisals, audits and titleinsurance.

 

ARTICLEIIREPRESENTATIONS AND WARRANTIES

             Borrower makes the following representations andwarranties to Bank, which representations and warranties shall survive theexecution of this Agreement and shall continue in full force and effect untilthe full and final payment, and satisfaction and discharge, of all obligationsof Borrower to Bank subject to this Agreement.

             SECTION 2.1.  LEGALSTATUS.  Borrower is a corporation, dulyorganized and existing and in good standing under the laws of the State ofDelaware, and is qualified or licensed to do business (and is in good standingas a foreign corporation, if applicable) in all jurisdictions in which suchqualification or licensing is required or in which the failure to so qualify orto be so licensed could have a material adverse effect on Borrower.

             SECTION 2.2.  AUTHORIZATIONAND VALIDITY.  This Agreement and eachpromissory note, contract, instrument and other document required hereby or atany time hereafter delivered to Bank in connection herewith (collectively, the"Loan Documents") have been duly authorized, and upon their executionand delivery in accordance with the provisions hereof will constitute legal,valid and binding agreements and obligations of Borrower or the party whichexecutes the same, enforceable in accordance with their respective terms.             SECTION 2.3.  NO VIOLATION. The execution, delivery and performance by Borrower of each of the LoanDocuments do not violate any provision of any law or regulation, or contraveneany provision of the Articles of Incorporation or By-Laws  of Borrower, or result in any breach of ordefault under any contract, obligation, indenture or other instrument to whichBorrower is a party or by which Borrower may be bound.
             SECTION 2.4.  LITIGATION.  There are no pending, or to the best ofBorrower's knowledge threatened, actions, claims, investigations, suits or proceedingsby or before any governmental authority, arbitrator, court or administrativeagency which could have a material adverse effect on the financial condition oroperation of Borrower other than those disclosed by Borrower to Bank in writingprior to the date hereof.

             SECTION 2.5.  CORRECTNESSOF FINANCIAL STATEMENT.  The financialstatement of Borrower dated June 30, 2000, a true copy of which has beendelivered by Borrower to Bank prior to the date hereof, (a) is completeand correct and presents fairly the financial condition of Borrower,(b) discloses all liabilities of Borrower that are required to bereflected or reserved against under generally accepted accounting principles,whether liquidated or unliquidated, fixed or contingent, and (c) has beenprepared in accordance with generally accepted accounting principlesconsistently applied.  Since the date ofsuch financial statement there has been no material adverse change in thefinancial condition of Borrower, nor has Borrower mortgaged, pledged, granted asecurity interest in or otherwise encumbered any of its assets or propertiesexcept in favor of Bank or as otherwise permitted by Bank in writing.

             SECTION 2.6.  INCOMETAX RETURNS.  Borrower has no knowledgeof any pending assessments or adjustments of its income tax payable withrespect to any year.

             SECTION 2.7.  NOSUBORDINATION.  There is no agreement,indenture, contract or instrument to which Borrower is a party or by whichBorrower may be bound that requires the subordination in right of payment ofany of Borrower's obligations subject to this Agreement to any other obligationof Borrower.

             SECTION 2.8.  PERMITS,FRANCHISES.  Borrower possesses, andwill hereafter possess, all permits, consents, approvals, franchises andlicenses required and rights to all trademarks, trade names, patents, andfictitious names, if any, necessary to enable it to conduct the business inwhich it is now engaged in compliance with applicable law.

             SECTION 2.9.  ERISA.  Borrower is in compliance in all materialrespects with all applicable provisions of the Employee Retirement IncomeSecurity Act of 1974, as amended or recodified from time to time("ERISA"); Borrower has not violated any provision of any definedemployee pension benefit plan (as defined in ERISA) maintained or contributedto by Borrower (each, a "Plan"); no Reportable Event as defined inERISA has occurred and is continuing with respect to any Plan initiated byBorrower; Borrower has met its minimum funding requirements under ERISA withrespect to each Plan; and each Plan will be able to fulfill its benefitobligations as they come due in accordance with the Plan documents and undergenerally accepted accounting principles.

             SECTION 2.10. OTHER OBLIGATIONS.  Borrower isnot in default on any obligation for borrowed money, any purchase moneyobligation or any other material lease, commitment, contract, instrument orobligation.
             SECTION 2.11. ENVIRONMENTAL MATTERS.  Except asdisclosed by Borrower to Bank in writing prior to the date hereof, Borrower isin compliance in all material respects with all applicable federal or stateenvironmental, hazardous waste, health and safety statutes, and any rules orregulations adopted pursuant thereto, which govern or affect any of Borrower'soperations and/or properties, including without limitation, the ComprehensiveEnvironmental Response, Compensation and Liability Act of 1980, the SuperfundAmendments and Reauthorization Act of 1986, the Federal Resource Conservationand Recovery Act of 1976, and the Federal Toxic Substances Control Act, as anyof the same may be amended, modified or supplemented from time to time.  None of the operations of Borrower is thesubject of any federal or state investigation evaluating whether any remedialaction involving a material expenditure is needed to respond to a release ofany toxic or hazardous waste or substance into the environment.  Borrower has no material contingentliability in connection with any release of any toxic or hazardous waste orsubstance into the environment.

             SECTION 2.12. REAL PROPERTY COLLATERAL.  Exceptas disclosed by Borrower to Bank in writing prior to the date hereof, withrespect to any real property collateral required hereby:

             (a)         Alltaxes, governmental assessments, insurance premiums, and water, sewer andmunicipal charges, and rents (if any) which previously became due and owing inrespect thereof have been paid as of the date hereof.

             (b)        Thereare no mechanics' or similar liens or claims which have been filed for work,labor or material (and no rights are outstanding that under law could give riseto any such lien) which affect all or any interest in any such real propertyand which are or may be prior to or equal to the lien thereon in favor of Bank.

             (c)         None ofthe improvements which were included for purpose of determining the appraisedvalue of any such real property lies outside of the boundaries and/or buildingrestriction lines thereof, and no improvements on adjoining propertiesmaterially encroach upon any such real property.

             (d)        There isno pending, or to the best of Borrower's knowledge threatened, proceeding forthe total or partial condemnation of all or any portion of any such realproperty, and all such real property is in good repair and free and clear ofany damage that would materially and adversely affect the value thereof assecurity and/or the intended use thereof.

 

ARTICLEIIICONDITIONS

             SECTION 3.1.  CONDITIONSOF INITIAL EXTENSION OF CREDIT.  Theobligation of Bank to extend any credit contemplated by this Agreement is subjectto the fulfillment to Bank's satisfaction of all of the following conditions:

             (a)         Approvalof Bank Counsel.  All legal mattersincidental to the extension of credit by Bank shall be satisfactory to Bank'scounsel.

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

             (i)          ThisAgreement and each promissory note or other instrument required hereby.

             (ii)         CorporateResolution Borrowing.

             (iii)        Certificateof Incumbency.
             (iv)       SecurityAgreement: Equipment.

             (v)        ContinuingSecurity Agreement: Rights to Payment and Inventory.

             (vi)       ThirdParty Security Agreement: Equipment

             (vii)      ThirdParty Security Agreement: Rights to Payment and Inventory.

             (viii)     CorporateResolution: Third Party Collateral

             (ix)        UCCFinancing Statement.

             (x)         Mortgageand Assignment of Rents and Leases.

             (xi)        Amendedand Restated Mortgage and assignment of Rents and Leases

             (xii)       Suchother documents as Bank may require under any other Section of this Agreement.

             (c)         FinancialCondition.  There shall have been nomaterial adverse change, as determined by Bank, in the financial condition orbusiness of Borrower, nor any material decline, as determined by Bank, in themarket value of any collateral required hereunder or a substantial or materialportion of the assets of Borrower.

             (d)        Insurance.  Borrower shall have delivered to Bankevidence of insurance coverage on all Borrower's property, in form, substance,amounts, covering risks and issued by companies satisfactory to Bank, and whererequired by Bank, with loss payable endorsements in favor of Bank, includingwithout limitation, policies of fire and extended coverage insurance coveringall real property collateral required hereby, with replacement cost and mortgageeloss payable endorsements, and such policies of insurance against specifichazards affecting any such real property as may be required by governmentalregulation or Bank.

             (e)         Appraisals.  Bank shall have obtained, at Borrower'scost, an appraisal of all real property collateral required hereby, and allimprovements thereon, issued by an appraiser acceptable to Bank and in form,substance and reflecting values satisfactory to Bank, in its discretion.

             (f)         TitleInsurance.  Bank shall have receivedan ALTA Policy of Title Insurance, with such endorsements as Bank may require,including without limitation, CLTA endorsements, issued by a company and inform and substance satisfactory to Bank, in such amount as Bank shall require,insuring Bank's lien on the real property collateral required hereby to be offirst priority, subject only to such exceptions as Bank shall approve in itsdiscretion, with all costs thereof to be paid by Borrower.

             (g)        TaxService Contract.  Borrower shallhave procured and delivered to Bank, at Borrower's cost, such tax servicecontract as Bank shall require for any real property collateral requiredhereby, to remain in effect as long as such real property secures anyobligations of Borrower to Bank as required hereby.

 

             SECTION 3.2.  CONDITIONSOF EACH EXTENSION OF CREDIT.  Theobligation of Bank to make each extension of credit requested by Borrowerhereunder shall be subject to the fulfillment to Bank's satisfaction of each ofthe following conditions:

             (a)         Compliance.  The representations and warranties containedherein and in each of the other Loan Documents shall be true on and as of thedate of the signing of this Agreement and on the date of each extension ofcredit by Bank pursuant hereto, with the same effect as though suchrepresentations and warranties had been made on and as of each such date, andon 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 bothwould constitute such an Event of Default, shall have occurred and becontinuing or shall exist.
             (b)        Documentation.  Bank shall have received all additionaldocuments which may be required in connection with such extension of credit.

 

ARTICLEIVAFFIRMATIVE COVENANTS

             Borrower covenants that so long as Bank remainscommitted to extend credit to Borrower pursuant hereto, or any liabilities(whether direct or contingent, liquidated or unliquidated) of Borrower to Bankunder any of the Loan Documents remain outstanding, and until payment in fullof all obligations of Borrower subject hereto, Borrower shall, unless Bankotherwise consents in writing:

             SECTION 4.1.  PUNCTUALPAYMENTS.  Punctually pay all principal,interest, fees or other liabilities due under any of the Loan Documents at thetimes and place and in the manner specified therein.

             SECTION 4.2.  ACCOUNTINGRECORDS.  Maintain adequate books andrecords in accordance with generally accepted accounting principlesconsistently applied, and permit any representative of Bank, at any reasonabletime, to inspect, audit and examine such books and records, to make copies ofthe same, and to inspect the properties of Borrower.

             SECTION 4.3.  FINANCIALSTATEMENTS.  Provide to Bank all of thefollowing, in form and detail satisfactory to Bank:

             (a)         notlater than 120 days after and as of the end of each fiscal year, a consolidatedaudited financial statement of Borrower, prepared by an independent certifiedpublic accountant acceptable to Bank, to include balance sheet, incomestatement, all schedules, notes and narratives reasonably include in Borrower's10-K ;

             (b)        notlater than 45  days after and as of theend of each fiscal quarter, a consolidated financial statement of Borrower,prepared by an independent certified public accountant acceptable to Bank, toinclude balance sheet, income statement, all schedules, notes and narrativesreasonably include in Borrower's 10-Q;

             (c)         fromtime to time such other information as Bank may reasonably.

             SECTION 4.4.  COMPLIANCE.  Preserve and maintain all licenses, permits,governmental approvals, rights, privileges and franchises necessary for theconduct of its business; and comply with the provisions of all documentspursuant to which Borrower is organized and/or which govern Borrower'scontinued existence and with the requirements of all laws, rules, regulationsand orders of any governmental authority applicable to Borrower and/or itsbusiness.

             SECTION 4.5.  INSURANCE.  Maintain and keep in force insurance of thetypes and in amounts customarily carried in lines of business similar to thatof Borrower, including but not limited to fire, extended coverage, publicliability, flood, property damage and workers' compensation, with all suchinsurance carried with companies and in amounts satisfactory to Bank, anddeliver to Bank from time to time at Bank's request schedules setting forth allinsurance then in effect.

             SECTION 4.6.  FACILITIES.  Keep all properties useful or necessary toBorrower's business in good repair and condition, and from time to time makenecessary repairs, renewals and replacements thereto so that such propertiesshall be fully and efficiently preserved and maintained.
             SECTION 4.7.  TAXESAND OTHER LIABILITIES.  Pay anddischarge when due any and all indebtedness, obligations, assessments andtaxes, both real or personal, including without limitation federal and stateincome taxes and state and local property taxes and assessments, except such(a) as Borrower may in good faith contest or as to which a bona fide disputemay arise, and (b) for which Borrower has made provision, to Bank'ssatisfaction, for eventual payment thereof in the event Borrower is obligatedto make such payment.

             SECTION 4.8.  LITIGATION.  Promptly give notice in writing to Bank ofany litigation pending or threatened against Borrower.

             SECTION 4.9.  FINANCIALCONDITION.  Maintain Borrower'sfinancial condition as follows using generally accepted accounting principlesconsistently applied and used consistently with prior practices (except to theextent modified by the definitions herein):

             (a)         CurrentRatio not at any time less than 1.15 to 1.0, with "Current Ratio"defined as total current assets divided by total current liabilities.

             (b)        TangibleNet Worth not at any time less than $14,000,000.00, with "Tangible NetWorth" defined as the aggregate of total stockholders' equity plussubordinated debt less any intangible assets.

             (c)         TotalLiabilities divided by Tangible Net Worth not at any time greater than 1.50 to1.0, with "Total Liabilities" defined as the aggregate of currentliabilities and non-current liabilities less subordinated debt, and with"Tangible Net Worth" as defined above.

             (d)        EBITDACoverage Ratio , measured on a rolling four quarter basis, not less than 1.75to 1.0 as of each fiscal year end, with "EBITDA"  defined as net profit before tax plusinterest expense (net of capitalized interest expense), depreciation expenseand amortization expense, and with "EBITDA Coverage Ratio" defined asEBITDA divided by the aggregate of total interest expense plus the prior periodcurrent maturity of long-term debt and the prior period current maturity ofsubordinated debt.

             SECTION 4.10. NOTICE TO BANK.  Promptly (but inno event more than five (5) days after the occurrence of each such event ormatter) give written notice to Bank in reasonable detail of:  (a) the occurrence of any Event ofDefault, or any condition, event or act which with the giving of notice or thepassage of time or both would constitute an Event of Default; (b) anychange in the name or the organizational structure of Borrower, or any action,claim, investigation, suit or proceeding pending or asserted by or before anygovernmental authority, arbitrator, court or administrative agency challengingor denying Borrower's qualification for tax treatment as if it were apartnership for income tax purposes; (c) the occurrence and nature of anyReportable Event or Prohibited Transaction, each as defined in ERISA, or anyfunding deficiency with respect to any Plan; or (d) any termination orcancellation of any insurance policy which Borrower is required to maintain, orany uninsured or partially uninsured loss through liability or property damage,or through fire, theft or any other cause affecting Borrower's property.
ARTICLEVNEGATIVE COVENANTS

             Borrower further covenants that so long as Bank remainscommitted to extend credit to Borrower pursuant hereto, or any liabilities(whether direct or contingent, liquidated or unliquidated) of Borrower to Bankunder any of the Loan Documents remain outstanding, and until payment in fullof all obligations of Borrower subject hereto, Borrower will not without Bank'sprior written consent:

             SECTION 5.1.  USEOF FUNDS.  Use any of the proceeds ofany credit extended hereunder except for the purposes stated in Article Ihereof.

             SECTION 5.2.  CAPITALEXPENDITURES.  Make any additionalinvestment in fixed assets in any fiscal year in excess of an aggregate of$2,000,000.00.

             SECTION 5.3.  OTHERINDEBTEDNESS.  Create, incur, assume orpermit 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 ofBorrower to Bank, and (b) any other liabilities of Borrower existing asof, and disclosed to Bank prior to, the date hereof.

             SECTION 5.4.  MERGER,CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantialchange in the nature of Borrower's business as conducted as of the date hereof;acquire all or substantially all of the assets of any other entity; nor sell,lease, transfer or otherwise dispose of all or a substantial or materialportion of Borrower's assets except in the ordinary course of its business.

             SECTION 5.5.  GUARANTIES.  Guarantee or become liable in any way assurety, endorser (other than as endorser of negotiable instruments for depositor collection in the ordinary course of business), accommodation endorser orotherwise for, nor pledge or hypothecate any assets of Borrower as securityfor, any liabilities or obligations of any other person or entity, except anyof the foregoing in favor of Bank.

             SECTION 5.6.  LOANS,ADVANCES, INVESTMENTS.  Make any loansor advances to or investments in any person or entity, except any of theforegoing existing as of, and disclosed to Bank prior to, the date hereof.

             SECTION 5.7.  DIVIDENDS,DISTRIBUTIONS.  Declare or pay anydividend or distribution either in cash, stock or any other property onBorrower's stock now or hereafter outstanding, nor redeem, retire, repurchaseor otherwise acquire any shares of any class of Borrower's stock now orhereafter outstanding; provided however, that Borrower may (i)  acquire any such shares of stock, in amaximum aggregate amount of $1,000,000.00 and (ii)  declare or pay and suchdividends, in a maximum aggregate amount of $700,000.00 in any fiscal year.

             SECTION 5.8.  PLEDGEOF ASSETS.  Mortgage, pledge, grant orpermit to exist a security interest in, or lien upon, all or any portion of Borrower'sassets now owned or hereafter acquired, except any of the foregoing in favor ofBank or which is existing as of, and disclosed to Bank in writing prior to, thedate hereof.
ARTICLEVIEVENTS OF DEFAULT

             SECTION 6.1.  Theoccurrence of any of the following shall constitute an "Event ofDefault" under this Agreement:

             (a)         Borrowershall fail to pay when due any principal, interest, fees or other amountspayable under any of the Loan Documents.

             (b)        Anyfinancial statement or certificate furnished to Bank in connection with, or anyrepresentation or warranty made by Borrower or any other party under thisAgreement or any other Loan Document shall prove to be incorrect, false ormisleading in any material respect when furnished or made.

             (c)         Anydefault in the performance of or compliance with any obligation, agreement orother provision contained herein or in any other Loan Document (other thanthose referred to in subsections (a) and (b) above), and with respect to anysuch default which by its nature can be cured, such default shall continue fora period of twenty (20) days from its occurrence.

             (d)        Anydefault in the payment or performance of any obligation, or any defined eventof default, under the terms of any contract or instrument (other than any ofthe Loan Documents) pursuant to which Borrower has incurred any debt or otherliability to any person or entity, including Bank.

             (e)         Thefiling of a notice of judgment lien against Borrower; or the recording of anyabstract of judgment against Borrower in any county in which Borrower has aninterest in real property; or the service of a notice of levy and/or of a writof attachment or execution, or other like process, against the assets ofBorrower; or the entry of a judgment against Borrower.

             (f)         Borrowershall become insolvent, or shall suffer or consent to or apply for theappointment of a receiver, trustee, custodian or liquidator of itself or any ofits property, or shall generally fail to pay its debts as they become due, orshall make a general assignment for the benefit of creditors; Borrower shallfile a voluntary petition in bankruptcy, or seeking reorganization, in order toeffect a plan or other arrangement with creditors or any other relief under theBankruptcy Reform Act, Title 11 of the United States Code, as amended orrecodified from time to time ("Bankruptcy Code"), or under any stateor federal law granting relief to debtors, whether now or hereafter in effect;or any involuntary petition or proceeding pursuant to the Bankruptcy Code orany other applicable state or federal law relating to bankruptcy,reorganization or other relief for debtors is filed or commenced againstBorrower, or Borrower shall file an answer admitting the jurisdiction of thecourt and the material allegations of any involuntary petition; or Borrowershall be adjudicated a bankrupt, or an order for relief shall be enteredagainst Borrower by any court of competent jurisdiction under the BankruptcyCode or any other applicable state or federal law relating to bankruptcy,reorganization or other relief for debtors.

             (g)        Thereshall exist or occur any event or condition which Bank in good faith believesimpairs, or is substantially likely to impair, the prospect of payment orperformance by Borrower of its obligations under any of the Loan Documents.

             (h)        Thedissolution or liquidation of Borrower; or Borrower, or any of its directors,stockholders or members, shall take action seeking to effect the dissolution orliquidation of Borrower.

             (i)          Anychange in ownership during the term of this Agreement of an aggregate oftwenty-five percent (25%) or more of the common stock of Borrower.

             (j)          Thesale, transfer, hypothecation, assignment or encumbrance, whether voluntary,involuntary or by operation of law, without Bank's prior written consent, ofall or any part of or interest in any real property collateral required hereby.

             SECTION 6.2.  REMEDIES.  Upon the occurrence of any Event ofDefault:  (a) all indebtedness ofBorrower under each of the Loan Documents, any term thereof to the contrarynotwithstanding, shall at Bank's option and without notice become immediatelydue and payable without presentment, demand, protest or notice of dishonor, allof 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 Documentsshall immediately cease and terminate; and (c) Bank shall have all rights,powers and remedies available under each of the Loan Documents, or accorded bylaw, including without limitation the right to resort to any or all securityfor any credit subject hereto and to exercise any or all of the rights of abeneficiary or secured party pursuant to applicable law.  All rights, powers and remedies of Bank maybe exercised at any time by Bank and from time to time after the occurrence ofan Event of Default, are cumulative and not exclusive, and shall be in additionto any other rights, powers or remedies provided by law or equity.

 

ARTICLEVIIMISCELLANEOUS

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

             SECTION 7.2.  NOTICES.  All notices, requests and demands which anyparty is required or may desire to give to any other party under any provisionof this Agreement must be in writing delivered to each party at the followingaddress:
BORROWER:ROTONICS MANUFACTURING, INC. 17022 South Figueroa Street Gardena, CA 90248  BANK:WELLS FARGO BANK, NATIONAL ASSOCIATION South Bay Regional Commercial Banking Office 111 West Ocean Blvd., Suite 300 Loan Beach, CA 90802
 

or to such other addressas any party may designate by written notice to all other parties.  Each such notice, request and demand shallbe deemed given or made as follows:  (a) ifsent by hand delivery, upon delivery; (b) if sent by mail, upon theearlier 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, uponreceipt.

             SECTION 7.3.  COSTS,EXPENSES AND ATTORNEYS' FEES.  Borrower shallpay to Bank immediately upon demand the full amount of all payments, advances,charges, costs and expenses, including reasonable attorneys' fees (to includeoutside counsel fees and all allocated costs of Bank's in-house counsel),expended or incurred by Bank in connection with (a) the negotiation andpreparation of this Agreement and the other Loan Documents , Bank's continuedadministration hereof and thereof, and the preparation of any amendments andwaivers hereto and thereto, (b) the enforcement of Bank's rights and/orthe collection of any amounts which become due to Bank under any of the LoanDocuments, and (c) the prosecution or defense of any action in any wayrelated to any of the Loan Documents, including without limitation, any actionfor declaratory relief, whether incurred at the trial or appellate level, in anarbitration proceeding or otherwise, and including any of the foregoingincurred in connection with any bankruptcy proceeding (including withoutlimitation, any adversary proceeding, contested matter or motion brought byBank or any other person) relating to any Borrower or any other person orentity.

             SECTION 7.4.  SUCCESSORS,ASSIGNMENT.  This Agreement shall bebinding upon and inure to the benefit of the heirs, executors, administrators,legal representatives, successors and assigns of the parties; provided however,that Borrower may not assign or transfer its interest hereunder without Bank'sprior written consent.  Bank reservesthe right to sell, assign, transfer, negotiate or grant participations in allor any part of, or any interest in, Bank's rights and benefits under each ofthe Loan Documents.  In connectiontherewith, Bank may disclose all documents and information which Bank now hasor may hereafter acquire relating to any credit subject hereto, Borrower or itsbusiness, or any collateral required hereunder.

             SECTION 7.5.  ENTIREAGREEMENT; AMENDMENT.  This Agreementand the other Loan Documents constitute the entire agreement between Borrowerand Bank with respect to each credit subject hereto and supersede all priornegotiations, communications, discussions and correspondence concerning thesubject matter hereof.  This Agreementmay be amended or modified only in writing signed by each party hereto.

             SECTION 7.6.  NOTHIRD PARTY BENEFICIARIES.  ThisAgreement is made and entered into for the sole protection and benefit of theparties hereto and their respective permitted successors and assigns, and noother person or entity shall be a third party beneficiary of, or have any director indirect cause of action­ or claim in connection with, this Agreement or anyother of the Loan Documents to which it is not a party.

             SECTION 7.7.  TIME.  Time is of the essence of each and everyprovision of this Agreement and each other of the Loan Documents.
             SECTION 7.8.  SEVERABILITYOF PROVISIONS.  If any provision of thisAgreement shall be prohibited by or invalid under applicable law, suchprovision shall be ineffective only to the extent of such prohibition orinvalidity without invalidating the remainder of such provision or anyremaining provisions of this Agreement.

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

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

             SECTION 7.11. ARBITRATION.

             (a)         Arbitration.  Upon the demand of any party, any Disputeshall be resolved by binding arbitration in accordance with the terms of thisAgreement.  A "Dispute" shallmean any action, dispute, claim or controversy of any kind, whether in contractor tort, statutory or common law, legal or equitable, now existing or hereafterarising under or in connection with, or in any way pertaining to, any of theLoan Documents, or any past, present or future extensions of credit and otheractivities, transactions or obligations of any kind related directly orindirectly to any of the Loan Documents, including without limitation, any ofthe foregoing arising in connection with the exercise of any self-help,ancillary or other remedies pursuant to any of the Loan Documents.  Any party may by summary proceedings bringan action in court to compel arbitration of a Dispute.  Any party who fails or refuses to submit toarbitration following a lawful demand by any other party shall bear all costsand expenses incurred by such other party in compelling arbitration of anyDispute.

             (b)        GoverningRules.  Arbitration proceedingsshall be administered by the American Arbitration Association ("AAA")or such other administrator as the parties shall mutually agree upon inaccordance with the AAA Commercial Arbitration Rules.  All Disputes submitted to arbitration shall be resolved inaccordance with the Federal Arbitration Act (Title 9 of the United StatesCode), notwithstanding any conflicting choice of law provision in any of theLoan Documents.  The arbitration shallbe conducted at a location in California selected by the AAA or otheradministrator.  If there is anyinconsistency between the terms hereof and any such rules, the terms andprocedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to anyarbitration proceeding.  All discoveryactivities shall be expressly limited to matters directly relevant to theDispute being arbitrated.  Judgment uponany award rendered in an arbitration may be entered in any court havingjurisdiction; provided however, that nothing contained herein shall be deemedto be a waiver by any party that is a bank of the protections afforded to itunder 12 U.S.C. §91 or any similar applicable state law.

             (c)         NoWaiver; Provisional Remedies, Self-Help and Foreclosure.  No provision hereof shall limit the right ofany party to exercise self-help remedies such as setoff, foreclosure against orsale of any real or personal property collateral or security, or to obtain provisionalor ancillary remedies, including without limitation injunctive relief,sequestration, attachment, garnishment or the appointment of a receiver, from acourt of competent jurisdiction before, after or during the pendency of anyarbitration or other proceeding.  Theexercise of any such remedy shall not waive the right of any party to compelarbitration or reference hereunder.
             (d)        ArbitratorQualifications and Powers; Awards. Arbitrators must be active members of the California State Bar orretired judges of the state or federal judiciary of California, with expertisein the substantive laws applicable to the subject matter of the Dispute.  Arbitrators are empowered to resolveDisputes by summary rulings in response to motions filed prior to the finalarbitration hearing.  Arbitrators (i)shall resolve all Disputes in accordance with the substantive law of the Stateof California, (ii) may grant any remedy or relief that a court of the State ofCalifornia could order or grant within the scope hereof and such ancillaryrelief as is necessary to make effective any award, and (iii) shall have thepower to award recovery of all costs and fees, to impose sanctions and to takesuch other actions as they deem necessary to the same extent a judge could pursuantto the Federal Rules of Civil Procedure, the California Rules of CivilProcedure or other applicable law.  AnyDispute in which the amount in controversy is $5,000,000 or less shall bedecided by a single arbitrator who shall not render an award of greater than$5,000,000 (including damages, costs, fees and expenses).  By submission to a single arbitrator, eachparty expressly waives any right or claim to recover more than $5,000,000.  Any Dispute in which the amount incontroversy exceeds $5,000,000 shall be decided by majority vote of a panel ofthree arbitrators; provided however, that all three arbitrators must activelyparticipate in all hearings and deliberations.

             (e)         RealProperty Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no Dispute shall besubmitted to arbitration if the Dispute concerns indebtedness secured directlyor indirectly, in whole or in part, by any real property unless (i) the holderof the mortgage, lien or security interest specifically elects in writing toproceed with the arbitration, or (ii) all parties to the arbitration waive anyrights or benefits that might accrue to them by virtue of the single actionrule statute of California, thereby agreeing that all indebtedness andobligations of the parties, and all mortgages, liens and security interestssecuring such indebtedness and obligations, shall remain fully valid andenforceable.  If any such Dispute is notsubmitted to arbitration, the Dispute shall be referred to a referee inaccordance with California Code of Civil Procedure Section 638 et seq., andthis general reference agreement is intended to be specifically enforceable inaccordance with said Section 638.  Areferee with the qualifications required herein for arbitrators shall be selectedpursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in thecourt in which such proceeding was commenced in accordance with California Codeof Civil Procedure Sections 644 and 645.

             (f)         Miscellaneous.  To the maximum extent practicable, the AAA,the arbitrators and the parties shall take all action required to conclude anyarbitration proceeding within 180 days of the filing of the Dispute with theAAA.  No arbitrator or other party to anarbitration proceeding may disclose the existence, content or results thereof,except for disclosures of information by a party required in the ordinarycourse of its business, by applicable law or regulation, or to the extentnecessary to exercise any judicial review rights set forth herein.  If more than one agreement for arbitrationby or between the parties potentially applies to a Dispute, the arbitrationprovision most directly related to the Loan Documents or the subject matter ofthe Dispute shall control.  Thisarbitration provision shall survive termination, amendment or expiration of anyof the Loan Documents or any relationship between the parties.
             IN WITNESS WHEREOF, the parties hereto have caused thisAgreement to be executed as of the day and year first written above.
 WELLS FARGO BANK,ROTONICS MANUFACTURING INCNATIONAL ASSOCIATION  By:/s/ SHERMAN MCKINNISSBy:     /s/  RICHARD LAPOINT Sherman McKinniss Richard LaPoint President/Chief Vice President Executive Officer      By:/s/ DOUGLAS W. RUSSELL   Douglas W. Russell   Chief Financial Officer/   Assistant Secretary/Treasurer