Document:

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                                                                    EXHIBIT 10.3

                               SECURITY AGREEMENT

         Security Agreement, dated as of June 15, 2001, made by and among U.S.
Plastic Lumber Corp., a Nevada corporation with principal offices at 2300 Glades
Road, Suite 440 West, Boca Raton, Florida 33431 (the "Company"), each of the
undersigned wholly-owned subsidiaries ("Subsidiaries") of the Company with
principal offices at the addresses specified by their respective signatures and
Halifax Fund, L.P., a limited partnership with offices at 195 Maplewood Avenue,
Maplewood, New Jersey 07040 ("Purchaser"). The Company and the Subsidiaries are
sometimes hereinafter referred to as the "Grantors". Purchaser is sometimes
hereafter referred to as the "Secured Party."

         WHEREAS, the parties hereto are entering into the Debenture Purchase
Agreement (the "Debenture Purchase Agreement") of even date herewith, pursuant
to which the Company will sell and issue to Purchaser certain 18% Debentures
(the "Debentures") in the aggregate principal amount of $4,000,000;

         WHEREAS, Section 4.2(g) of the Debenture Purchase Agreement provides
that a condition precedent to Purchaser's obligation to purchase the Debentures
is the execution and delivery by the Grantors of this Security Agreement
granting Purchaser a subordinate lien on all assets of the Grantors for the
purpose of securing the Company's obligations (i) under the Debentures, (ii)
under the Company's outstanding 5% convertible debentures due February 2, 2005
(the "2000 Debentures") and (iii) under the Company's Series D 15% Preferred
Stock, (the "Series D Preferred Stock").

         NOW THEREFORE, in consideration of the foregoing, each of the Grantors
hereby respectively agrees with the Secured Party as follows:

                  SECTION 1.        Grant of Security Interest. As collateral
security for all of the Obligations (as defined in Section 2 hereof), each of
the Grantors hereby respectively pledge and collaterally assign to the Secured
Party, and grant to the Secured Party a continuing security interest in their
respective interests in the following (the "Collateral"):

                  All assets of the Grantors, including without limitation all
                  presently existing and hereafter arising (i) accounts,
                  contract rights, and all other forms of obligations owing to
                  the Grantors from any source ("Accounts"); (ii) all of the
                  books and records of the Grantors, including ledgers, records
                  indicating, summarizing, or evidencing the assets or
                  liabilities of the Grantors, or the Collateral, all
                  information relating to the Grantor's business operations or
                  financial condition, all computer programs, disc or tape
                  files, printouts, runs or other computer prepared information,
                  and any equipment containing such information (the Grantors'
                  "Books"); (iii) all of the Grantors' present and hereafter
                  acquired equipment, wherever located, and all attachments,
                  accessories, accessions, replacements, substitutions,
                  additions and improvements to any of the foregoing, wherever
                  located ("Equipment"); all of Grantors' present and hereafter
                  acquired

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                  general intangibles and other personal property (including,
                  but not limited to, contract rights, rights arising under
                  common law, statutes or regulations, choses or things in
                  action, goodwill, patents, trade names, trademarks, service
                  marks, copyrights, blueprints, drawings, purchase orders,
                  customer lists, monies due under any royalty or licensing
                  agreements, infringements, claims, computer programs, discs or
                  tapes, deposit accounts, insurance premium rebates, tax
                  refunds, and tax refund claims, as well as all cash collateral
                  that is hypothecated to secure letters of credit or bonding
                  obligations) ("General Intangibles"); (iv) all present and
                  future inventory in which any Grantor has any interest, and
                  all of the present and future raw materials of the Grantors,
                  work in process, finished goods, and packing and shipping
                  material, wherever located, any documents of title
                  representing any of the above ("Inventory"); (v) all of the
                  negotiable collateral of the Grantors, including all of the
                  Grantors' present and future letters of credit, notes, drafts,
                  instruments, certificated securities (including the shares of
                  stock of any subsidiary), documents, personal property leases
                  (where any Grantor is the lessor), chattel paper and the books
                  and records of the Grantors relating to any of the foregoing
                  ("Negotiable Collateral"); (vi) any money or other assets of
                  any Grantor which hereafter come into the possession, custody
                  or control of any Grantor, and (vii) the proceeds and
                  products, whether tangible or intangible, of any of the
                  foregoing including proceeds of insurance covering any or all
                  of the Collateral, and any and all Accounts, Equipment,
                  General Intangibles, Inventory, Negotiable Collateral, money,
                  deposit accounts or other tangible or intangible, real or
                  personal, property resulting from the sale, exchange,
                  collection or other disposition of the Collateral, or any
                  portion thereof or interest therein, and the proceeds thereof;

in each case howsoever the interest of any Grantor therein may arise or appear
(whether by ownership, security interest, claim or otherwise).

         The Secured Party acknowledges that its security interest in the
Collateral is junior to the liens granted to Bank of America, N.A. and the other
lenders set forth in the Credit Agreement (as defined below) (the "Senior
Lender(s)") in the Collateral, pursuant to the Credit Agreement dated as of June
30, 2000, and as subsequently amended by and between the Senior Lender(s) and
the Company (the "Credit Agreement"), and further acknowledges that it is
subject to the Intercreditor Agreement, dated the date hereof (the
"Intercreditor Agreement"), by and between the Secured Party and the Senior
Lender. The Secured Party further acknowledges and agrees that in connection
with a refinancing of the obligations of Grantors to the Senior Lenders, (a) the
security interest in the Collateral granted herein shall be junior to the liens
in favor of such replacement lenders, and (b) in order to evidence such
subordination, the Secured Party shall execute and deliver to such replacement
lenders an intercreditor and subordination agreement substantially the same as
or similar to the Intercreditor Agreement so long as the aggregate debt

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does not exceed the limitations of Section 3.13 of the Debenture Purchase
Agreement, provided that the Secured Party's refusal to so execute and deliver
an intercreditor and subordination agreement under this Clause (b) shall in no
way limit the validity and enforceability of the foregoing Clause (a).

         SECTION 2.        Security for Obligations. The security interest
created hereby in the Collateral constitutes continuing collateral security for
the prompt payment by the company, as and when due and payable, of all amounts
from time to time owing by it to the Secured Party under the Debenture Purchase
Agreement, the Registration Rights Agreement, dated as of the date hereof
between the Company and the Secured Party, the Debentures, the 2000 Debentures,
the debenture purchase agreement pursuant to which the 2000 Debentures were
issued (the "2000 Debenture Purchase Agreement), and the Company's obligations
in respect of the Series D Preferred Stock (collectively, the "Obligations").

         SECTION 3.        Representation and Warranties. Each of the Grantors
respectively represents and warrants as follows:

                  (a)      The Grantors are and will be at all times the owners
of the Collateral free and clear of any other lien, security interest or other
charge or encumbrance except for the lien in favor of the Senior Lender and
except as described in Section 2.1(aa) of the Debenture Purchase Agreement and
Schedule 2.1(aa) thereof.

                  (b)      The chief executive office location and each
equipment and inventory location of each Grantor are set forth on Schedule 1
hereto.

                  (c)      The state of incorporation of each Grantor is set
forth on Schedule II.

         SECTION 4.        Covenants as to the Collateral. So long as any of the
Obligations shall remain outstanding, unless the Secured Party shall otherwise
consent in writing,

                  (a)      Further Assurances. Promptly after request by the
Secured Party, each Grantor will at its expense, at any time and from time to
time, promptly execute and deliver all further instruments and documents and
take all further action that may be reasonably necessary or desirable (i) to
perfect and protect the security interest to be created hereby in all
jurisdictions containing Collateral; (ii) to enable Secured Party to exercise
and enforce their rights and remedies hereunder in respect of the Collateral; or
(iii) to otherwise effect the purposes of this Agreement. Without limiting the
generality of the foregoing, the Grantors agree, promptly after request by the
Secured Party, to take such further actions as may be necessary to cause the
Secured Party's security interest in the Collateral to remain valid and
perfected after any amendment to Article 9 of the Uniform Commercial Code.

                  (b)      Provisions Concerning the Collateral. Each Grantor
will (A) give Secured Party prompt notice of any change in the Grantor's name,
identity or corporate structure, (B) keep all originals of all documents
relating to the Collateral at such Grantor's principal office, and (C) keep
adequate records concerning the Collateral and permit representatives of Secured
Party at any time during normal business hours on reasonable notice to inspect
such

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records (provided the Secured Party agree to keep all information inspected
strictly confidential, and provided further that the Secured Party shall only be
entitled to perform such an inspection on a monthly basis so long as no Event of
Default is outstanding).

                  (c)      Transfer. The Grantors will not sell, assign,
exchange or otherwise dispose of any of the Collateral except (a) in the
ordinary course of business, (b) dispositions of worn or obsolete equipment,
provided the proceeds thereof are being used to pay Indebtedness or indebtedness
owed to the Senior Lenders, (c) encumbrances in favor of the Senior Lenders, (d)
encumbrances of specific assets in connection with the purchase money financing
thereof, (e) encumbrances in favor of the other parties which are subordinate to
the Secured Party's liens, subject to the terms of an intercreditor agreement
reasonably satisfactory to Secured Party, and (f) where the Senior Lenders have
consented to such disposition.

                  (d)      The Secured Party hereby consents to release its lien
on Collateral the sale or disposition of which (but not encumbrance) has been
approved by the Senior Lenders and the liens of the Senior Lenders on such
Collateral have been released; provided, however, that the Secured Party's lien
on the proceeds thereof shall remain, consistent with the terms of this
Agreement and the Intercreditor Agreement; further provided that the Grantors
may use and apply such proceeds in a manner permitted by the Senior Lenders.

                  (e)      If a Grantor fails to perform any agreement contained
herein, Secured Party may itself perform or cause performance of such agreement
or obligation, and the reasonable expenses of Secured Party incurred in
connection therewith shall be payable by the Company pursuant to Section 5(d)
hereof.

         SECTION 5.        Remedies Upon Default. If any of the Obligations are
not paid when due, or if the Company or any Grantor is in default of (a) any of
its obligations under this Agreement in any material respect, or (b) the
Debenture Purchase Agreement, the Debentures, the 2000 Debentures, the 2000
Debenture Purchase Agreement or Series D Preferred Stock (an "Event of
Default"), and subject to any rights of the Senior Lender:

                  (a)      The Secured Party may exercise in respect of the
Collateral in addition to other rights and remedies the rights and remedies of a
secured party under the Uniform Commercial Code in effect in the states of
Florida, Nevada or any other jurisdiction where Collateral is located (the
"Code") and also may (i) require the Grantors to, and the Grantors hereby agree
that they will at their own expense and upon request of the Secured Party
forthwith, assemble all or part of the Collateral as directed by the Secured
Party and make it available to Secured Party at a place that is reasonably
convenient to both parties to be designated by Secured Party and (ii) upon ten
(10) days' (or such longer period shall be required by law) prior written
notice, sell the Collateral or any part thereof, in one or more parcels at
public or private sale, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Secured Party may determine
(provided that all aspects of any such sale are commercially reasonable). The
Secured Party shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given. The Secured Party may adjourn any public or
private sale from time to time by announcement at the time and placed fixed
therefor, and such sale may, without further notices, be made at the time and
place to which it was so adjourned.

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                  (b)      Any cash held by the Secured Party as Collateral and
all cash proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon, all or any part of the Collateral
shall be applied in whole or in part by Secured Party against, all or any part
of the Obligations in the following order: (i) reasonable costs and expenses
incurred by The Secured Party as of such date in connection with collection of
the Obligations and enforcement of this Agreement, (ii) unpaid interest due and
owing by the Company as of such date and (iii) unpaid principal due and owing by
the Company as of such date. Any surplus of such cash or cash proceeds held by
the Secured Party and remaining after the payment in full of all of the
Obligations shall be paid over to the Company or to such person as may be
lawfully entitled to receive such surplus.

                  (c)      In the event that the proceeds of any such collection
or realization are insufficient to pay all amount to which the Secured Party is
legally entitled, the Company shall be liable for the deficiency, together with
interest thereon at the highest rate specified in the Debentures, 2000
Debentures and Series D Preferred Stock, as the case may be, for interest on
overdue principal thereof, together with the reasonable costs of collection.

                  (d)      The Company will upon demand pay to the Secured Party
the amount of any and all reasonable costs and expenses, including the
reasonable fees and disbursements of the Secured Party' counsel, which the
Secured Party may incur in connection with (i) the sale of, collection from, or
other realization upon, any Collateral, (ii) the exercise or enforcement of any
of the rights of the Secured Party hereunder, or (iii) the failure by any
Grantor to perform or observe any of the provisions hereof.

         SECTION 5A.       Power of Attorney. Each Grantor hereby irrevocably
makes, constitutes, and appoints Secured Party (and all of the Secured Party's
general partners, officers, employees, or agents designated by the Secured
Party) as its true and lawful attorney, with power to: (i) sign the Grantor's
name on any of the documents described hereunder or on any other similar
documents to be executed, recorded, or filed in order to perfect or continue
perfection of the Secured Party's security interest in the Collateral if such
Grantor has not complied with its obligations under Section 4(a) herein; (ii) at
any time that an Event of Default has occurred and is continuing, execute, sign
and endorse the Grantor's name on any invoice or bill of lading relating to any
Account, drafts against Account debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to Account debtors; (iii) send requests
for verification of Accounts; (iv) at any time that any Event of Default has
occurred and is continuing, execute, sign and endorse the Grantor's name on any
checks, notices, instruments, acceptances, money orders, drafts, warrants or
other item of payment or security that may come into the Secured Party's
possession; (v) at any time that an Event of Default has occurred and is
continuing, demand, collect, receive, receipt for, sue and recover all sums of
money or other property which may now or hereafter become due, owing or payable
from the Collateral; (vi) at any time that any Event of Default has occurred and
is continuing, file any claim or claims or, following an Event of Default, take
any action or institute or take part in any proceedings, either in its own name
or in the name of the Grantor, or otherwise, which in the discretion of the
Secured Party may seem to be necessary or advisable; (vii) at any time that an
Event of Default has occurred and following acceleration of the Indebtedness,
direct the Account debtors and other persons sending mail to the Grantor to send
all mail relating to the Collateral to the Secured Party; (viii) at any time
that an Event of Default has occurred and is continuing, make, settle, and

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adjust all claims under the Grantor's policies of insurance and make all
determinations and decisions with respect to such policies of insurance; and
(ix) at any time that an Event of Default has occurred and following
acceleration of the Indebtedness, settle and adjust disputes and claims
respecting the Accounts directly with Account debtors, for reasonable amounts
and upon reasonable terms, and the Secured Party may cause to be executed and
delivered any documents and releases which Secured Party reasonably determines
to be necessary. The appointment of the Secured Party as the Grantor's attorney,
and each and every one of the Secured Party's rights and powers, being coupled
with an interest, is irrevocable and shall remain in full force and effect until
all of the Indebtedness has been fully repaid and performed and the Secured
Party renounces such appointment.

         SECTION 6.        Notices, Etc. Any notice or other communication
required or permitted to be given hereunder shall be in writing by facsimile,
mail or personal delivery and shall be effective upon actual receipt of such
notice. The addresses for such communications shall be:

              to the Company and Subsidiaries:

                  U.S. Plastic Lumber Corp.
                  2300 Glades Road
                  Suite 440 West
                  Boca Raton, Florida 33431
                  Facsimile:  (561) 394-5335
                  Attention:  Bruce Rosetto

              with a copy to:

                  Blank Rome Comisky & McCauley LLP
                  One Logan Square
                  Philadelphia, Pennsylvania 19103
                  Facsimile:  (215) 569-5628
                  Attention:  Alan L. Zeiger, Esq.

              to the Purchaser:

                  Halifax Fund, L.P.
                  c/o The Palladin Group, L.P.
                  Investment Manager
                  195 Maplewood Avenue
                  Maplewood, New Jersey 07040
                  Facsimile:  (973) 313-6491
                  Attention:  Robert Chender

              with a copy to:

                  Kleinberg, Kaplan, Wolff & Cohen, P.C.
                  551 Fifth Avenue

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                  New York, New York 10176
                  Facsimile:  (212) 986-8866
                  Attention:  Lawrence D. Hui, Esq.

         Any party hereto may from time to time change its address for notices
by giving at least 10 days' written notice of such changed address to the other
parties hereto.

         SECTION 7.        Miscellaneous.

                  (a)      No amendment of any provision of this Agreement shall
be effective unless it is in writing and signed by the Grantors and the Secured
Party, and no waiver of any provision of this Agreement shall be effective
unless it is in writing and signed by Secured Party, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.

                  (b)      No failure on the part of the Secured Party to
exercise, and no delay in exercising, any right hereunder or under any other
document relating hereto shall operate as a waiver thereof; nor shall any single
or partial exercise of any such right preclude any other further exercise
thereof or the exercise of any other right. The rights and remedies of the
Secured Party provided herein and in the Debentures, 2000 Debentures and Series
D Preferred Stock are cumulative and are in addition to, and not exclusive of,
any rights or remedies provided by law.

                  (c)      Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.

                  (d)      This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
the payment in full or release of the Obligations and (ii) be binding on the
Grantors and their respective successors and assigns and shall inure, together
with all rights and remedies hereunder, to the benefit of the Secured Party and
their successors, transferee and assigns.

                  (e)      This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, except as required
by mandatory provisions of law and except to the extent that the validity and
perfection and the effect of perfection or non-perfection of the security
interest created hereby, or remedies hereunder, in respect of any particular
Collateral are governed by the law of a jurisdiction other than the State of New
York. The parties hereby consent to the exclusive jurisdiction of any New York
State or Federal court in New York City in any action or proceeding arising
hereunder.

                  (f)      The actions of the holders of a majority-in-interest
of the Obligations shall be deemed the actions of the Secured Party for purposes
of giving any notice or enforcing any rights or remedies.

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<PAGE>   8

                  (g)      This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not
for the benefit of, nor may any provision hereof be enforced by, any other
person.

         SECTION 8.        Termination. So long as no Event of Default is
outstanding and the Obligations have not been accelerated, this Agreement and
the security interest granted hereunder shall terminate and be deemed released
upon payment in full of the Obligations. Upon receipt of such payment, the
Secured Party agrees to promptly execute and deliver UCC-3 termination
statements and other collateral release documentation reasonably requested by
Grantors in order to further evidence the termination and release effectuated
under this Section 8.

         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized,
as of the date first above written.

                                     COMPANY:

                                     U.S. PLASTIC LUMBER CORP.

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Vice President and General Counsel

                                     SUBSIDIARIES:

                                     U.S. PLASTIC LUMBER LTD.
                                     2600 West Roosevelt Road
                                     Chicago, IL  60608

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     INTEGRATED TECHNICAL SERVICES, INC.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                       8

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                                     BARBELLA ENVIRONMENTAL TECHNOLOGY, INC.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                       9

<PAGE>   10

                                     CLEAN EARTH OF MARYLAND, INC.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     CLEAN EARTH OF NEW CASTLE, INC.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     CLEAN EARTH OF PHILADELPHIA, INC.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     CLEAN EARTH OF NORTH JERSEY, INC.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     CLEAN EARTH OF CARTERET, INC
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                       10

<PAGE>   11

                                     CLEAN ROCK PROPERTIES, LTD.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     CONSOLIDATED TECHNOLOGIES, INC.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     ALLIED WASTE SERVICES, INC.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     CLEAN EARTH, INC.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     CARTERET ASPHALT CORPORATION
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                       11

<PAGE>   12

                                     THE EAGLEBROOK GROUP, INC.
                                     2600 West Roosevelt Road
                                     Chicago, IL  60608

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     U.S. PLASTIC LUMBER FINANCE CORPORATION
                                     2300 W. Glades Road, Suite 440W
                                     Boca Raton, FL  33431

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     U.S. PLASTIC LUMBER IP CORPORATION
                                     2300 W. Glades Road, Suite 440W
                                     Boca Raton, FL  33431

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                     ADVANCED REMEDIATION & DISPOSAL
                                     TECHNOLOGIES OF DELAWARE, INC.
                                     1000 Crawford Place
                                     Mt. Laurel, NJ  08054

                                     By: /s/ Bruce C. Rosetto
                                        ----------------------------------------
                                     Name: Bruce C. Rosetto
                                     Title: Secretary

                                       12

<PAGE>   13

                                     PURCHASER:

                                     HALIFAX FUND, L.P.

                                     By: THE PALLADIN GROUP, L.P.
                                             Attorney-in-Fact

                                     By: /s/ Robert Chender
                                        ----------------------------------------
                                     Name: Robert Chender
                                     Title: Managing Director

     [SIGNATURE PAGE TO U.S. PLASTIC LUMBER CORPORATION SECURITY AGREEMENT]

                                       13<PAGE>   1

                                                                    EXHIBIT 10.4

                    SUBORDINATION AND INTERCREDITOR AGREEMENT

         THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (this "Agreement") dated
as of June 15, 2001 is entered into between Bank of America, N.A., as Agent
("Agent"), and Halifax Fund, L.P. ("Halifax").

                                       RECITALS

         A.       U.S. Plastic Lumber Corp., a Nevada corporation ("USPL"), is
indebted to Senior Banks pursuant to the Senior Credit Documents. All Senior
Indebtedness is secured by a first priority continuing Lien on all Senior Bank
Collateral.

         B.       USPL is indebted to Halifax pursuant to the Halifax Documents.
All Halifax Indebtedness is to be secured by a second priority continuing Lien
on all Senior Bank Collateral.

         C.       Agent and Halifax have entered into this Agreement to set
forth, among other things, the relative priority of their respective Liens on,
and their respective rights with respect to, the Senior Bank Collateral.

       NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Agent and Halifax hereby agree as
follows:

         SECTION 1. Certain Definitions. The following terms shall have the
following meanings for purposes of this Agreement (including the background
recitals hereto):

         "Agent" - see the Preamble.

         "Bankruptcy Code" means Chapter 11 of title 11 of the United States
Code (11 U.S.C. ss. 101 et seq.), as amended from time to time, and any
successor statute, and all rules and regulations promulgated thereunder.

         "Credit Parties" means USPL and the Guarantors.

         "Debentures" means the 2000 Debenture and the 2001 Debenture.

         "Guarantors" means the "Guarantors" under and as defined in the Senior
Credit Agreement.

         "Halifax" - see the Preamble.

         "Halifax Documents" means and includes the documents relating to the
issuance of the Debentures and the Series D Preferred Stock and all other
agreements, documents and instruments set forth on Schedule 1 hereto, and all
other agreements, documents and instruments evidencing any replacement,
substitution, refunding, renewal or refinancing of or for all or any
<PAGE>   2

part of the Halifax Indebtedness, in each case as amended, restated,
supplemented or otherwise modified and in effect from time to time, to the
extent permitted pursuant to the terms hereof.

         "Halifax Indebtedness" means all indebtedness, liabilities and other
obligations of any and every kind and nature now existing or hereafter arising,
contingent or otherwise, of USPL or any other Person under, in connection with,
or evidenced or secured by the Halifax Documents, in each case including,
without limitation, obligations to pay (i) principal, (ii) interest or premium
(including interest accruing after the commencement of any Proceeding, whether
or not constituting an allowed claim in such Proceeding), (iii) dividends, (iv)
fees, (v) costs, expenses and other amounts related to any indemnity against
loss, damage or liability and (vi) any other monetary obligation.

         "Hedging Obligations" has the meaning ascribed thereto in the Senior
Credit Agreement.

         "Holders" means the holders of the Debentures and the Series D
Preferred Stock.

         "Junior Security" means (i) any common stock of USPL, (ii) any
preferred stock of USPL which is not mandatorily redeemable prior to the 91(st)
day after the payment in full in cash of all Senior Indebtedness and (iii) any
debt securities issued by USPL which are expressly subordinated to the Senior
Indebtedness at least to the extent set forth herein.

         "Lien" means any lien, claim, charge, pledge, security interest,
assignment, hypothecation, deed of trust, mortgage, lease, conditional sale,
retention of title, or other preferential arrangement having substantially the
same economic effect as any of the foregoing, whether voluntary or imposed by
law.

         "Other Senior Default" - see Section 2.3(b).

         "Payment Blockage Period" - see Section 2.3(b).

         "Person" means any natural person, corporation, general or limited
partnership, limited liability company, firm, trust, association, government,
governmental agency or other entity, whether acting in an individual, fiduciary
or other capacity.

         "Proceeding" means, with respect to any Person, any (a) insolvency,
bankruptcy, receivership, liquidation, reorganization, readjustment, composition
or other similar proceeding relating to such Person or its Property or creditors
in such capacity, (b) proceeding for any liquidation, dissolution or other
winding-up of such Person, voluntary or involuntary, whether or not involving
insolvency or proceedings under the Bankruptcy Code, whether partial or complete
and whether by operation of law or otherwise, (c) assignment for the benefit of
creditors of such Person or (d) other marshaling of the assets of such Person.

                                      -2-
<PAGE>   3

         "Property" means, with respect to any Person, all property and
interests in property of such Person, whether real, personal or mixed, whether
now owned or existing or hereafter acquired or arising and wheresoever located.

         "Senior Banks" means the "Banks" under and as defined in the Senior
Credit Agreement and any affiliate of any such Bank to which USPL owes any
Hedging Obligations.

         "Senior Bank Collateral" means all of each Credit Party's Property,
whether now owned or existing or hereafter acquired or arising and wheresoever
located, including, without limitation, (i) all of each Credit Party's accounts,
machinery, equipment, fixtures, inventory, goods, chattel paper, general
intangibles, investment property, instruments and documents, (ii) all real
property and interests in real property (including leasehold interests) of each
Credit Party and (iii) all accessions to, substitutions for and replacements,
products and proceeds of all of the foregoing Property.

         "Senior Commitment" means the "Commitment" under and as defined in the
Senior Credit Agreement.

         "Senior Credit Agreement" means the Credit Agreement dated as of June
30, 2000 among USPL, Agent and Senior Banks, as amended or otherwise modified
from time to time.

         "Senior Credit Documents" means and includes (i) the Senior Credit
Agreement, all notes issued thereunder or in connection therewith and all
security agreements, guaranties, pledge agreements, mortgages, deeds of trust
and other agreements, documents and instruments now or at any time hereafter
entered into or delivered by any Credit Party or other Person pursuant thereto,
or evidencing any replacement, substitution, refunding, renewal or refinancing
of or for all or any part of, the Senior Indebtedness, and (ii) all agreements
between USPL and any Senior Bank which given rise to any Hedging Obligations, in
each case as amended, restated, supplemented or otherwise modified and in effect
from time to time, to the extent permitted pursuant to the terms hereof.

         "Senior Default Notice" - see Section 2.3(b).

         "Senior Enforcement Action" means any of the following: (a)
acceleration by Senior Banks of all or any part of the Senior Indebtedness; (b)
commencement of any Proceeding with respect to any Credit Party; (c) initiation
of any suit or action, including any Proceeding, against or with respect to any
Credit Party or other Person to enforce payment of or to collect the whole or
any part of the Senior Indebtedness; or (d) the taking by Agent of any action
under the provisions of any state or federal law, including, without limitation,
the Bankruptcy Code or the UCC, to enforce, foreclose upon, take possession of
or sell any Property of any Credit Party or any other Person on account of all
or any part of the Senior Indebtedness, including, any Senior Bank Collateral.

                                      -3-
<PAGE>   4

         "Senior Indebtedness" means all indebtedness, liabilities and other
obligations of any and every kind and nature now existing or hereafter arising,
contingent or otherwise, of any Credit Party or any other Person under, in
connection with, or evidenced or secured by the Senior Credit Agreement and the
other Senior Credit Documents, in each case including, without limitation,
obligations to pay (i) principal, (ii) interest (including interest accruing
after the commencement of any Proceeding, whether or not constituting an allowed
claim in such Proceeding), (iii) fees, (iv) termination payments, (v) costs,
expenses and other amounts related to any indemnity against loss, damage or
liability and (vi) any other monetary obligation.

         "Series D Preferred Stock" means the $ ________ Series D preferred
stock, 15% coupon, $.001 par value per share, issued by USPL to Halifax on
_______, 2000.

         "2001 Debenture" means the $4,000,000 18% Convertible Debenture due May
31, 2002 issued by USPL to Halifax.

         "2000 Debenture" means the $7,500,000 5% Convertible Debenture due
February 2, 2005 issued by USPL to Halifax.

         "UCC" means the Uniform Commercial Code, as in effect from time to time
in any applicable jurisdiction.

         "USPL" - see the Recitals.

All terms used but not otherwise defined herein but defined in the UCC shall
have the respective meanings provided in the UCC.

         SECTION 2. Lien Priorities; Payments.

         2.1      Subordination. Notwithstanding the date, manner or order of
grant, attachment or perfection of the Liens on all or any part of the Senior
Bank Collateral granted to Agent and Halifax, and notwithstanding the provisions
of the UCC or any other applicable law or decision, or the terms or provisions
of the Senior Credit Documents or the Halifax Documents, respectively, or any
other circumstance whatsoever, Halifax hereby agrees that (a) Agent and each of
the Senior Banks shall have a first, prior, senior and continuing Lien on all of
the Senior Bank Collateral to secure the prompt and complete payment,
performance and observance of all Senior Indebtedness and (b) any Lien on all or
any part of the Senior Bank Collateral now or hereafter held by Halifax or any
other Holder, regardless of when or how acquired, whether by grant, statute,
operation of law, subrogation or otherwise, shall be in all respects and for all
purposes subject to, junior to and subordinate to all Liens on all or any part
of the Senior Collateral granted to or held by Agent or any of the Senior Banks.

         2.2      Prohibition on Contesting Liens. Halifax agrees not to
challenge, to seek to avoid or subordinate or to contest, or directly or
indirectly to support any other Person in challenging, seeking to avoid or
subordinate or contesting, in any judicial or other proceeding (including,

                                      -4-
<PAGE>   5

without limitation, any Proceeding) the priority, validity, extent, perfection
or enforceability of any Lien held by Agent or any Senior Bank in all or any
part of the Senior Bank Collateral.

         2.3      Payments. (a) Notwithstanding any provision of this Agreement
to the contrary, (i) at all times prior to the earlier to occur of (x) the
commencement of any Proceeding and (y) the receipt by Halifax of notice from
Agent of the commencement of any other Senior Enforcement Action, Halifax and
Holders may accept from any Credit Party regularly scheduled payments of
principal, interest and/or dividends at the respective times and in the
respective amounts required pursuant to the Halifax Documents without regard to
whether such payments constitute proceeds of Senior Bank Collateral; (ii) the
Halifax Obligations may be converted into or exchanged for Junior Securities;
and (iii) Halifax may receive and retain any payment made solely in Junior
Securities.

         (b)      Except as provided in Section 2.3(a)(ii) and (iii), no direct
or indirect payment (including by way of set-off) by any Credit Party in respect
of the Halifax Obligations, whether upon acceleration or otherwise, shall be
made if at the time of such payment there exists (x) a default in the payment
when due (whether upon acceleration or otherwise) of any principal of, or any
interest on or fees included in, any Senior Indebtedness; or (y) subject to the
following sentences of this paragraph, a matured event of default (other than a
default specified in the preceding clause (x)) under the Senior Credit Agreement
(an "Other Senior Default") and Halifax and USPL have received notice from Agent
or any Senior Bank, in the manner specified in Section 16 hereof, of such event
of default (a "Senior Default Notice"), provided that Halifax may receive, and
apply to the payment of the 2001 Debenture, 50% of the proceeds received by USPL
from any sale-leaseback transaction entered into by USPL with respect to the
real property located in Chicago, Illinois. With respect to any Other Senior
Default, the period during which no payment on account of Halifax Obligations
may be made to or retained by Halifax shall commence only upon giving of a
Senior Default Notice as provided above and shall end at the first to occur of
(x) completion of the 180th day after the beginning of such period, (y) the cure
or waiver of all defaults existing at the time of the applicable Senior Default
Notice or (z) the payment in full in cash of the Senior Indebtedness (the
"Payment Blockage Period"). Upon termination of any Payment Blockage Period,
USPL may resume payments on account of the Halifax Obligations (including any
missed payments) subject to the provisions of Section 2.3(a). Only one Senior
Default Notice may be given in any period of 360 consecutive days, and no Other
Senior Default which was in existence on the date of a Senior Default Notice may
be used as the basis for a subsequent Senior Default Notice (it being understood
that any action, or breach of a financial covenant, which occurs after the date
on which a Senior Default Notice is given that, in either case, would give rise
to a matured event of default pursuant to any provision of the Senior Credit
Agreement under which a matured event of default existed shall constitute a new
matured event of default for purposes of this paragraph).

                                      -5-
<PAGE>   6

         SECTION 3. Enforcement.

         3.1      No Exercise of Remedies.

         (a)      Unless and until Agent and each Senior Bank shall have
received indefeasible payment in full in cash of all Senior Indebtedness and the
Senior Credit Documents and all Senior Commitments thereunder shall have
terminated pursuant to the respective terms and provisions thereof, except for
its receipt of payments expressly permitted by Section 2.3, neither Halifax nor
any other Holder shall exercise any right or remedy in respect of all or any
part of the Senior Bank Collateral and Halifax and each Holder agrees not to
take or receive from any Credit Party, directly or indirectly, in cash or other
Property or by set-off or in any other manner, whether pursuant to any
enforcement, collection, execution, levy or foreclosure proceeding or otherwise,
all or any part of the Senior Bank Collateral. Without limiting the generality
of the foregoing, unless and until Agent and each Senior Bank shall have
received indefeasible payment in full in cash of all Senior Indebtedness and the
Senior Credit Documents and all Senior Commitments thereunder shall have
terminated pursuant to the respective terms and provisions thereof, (i) neither
Halifax nor any other Holder shall exercise or otherwise assert any right or
remedy in respect of all or any part of the Senior Bank Collateral or any Lien
thereon; (ii) the sole right of Halifax with respect to the Senior Bank
Collateral shall be to hold a Lien thereon to the extent granted pursuant to the
Halifax Documents and to receive proceeds thereof remaining after such payment
and termination; and (iii) without the prior written consent of Agent, neither
Halifax nor any other Holder shall exercise any right Halifax may have under the
Halifax Documents or under the UCC or other applicable law to deliver any
notices to account debtors informing them of Halifax's interest in any accounts
of any Credit Party or directing such account debtors to make payments in any
particular manner of amounts due in respect of any such account.

         3.2      Cooperation. Halifax agrees that, unless and until Agent and
each Senior Bank shall have received indefeasible payment in full in cash of all
Senior Indebtedness and the Senior Credit Documents and all Senior Commitments
thereunder shall have terminated pursuant to the respective terms and provisions
thereof, neither Halifax nor any other Holder will commence, or join with any
creditor other than Agent in commencing, any enforcement, collection, execution,
levy or foreclosure proceeding with respect to any Lien held by it in, or
otherwise with respect to, all or any part of the Senior Bank Collateral,
including, without limitation, petitioning, filing or joining in any involuntary
Proceeding pursuant to Section 303 of the Bankruptcy Code.

         3.3      Judgment Liens. Notwithstanding the provisions of Section 3.1
and 3.2, if Halifax obtains a final judgment against any Credit Party for any
unpaid amount payable in respect of the Halifax Indebtedness and, as a result of
such judgment, Halifax obtains a judgment Lien on any property of any Credit
Party, then Halifax may take any action permitted by applicable law to enforce
such judgment Lien against such property (subject, if such property constitutes
Senior Bank Collateral, to the rights of the Agent arising under applicable law
with respect to such property).

                                      -6-
<PAGE>   7

         SECTION 4. Liquidation; Dissolution; Bankruptcy. In the event of any
Proceeding involving any Credit Party, or any sale, transfer or other
disposition of all or substantially all of the assets of any Credit Party:

         (a)      Halifax agrees:

         (i)      that Senior Banks may consent to the use of cash collateral or
the provision of financing to Credit Parties on such terms and conditions and in
such amounts as Senior Banks, in their sole discretion, may decide and that, in
connection with such cash collateral usage or such financing, as the case may
be, each Credit Party (or a trustee appointed for the estate of any Credit
Party) may grant to Agent, for the benefit of Agent and Senior Banks, Liens on
all of such Credit Party's Property, which Liens (x) shall secure payment,
performance and observance of all Senior Indebtedness (whether such Senior
Indebtedness arose prior to the commencement of any Proceeding or at any time
thereafter) and (y) shall be superior in priority to the Liens in favor of
Halifax on any Property of any Credit Party;

         (ii)     that it will not object to or oppose a sale or other
disposition of any Property of any Credit Party securing all or any part of the
Senior Indebtedness free and clear of Liens or other claims of Halifax under
Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code
if Senior Banks have consented to such sale or disposition;

         (iii)    agrees that it will not seek to have the automatic stay lifted
with respect to any Senior Bank Collateral, to appoint a Chapter 11 trustee
under Section 1104 of the Bankruptcy Code or to convert or dismiss such
Proceeding under Section 1112 of the Bankruptcy Code, in each case without the
prior written consent of Agent;

         (iv)     to waive in any Proceeding under the Bankruptcy Code any claim
it may now or hereafter have under Section 1111(b)(2) of the Bankruptcy Code,
including, without limitation, any such claim arising out of the election by
Senior Banks of the application of Section 1111(b)(2) of the Bankruptcy Code,
and/or any borrowing or grant of a security interest under Section 364 of the
Bankruptcy Code by any Credit Party, as debtor in possession; and

         (v)      that to the extent it receives any "adequate protection" for
any interest it may have in any Senior Bank Collateral in any Proceeding, it
will (A) if such "adequate protection" is in the form of cash or cash
equivalents, deliver such "adequate protection" to the Agent to be applied to,
or held as collateral for (and, if liquidated, applied against), the Senior
Indebtedness, and (B) if such "adequate protection" is in any other form, assign
such "adequate protection" to the Agent to be held as collateral for (and, if
liquidated, to be applied against) the Senior Indebtedness, in each case until
all Senior Indebtedness has been fully satisfied or is no longer outstanding.

                                      -7-
<PAGE>   8

         (b)      Halifax shall not, directly or indirectly, take any action or
vote in any way that would be in violation of, or inconsistent with, or result
in a breach of, this Agreement or challenge or contest in any Proceeding, or in
connection with any other enforcement, collection, execution, levy or
foreclosure proceeding or otherwise, (i) the validity, perfection, priority or
enforceability of any Liens held by Agent or any Senior Bank to secure the
payment, performance or observance of all or any part of the Senior
Indebtedness, (ii) the rights of Agent and Senior Banks set forth in any of the
Senior Credit Documents with respect to such Liens, or (iii) the validity or
enforceability of any of the Senior Credit Documents or any term, condition or
provision of this Agreement.

         (c)      Subject to the limitations set forth in this Agreement,
Halifax may file proofs of claim and other pleadings and motions with respect to
the Senior Bank Collateral in such Proceeding.

         (d)      Halifax shall execute and deliver to Agent all such
instruments and other documentation confirming the above authorizations and all
such proofs of claim, assignments of claim and other instruments and
documentation, and shall take all such other action as may be reasonably
requested by Agent to enforce such claims and carry out the purpose of this
Section 4.

         (e)      The agreements of Halifax set forth in this Section 4 are
solely for the benefit of the Agent and each Senior Bank. Without limiting the
foregoing, no agreement of Halifax set forth in this Section 4, and no action or
inaction of Halifax in accordance with the terms hereof (including, without
limitation, any failure to object to any sale or other disposition of property
or any waiver of any right) shall constitute a relinquishment by Halifax of any
Lien it may have on any property of any Credit Party (other than property which
has been sold or otherwise disposed of by such Credit Party as provided above)
or a waiver by Halifax of any priority it may have over any other creditor of
any Credit Party.

         SECTION 5. Insurance and Condemnation; Releases of Liens; Effect of
Refinancing.

         (a)      Unless and until Agent and each Senior Bank shall have
received indefeasible payment in full in cash of all Senior Indebtedness and the
Senior Credit Documents and all Senior Commitments thereunder shall have
terminated pursuant to the respective terms and provisions thereof, (i) Halifax
agrees that Agent shall have the sole and exclusive right to adjust settlement
with respect to any insurance coverage for any Senior Bank Collateral and (ii)
all proceeds of any insurance policy, and proceeds of any condemnation or
similar proceeding, covering all or any part of the Senior Bank Collateral shall
be paid to Agent for application pursuant to the Senior Credit Documents. If
Senior Banks allow any portion of any proceeds of any insurance, condemnation or
similar award with respect to any Senior Bank Collateral to be used by any
Credit Party to repair or replace the Senior Bank Collateral affected, Halifax
agrees to take promptly all action reasonably requested by Agent to permit such
use.

                                      -8-
<PAGE>   9

         (b)      If Agent releases any of its Liens on all or any part of the
Senior Bank Collateral in connection with the sale or other disposition thereof
(including the sale of all or a portion of the stock or assets of USPL and/or
any subsidiary thereof) or pursuant to any Senior Enforcement Action by Agent or
any Senior Bank or otherwise (other than in connection with a refinancing as
described in Sections 5(c) and 5(d) below), Halifax shall thereupon promptly
execute and deliver to Agent such termination statements and releases as Agent
shall reasonably request to effect the release of Halifax's Lien thereon. In
furtherance of the foregoing, Halifax hereby appoints Agent as its
attorney-in-fact, with full authority in the place and stead of Halifax and full
power of substitution and in the name of Halifax or otherwise, to execute and
deliver any document or instrument which Halifax is required to deliver pursuant
to this Section 5(b), such appointment being coupled with an interest and
irrevocable.

         (c)      Halifax agrees that if the Senior Indebtedness is refinanced,
(i) all Liens of Halifax on the Senior Bank Collateral will continue to be
junior and subordinate to the Liens of the replacement lender or lenders (or any
agent therefor) and (ii) in order to evidence such subordination, Halifax shall,
upon the request of any Credit Party or such replacement lender or lenders (or
any agent therefor), execute and deliver to such replacement lender or lenders
(or any agent therefor) a subordination and intercreditor agreement containing
terms no less favorable to Halifax than this Agreement (and prior to such
execution and delivery, all of the terms of this Agreement shall inure to the
benefit of such replacement lender or lenders (or such agent) as if such Person
or Persons were the original Senior Banks hereunder).

         (d)      Without limiting clause (c) above, Halifax agrees that if the
2001 Debentures held by Halifax have been paid in full, then in connection with
any refinancing of all or any part of the Senior Indebtedness at the request of
a Credit Party, and provided that the new lender under the refinancing (the "New
Lender") shall have so requested, Halifax shall promptly execute and deliver to
the Agent such documents as the Agent shall reasonably request to effect the
release of Halifax's Lien with respect to 50% of the then outstanding Halifax
Indebtedness on any Senior Bank Collateral which is being released by the Agent
in connection with such refinancing, provided that: (i) the New Lender has
entered into an intercreditor agreement containing terms no less favorable to
Halifax then this Agreement (except for the fact that only 50% of the remaining
Halifax Indebtedness shall be secured); and (ii) the New Lender shall not have
consented to the continuation of Halifax's Lien with respect to all of the
Halifax Indebtedness. Halifax shall be under no obligation to effect the
foregoing release if any portion of the 2001 Debentures held by Halifax shall
remain outstanding.

         SECTION 6. When Proceeds Must Be Paid Over. If any proceeds of Senior
Bank Collateral are received by Halifax or any Holder for application to the
Halifax Indebtedness - other than as expressly permitted by the terms of this
Agreement, such proceeds shall be received by such Person in trust for the
benefit of Agent and Senior Banks and such Person shall promptly turn over such
proceeds to Agent (in the same form as received, with any necessary
endorsement), for application (in the case of cash) to, or as Senior Bank
Collateral (in the case of non-cash Property or securities) for, the payment or
prepayment of the Senior Indebtedness remaining unpaid to the extent necessary
to pay such Senior Indebtedness in full in cash in

                                      -9-
<PAGE>   10

accordance with its terms. In the event Halifax or any Holder fails to provide
any endorsement, as contemplated by the preceding sentences, Agent, or any of
its officers or employees, is hereby irrevocably authorized to make the same
(which authorization, being coupled with an interest, is irrevocable).

         SECTION 7. Subrogation. Halifax hereby waives all rights of subrogation
to the claims of Agent or any of the Senior Banks against any Credit Party, and
waives all rights of recourse to any security for any Senior Indebtedness, until
such time as all Senior Indebtedness shall have been indefeasibly paid in full
in cash and the Senior Credit Documents and all Senior Commitments thereunder
shall have terminated pursuant to the respective terms and provisions thereof;
provided that if any payment to Agent or any Senior Bank is rescinded as a
result of a Proceeding or otherwise, the subrogation of Halifax as provided
herein shall likewise be rescinded until all of the Senior Indebtedness is
indefeasibly paid in full in cash.

         SECTION 8. No Impairment of Subordination. No right of Agent or any
Senior Bank to enforce the subordination of the Liens on Senior Bank Collateral
securing all or any part of the Halifax Indebtedness shall be impaired by any
act or failure to act by any Credit Party or by its failure to comply with this
Agreement. Without limiting the generality of the foregoing, the rights of Agent
and Senior Banks under this Agreement shall remain in full force and effect
without regard to, and shall not be impaired by: (a) any act or failure to act
of any Credit Party, Halifax or any other Holder, or any noncompliance by any
Credit Party, Halifax or any other Holder with any agreement or obligation,
regardless of any knowledge thereof which Agent or any Senior Bank may have or
with which Agent or any Senior Bank may be charged, (b) the validity or
enforceability of any of the Senior Credit Documents, (c) any extension or
indulgence in respect of any payment or prepayment of the Senior Indebtedness or
any part thereof or in respect of any other amount payable to Agent or any
Senior Bank, (d) any amendment, modification or waiver of any of the terms of
the Senior Credit Documents or the Halifax Documents, (e) any exercise, delayed
exercise or non-exercise by Agent or any Senior Bank of any right, power,
privilege or remedy under or in respect of any Senior Indebtedness, the Senior
Bank Collateral or this Agreement, (f) any other action of Agent or any Senior
Bank permitted under the Senior Credit Documents or this Agreement or (g) the
absence of any notice to, or knowledge by, Halifax or any other Holder of the
existence, creation or non-payment of all or any part of the Senior
Indebtedness, or the occurrence of any of the matters or events set forth in the
foregoing clauses (a) through (f), except as such notice shall be specifically
required pursuant to the terms hereof.

         SECTION 9. Waivers and Consents of Halifax.

         (a)      All of the Senior Indebtedness shall be deemed to have been
made or incurred in reliance upon this Agreement and Halifax expressly waives
(i) notice of acceptance by Agent or any Senior Bank of this Agreement, (ii)
notice of the existence or creation or non-payment of all or any part of the
Senior Indebtedness, (iii) all diligence in collection or protection of or
realization upon all or any part of the Senior Indebtedness or any security
therefor and any requirement that Agent or any Senior Bank protect, secure,
perfect or insure any Lien or any

                                      -10-
<PAGE>   11

Property subject thereto or exhaust any right or take any action against any
Credit Party or any other Person or any such Property, and (iv) promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Senior Indebtedness.

         (b)      Halifax agrees that Agent and Senior Banks may each, at any
time and from time to time, in their sole discretion, without the consent of or
notice to Halifax or any other Holder, without incurring responsibility to
Halifax or any other Holder, and without impairing or releasing the
subordination provided for herein or the obligations of Halifax or any other
Holder to Agent or any Senior Bank hereunder, amend, restate, supplement or
otherwise modify the Senior Credit Agreement or any of the other Senior Credit
Documents in any way whatsoever, including, without limitation, the following:
(i) shorten the final maturity of all or any part of the Senior Indebtedness,
(ii) modify the amortization of the principal amount of all or any part of the
Senior Indebtedness, (iii) increase the principal amount of Senior Indebtedness,
or otherwise provide for additional advances, (iv) raise the standard or default
per annum interest rates applicable to all or any part of the Senior
Indebtedness, (v) impose any additional fee or penalty upon any Credit Party or
increase the amount of or rate for any fee or penalty provided for in the Senior
Credit Documents, (vi) retain or obtain a Lien on any Property to secure any of
the Senior Indebtedness, (vii) enter into new Senior Credit Documents with any
Credit Party or any of its direct or indirect subsidiaries, (viii) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, all or any of the Senior Indebtedness or otherwise amend, restate,
supplement or otherwise modify in any manner, or grant any waiver or release
with respect to, all or any part of the Senior Indebtedness or any of the Senior
Credit Documents, (x) retain or obtain the primary or secondary obligation of
any other Person with respect to any of the Senior Indebtedness, (xi) release
any Person liable in any manner under or in respect of Senior Indebtedness or
release or compromise any obligation of any nature of any Person with respect to
any of the Senior Indebtedness, (xii) sell, exchange, not perfect or otherwise
deal with any Property at any time pledged, assigned or mortgaged to secure or
otherwise securing all or any part of the Senior Indebtedness, (xiii) release
its security interest in, or surrender, release or permit any substitution or
exchange for, all or any part of any Property securing any Senior Indebtedness,
or release, compromise, alter or exchange any obligations of any nature of any
Person with respect to any such Property, (xiv) amend, or grant any waiver or
release with respect to, or consent to any departure from, any guaranty for all
or any of the Senior Indebtedness, (xv) exercise or refrain from exercising any
rights against, and release from obligations of any type, any Credit Party or
any other Person, (xvi) apply any sums from time to time received to the Senior
Indebtedness in such manner such as such Person shall determine and (xvii)
otherwise manage and supervise the Senior Indebtedness in accordance with such
Person's usual practices, modified from time to time as such Person deems
appropriate under the circumstances.

         SECTION 10.Representations and Warranties of Halifax. Halifax hereby
represents and warrants to Agent and each Senior Bank that all material
agreements, documents and instruments between Halifax and the other Holders, on
the one hand, and any Credit Party or any of its affiliates, on the other hand,
are set forth on Schedule 1 hereto and, except as disclosed on Schedule 1, no
such agreement, document or instrument has been amended, restated,

                                      -11-
<PAGE>   12

supplemented or otherwise modified.

         SECTION 11.Marshalling. Halifax hereby waives, to the fullest extent
permitted by applicable law, any rights it may have under applicable law to
assert the doctrine of marshaling or otherwise to require Agent or any Senior
Bank to marshall any Property of any Credit Party for the benefit of Halifax or
any Holder.

         SECTION 12.Waiver of Rights. Halifax hereby waives, to the fullest
extent permitted by applicable law, any rights it may have to enjoin or
otherwise obtain a judicial or administrative order preventing Agent or any
Senior Bank from taking, or refraining from taking, any action with respect to
all or any part of the Senior Bank Collateral.

         SECTION 13.Continuation of Subordination; Termination of Agreement.
This Agreement shall in all respects be a continuing agreement and shall remain
in full force and effect until Senior Banks shall have received indefeasible
payment in full in cash of all Senior Indebtedness and all of the Credit
Documents and the Senior Commitments thereunder shall have terminated pursuant
to the respective terms and provisions thereof; provided that this Agreement
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any Senior Indebtedness is rescinded, avoided or must
otherwise be returned by Agent or any Senior Bank upon the insolvency,
bankruptcy or reorganization of any Credit Party, all as though such payment had
not been made.

         SECTION 14.Specific Performance. Agent and each Senior Bank is hereby
authorized to demand specific performance of the provisions of this Agreement,
at any time when Halifax or any other Holder shall have failed to comply with
any term or provision hereof. Halifax hereby irrevocably waives any defense
based on the adequacy of a remedy at law that might be asserted as a bar to such
remedy of specific performance.

         SECTION 15.Further Assurances. Each party hereto will, upon the written
request of the other party, from time to time execute and deliver or cause to be
executed and delivered such further instruments and agreements and do or cause
to be done such further acts as may be reasonably necessary or proper to carry
out more effectively the provisions of this Agreement and to effectuate the
terms of the Lien subordination contemplated hereby.

         SECTION 16. Notices. Unless otherwise specifically provided herein, all
notices shall be in writing addressed to the respective parties as set forth
below and may be personally served, facsimilied or sent by overnight courier
service or United States mail and shall be deemed to have been given: (a) if
delivered in person, when delivered; (b) if delivered by facsimile transmission,
on the date of such transmission if transmitted on a business day before 4:00
p.m. (Chicago time) or, if not, on the next succeeding business day; (c) if
delivered by overnight courier, on the business day after delivery to such
courier correctly addressed; or (d) if by United States Mail, four business days
after deposit in the United States mail, with postage prepaid and properly
addressed:

                                      -12-
<PAGE>   13

       If to Agent:        BANK OF AMERICA, N.A., as Agent
                           231 South LaSalle Street
                           Chicago, Illinois  60697
                           Attention: Ronald Prince
                           FAX: (312) 987-0234

       If to Halifax:      c/o The Palladin Group, L.P.
                           Investment Manager
                           195 Maplewood Avenue
                           Maplewood, New Jersey 07040
                           Attention: Robert Chender
                           FAX: (973) 313-6491

or to such other address as the party addressed shall have previously designated
by written notice to the serving party given in accordance with this Section 16.

         SECTION 17.SUBMISSION TO JURISDICTION; SERVICE OF PROCESS. AGENT AND
EACH SENIOR BANK MAY ENFORCE ANY CLAIM ARISING OUT OF THIS AGREEMENT IN ANY
STATE OR FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND LOCATED IN THE
CITY OF CHICAGO, ILLINOIS. FOR THE PURPOSE OF ANY ACTION OR PROCEEDING
INSTITUTED WITH RESPECT TO ANY SUCH CLAIM, HALIFAX HEREBY IRREVOCABLY SUBMITS TO
THE JURISDICTION OF SUCH COURTS. HALIFAX HEREBY IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF SUCH COURTS BY MAILING A COPY THEREOF, BY REGISTERED
MAIL, POSTAGE PREPAID, TO SUCH PERSON AT THE ADDRESS SET FORTH IN SECTION 16
HEREOF AND AGREES THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW, (i)
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON SUCH PERSON
IN ANY SUCH SUIT, ACTION OR PROCEEDING AND (ii) SHALL BE TAKEN AND HELD TO BE
VALID PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO SUCH PERSON. NOTHING
CONTAINED HEREIN SHALL AFFECT THE RIGHTS OF AGENT OR ANY SENIOR BANK TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR PRECLUDE AGENT OR ANY SENIOR
BANK FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY OTHER
COUNTRY, STATE OR PLACE HAVING JURISDICTION OVER SUCH ACTION. HALIFAX HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
SUCH PERSON NOW OR HEREAFTER MAY HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH
SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

         SECTION 18. JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO

                                      -13-
<PAGE>   14

ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER OR UNDER ANY AGREEMENT,
DOCUMENT OR INSTRUMENT DELIVERED OR WHICH MAY HEREAFTER BE DELIVERED IN
CONNECTION HEREWITH, OR ARISING FROM ANY RELATIONSHIP ARISING HEREUNDER, AND
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.

         SECTION 19. Successors and Assigns. (a) This Agreement shall be binding
upon and inure to the benefit of Agent, each Senior Bank, Halifax, each other
Holder and each of their respective successors and permitted assigns.

         (b)      Each Senior Bank may, from time to time, without notice to or
consent of Halifax or any other Holder, assign or transfer to any Person any or
all of the Senior Indebtedness or any interest therein, and notwithstanding any
such assignment or transfer, or any subsequent assignment or transfer thereof,
the Senior Indebtedness shall be and remain Senior Indebtedness for purposes of
this Agreement, and every immediate and successive assignee or transferee of any
of the Senior Indebtedness or of any interest therein shall, to the extent of
the interest of such assignee or transferee in the Senior Indebtedness, be
entitled to rely upon and be a third party beneficiary of the subordination
provided under this Agreement.

         (c)      As used in this Agreement, the term "Credit Party" shall
include any receiver, trustee, custodian or debtor in possession which is a
successor to any Credit Party.

         SECTION 20. Governing Law. This Agreement shall be construed and
interpreted, and the rights of the parties shall be determined, in accordance
with the internal laws and decisions of the State of Illinois, without regard to
conflicts of laws principles.

         SECTION 21. Entire Agreement; Amendments and Waivers. This Agreement
constitutes the entire agreement between the parties hereto pertaining to the
subject matter hereof. There are no other agreements between the parties hereto
in connection with the subject matter hereof except as specifically set forth
herein or contemplated hereby. No amendment, modification or waiver of any of
the provisions of this Agreement shall be binding unless executed in writing by
Agent and Halifax. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided. No delay on the part of Agent or any Senior Bank
in the exercise of any right or remedy shall operate as a waiver thereof, and no
single or partial exercise by Agent or any Senior Bank of any right or remedy
shall preclude other or further exercise thereof or the exercise of any other
right or remedy. For the purposes of this Agreement, Senior Indebtedness shall
include all Senior Indebtedness, notwithstanding any right or power of any
Credit Party or other Person to assert any claim or defense as to the invalidity
or unenforceability of all or any part of the Senior Indebtedness, and no such
claim or defense shall affect or impair the agreements and obligations of the
respective parties hereto.

         SECTION 22. Counterparts. This Agreement may be executed in one or more

                                      -14-
<PAGE>   15

counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         SECTION 23. Invalidity. In the event one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid or
unenforceable in any respect, such invalidity or unenforceability shall not
affect any other provision of this Agreement.

         SECTION 24. Headings. The headings of the several sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.

         SECTION 25. Confirmation of Consent. Agent hereby confirms that the
Required Banks (as defined in the Senior Credit Agreement) have consented to the
incurrence by USPL of the indebtedness evidenced by the 2001 Debenture and the
grant by the Credit Parties of liens and security interests on the Senior Bank
Collateral to secure the Halifax Indebtedness.

         IN WITNESS WHEREOF, this Agreement has been made and delivered as of
the date first above written.

                                  BANK OF AMERICA, N.A.,
                                  as Agent

                                  By: /s/ Ronald Prince
                                     -------------------------------------------
                                  Name:   Ronald Prince
                                       -----------------------------------------
                                  Title:  Senior Vice President
                                        ----------------------------------------

                                  HALIFAX FUND, L.P.

                                  By: /s/ Robert Chender
                                     -------------------------------------------
                                  Name:   Robert Chender
                                       -----------------------------------------
                                  Title:  Managing Director
                                        ----------------------------------------

                                      -15-
<PAGE>   16

                                   SCHEDULE 1
                                       TO
                   SUBORDINATION AND INTERCREDITOR AGREEMENT

                                HALIFAX DOCUMENTS

                                      -16-
<PAGE>   17

                           ACKNOWLEDGMENT AND CONSENT

         Each of the undersigned hereby (a) acknowledges receipt of a copy of
the foregoing Subordination and Intercreditor Agreement and (b) acknowledges and
consents to all of the terms and provisions thereof. In the event of any breach
of the provisions of such Subordination and Intercreditor Agreement by any
Person (other than Agent or any Senior Bank), each of the undersigned agrees
that, in addition to any other rights and remedies which Agent or any Senior
Bank may have under the Senior Credit Agreement and the other Senior Credit
Documents, unless the Required Banks (as such term is defined in the Senior
Credit Agreement) shall otherwise elect, all of the Senior Indebtedness shall,
without notice or demand, become immediately due and payable.

                                        U.S. PLASTIC LUMBER LTD.
                                        U.S. PLASTIC LUMBER FINANCE CORP.
                                        CLEAN EARTH, INC.
                                        THE EAGLEBROOK GROUP, INC.
                                        U.S. PLASTIC LUMBER IP CORP.
                                        CARTERET BIOCYCLE CORP.
                                        CLEAN EARTH OF NEW CASTLE, INC.
                                        CONSOLIDATED TECHNOLOGIES, INC.
                                        BARBELLA ENVIRONMENTAL TECH, INC.
                                        INTEGRATED TECHNICAL SERVICES, INC.
                                        S&W WASTE, INC.
                                        CLEAN EARTH OF PHILADELPHIA, INC.
                                        ALLIED WASTE SERVICES, INC.
                                        CLEAN ROCK INDUSTRIES, INC.
                                        CLEAN ROCK PROPERTIES LTD.

                                       By: /s/ Bruce C. Rosetto
                                          --------------------------------------
                                       Name: Bruce C. Rosetto
                                            ------------------------------------
                                       Title: Vice President and General Counsel
                                             -----------------------------------

                                      -17-

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