Document:

Term Note

 

Exhibit 10.2

TERM NOTE

	 	 	 
	$2,500,000

	 	Atlanta, Georgia
	 

	 	June 13, 2005

     FOR VALUE RECEIVED, the undersigned, THE ULTIMATE SOFTWARE GROUP, INC., a Delaware
corporation (“Borrower”) promises to pay to the order of SILICON VALLEY BANK, a
California-chartered bank (“Bank”), at such place as the holder hereof may designate, in lawful
money of the United States of America, the aggregate unpaid principal amount of all equipment
advances (“Term Advances”) made by Bank to Borrower in accordance with the terms and conditions of
the Loan and Security Agreement between Borrower and Bank dated November 29, 2001 (as amended from
time to time the “Loan Agreement”), up to a maximum principal amount of Two Million Five Hundred
Thousand Dollars ($2,500,000) (“Principal Sum”), or so much thereof as may be advanced and remains
unpaid. Borrower may request Term Advances under this Note from and until the Term Loan
Availability End Date. The unpaid Principal Sum, together with interest thereon at the rate or
rates provided in the Loan Agreement, shall accrue and be payable as set forth in the Loan
Agreement.

     Borrower further agrees that, if any payment made by Borrower or any other person is applied
to this Note and is at any time annulled, set aside, rescinded, invalidated, declared to be
fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of any
property hereafter securing this Note is required to be returned by Bank to Borrower, its estate,
trustee, receiver or any other party, including, without limitation, under any bankruptcy law,
state or federal law, common law or equitable cause, then, to the extent of such payment or
repayment, Borrower’s liability hereunder (and any lien, security interest or other collateral
securing such liability) shall be and remain in full force and effect, as fully as if such payment
had never been made, or, if prior thereto any such lien, security interest or other collateral
hereafter securing Borrower’s liability hereunder shall have been released or terminated by virtue
of such cancellation or surrender, this Note (and such lien, security interest or other collateral)
shall be reinstated in full force and effect, and such prior cancellation or surrender shall not
diminish, release, discharge, impair or otherwise affect the obligations of Borrower in respect of
the amount of such payment (or any lien, security interest or other collateral securing such
obligation).

     This Note is the “Term Note” described in that certain Seventh Loan Modification Agreement of
even date herewith by and between the Borrower and the Bank, which Seventh Loan Modification
Agreement amends the Loan Agreement, to which reference is hereby made for a more complete
statement of the terms and conditions under which the Term Loan Advances evidenced hereby are made.
This Note is secured as provided in the Loan Agreement. All capitalized terms used herein and not
otherwise defined shall have the meanings given to such terms in the Loan Agreement.

     Borrower irrevocably waives the right to direct the application of any and all payments at any
time hereafter received by Bank from or on behalf of Borrower and Borrower irrevocably agrees that
Bank shall have the continuing exclusive right to apply any and all such payments against the then
due and owing obligations of Borrower as Bank may deem advisable. In the absence of a specific
determination by Bank with respect thereto, all payments shall be applied in the following order:
(a) then due and payable fees and expenses; (b) then due and payable interest payments and
mandatory prepayments; and (c) then due and payable principal payments and optional prepayments.

     Bank is hereby authorized by Borrower to endorse on Bank’s books and records each Advance made
by Bank under this Note and the amount of each payment or prepayment of principal of each such

 

 

Advance received by Bank; it being understood, however, that failure to make any such
endorsement (or any error in notation) shall not affect the obligations of Borrower with respect to
Term Loan Advances made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in notation) thereof on such
books and records.

          The occurrence of any one or more of the following events shall constitute an event of default
(individually, an “Event of Default” and collectively, the “Events of Default”) under the terms of
this Note:

          (a) The failure of Borrower to pay to Bank when due any and all amounts payable by Borrower to
Bank under the terms of this Note; or

          (b) The occurrence of an Event of Default (as defined therein) under the terms and conditions
of any of the other Loan Documents.

     Upon the occurrence of an Event of Default, at the option of Bank, all amounts payable by
Borrower to Bank under the terms of this Note shall immediately become due and payable by Borrower
to Bank without notice to Borrower or any other person, and Bank shall have all of the rights,
powers, and remedies available under the terms of this Note, any of the other Loan Documents and
all applicable laws. Borrower and all endorsers, guarantors, and other parties who may now or in
the future be primarily or secondarily liable for the payment of the indebtedness evidenced by this
Note hereby severally waive presentment, protest and demand, notice of protest, notice of demand
and of dishonor and non-payment of this Note and expressly agree that this Note or any payment
hereunder may be extended from time to time without in any way affecting the liability of Borrower,
guarantors and endorsers.

     Borrower promises to pay all costs and expense of collection of this Note and to pay all
reasonable attorneys’ fees incurred in such collection, whether or not there is a suit or action,
or in any suit or action to collect this Note or in any appeal thereof. No delay by Bank in
exercising any power or right hereunder shall operate as a waiver of any power or right. Time is
of the essence as to all obligations hereunder.

     This Note is issued pursuant to the Loan Agreement, which shall govern the rights and
obligations of Borrower with respect to all obligations hereunder.

     Borrower acknowledges and agrees that this Note shall be governed by the laws of the State of
Florida, excluding conflicts of laws principles, even though for the convenience and at the request
of Borrower, this Note may be executed elsewhere.

     BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
FLORIDA IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON
OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF THE COURTS
OF FLORIDA, BORROWER ACCEPTS JURISDICTION OF THE COURTS AND VENUE IN SANTA CLARA COUNTY,
CALIFORNIA. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS,

2

 

TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER
INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.

[SIGNATURES ARE ON THE FOLLOWING PAGE]

3

 

     IN WITNESS WHEREOF, Borrower has caused this Note to be executed under seal by its duly
authorized officers as of the date first written above.

	 	 	 
	WITNESS/ATTEST:

	 	THE ULTIMATE SOFTWARE GROUP, INC.

	 	 	 	 	 	 	 	 	 
	 

	 	 
	 	By:
	 	 	 	(SEAL)
	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	Title:	 	 

4

 

AFFIDAVIT OF OUT-OF-STATE RECEIPT OF DELIVERY

STATE OF                                         

COUNTY OF                                         

     THIS
AFFIDAVIT OF OUT-OF-STATE EXECUTION AND DELIVERY is executed this ___ day of June, 2005
by the undersigned, who after being duly sworn, deposes and states under oath that:

     1. The undersigned, as                                          of Ultimate Software Group, Inc. a Delaware
corporation (the “Company”), executed each of (i) the Term Note of even date herewith in
the face principal amount of $2,500,000.00 in favor of Silicon Valley Bank (the “Lender”)
and (ii) the Seventh Loan Modification of even date herewith by and between the Company and the
Lender (collectively, the “Loan Documents”).

     The Loan Documents were executed by the undersigned in the State of Maryland, County of
                    , and then delivered via overnight delivery to the Lender, at 3353 Peachtree Road,
N.E., Suite M-10, Atlanta, Georgia 30326.

     IN WITNESS WHEREOF, the undersigned has sworn to and subscribed this Affidavit as of the date
set forth above.

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Print Name:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Print Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Print Name:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

     The
foregoing instrument was acknowledged before me this ___ day of June, 2005, by
                    , who is personally known to me or who has produced                                          as
identification.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	NOTARY PUBLIC	 	 	 	 
	 

	 	Print Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Serial #:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	My Commission Expires:	 	 	 	 
	 

	 	 	 	 	 	 

5

 

AFFIDAVIT OF OUT-OF-STATE RECEIPT OF DELIVERY

STATE OF                                         

COUNTY OF                                         

     THIS
AFFIDAVIT OF OUT-OF-STATE RECEIPT OF DELIVERY is executed this ___ day of June, 2005, by

                                        , who after being duly sworn, deposes and states under oath that:

     1. I am the                                          of Silicon Valley Bank (the “Lender”).

     2. On
the ___ day of June, 2005, I accepted delivery, in                     , Georgia, on behalf of the
Lender of each of (i) the Term Note in the face principal amount of $2,500,000.00 executed by
Ultimate Software Group, Inc., a Delaware corporation (the “Company”) in favor of the
Lender, and (ii) the Seventh Loan Modification of even date herewith by and between the Company and
the Lender.

     IN WITNESS WHEREOF, the undersigned has sworn to and subscribed this Affidavit as of the date
set forth above.

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Print Name:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Print Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Print Name:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

     The foregoing instrument was acknowledged before me this ___day of June, 2005, by
                    , who is personally known to me or who has produced                                          as
identification.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	NOTARY PUBLIC	 	 	 	 
	 

	 	Print Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Serial #:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	My Commission Expires:	 	 	 	 
	 

	 	 	 	 	 	 

6<PAGE>

                                                                    Exhibit 10.1

                          CREDIT AND SECURITY AGREEMENT

                          Dated as of September 7, 2004

                                  by and among

                            U.S. PLASTIC LUMBER LTD.,
                       as Debtor and Debtor in Possession,
                                as the Borrower,

                 CERTAIN AFFILIATES OF U.S. PLASTIC LUMBER LTD.,
                      as Debtors and Debtors in Possession,
                               as the Guarantors,

                                       and

                          AMPAC CAPITAL SOLUTIONS, LLC,
                                  as the Lender

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
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<S>                                                                                                 <C>
ARTICLE I
DEFINITIONS......................................................................................     1
Section 1.1    Definitions.......................................................................     1
Section 1.2    Other Definitional Terms; Rules of Interpretation.................................    14

ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY..........................................................    14
Section 2.1    Advances..........................................................................    14
Section 2.2    Procedures for Requesting Advances................................................    14
Section 2.3    Sale Milestones...................................................................    15
Section 2.4    INTENTIONALLY OMITTED.............................................................    16
Section 2.5    Letters of Credit.................................................................    16
Section 2.6    Special Account...................................................................    17
Section 2.7    Payment of Amounts Drawn Under Letters of Credit; Obligation of Reimbursement.....    17
Section 2.8    Obligations Absolute..............................................................    18
Section 2.9    Inventory Appraisals..............................................................    18
Section 2.10   Interest; Minimum Interest Charge; Default Interest; Participations; Usury........    18
Section 2.11   Fees..............................................................................    19
Section 2.12   Time for Interest Payments; Payment on Non-Banking Days; Computation of Interest
                and Fees.........................................................................    20
Section 2.13   Lockbox; Cash Collateral Account; Application of Payments.........................    21
Section 2.14   Voluntary Prepayment; Termination of the Credit Facility by the Borrower..........    22
Section 2.15   Mandatory Prepayment..............................................................    22
Section 2.16   Advances to Pay Obligations.......................................................    22
Section 2.17   Use of Proceeds...................................................................    22
Section 2.18   Liability Records.................................................................    22

ARTICLE III
SECURITY INTEREST; PRIORITY OCCUPANCY; SETOFF AND LIENS..........................................    23
Section 3.1    Grant of Security Interest........................................................    23
Section 3.2    Notification of Account Debtors and Other Obligors................................    23
Section 3.3    Assignment of Insurance...........................................................    23
Section 3.4    Occupancy.........................................................................    23
Section 3.5    License...........................................................................    24
Section 3.6    Financing Statement...............................................................    24
Section 3.7    Setoff............................................................................    25
Section 3.8    Collateral........................................................................    26
</TABLE>

                                       ii
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
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Section 3.9    Priority and Liens................................................................    26
ARTICLE IV
CONDITIONS OF LENDING............................................................................    27
Section 4.1    Conditions Precedent to the Initial Advance and Letter of Credit..................    27
Section 4.2    Conditions Precedent to All Advances and Letters of Credit........................    29

ARTICLE V
REPRESENTATIONS AND WARRANTIES...................................................................    31
Section 5.1    Existence and Power: Name: Chief Executive Office: Inventory and
               Equipment Locations: Federal Employer Identification Number.......................    31
Section 5.2    Capitalization....................................................................    31
Section 5.3    Authorization of Borrowing........................................................    31
Section 5.4    Legal Agreements..................................................................    31
Section 5.5    Subsidiaries......................................................................    32
Section 5.6    Financial Condition...............................................................    32
Section 5.7    INTENTIONALLY OMITTED.............................................................    32
Section 5.8    Regulation U......................................................................    32
Section 5.9    INTENTIONALLY OMITTED.............................................................    32
Section 5.10   Titles and Liens..................................................................    32
Section 5.11   Intellectual Property Rights......................................................    32
Section 5.12   Plans.............................................................................    33
Section 5.13   Default...........................................................................    34
Section 5.14   Environmental Matters.............................................................    34
Section 5.15   Submissions to Lender.............................................................    35
Section 5.16   INTENTIONALLY OMITTED.............................................................    35
Section 5.17   Rights to Payment.................................................................    35
Section 5.18   Bank Accounts.....................................................................    35
Section 5.19   Product Warranty Claims...........................................................    35

ARTICLE VI
COVENANTS........................................................................................    35
Section 6.1    Reporting Requirements............................................................    36
Section 6.2    Variance from Budget..............................................................    39
Section 6.3    Negative Pledge...................................................................    39
Section 6.4    Indebtedness......................................................................    39
Section 6.5    Guaranties........................................................................    39
Section 6.6    Investments and Subsidiaries......................................................    40
Section 6.7    Dividends and Distributions.......................................................    40
Section 6.8    Salaries..........................................................................    40
Section 6.9    INTENTIONALLY OMITTED.............................................................    40
Section 6.10   Books and Records: Inspection and Examination.....................................    40
Section 6.11   Account Verification..............................................................    41
</TABLE>

                                      iii
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
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Section 6.12   Compliance with Laws..............................................................    41
Section 6.13   Payment of Taxes and Other Claims.................................................    41
Section 6.14   Maintenance of Properties.........................................................    41
Section 6.15   Insurance.........................................................................    42
Section 6.16   Preservation of Existence.........................................................    42
Section 6.17   Delivery of Instruments, etc......................................................    42
Section 6.18   Sale or Transfer of Assets: Suspension of Business Operations.....................    42
Section 6.19   Consolidation and Merger: Asset Acquisitions......................................    43
Section 6.20   Sale and Leaseback................................................................    43
Section 6.21   Restrictions on Nature of Business................................................    43
Section 6.22   Accounting........................................................................    43
Section 6.23   Discounts. etc....................................................................    43
Section 6.24   Benefit Plans.....................................................................    43
Section 6.25   Place of Business: Name...........................................................    43
Section 6.26   Constituent Documents.............................................................    44
Section 6.27   Performance by the Lender.........................................................    44
Section 6.28   Remedies of the Lender............................................................    44

ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES...........................................................    44
Section 7.1    Events of Default.................................................................    44
Section 7.2    Rights and Remedies...............................................................    47
Section 7.3    Certain Notices...................................................................    48

ARTICLE VIII
AFFILIATE GUARANTIES.............................................................................    48
Section 8.1    Affiliate Guaranties..............................................................    48
Section 8.2    Obligations Absolute..............................................................    48
Section 8.3    Waiver of Suretyship Defenses.....................................................    49
Section 8.4    Contribution and Indemnification..................................................    49
Section 8.5    Subordination of Intercompany Debt................................................    50

ARTICLE IX
MISCELLANEOUS....................................................................................    50
Section 9.1    No Waiver: Cumulative Remedies: Compliance with Laws..............................    50
Section 9.2    Amendments, Etc...................................................................    50
Section 9.3    Addresses for Notices: Requests for Accounting....................................    51
Section 9.4    Intentionally Omitted.............................................................    51
Section 9.5    Further Documents.................................................................    51
Section 9.6    Costs and Expenses................................................................    51
Section 9.7    Indemnity.........................................................................    52
Section 9.8    Participants......................................................................    52
</TABLE>

                                       iv
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
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Section 9.9    Execution in Counterparts: Telefacsimile Execution................................    53
Section 9.10   Retention of Obligors' Records....................................................    53
Section 9.11   Binding Effect: Assignment: Complete Agreement: Exchanging Information............    53
Section 9.12   Severability of Provisions........................................................    53
Section 9.13   Headings..........................................................................    53
Section 9.14   Governing Law: Jurisdiction, Venue................................................    53
Section 9.15   Jury Trial Waiver.................................................................    54

TABLE OF EXHIBITS AND SCHEDULES                                                                      57
</TABLE>

                                        v
<PAGE>

                          CREDIT AND SECURITY AGREEMENT

                          Dated as of September 7, 2004

      U.S. PLASTIC LUMBER LTD., a Delaware corporation, as debtor and debtor in
possession (the "Borrower"), EACH OF ITS AFFILIATES WHO ARE GUARANTORS PARTY
HERETO, as debtors and debtors in possession, and AMPAC CAPITAL SOLUTIONS, LLC,
a Nevada limited liability company (the "Lender"), hereby agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

            SECTION 1.1 DEFINITIONS. For all purposes of this Agreement, except
~s otherwise expressly provided, the following terms shall have the meanings
assigned to the n in this Section or in the Section referenced after such term:

            "Accounts" means, with respect to any Obligor, all of such Obligor'
      s accounts as such term is defined in the UCC, including each and every
      right of such Obligor to the payment of money, whether such right to
      payment now exists or hereafter arises, whether such right to payment
      arises out of a sale, lease or other disposition of goods or other
      property, out of a rendering of services, out of a loan, out of the
      overpayment of taxes or other liabilities, or otherwise arises under any
      contract or agreement, whether such right to payment is created, generated
      or earned by such Obligor or by some other person who subsequently
      transfers such person's interest to such Obligor, whether such right to
      payment is or is not already earned by performance, and howsoever such
      right to payment may be evidenced, together with all other rights and
      interests (including all Liens) which such Obligor may at any time have by
      law or agreement against any account debtor or other obligor obligated to
      make any such payment or against any property of such account debtor or
      other obligor; all including but not limited to all present and future
      accounts, contract rights, loans and obligations receivable, chattel
      papers, bonds, notes and other debt instruments, tax refunds and rights to
      payment in the nature of general intangibles.

            "Accommodation Payment" has the meaning given to such term in
      Section 8.4.

            "Advance" has the meaning given in Section 2.1.

            "Affiliate" or "Affiliates" means, with respect to any Obligor, each
      other Obligor, and any other Person controlled by, controlling or under
      common control with any

                                       1
<PAGE>

      Obligor, including any Subsidiary of any Obligor. For purposes of this
      definition, "control," when used with respect to any specified Person,
      means the power to direct the management and policies of such Person,
      directly or indirectly, whether through the ownership of voting
      securities, by contract or otherwise.

            "Agreement" means this Credit and Security Agreement.

            "Allocable Amount" has the meaning given to such term in Section
      8.4.

            "Asset Purchase Agreement" has the meaning give to such term in
      Section 2.3(a).

            "Availability" means, as of any date, the difference between (i) the
      Borrowing Base and (ii) the sum of (A) the outstanding principal balance
      of the Note and (b) the L/C Amount.

            "Banking Day" means a day on which the Federal Reserve Bank of New
      York is open for business.

            "Bankruptcy Cases" means, collectively, the cases commenced pursuant
      to Chapter 11 of the Bankruptcy Code on July 23, 2004 by the Obligors in
      the Bankruptcy Court pending under jointly administered case no.
      04-33579-BKC-PGH and "Bankruptcy Case" means any such case.

            "Bankruptcy Code" means Title 11 of the United States Code (11
      U.S.C. Section 101

            "Bankruptcy Court" means the United States Bankruptcy Court for the
      Southern District of Florida, West Palm Beach Division, or any other court
      having jurisdiction of the Bankruptcy Cases from time to time.

            "Bidding Procedures Motion" has the meaning given to such term in
      Section 2.3(d).

            "Blocked Account Agreement" means the Blocked Account Agreement by
      and among the Borrower, the Parent, Wachovia Bank and the Lender of even
      date herewith.

            "Blocked Accounts" means each "Blocked Account" as defined in the
      Blocked Account Agreement, and "Blocked Account" means any such account.

            "Borrowing Base" means at any time the lesser of:

            (a) the Maximum Line; or

            (b) subject to change from time to time in the Lender's sole
      discretion, the sum of:

                  (i) 80% of Eligible Accounts, plus

                                       2
<PAGE>

                  (ii) the lesser of(A) $500,000 or (B) 40% of Eligible
      Inventory, less

                  (iii) subject to Section 2.3, the Minimum Liquidity Reserve,
      less

                  (iv) such reserves as the Lender shall establish from time to
      time in its sole discretion.

            "Budget" means the budget attached to the Interim Order or the Final
      Order, as applicable, as amended and restated from time to time. If any
      replacement to the Budget is not approved by the Lender, the term "Budget"
      shall mean the last replacement to the Budget that was approved by the
      Lender.

            "Carve-Out" has the meaning ascribed to that term in Section 3.9(e).

            "Cash Collateral Account" means the "Depository Account" as defined
      in the Lockbox Agreement.

            "Closing Date" means the date each of the conditions precedent to
      making the initial Advance is satisfied (which shall not be later than
      September 7, 2004).

            "Collateral" means, as to each Obligor, all property of the estate
      of such Obligor within the meaning of Section 541 of the Bankruptcy Code,
      including, without limitation, all of the following property and assets of
      such Obligor, whether now owned or existing or hereafter acquired or
      arising, regardless of where located: (i) all Accounts, chattel paper,
      deposit accounts (including the Cash Collateral Account, the Blocked
      Account and the Special Account), documents, Equipment, General
      Intangibles, goods, instruments, Inventory, Investment Property,
      letter-of-credit rights, letters of credit, and any items in any Lockbox;
      (ii) all real property and all other collateral subject to the Lien of any
      Security Document, including without limitation the Mortgages but
      excluding the Option; (iii) all substitutions and replacements for or
      products of any of the foregoing; (iv) in the case of all goods, all
      accessions; (v) all accessories, attachments, parts, equipment and repairs
      now or hereafter attached or affixed to or used in connection with any
      goods; (vi) all warehouse receipts, bills of lading and other documents of
      title now or hereafter covering any goods; (vii) any money or other assets
      of such Obligor that now or hereafter come into the possession, custody,
      or control of the Lender or any of its affiliates; (viii) all sums on
      deposit in the Cash Collateral Account, the Blocked Accounts and the
      Special Account; and (ix) all proceeds or recoveries of any and all of the
      foregoing.

            "Commitment" means the Lender's commitment to make Advances to, and
      to cause the Issuer to issue Letters of Credit for the account of, the
      Borrower pursuant to Article I.

            "Constituent Documents" means with respect to any Person, as
      applicable, such Person's certificate of incorporation, articles of
      incorporation, by-laws, certificate of formation, articles of
      organization, limited liability company agreement, management agreement,
      operating agreement, shareholder agreement, partnership agreement or
      similar

                                       3
<PAGE>

      document or agreement governing such Person's existence, organization or
      management or concerning disposition of ownership interests of such Person
      or voting rights among such Person's owners.

            "Credit Facility" means the credit facility being made available to
      the Borrower by the Lender under Article II.

            "Debt" means, with respect to a Person as of a given date, all items
      of indebtedness or liability which in accordance with GAAP would be
      included in determining total liabilities as shown on the liabilities side
      of a balance sheet for such Person and shall also include the aggregate
      payments required to be made by such Person at any time under any lease
      that is considered a capitalized lease under GAAP.

            "Default" means an event that, with giving of notice or passage of
      time or both, would constitute an Event of Default.

            "Default Period" means any period of time beginning on the day a
      Default or Event of Default occurs and ending on the date the Lender
      notifies the Borrower in writing that such Default or Event of Default has
      been cured or waived.

            "Default Rate" means the Minimum Interest Charge pi~,'~ an annual
      interest rate equal to five percent (5%) on the outstanding principal
      balance of the Note.

            "Director" means, with respect to any Obligor, a member of the board
      of directors of such Obligor.

            "Eaglebrook Group" means The Eaglebrook Group, Inc., a Delaware
      Corporation.

            "Eligible Accounts" means all unpaid Accounts of the Borrower (but
      not any other Obligor) arising from the sale or lease of goods or the
      performance of services by the Borrower, net of any credits, but excluding
      any such Accounts having any of the following characteristics:

                  (i) That portion of Accounts which does not arise in
            connection with Borrower's Winter Dating Program and which is unpaid
            90 days or more after the invoice date or three times the required
            payment period pursuant to the terms of the Account;

                  (ii) Accounts (other than Accounts that arise in connection
            with the Winter Dating Program which are addressed in clause (xvii)
            below) with payment terms in excess of 60 days from the invoice
            date;

                  (iii) That portion of Accounts that is disputed or subject to
            a claim of offset or a contra account;

                  (iv) That portion of Accounts not yet earned by the final
            delivery of

                                       4
<PAGE>

            goods or rendition of services, as applicable, by the Borrower to
            the customer, including progress billings, and that portion of
            Accounts for which an invoice has not been sent to the applicable
            account debtor;

                  (v) Accounts constituting (A) proceeds of copyrightable
            material unless such copyrightable material shall have been
            registered with the United States Copyright Office, or (B) proceeds
            of patentable inventions unless such patentable inventions have been
            registered with the United States Patent and Trademark Office;

                  (vi) Accounts owed by any unit of government, whether foreign
            or domestic (provided, however, that there shall be included in
            Eligible Accounts that portion of Accounts owed by such units of
            government for which the Borrower has provided evidence satisfactory
            to the Lender that (A) the Lender has a first-priority perfected
            security interest and (B) such Accounts may be enforced by the
            Lender directly against such unit of government under all applicable
            laws);

                  (vii) Accounts owed by an account debtor located outside the
            United States which are not (A) backed by a bank letter of credit
            naming the Lender as beneficiary or assigned to the Lender, in the
            Lender's possession or control, and with respect to which a control
            agreement concerning the letter-of-credit rights is in effect, and
            acceptable to the Lender in all respects, in its sole discretion, or
            (B) covered by a foreign receivables insurance policy acceptable to
            the Lender in its sole discretion;

                  (viii) Accounts owed by an account debtor that is insolvent,
            the subject of bankruptcy proceedings or has gone out of business;

                  (ix) Accounts owed by an Owner, Subsidiary, Affiliate,
            Officer, Director or employee of any Obligor;

                  (x) Accounts not subject to a duly perfected first-priority
            security interest in the Lender's favor;

                  (xi) That portion of Accounts that has been restructured,
            extended, amended or modified;

                  (xii) That portion of Accounts that constitutes advertising,
            finance charges, service charges or sales or excise taxes;

                  (xiii) Accounts owed by an account debtor, regardless of
            whether otherwise eligible, to the extent that the balance of such
            Accounts exceeds 20% of the aggregate amount of all Eligible
            Accounts;

                  (xiv) Accounts owed by an account debtor, regardless of
            whether otherwise eligible, if 25% or more of the total amount due
            under Accounts from

                                       5
<PAGE>

            such account debtor is ineligible under clauses (i), (ii), (iii) or
            (xi) above;

                  (xv) Accounts owing by any account debtor listed on Schedule
            5.19 hereto (as updated from time to time pursuant to Section 6.1
            (d)(iii) hereto);

                  (xvi) Accounts, or portions thereof, otherwise deemed
            ineligible by the Lender in its sole discretion; or

                  (xvii) Accounts which arise in connection with the Borrower's
            Winter Dating Program (and is readily identifiable as such) and
            which has been outstanding more than 150 days after the date of such
            invoice; provided that in no event shall the aggregate amount of all
            Eligible Accounts arising in connection with the Winter Dating
            Program exceed 25% of the face amount of all Eligible Accounts
            during months one through three of the Winter Dating Program, 35% of
            the face amount of all Eligible Accounts during months four and five
            of the Winter Dating Program and 46% of the face amount of all
            Eligible Accounts during month six of the Winter Dating Program.

            "Eligible Inventory" means all Inventory of the Borrower (but not
      any other Obligor), at the lower of cost or market value as determined in
      accordance with GAAP; but excluding any Inventory having any of the
      following characteristics:

                  (i) Inventory that is: in-transit; located at any warehouse,
            job site or other premises other than Borrower's Premises in Ocala,
            Florida or Chicago, Illinois; not subject to a perfected
            first-priority security interest in favor of the Lender; covered by
            any negotiable or non-negotiable warehouse receipt, bill of lading
            or other document of title; on consignment from any Person; or on
            consignment to any Person or subject to any bailment unless such
            consignee or bailee has executed an agreement with the Lender;

                  (ii) Inventory that is damaged, obsolete, slow moving or not
            currently saleable in the normal course of the Borrower's
            operations;

                  (iii) Inventory manufactured by the Borrower pursuant to a
            license unless the applicable licensor has agreed in writing to
            permit the Lender to exercise its rights and remedies against such
            Inventory;

                  (iv) Inventory that is subject to a Lien in favor of any
            Person other than the Lender; or

                  (v) Inventory otherwise deemed ineligible by the Lender in its
            sole discretion.

            "Environmental Law" means any federal, state, local or other
      governmental statute, regulation, law or ordinance dealing with the
      protection of human health and the environment.

                                       6
<PAGE>

            "Equipment" means, with respect to any Obligor, all of such
      Obligor's equipment, as such term is defined in the UCC, whether now owned
      or hereafter acquired, including but not limited to all present and future
      machinery, vehicles, furniture, fixtures, manufacturing equipment, shop
      equipment, office and recordkeeping equipment, parts, tools, supplies, and
      including specifically the goods described in any equipment schedule or
      list herewith or hereafter furnished to the Lender by any Obligor.

            "ERISA" means the Employee Retirement Income Security Act of 1974.

            "ERISA Affiliate" means any trade or business (whether or not
      incorporated) that is a member of a group which includes any Obligor and
      which is treated as a single employer under Section 414 of the IRC.

            "Event of Default" has the meaning specified in Section 7.1.

            "Final Order" means an order of the Bankruptcy Court entered in the
      Bankruptcy Cases after a final hearing under Bankruptcy Rule 4001(c)(2),
      in all respects satisfactory to the Lender in its sole discretion, signed
      and certified by the Clerk of the Bankruptcy Court as having been duly
      entered and in full force and effect no later than thirty (30) days after
      entry by the Bankruptcy Court of the Interim Order (or any earlier date
      upon which the making of any Advance or the issuance of any Letter of
      Credit the aggregate amount of either of which, when added to the sum of
      the principal amount of all Advances then outstanding and the Letters of
      Credit outstanding would exceed the amount thereof which was authorized by
      the Bankruptcy Court in the Interim Order).

            "Funding Date" means the date all of the conditions set forth in
      Section 4.1 are satisfied.

            "GAAP" means generally accepted accounting principles, applied on a
      basis consistent with the accounting practices applied in the financial
      statements described in Section 5.6.

            "General Intangibles" means, with respect to any Obligor, all of
      such Obligor's general intangibles, as such term is defined in the UCC,
      whether now owned or hereafter acquired, including all present and future
      Intellectual Property Rights, customer or supplier lists and contracts,
      manuals, operating instructions, permits, franchises, the right to use
      such Obligor's name, and the goodwill of such Obligor' s business.

            "Guarantors" means Parent, U.S. Plastic Lumber Finance, U.S. Plastic
      Lumber IP, and Eaglebrook Group, in each case as debtors and debtors in
      possession, and any other Person now or hereafter guarantying the
      Obligations, and "Guarantor" means any of them.

            "Hazardous Substances" means pollutants, contaminants, hazardous
      substances, hazardous wastes, petroleum and fractions thereof, and all
      other chemicals, wastes, substances and materials listed in, regulated by
      or identified in any Environmental Law.

                                       7
<PAGE>

            "Infringement" means when used with respect to Intellectual Property
      Rights, any infringement or other violation of Intellectual Property
      Rights.

            "Intellectual Property Rights" means all actual or prospective
      rights arising in connection with any intellectual property or other
      proprietary rights, including all rights arising in connection with
      copyrights, patents, service marks, trade dress, trade secrets,
      trademarks, trade names or mask works.

            "Interim Order" has the meaning given to such term in Section
      4.1(u).

            "Inventory" means, with respect to any Obligor, all of such
      Obligor's inventory, as such term is defined in the UCC, whether now owned
      or hereafter acquired, whether consisting of whole goods, spare parts or
      components, supplies or materials, whether acquired, held or furnished for
      sale, for lease or under service contracts or for manufacture or
      processing, and wherever located.

            "Investment Property" means, with respect to any Obligor, all of
      such Obligor's investment property, as such term is defined in the UCC,
      whether now owned or hereafter acquired, including but not limited to all
      securities, security entitlements, securities accounts, commodity
      contracts, commodity accounts, stocks, bonds, mutual fund shares, money
      market shares and U.S. Government securities.

            "IRC" means the Internal Revenue Code of 1986, as amended.

            "Issuer" means the issuer of any Letter of Credit.

            "L/C Amount" means the sum of (i) the aggregate face amount of any
      issued and outstanding Letters of Credit and (ii) the unpaid amount of the
      Obligation of Reimbursement.

            "L/C Application" means an application and agreement for a letter of
      credit in a form acceptable to the Issuer and the Lender.

            "Lessor Estoppel and Agreement" means that certain Lessor Estoppel
      and Agreement executed by 2600 Roosevelt Associates, L.L.C., an Illinois
      limited liability company, in favor of the Lender.

            "Letter of Credit" has the meaning give to such term in Section 2.5.

            "Licensed Intellectual Property" has the meaning given to such term
      in Section 5.11(c).

            "Lien" means any security interest, mortgage, deed of trust, pledge,
      lien, charge, encumbrance, title retention agreement or analogous
      instrument or device, including the interest of each lessor under any
      capitalized lease and the interest of any bondsman under

                                       8
<PAGE>

      any payment or performance bond, in, of or on any assets or properties of
      a Person, whether now owned or hereafter acquired and whether arising by
      agreement or operation of law.

            "Loan Documents" means this Agreement, the Note, the Security
      Documents, any L/C Application and each agreement, document, instrument or
      certificate to be executed and delivered by any Obligor as a condition to
      closing pursuant to Section 4.j. or to be executed and delivered by an
      Obligor subsequent to closing pursuant to the terms of any Loan Document
      or any order of the Bankruptcy Court.

            "Lockbox" has the meaning given to such term in the Lockbox
      Agreement.

            "Lockbox Agreement" means the Lockbox Agreement by and among the
      Borrower, Wachovia Bank and the Lender, of even date herewith.

            "Material Adverse Effect" means any of the following:

                  (i) a material adverse effect on the business, operations,
            results of operations, prospects, assets, liabilities or financial
            condition of the Obligors, taken as a whole;

                  (ii) a material adverse effect on the ability of the Obligors,
            taken as a whole, to perform their obligations under the Loan
            Documents; or

                  (iii) a material adverse effect on the ability of the Lender
            to enforce the Obligations or to realize the intended benefits of
            the Orders and the Security Documents, including a material adverse
            effect on the validity or enforceability of the Lender's
            Superpriority Claim, any Loan Document or of any rights against any
            Guarantor, or on the status, existence, perfection, priority or
            enforceability of the Lender's first-priority Security Interests and
            Liens securing payment or performance of the Obligations.

            "Maturity Date" means December 2, 2004.

            "Maximum Line" means $3 million.

            "Minimum Interest Charge" has the meaning given to such term in
      Section 2.10(b).

            "Minimum Liquidity Reserve" means $50,000.00.

            "Mortgages" means (i) that certain Mortgage, Security Agreement,
      Financing Statement and Absolute Assignment of Rents and Revenues of even
      date herewith executed by the Borrower in favor of the Lender, to be
      recorded in Marion County, Florida; (ii) that certain Leasehold Mortgage,
      Security Agreement, Financing Statement and Absolute Assignment of Rents
      and Revenues of even date herewith executed by the

                                       9
<PAGE>

      Borrower in favor of the Lender, to be recorded in Cook County, Illinois;
      and (iii) any other mortgage, deed of trust, deed to secure debt, or
      similar instrument or agreement pursuant to which any Obligor grants in
      favor of the Lender a security interest in and lien upon any fee or
      leasehold interest in real property owned by such Obligor.

            "Multiemployer Plan" means a multiemployer plan (as defined in
      Section 400 1(a)(3) of ERISA) to which any Obligor or any ERISA Affiliate
      contributes or is obligated to contribute.

            "Note" means the Borrower's revolving promissory note, payable to
      the order of the Lender, in substantially the form of Exhibit A hereto.

            "Obligation of Reimbursement" has the meaning given in Section
      2.7(a).

            "Obligations" means the Note, the Obligation of Reimbursement and
      each and every other debt, liability and obligation of every type and
      description which any Obligor may now or at any time hereafter owe to the
      Lender which arises under this Agreement, any other Loan Document, the
      Orders or any other document or order now or hereafter made, issued,
      delivered or given in connection herewith or therewith, and whether it is
      direct or indirect, due or to become due, absolute or contingent, primary
      or secondary, liquidated or unliquidated, or sole, joint, several or joint
      and several.

            "Obligors" means the Borrower and the Guarantors, and "Obligor"
      means the Borrower or any Guarantor.

            "Ocala Personal Property" means all personal property of Borrower
      located at the Ocala Real Property including, but not limited to, all of
      the furniture, equipment, leasehold improvements, inventory, accounts,
      chattels, security deposits, utility deposits, credits and general
      intangibles and other assets of all kinds, tangible and intangible, used
      at or in connection with the business being operated at the Ocala Real
      Property by Borrower.

            "Ocala Real Property" means all of Borrower's land, buildings,
      structural additions, fixtures, electrical, heating and plumbing
      equipment, furnaces, air conditioners, lighting fixtures, carpeting, tile,
      linoleum, drinking fountains, hot water heaters, and other improvements
      located in the City of Ocala, County of Marion, State of Florida together
      with all privileges, rights, title, interests, easements, hereditaments,
      and appurtenances thereunto belonging to Borrower, and all right, title,
      and interest of Borrower in and to all streets, alleys, railways,
      passages, and other rights-of-way included therein or adjacent thereto
      (before or after the vacation thereof).

            "Off-the-Shelf Software" has the meaning given to such term in
      Section 5.11(c).

            "Officer" means, with respect to any Obligor, an officer of such
      Obligor.

            "Option" means that certain Option to Purchase between the Borrower
      and 2600

                                       10
<PAGE>

      Roosevelt Associates, L.L.C., an Illinois limited liability company, which
      grants to the Borrower an option to purchase certain real property in Cook
      County, Illinois, where the Borrower presently conducts business.

            "Orders" means, collectively, the Interim Order and the Final Order.

            "Owned Intellectual Property" has the meaning given in Section
      5.11(a).

            "Owner" means, with respect to any Obligor, each Person having legal
      or beneficial title to an ownership interest in such Obligor or a right to
      acquire such an interest.

            "Parent" means U.S. Plastic Lumber Corp., a Nevada corporation.

            "Patent and Trademark Security Agreement" means the Patent and
      Trademark Security Agreement executed by the Obligors named therein in
      favor of the Lender of even date herewith.

            "Pension Plan" means a pension plan (as defined in Section 3(2) of
      ERISA) maintained for employees of any Obligor or any ERISA Affiliate and
      covered by Title IV of ERISA.

            "Permitted Lien" means:

                  (a) Liens for taxes, assessments or other governmental charges
            not yet due or which are being contested in good faith and by
            appropriate proceedings if adequate reserves with respect thereto
            are maintained on the books of the Obligors in accordance with GAAP;

                  (b) carriers', warehousemen' s, mechanics', materialmens',
            repairmens' or other like Liens arising on or after the Petition
            Date by operation of law in the ordinary course of business so long
            as (A) the underlying obligations are not overdue for a period of
            more than 60 days or (B) such Liens are being contested in good
            faith and by appropriate proceedings and adequate reserves with
            respect thereto are maintained on the books of the Obligors in
            accordance with GAAP; and

                  (c) other Liens or title defects (including matters which an
            accurate survey might disclose and exceptions to title set forth in
            title insurance with respect to the Mortgages) which (x) do not
            secure Debt (other than the Obligations) and (y) do not materially
            detract from the value of such property or materially impair the use
            thereof by any Obligor in the operation of its business.

            "Person" means any individual, corporation, partnership, joint
      venture, limited liability company, association, joint-stock company,
      trust, unincorporated organization or government or any agency or
      political subdivision thereof.

                                       11
<PAGE>

            "Petition Date" means July 23, 2004.

            "Plan" means an employee benefit plan (as defined in Section 3(3) of
      ERISA) maintained for employees of any Obligor or any ERISA Affiliate.

            "Plan of Reorganization" means any plan of reorganization filed or
      to be filed with the Bankruptcy Court in any of the Bankruptcy Cases.

            "Pre-Petition Indebtedness" has the meaning given to such term in
      Section 6.4.

            "Pre-Petition Purchase Money Liens" means the liens granted by the
      Borrower in certain of its equipment to certain equipment lenders who
      financed the purchase of said equipment, including General Electric
      Capital Corporation, People's Capital and Leasing Corp., Siemens Financial
      Services, Inc., HSBC Business Credit (USA), Inc. and CIT Group/Equipment
      Financing, Inc. as further identified on Schedule 5.10.

            "Premises" means all premises where any Obligor conducts its
      business and has any rights of possession, including the premises legally
      described in Exhibit B attached hereto.

            "Product Warranty Claims" means any claim against any Obligor
      regarding allegedly defective products or materials sold by an Obligor to
      a customer or distributor, whether asserted or unasserted, liquidated or
      unliquidated, fixed or contingent.

            "Professional Expense Cap" has the meaning given to such term in
      Section 3.9(e).

            "Related Documents" has the meaning given to such term in Section
      2.8(a).

            "Reportable Event" means a reportable event (as defined in Section
      4043 of ERISA), other than an event for which the 30-day notice
      requirement under ERISA has been waived in regulations issued by the
      Pension Benefit Guaranty Corporation.

            "Sale" means the sale of the Ocala Real Property and the Ocala
      Personal Property to the purchaser party to the Asset Purchase Agreement
      (or to such higher and better bidder as the Bankruptcy Court shall
      determine) pursuant to Section 3 63(f) of the Bankruptcy Code.

            "Sale Milestones" has the meaning given to such term in Section 2.3.

            "Sale Motion" has the meaning given to such term in Section 2.3(c).

            "Security Documents" means this Agreement, the Lockbox Agreement,
      the Blocked Account Agreement, the Mortgages, the Lessor Estoppel and
      Agreement, the Patent and Trademark Security Agreement, and any other
      document, agreement, certificate or financing statement delivered to the
      Lender from time to time to secure the

                                       12
<PAGE>

      Obligations or to protect the Lender or its Security Interest.

            "Security Interest" has the meaning given to such term in Section
      3.1.

            "Special Account" means a specified cash collateral account
      maintained by a financial institution acceptable to the Lender in
      connection with Letters of Credit, as contemplated by Section 2.6.

            "Subsidiary" means any corporation of which more than 50% of the
      outstanding shares of capital stock having general voting power under
      ordinary circumstances to elect a majority of the board of Directors of
      such corporation, irrespective of whether or not at the time stock of any
      other class or classes shall have or might have voting power by reason of
      the happening of any contingency, is at the time directly or indirectly
      owned by any Obligor, by any Obligor and one or more other Subsidiaries,
      or by one or more other Subsidiaries of any Obligor.

            "Superpriority Claim" shall mean a claim against the Borrower or any
      other Obligor, as applicable, in the Bankruptcy Cases that constitutes an
      allowed administrative expense claim in the Bankruptcy Cases with priority
      under Section 364(c)(1) of the Bankruptcy Code over any and all other
      administrative expenses of the kind specified or ordered pursuant to any
      provision of the Bankruptcy Code, including, but not limited to, Sections
      105, 326, 330, 331, 503(b), 506(c), 507(a), 507(b), and 726 of the
      Bankruptcy Code; provided, that priority status of the Obligations and the
      Liens securing the same shall be subject to the Carve-Out.

            "Termination Date" means the earliest of (i) the Maturity Date, (ii)
      the date the Credit Facility is deemed terminated pursuant to Section 2.14
      by delivery by the Borrower of written notice of termination, , (iii) the
      effective date of any confirmed Plan of Reorganization, (iv) the
      appointment by the Bankruptcy Court of a trustee or examiner having
      enlarged powers (powers beyond those set forth in Sections 1 106(a)(3) and
      (4) of the Bankruptcy Code) relating to the operation of the business of
      any Obligor, (v) the date any Bankruptcy Case is converted to a Chapter 7
      proceeding or is dismissed, or (vi) the date the Lender demands payment of
      the Obligations after an Event of Default pursuant to Section 7.2.

            "UCC" means the Uniform Commercial Code as in effect in the State of
      California, or in any other state whose laws are held to govern this
      Agreement or any Loan Document or any portion hereof or thereof.

            "U.S. Plastic Lumber Finance" means U.S. Plastic Lumber Finance
      Corporation, a Delaware corporation.

            "U.S. Plastic Lumber IP" means U.S. Plastic Lumber IP Corporation, a
      Delaware corporation.

            "Winter Dating Program" has the meaning set forth in the side
      letter, dated the

                                       13
<PAGE>

      date hereof, from Lender and acknowledged by the Obligors.

            SECTION 1.2 OTHER DEFINITIONAL TERMS; RULES OF INTERPRETATION. The
words "hereof', "herein" and "hereunder" and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP. All
terms defined in the UCC and not otherwise defined herein have the meanings
assigned to them in the UCC. References to Articles, Sections, subsections,
Exhibits, Schedules and the like, are to Articles, Sections and subsections of,
or Exhibits or Schedules attached to, this Agreement unless otherwise expressly
provided. The words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation". Unless the context in which used
herein otherwise clearly requires, "or" has the inclusive meaning represented by
the phrase "and/or". Defined terms include in the singular number the plural and
in the plural number the singular. Reference to any agreement (including this
Agreement or any other Loan Document), document or instrument means such
agreement, document or instrument as amended, modified, replaced or restated and
in effect from time to time in accordance with the terms thereof (and, if
applicable, in accordance with the terms hereof and the other Loan Documents),
except where otherwise explicitly provided, and reference to any promissory note
includes any promissory note which is an extension or renewal thereof or a
substitute or replacement therefor. Reference to any law, rule, regulation,
order, decree, requirement, policy, guideline, directive or interpretation means
as amended, modified, codified, replaced or reenacted, in whole or in part, and
in effect on the determination date, including rules and regulations promulgated
thereunder.

                                   ARTICLE II
                     AMOUNT AND TERMS OF THE CREDIT FACILITY

            SECTION 2.1 ADVANCES. The Lender agrees, on the terms and subject to
the conditions herein set forth, to make advances (each an "Advance") to the
Borrower from time to time from the Funding Date to the Termination Date. The
Lender shall have no obligation to make an Advance to the extent the amount of
the requested Advance exceeds the Availability. The Borrower's obligation to pay
the Advances shall be evidenced by the Note and shall be secured by the
Collateral. The Credit Facility is a revolving credit facility, and thus funds
may be requested, repaid, and reborrowed prior to the Termination Date as
provided in this Agreement.

            SECTION 2.2 PROCEDURES FOR REQUESTING ADVANCES. The Borrower shall
comply with the following procedures in requesting Advances:

            (a) Time for Requests. The Borrower shall request each Advance not
      later than 12:00 p.m., Los Angeles, California time on the Banking Day
      which is the date the Advance is to be made. Each such request shall be
      effective upon receipt by the Lender,

                                       14
<PAGE>

      shall be in writing or by telephone or telecopy transmission, to be
      confirmed in writing by the Borrower if so requested by the Lender in the
      form of Exhibit C, and shall be by (i) an Officer of the Borrower; or (ii)
      a person designated as the Borrower's agent by an Officer of the Borrower
      in a writing delivered to the Lender; or (iii) a person whom the Lender
      reasonably believes to be an Officer of the Borrower or such a designated
      agent. The Borrower shall repay all Advances even if the Lender does not
      receive such confirmation and even if the person requesting an Advance was
      not in fact authorized to do so. Any request for an Advance, whether
      written or telephonic, shall be deemed to be a representation by the
      Borrower that the conditions set forth in Section 4.2 have been satisfied
      as of the time of the request.

            (b) Disbursement. Upon fulfillment of the applicable conditions set
      forth in Article IV, the Lender shall disburse the proceeds of the
      requested Advance by crediting the same to the Borrower's demand deposit
      account maintained with Wachovia Bank or other mutually agreed upon
      banking institution unless the Lender and the Borrower shall agree in
      writing to another manner of disbursement

            SECTION 2.3 SALE MILESTONES. THE BORROWING Base shall include the
Minimum Liquidity Reserve until each of the following conditions is satisfied,
as determined by the Lender in its sole discretion (collectively, the "Sale
Milestones"):

            (a) Asset Purchase Agreement. The Obligors shall have delivered to
      the Lender an Asset Purchase Agreement (the "Asset Purchase Agreement")
      executed by Borrower and the purchaser party thereto by September 15, 2004
      for the sale of the Ocala Real Property and the Ocala Personal Property
      for a cash purchase price of at least $3,000,000.00 in form and content
      acceptable to the Lender and contingent upon, among other things, an order
      of the Bankruptcy Court approving the consummation of the sale pursuant to
      Section 363 of the Bankruptcy Code of the Ocala Real Property and the
      Ocala Personal Property to such purchaser on the terms set forth in such
      Asset Purchase Agreement. The closing of the purchase and sale of the
      Ocala Real Property and Ocala Personal Property shall occur on or before
      October 15, 2004.

            (b) Purchaser's Financing. The Obligors shall have established that
      the purchaser party to the Asset Purchase Agreement has the financial
      ability to pay the stated purchase price for the Ocala Real Property and
      the Ocala Personal Property by providing to the Lender financial
      statements, loan commitments or such other documentation as the Lender
      shall request.

            (c) Sale Motion. The Obligors shall have filed in the Bankruptcy
      Cases a motion (the "Sale Motion") to sell the Ocala Real Property and the
      Ocala Personal Property to the purchaser party to the Asset Purchase
      Agreement (or to such higher and better bidder as the Bankruptcy Court
      shall determine) pursuant to Section 363(f) of the Bankruptcy Code and in
      accordance with the Asset Purchase Agreement. The Sale Motion shall be in
      form and substance satisfactory to the Lender. An order of the

                                       15
<PAGE>

      Bankruptcy Court approving the consummation of the sale pursuant to
      Section 363 of the Bankruptcy Code of the Ocala Real Property and the
      Ocala Personal Property to such purchaser on the terms set forth in such
      Asset Purchase Agreement shall have been entered on or before October 15,
      2004.

            (d) Bidding Procedures Motion. The Obligors shall have filed in the
      Bankruptcy Cases, a motion (the "Bidding Procedures Motion") to establish
      bidding procedures relating to the Sale described in the Sale Motion and
      shall seek an expedited hearing on the Bidding Procedures Motion. The
      Bidding Procedures Motion on same shall be in form and content
      satisfactory to the Lender.

      Notwithstanding anything to the contrary in this Agreement, the Lender
shall have no obligation to make Advances which cause the outstanding balance of
the Credit Facility to be more than $1 million unless all of the Sale Milestones
have been satisfied, as determined by the Lender in its sole discretion.

            SECTION 2.4 INTENTIONALLY OMITTED.

            SECTION 2.5 LETTERS OF CREDIT.

            (a) The Lender agrees, on the terms and subject to the conditions
      herein set forth, to cause an Issuer to issue, from the Funding Date to
      the Termination Date, one or more irrevocable standby or documentary
      letters of credit (each, a "Letter of Credit") for the Borrower's account
      by guaranteeing payment of the Borrower's obligations or being a
      co-applicant. The Lender shall have no obligation to cause an Issuer to
      issue any Letter of Credit if the face amount of the Letter of Credit to
      be issued would exceed the lesser of:

                  (i) $500,000.00 less the L/C Amount, or

                  (ii) Availability.

      Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
      Application entered into between the Borrower and the Lender for the
      benefit of the Issuer, completed in a manner satisfactory to the Lender
      and the Issuer. The terms and conditions set forth in each such L/C
      Application shall supplement the terms and conditions hereof, but if the
      terms of any such L/C Application and the terms of this Agreement are
      inconsistent, the terms hereof shall control.

            (b) No Letter of Credit shall be issued with an expiry date later
      than the Termination Date in effect as of the date of issuance.

            (c) Any request to cause an Issuer to issue a Letter of Credit shall
      be deemed to be a representation by the Borrower that the conditions set
      forth in Section 4.2 have been satisfied as of the date of the request.

                                       16
<PAGE>

            SECTION 2.6 SPECIAL ACCOUNT. If the Credit Facility is terminated
for any reason while any Letter of Credit is outstanding, the Borrower shall
thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the L/C Amount. The Special Account shall be
an interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on amounts deposited
in the Special Account shall be credited to the Special Account. The Lender may
apply amounts on deposit in the Special Account at any time or from time to time
to the Obligations in the Lender's sole discretion. No Obligor may withdraw any
amounts on deposit in the Special Account as long as the Lender maintains a
security interest therein. The Lender agrees to transfer any balance in the
Special Account to the Borrower when the Lender is required to release its
security interest in the Special Account under applicable law.

            SECTION 2.7 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT;
OBLIGATION OF REIMBURSEMENT. The Borrower acknowledges that the Lender, as co
applicant, will be liable to the Issuer for reimbursement of any and all draws
under Letters of Credit and for all other amounts required to be paid under the
applicable L/C Application. Accordingly, the Borrower shall pay to the Lender
any and all amounts required to be paid under the applicable L/C Application,
when and as required to be paid thereby, and the amounts designated below, when
and as designated:

                  (a) The Borrower shall pay to the Lender on the day a draft is
      honored under any Letter of Credit a sum equal to all amounts drawn under
      such Letter of Credit plus any and all reasonable charges and expenses
      that the Issuer or the Lender may pay or incur relative to such draw and
      the applicable L/C Application, plus interest on all such amounts, charges
      and expenses as set forth below (the Borrower's obligation to pay all such
      amounts is herein referred to as the "Obligation of Reimbursement").

                  (b) Whenever a draft is submitted under a Letter of Credit,
      the Borrower authorizes the Lender to make an Advance in the amount of the
      Obligation of Reimbursement and to apply the proceeds of such Advance
      thereto. Such Advance shall be repayable in accordance with and be treated
      in all other respects as an Advance hereunder.

                  (c) If a draft is submitted under a Letter of Credit when the
      Borrower is unable, because a Default Period exists or for any other
      reason, to obtain an Advance to pay the Obligation of Reimbursement, the
      Borrower shall pay to the Lender on demand and in immediately available
      funds, the amount of the Obligation of Reimbursement together with
      interest, accrued from the date of the draft until payment in full at the
      Default Rate. Notwithstanding the Borrower's inability to obtain an
      Advance for any reason, the Lender is irrevocably authorized, in its sole
      discretion, to make an Advance in an amount sufficient to discharge the
      Obligation of Reimbursement and all accrued but unpaid interest thereon.

                  (d) The Borrower's obligation to pay any Advance made under
      this

                                       17
<PAGE>

      Sections, shall be evidenced by the Note and shall bear interest as
      provided in Section 2.10.

            SECTION 2.8 OBLIGATIONS ABSOLUTE. The Borrower's obligations arising
under Section 2.7 shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of Section 2.7, under all
circumstances whatsoever, including (without limitation) the following
circumstances:

            (a) any lack of validity or enforceability of any Letter of Credit
      or any other agreement or instrument relating to any Letter of Credit
      (collectively the "Related Documents")

            (b) any amendment or waiver of or any consent to departure from all
      or any of the Related Documents;

            (c) the existence of any claim, setoff, defense or other right which
      any Obligor may have at any time, against any beneficiary or any
      transferee of any Letter of Credit (or any persons or entities for whom
      any such beneficiary or any such transferee may be acting), or other
      person or entity, whether in connection with this Agreement, the
      transactions contemplated herein or in the Related Documents or any
      unrelated transactions;

            (d) any statement or any other document presented under any Letter
      of Credit proving to be forged, fraudulent, invalid or insufficient in any
      respect or any statement therein being untrue or inaccurate in any respect
      whatsoever;

            (e) payment by or on behalf of the Issuer under any Letter of Credit
      against presentation of a draft or certificate which does not strictly
      comply with the terms of such Letter of Credit; or

            (f) any other circumstance or happening whatsoever, whether or not
      similar to any of the foregoing.

            SECTION 2.9 INVENTORY APPRAISALS. The Lender may obtain, and may
from time to time update, at the Borrower's expense, an appraisal of Inventory
by an appraiser acceptable to the Lender in its sole discretion.

            SECTION 2.10 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST;
PARTICIPATIONS; USURY.

            (a) Note. Except as set forth in Subsections (c) and (e), the
      outstanding principal balance of the Note shall bear interest at 1.25% per
      month

                                       18
<PAGE>

            (b) Minimum Interest Charge. Notwithstanding the interest payable
      pursuant to Subsection (a), but subject to Subsection (e), the Borrower
      shall pay to the Lender interest of not less than $15,000 per month (the
      "Minimum Interest Charge") during the term of this Agreement.

            (c) Default Interest Rate. Upon notice to the Borrower from the
      Lender from time to time of an Event of Default, the principal of the
      Advances outstanding from time to time, but subject to Section 2.10(e),
      shall bear interest at the Default Rate, effective as of the first day of
      the Default Period through the last day of such Default Period. The
      Lender's election to charge the Default Rate shall be in its sole
      discretion and shall not be a waiver of any of its other rights and
      remedies. The Lender's election to charge interest at the Default Rate for
      less than the entire Default Period shall not be a waiver of its right to
      later charge the Default Rate for the entire Default Period.

            (d) Participations. If any Person shall acquire a participation in
      the Advances or the Obligation of Reimbursement, the Borrower shall be
      obligated to the Lender to pay the full amount of all interest calculated
      under this Section 2.10, along with all other fees, charges and other
      amounts due under this Agreement, regardless if such Person elects to
      accept interest with respect to its participation at a lower rate than
      that calculated under this Section 2.10, or otherwise elects to accept
      less than its pro rata share of such fees, charges and other amounts due
      under this Agreement.

            (e) Usury. Notwithstanding anything to the contrary contained in any
      Loan Document, all agreements which either now are or which shall become
      agreements between one or more Obligors and the Lender are hereby limited
      so that in no contingency or event whatsoever shall the total liability
      for payments in the nature of interest, additional interest and other
      charges exceed the applicable limits imposed by any applicable usury laws.
      If any payments in the nature of interest, additional interest and other
      charges made under any Loan Document are held to be in excess of the
      limits imposed by any applicable usury laws, it is agreed that any such
      amount held to be in excess shall be considered payment of principal
      hereunder, and the indebtedness evidenced hereby shall be reduced by such
      amount so that the total liability for payments in the nature of interest,
      additional interest and other charges shall not exceed the applicable
      limits imposed by any applicable usury laws, in compliance with the
      desires of the Borrower and the Lender. This provision shall never be
      superseded or waived and shall control every other provision of the Loan
      Documents and all agreements between the Borrower and the Lender, or their
      successors and assigns.

            SECTION 2.11 FEES.

            (a) Commitment Fee. The Borrower shall pay the Lender a fully earned
      and non-refundable commitment fee of $50,000, payable at the entry of the
      Final Order.

            (b) Audit Fees. The Borrower shall pay the Lender, on demand, audit
      fees in connection with any audits or inspections conducted by or on
      behalf of the Lender of any Collateral or any Obligor's operations or
      business at the rates established from time to time by the Lender as its
      audit fees (which fees are currently $950 per day per auditor

                                       19
<PAGE>

      plus out-of-pocket expenses).

            (c) INTENTIONALLY OMITTED.

            (d) Letter of Credit Fees. The Borrower shall pay to the Lender a
      fee with respect to each Letter of Credit, if any, accruing on a daily
      basis and computed at the annual rate of six percent (6%), of the
      aggregate amount that may then be drawn under it assuming compliance with
      all conditions for drawing (the "Aggregate Face Amount"), from and
      including the date of issuance of such Letter of Credit until such date as
      such Letter of Credit shall terminate by its terms or be returned to the
      Lender, due and payable monthly in arrears on the first day of each month
      and on the Termination Date; provided, however that during Default
      Periods, in the Lender's sole discretion and without waiving any of its
      other rights and remedies, such fee shall increase to twelve percent (12%)
      of the Aggregate Face Amount. The foregoing fee shall be in addition to
      any and all fees, commissions and charges of the Issuer with respect to or
      in connection with such Letter of Credit.

            (e) Letter of Credit Administrative Fees. The Borrower shall pay to
      the Lender, on written demand, the administrative fees charged by the
      Issuer in connection with the honoring of drafts under any Letter of
      Credit, amendments thereto, transfers thereof and all other activity with
      respect to the Letters of Credit at the then-current rates published by
      the Issuer for such services rendered on behalf of customers of the Issuer
      generally.

            (f) Termination Fee. If the Credit Facility is terminated (i) by the
      Lender during a Default Period that begins before the Maturity Date, or
      (ii) by the Borrower as of a date other than the Maturity Date, the
      Borrower shall pay to the Lender a fee in an amount equal to $50,000 less
      the amount of interest paid to the Lender under this Agreement.

            (g) Other Fees. The Lender may from time to time, upon five (5) days
      prior notice to the Borrower during a Default Period, charge additional
      fees for Advances made and Letters of Credit issued in excess of
      Availability, for late delivery of reports, in lieu of imposing interest
      at the Default Rate, and for other reasons. The Borrower's request for an
      Advance or the issuance of a Letter of Credit at any time after such
      notice is given and such five (5) day period has elapsed shall constitute
      the Borrower's agreement to pay the fees described in such notice.

            SECTION 2.12 TIME FOR INTEREST PAYMENTS; PAYMENT ON NON-BANKING
DAYS; COMPUTATION OF INTEREST AND FEES

            (a) Time For Interest Payments. Interest shall be due and payable in
      arrears on the last day of each month and on the Termination Date.

            (b) Payment on Non-Banking Days. Whenever any payment to be made

                                       20
<PAGE>

      hereunder shall be stated to be due on a day which is not a Banking Day,
      such payment may be made on the next succeeding Banking Day, and such
      extension of time shall in such case be included in the computation of
      interest on the Advances or the fees hereunder, as the case may be.

            (c) Computation of Interest and Fees. Interest accruing on the
      outstanding principal balance of the Advances and fees hereunder
      outstanding from time to time shall be computed on the basis of actual
      number of days elapsed in a year of 360 days.

            SECTION 2.13 LOCKBOX; CASH COLLATERAL ACCOUNT; APPLICATION OF
PAYMENTS.

            (a) Lockbox and Cash Collateral Account.

                  (i) The Obligors shall instruct all account debtors to pay all
            Accounts directly to the Lockbox. If, notwithstanding such
            instructions, any Obligor receives any payments on Accounts, such
            Obligor shall deposit such payments into the Cash Collateral
            Account. The Obligors shall also deposit all other cash proceeds of
            Collateral directly to the Cash Collateral Account. Until so
            deposited, such Obligor shall hold all such payments and cash
            proceeds in trust for and as the property of the Lender and shall
            not commingle such property with any of its other funds or property.
            All deposits in the Cash Collateral Account shall constitute
            proceeds of Collateral and shall not constitute payment of the
            Obligations.

                  (ii) All items deposited in the Cash Collateral Account shall
            be subject to final payment. If any such item is returned
            uncollected, the Borrower will immediately pay the Lender, or, for
            items deposited in the Cash Collateral Account, the bank maintaining
            such account, the amount of that item, or such bank at its
            discretion may charge any uncollected item to the Borrower's
            commercial account or other account. The Borrower shall be liable as
            an endorser on all items deposited in the Cash Collateral Account,
            whether or not in fact endorsed by the Borrower.

            (b) Application of Payments.

                  (i) Each Obligor acknowledges and agrees that, in accordance
            with the Lockbox Agreement, all available funds in the Cash
            Collateral Account shall be transferred to the Lender's general
            account for payment of the Obligations. Except as provided in the
            preceding sentence, amounts deposited in the Cash Collateral Account
            shall not be subject to withdrawal by any Obligor, except after full
            and indefeasible payment and discharge of all Obligations.

                  (ii) All payments to the Lender shall be made in immediately
            available funds, and shall be applied to the Obligations upon
            receipt of immediately available funds by the Lender. Funds received
            from the Cash Collateral Account

                                       21
<PAGE>

            shall be deemed to be immediately available. The Lender may hold all
            payments not constituting immediately available funds for three (3)
            additional days before applying them to the Obligations.

            SECTION 2.14 VOLUNTARY PREPAYMENT; TERMINATION OF THE CREDIT
FACILITY BY THE BORROWER. Except as otherwise provided herein, the Borrower may
terminate the Credit Facility at any time if it (I) gives the Lender at least
three (3) Banking Days' prior written notice and (ii) pays the Lender the
termination fee in accordance with Section 2.11(f). If the Borrower terminates
the Credit Facility, all Obligations shall be immediately due and payable.
Subject to termination of the Credit Facility and indefeasible payment and
performance of all Obligations, the Lender shall, at the Obligor's expense,
release or terminate the Security Interest and the Security Documents to which
the Obligors are entitled bylaw.

            SECTION 2.15 MANDATORY PREPAYMENT. Without notice or demand, if the
sum of the outstanding principal balance of the Advances plus the L/C Amount
shall at any time exceed the Borrowing Base, the Borrower shall (i) first,
immediately prepay the Advances to the extent necessary to eliminate such
excess; and (ii) if prepayment in full of the Advances is insufficient to
eliminate such excess, pay to the Lender in immediately available funds for
deposit in the Special Account an amount equal to the remaining excess. Any
payment received by the Lender under this Section 2.15 or under Section 2.14 may
be applied to the Obligations, in such order and in such amounts as the Lender,
in its discretion, may from time to time determine.

            SECTION 2.16 ADVANCES TO PAY OBLIGATIONS. Notwithstanding anything
in Section 2.1, the Lender may, in its discretion at any time or from time to
time, without the Borrower's request and even if the conditions set forth in
Section 4.2 would not be satisfied, make an Advance in an amount equal to the
portion of the Obligations from time to time due and payable.

            SECTION 2.17 USE OF PROCEEDS. The Borrower shall use the proceeds of
Advances and each Letter of Credit only to (a) pay fees due the United States
Trustee pursuant to 28 U.S.C. Section 1930; and (b) provide working capital for
the Obligors in accordance with the Budget and this Agreement.

            SECTION 2.18 LIABILITY RECORDS. The Lender may maintain from time to
time, at its discretion, records as to the Obligations. All entries made on any
such record shall be presumed correct until the Borrower establishes the
contrary. Upon the Lender's demand, the Obligors will admit and certify in
writing the exact principal balance of the Obligations that the Obligors then
assert to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Obligors unless the Obligors
give the Lender specific written notice of exception within ten (10) days of
receipt by the Borrower.

                                       22
<PAGE>

                                   ARTICLE III
             SECURITY INTEREST; PRIORITY OCCUPANCY; SETOFF AND LIENS

            SECTION 3.1 GRANT OF SECURITY INTEREST. Each Obligor hereby pledges,
assigns and grants to the Lender a Lien and security interest (collectively
referred to as the "Security Interest") in the Collateral, as security for the
payment and performance of the Obligations. Upon request by the Lender, each
Obligor will grant the Lender a security interest in all commercial tort claims
it may have against any Person.

            SECTION 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. The
Lender may at any time (whether or not a Default Period then exists) notify any
account debtor of any Obligor or other person obligated to pay the amount due
that such right to payment has been assigned or transferred to the Lender for
security and shall be paid directly to the Lender. Each Obligor will join in
giving such notice if the Lender so requests. At any time after an Obligor or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in each Obligor's name, (a) demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Obligor's agent and attorney-in-fact, notify the United States Postal Service to
change the address for delivery of each Obligor's mail to any address designated
by the Lender, otherwise intercept any Obligor's mail, and receive, open and
dispose of any Obligor's mail, applying all Collateral as permitted under this
Agreement and holding all other mail for the Obligor's account or forwarding
such mail to the Obligor's last known address.

            SECTION 3.3 ASSIGNMENT OF INSURANCE. Subject to an order of the
Bankruptcy Court authorizing the financing of insurance premiums, as additional
security for the payment and performance of the Obligations, each Obligor hereby
assigns to the Lender any and all monies (including proceeds of insurance and
refunds of unearned premiums) due or to become due under, and all other rights
of such Obligor with respect to, any and all policies of insurance now or at any
time hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and each Obligor hereby directs
the issuer of any such policy to pay all such monies directly to the Lender. At
any time, whether or not a Default Period then exists, the Lender may (but need
not), in the Lender's name or in any Obligor's name, execute and deliver proof
of claim, receive all such monies, endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.

            SECTION 3.4 OCCUPANCY.

            (a) Each Obligor hereby irrevocably grants to the Lender the right
      to take exclusive possession of the Premises at any time during a Default
      Period.

                                       23
<PAGE>

            (b) The Lender may use the Premises only to hold, process,
      manufacture, sell, use, store, liquidate, realize upon or otherwise
      dispose of goods that are Collateral and for other purposes that the
      Lender may in good faith deem to be related or incidental purposes.

            (c) The Lender's right to hold the Premises shall cease and
      terminate upon the earlier of (i) payment in full and discharge of all
      Obligations and termination of the Credit Facility, and (ii) final sale or
      disposition of all goods constituting Collateral and delivery of all such
      goods to purchasers.

            (d) The Lender shall not be obligated to pay or account for any rent
      or other compensation for the possession, occupancy or use of any of the
      Premises; provided, however, that if the Lender does pay or account for
      any rent or other compensation for the possession, occupancy or use of any
      of the Premises, the Borrower shall reimburse the Lender promptly for the
      full amount thereof. In addition, the Borrower will pay, or reimburse the
      Lender for, all taxes, fees, duties, imposts, charges and expenses at any
      time incurred by or imposed upon the Lender by reason of the execution,
      delivery, existence, recordation, performance or enforcement of this
      Agreement or the provisions of this Section 3.4.

            SECTION 3.5 LICENSE. Without limiting the generality of any other
Security Document, each Obligor hereby grants to the Lender a non-exclusive,
worldwide and royalty-free license to use or otherwise exploit all Intellectual
Property Rights of such Obligor for the purpose of: (a) completing the
manufacture of any in-process materials during any Default Period so that such
materials become saleable Inventory, all in accordance with the same quality
standards previously adopted by such Obligor for its own manufacturing and
subject to such Obligor's reasonable exercise of quality control; and (b)
selling, leasing or otherwise disposing of any or all Collateral during any
Default Period.

            SECTION 3.6 FINANCING STATEMENT. Each Obligor acknowledges that
pursuant to the Orders, the Liens in favor of the Lender in all Collateral shall
be perfected without the taking of any further action, including recordation of
any instruments of mortgage or assignment, or the recording or filing of any
financing statements, notices of liens or other similar instruments.
Notwithstanding the foregoing, each Obligor authorizes the Lender to file from
time to time such financing statements against the Collateral described as "all
personal property" or describing specific items of Collateral including
commercial tort claims as the Lender deems necessary or useful to perfect the
Security Interest. A carbon, photographic or other reproduction of this
Agreement or of any financing statements signed by such Obligor (if required) is
sufficient as a financing statement and may be filed as a financing statement in
any state to perfect the security interests granted hereby. For this purpose,
the following information is set forth:

            Legal name and address of Borrower:

                                       24
<PAGE>

            U. S. Plastic Lumber, Ltd. d/b/a U.S. Plastic Lumber Inc.-Worldwide
            2300 Glades Road, Suite 440W
            Boca Raton, FL 33431
            Federal Employer Identification No. 65-0805250
            Organizational Identification No. _________________________________

            Legal name and address of Parent:

            U.S. Plastic Lumber Corp.
            2300 Glades Road, Suite 440W
            Boca Raton, FL 33431
            Federal Employer Identification No. 87-0404343
            Organizational Identification No. _______________

            Legal name and address of U.S. Plastic Lumber IP:

            U.S. Plastic Lumber IP Corporation
            2300 Glades Road, Suite 440W
            Boca Raton, FL 33431
            Federal Employer Identification No. 58-2476434
            Organizational Identification No. ______________

            Legal name and address of U.S. Plastic Lumber Finance:

            U.S. Plastic Lumber Finance Corporation
            2300 Glades Road, Suite 440W
            Boca Raton, FL 33431
            Federal Employer Identification No. 58-247-6436
            Organizational Identification No. ____________________

            Legal name and address of Eaglebrook Group:

            The Eaglebrook Group, Inc.
            2300 Glades Road, Suite 440W
            Boca Raton, FL 33431
            Federal Employer Identification No. 36-3545936
            Organizational Identification No. ____________________

            Name and address of Secured Party:

            AMPAC Capital Solutions, LLC
            7380 S. Eastern Ave., Ste. 150
            Las Vegas, NV 89123

            SECTION 3.7 SETOFF. Subject to the Orders, the Lender may at any
time or from

                                       25
<PAGE>

time to time, at its sole discretion and without demand and without notice to
anyone, setoff any liability owed to any Obligor by the Lender or any of its
affiliates, whether or not due, against any Obligation, whether or not due. In
addition, subject to the Orders, each other Person holding a participating
interest in any Obligations shall have the right to appropriate or setoff any
deposit or other liability then owed by such Person or any of its affiliates to
any Obligor, whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly to such
Obligor the amount of such participating interest.

            SECTION 3.8 COLLATERAL. This Agreement does not contemplate a sale
of accounts, contract rights or chattel paper, and, as provided by law, the
Obligors are entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Obligors may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application. The Lender has no obligation to clean-up or otherwise prepare the
Collateral for sale. Each Obligor waives any right it may have to require the
Lender to pursue any third person for any of the Obligations.

            SECTION 3.9 PRIORITY AND LIENS.

            (a) Pursuant to section 364(c)(l) of the Bankruptcy Code, the
      Obligations of the Obligors hereunder and under the other Loan Documents
      shall at all times constitute allowed Superpriority Claims in the
      Bankruptcy Cases and in any future Chapter 7 case.

            (b) Pursuant to section 364(c)(2) of the Bankruptcy Code, the
      Obligations of each Obligor hereunder and under the other Loan Documents
      shall at all times be secured by a first-priority Lien senior to all other
      Liens on all property of each such Obligor, real and personal, whether now
      owned or hereafter acquired, in each case, to the extent that such
      property is not subject to a valid, perfected, enforceable and
      nonavoidable Lien in existence on the Petition Date.

            (c) Pursuant to section 364(d)(l) of the Bankruptcy Code, the
      Obligations of each Obligor hereunder and under the other Loan Documents
      shall at all times be secured by a perfected senior priming Lien upon all
      property of such Obligor, real and personal, whether now owned or
      hereafter acquired, provided, that such senior priming Liens shall be
      subject to the payment of the Carve-Out as described in clause (e) below
      and the Pre-Petition Purchase Money Liens.

            (d) As to all real property the title to which is held by any
      Obligor, or the possession of which is held by any Obligor pursuant to a
      leasehold interest, such Obligor hereby assigns and conveys as security,
      grants a security interest in, hypothecates, mortgages, pledges and sets
      over unto the Lender all of the right, title, and interest of such Obligor
      in and to all of such owned real property and in all such leasehold
      interests,

                                       26
<PAGE>

      together in each case with all of the right, title and interest of such
      Obligor in and to all buildings, improvements, and fixtures related
      thereto, any lease or sublease thereof, all General Intangibles relating
      thereto and all proceeds thereof.

            (e) The Liens on the Collateral under Sections 364(c)(2) and (d)(1)
      of the Bankruptcy Code, for the benefit of the Lender, and the
      Superpriority Claim under Section 364(c)(1) of the Bankruptcy Code
      afforded the Obligations, shall be subject to the following (collectively,
      the "Carve-Out"): (i) the unpaid fees due and payable to the Clerk of the
      Court and the U.S. Trustee pursuant to 28 U.S.C. Section 1930 and (ii)
      allowed, unpaid claims for fees and expenses incurred by professionals
      retained pursuant to an order of the Bankruptcy Court in an amount not to
      exceed $300,000 in the aggregate (the "Professional Expense Cap") only in
      the event that the Maximum Line has been fully utilized (in the event that
      Lender makes Advances less than the Maximum Line, the Professional Expense
      Cap shall be limited to ten (1 0)% of the outstanding Advances); provided
      that (A) no Advance, including any Advance used to fund the Carve-Out,
      shall apply to or be available for any fees or expenses incurred in
      connection with the investigation, initiation or prosecution of any
      claims, causes of action, adversary proceedings or other litigation
      against the Lender, including, without limitation (x) challenging the
      amount, validity, perfection, priority or enforceability of or asserting
      any defense, counterclaim or offset to, the Obligations or the Liens of
      the Lender in respect thereof or (y) preventing, hindering or otherwise
      delaying, whether directly or indirectly, the exercise by the Lender of
      any of its rights and remedies under this Agreement or the other Loan
      Documents or the enforcement or realization upon any of the Lender's Liens
      on or security interests in any applicable Collateral, and (B) in no event
      shall any of the Carve-Out (x) be paid from amounts on deposit in the Cash
      Collateral Account or (y) include any fees or expenses arising after the
      conversion of a Bankruptcy Case under Chapter 11 of the Bankruptcy Code to
      a case under Chapter 7 of the Bankruptcy Code (other than as permitted
      under clause (i) above).

                                   ARTICLE IV
                              CONDITIONS OF LENDING

            SECTION 4.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND LETTER
OF CREDIT. The Lender's obligation to make the initial Advance hereunder or to
cause any Letters of Credit to be issued shall be subject to the condition
precedent that the Lender shall have received all of the following, each in form
and substance satisfactory to the Lender:

            (a) This Agreement, properly executed by the Obligors.

            (b) The Note, properly executed by the Borrower.

            (c) INTENTIONALLY OMITTED.

            (d) INTENTIONALLY OMITTED.

                                       27
<PAGE>

            (e) A true and correct copy of any and all agreements pursuant to
      which any Obligor' s property is in the possession of any Person other
      than any Obligor.

            (f) The Lockbox Agreement, properly executed by the Borrower,
      Wachovia Bank and the Lender within ten days of Closing and evidence of
      closing of all other bank accounts other than Wachovia within ten days of
      Closing.

            (g) The Blocked Account Agreement, properly executed by the
      Borrower, the Parent, Wachovia Bank and the Lender within ten days of
      Closing and evidence of closing of all other bank accounts other than
      Wachovia within ten days of Closing.

            (h) The Mortgages, properly executed by the Obligor named therein.

            (i) INTENTIONALLY OMITTED.

            (j) An Environmental Indemnity Agreement for each Premises, properly
      executed by the Obligor named therein.

            (k) INTENTIONALLY OMITTED.

            (l) The Patent and Trademark Security Agreement, properly executed
      by the Obligors.

            (m) The Lessor Estoppel and Agreement, properly executed by 2600
      Roosevelt Associates, L.L.C., an Illinois limited liability company.

            (n) Within fifteen (15) days of Closing, current searches from the
      Delaware, Nevada, Illinois, Florida, and California secretaries of state
      showing that no Liens have been filed and remain in effect against any
      Obligor except (i) the Liens listed on Schedule 5.10 and (ii) any
      financing statements, fixture filings or Mortgages filed by the Lender.

            (o) For each Obligor, a certificate of such Obligor's Secretary or
      Assistant Secretary certifying that attached to such certificate are (i)
      the resolutions of such Obligor's Directors and, if required, Owners,
      authorizing the execution, delivery and performance of the Loan Documents,
      (ii) true, correct and complete copies of such Obligor's Constituent
      Documents, and (iii) examples of the signatures of the Obligor's Officers
      or agents authorized to execute and deliver the Loan Documents and other
      instruments, agreements and certificates, including Advance requests, on
      their behalf.

            (p) For each Obligor, current certificate issued by the Secretary of
      State of the state of its formation, certifying that such Obligor is in
      compliance with all applicable organizational requirements of such State.

            (q) For each Obligor, evidence that such Obligor is duly licensed or
      qualified to transact business in all jurisdictions where the character of
      the property owned or

                                       28
<PAGE>

      leased or the nature of the business transacted by it makes such licensing
      or qualification necessary.

            (r) A certificate of an Officer of the Borrower confirming, in his
      personal capacity, the representations and warranties set forth in Article
      V.

            (s) Certificates of the insurance required hereunder, with all
      hazard insurance containing a lender's loss payable endorsement in the
      Lender's favor and with all liability insurance naming the Lender as an
      additional insured.

            (t) Payment of the fees and commissions due under Section 2.11
      through the date of the initial Advance or Letter of Credit and expenses
      incurred by the Lender through such date and required to be paid by the
      Borrower under Section 9.6, including all legal expenses incurred through
      the date of this Agreement within ten (10) days of the date hereof.

            (u) Interim Order. The Lender shall have received a signed copy of
      the interim order (the "Interim Order") of the Bankruptcy Court with the
      Budget attached thereto (with such modifications as are approved by the
      Lender in its sole discretion) authorizing and approving the making of
      Advances and the issuance of Letters of Credit contemplated hereby and by
      the other Loan Documents and the granting of the Superpriority Claim
      status and Liens as described in Section 3.9 and the Interim Order. The
      Interim Order (i) shall have been entered upon an application or motion of
      the Obligors satisfactory in form and substance to the Lender in its sole
      discretion, (ii) shall be certified by the Clerk of the Bankruptcy Court
      as having been duly entered, (iii) shall have authorized extensions of
      credit by the Lender in the amounts set forth in the Budget consisting of
      Advances and Letters of Credit and include, without limitation, a finding
      and ruling to the effect that the Advances and Letters of Credit made or
      issued pursuant to the Interim Order are made in good faith within the
      meaning of Section 364(e) of the Bankruptcy Code, (iv) shall approve the
      payment by the Obligors of all of the fees and expenses set forth herein,
      and (v) shall be in full force and effect and shall not have been vacated,
      reversed, modified, amended or stayed or the subject of a stay pending
      appeal.

            (v) Additional Documents. The Obligors shall have executed and
      delivered to the Lender such other documents which the Lender determines
      are reasonably necessary to consummate the transactions contemplated
      hereby.

            (w) Budget. On or before the Closing Date, the Lender shall have
      received the Budget, in form and substance satisfactory to the Lender in
      its sole discretion.

            (x) Financial Advisor. The Borrower shall have retained and
      appointed Triax Capital Advisors, LLC as a financial advisor and the
      Lender shall be satisfied with the terms of such retention and
      appointment, all of which shall be approved by entry of an order from the
      Bankruptcy Court.

            SECTION 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF
CREDIT.

                                       29
<PAGE>

The Lender's obligation to make each Advance and to cause each Letter of Credit
to be issued shall be subject to the further conditions precedent that:

            (a) the representations and warranties contained in Article V are
      correct on and as of the date of such Advance or issuance of a Letter of
      Credit as though made on and as of such date, except to the extent that
      such representations and warranties relate solely to an earlier date;

            (b) no event has occurred and is continuing, or would result from
      such Advance or issuance of a Letter of Credit which constitutes a Default
      or an Event of Default;

            (c) since the Petition Date, no event or series of events shall have
      occurred, which the Lender determines to constitute a material adverse
      change in (i) the assets, liabilities, business, operations, condition
      (financial or otherwise), properties or prospects of the Borrower or any
      other Obligor, (ii) the enforceability of the Liens, rights and remedies
      of the Lender under the Loan Documents and the Orders, (iii) the ability
      of the Borrower or the other Obligors to timely pay the Obligations in
      full when due and to perform their covenants, agreements and obligations
      under the Loan Documents and the Orders or (iv) the value of the assets of
      the Borrower and the other Obligors;

            (d) the Lender shall have received evidence satisfactory to it that
      the Borrower is operating in compliance with the Budget;

            (e) none of the Bankruptcy Cases shall have been dismissed or
      converted to a case under Chapter 7 of the Bankruptcy Code, no Obligor
      shall have filed an application for any order dismissing any Bankruptcy
      Case or converting any Bankruptcy Case to a case under Chapter 7 or the
      Bankruptcy Code, and no trustee under Chapter 7 or Chapter 11 of the
      Bankruptcy Code and no examiner with powers beyond the duty to investigate
      and report, as set forth in Sections 1 106(a)(3) and (4) of the Bankruptcy
      Code, shall have been appointed in the Bankruptcy Cases. No application
      shall have been filed by any Obligor for the approval of any other first
      priority administrative claim in the Bankruptcy Cases which is pan passu
      with or senior to the claims of the Lender against the Obligor (and, other
      than the Carve-Out, no such claim or Lien has arisen) and no Obligor shall
      have failed to oppose any such motion filed by any other Person;

            (f) the Interim Order shall not have been appealed, stayed,
      reversed, modified or amended in any respect and shall be in full force
      and effect; and

            (g) if such Advance or request for a Letter of Credit is requested
      more than thirty (30) days after the Interim Order, the Final Order shall
      have been entered and in full force and effect and shall not have been
      appealed, stayed, reversed, modified or amended in any respect.

                                       30
<PAGE>

                                   ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

            Each Obligor represents and warrants to the Lender on the date of
this Agreement and on each date an Advance is requested, as follows:

            SECTION 5.1 EXISTENCE AND POWER: NAME: CHIEF EXECUTIVE OFFICE:
INVENTORY AND EQUIPMENT LOCATIONS: FEDERAL EMPLOYER IDENTIFICATION NUMBER. Each
Obligor is a corporation, duly organized, validly existing and in good standing
under the laws of the state of its formation set forth in Schedule 5.1 and is
duly licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary. Each Borrower
has all requisite power and authority to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. Each Obligor's name as set forth in its Constituent
Documents is correctly set forth on Schedule 5.1. During its existence, each
Obligor has done business solely under the names for such Obligor set forth in
Schedule 5.1. Each Obligor's chief executive office and principal place of
business is located at the address set forth in Schedule 5.1 and all of such
Obligor' s records relating to its business or the collateral are kept at such
location. All Inventory and Equipment of such Obligor is located at that
location or at one of the other locations listed in Schedule 5.1 for such
Obligor. Each Obligor's federal employer identification number is correctly set
forth in Section 3.6.

            SECTION 5.2 CAPITALIZATION. Schedule 5.2 constitutes a correct and
complete list of all ownership interests of the Obligors, and an organizational
chart showing the ownership structure of all Obligors and their Subsidiaries.

            SECTION 5.3 AUTHORIZATION OF BORROWING~ NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by each Obligor of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of such Obligor' s Owners; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including Regulation X of the
Board of Governors of the Federal Reserve System) or of any order, writ,
injunction or decree presently in effect having applicability to the Obligors or
of any Obligor's Constituent Documents; (iv) result in a breach of or constitute
a default under any indenture or loan or credit agreement or any other material
agreement, lease or instrument to which any Obligor is a party or by which it or
its properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than the Security Interest) upon or
with respect to any of the properties now owned or hereafter acquired by such
Obligor.

            SECTION 5.4 LEGAL AGREEMENTS. Subject to Bankruptcy Court approval,
this

                                       31
<PAGE>

Agreement constitutes and, upon due execution by the applicable Obligors, each
of the other Loan Documents will constitute, the legal, valid and binding
obligations of the Obligors party thereto, enforceable against the Obligors
party thereto in accordance with their respective terms.

            SECTION 5.5 SUBSIDIARIES. Except as set forth in Schedule 5.5
hereto, the Obligors have no Subsidiaries.

            SECTION 5.6 FINANCIAL CONDITION. The Obligors have furnished to the
Lender their consolidated audited financial statements for the fiscal year ended
December 31, 2002, consolidated unaudited financial statements for the fiscal
year ended December 31, 2003, and consolidated unaudited financial statements
for the fiscal year-to-date period ended June 30, 2004, and those statements
fairly present the Obligors' financial condition on the dates thereof and the
results of its operations and cash flows for the periods then ended and were
prepared in accordance with generally accepted accounting principles.

            SECTION 5.7 INTENTIONALLY OMITTED.

            SECTION 5.8 REGULATION U. No Obligor is engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.

            SECTION 5.9 INTENTIONALLY OMITTED.

            SECTION 5.10 TITLES AND LIENS. Each Obligor has good and absolute
title to all Collateral free and clear of all Liens, other than (i) Liens in
existence on the Petition Date held by the holders of the Pre-Petition Purchase
Money Liens, and (ii) other Liens, in each case as described on Schedule 5.10.

            SECTION 5.11 INTELLECTUAL PROPERTY RIGHTS.

      (a) OWNED INTELLECTUAL PROPERTY. SCHEDULE 5.11 is a complete list of all
patents, applications for patents, trademarks, applications for trademarks,
service marks, applications for service marks, mask works, trade dress and
copyrights for which any Obligor is the registered owner (the "Owned
Intellectual Property"). Except as disclosed on Schedule 5.11, (i) each Obligor
owns its Owned Intellectual Property free and clear of all restrictions
(including covenants not to sue a third party), court orders, injunctions,
decrees, writs or Liens, whether by written agreement or otherwise, (ii) no
Person other than the Obligor indicated in Schedule J owns or has been granted
any right in the Owned Intellectual Property, (iii) all Owned Intellectual
Property is valid, subsisting and enforceable and (iv) each Obligor has taken
all commercially reasonable action necessary to maintain and protect its Owned
Intellectual Property.

      (b) AGREEMENTS WITH EMPLOYEES AND CONTRACTORS. Each Obligor has entered
into a

                                       32
<PAGE>

legally enforceable agreement with each of its employees and subcontractors
obligating each such Person to assign to such Obligor, without any additional
compensation, any Intellectual Property Rights created, discovered or invented
by such Person in the course of such Person's employment or engagement with such
Obligor (except to the extent prohibited by law), and further requiring such
Person to cooperate with such Borrower, without any additional compensation, in
connection with securing and enforcing any Intellectual Property Rights therein;
provided, however, that the foregoing shall not apply with respect to employees
and subcontractors whose job descriptions are of the type such that no such
assignments are reasonably foreseeable.

      (c) INTELLECTUAL PROPERTY RIGHTS LICENSED FROM OTHERS. Schedule 5.11 is a
complete list of all agreements under which such Obligor has licensed
Intellectual Property Rights from another Person ("Licensed Intellectual
Property") other than readily available, non-negotiated licenses of computer
software and other intellectual property used solely for performing accounting,
word processing and similar administrative tasks ("Off-the-shelf Software") and
a summary of any ongoing payments such Obligor is obligated to make with respect
thereto. Except as disclosed on Schedule 5.11 and in written agreements, copies
of which have been given to the Lender, each Obligor's licenses to use the
Licensed Intellectual Property are free and clear of all restrictions, Liens,
court orders, injunctions, decrees, or writs, whether by written agreement or
otherwise. Except as disclosed on Schedule 5.11, no Obligor is obligated or
under any liability whatsoever to make any payments of a material nature by way
of royalties, fees or otherwise to any owner of, licensor of, or other claimant
to, any Intellectual Property Rights.

      (d) OTHER INTELLECTUAL PROPERTY NEEDED FOR BUSINESS. Except for
Off-the-shelf Software and as disclosed on Schedule 5.11, the Owned Intellectual
Property and the Licensed Intellectual Property constitute all Intellectual
Property Rights used or necessary to conduct the Obligor's businesses as they
are presently conducted or as the Obligor reasonably foresees conducting them.

      (e) INFRINGEMENT. Except as disclosed on Schedule 5.11, no Obligor has
knowledge of, and has not received any written claim or notice alleging, any
Infringement of another Person's Intellectual Property Rights (including any
written claim that any Obligor must license or refrain from using the
Intellectual Property Rights of any third party) nor, to any Obligor's
knowledge, is there any threatened claim or any reasonable basis for any such
claim.

            SECTION 5.12 PLANS. Except as disclosed to the Lender in writing
prior to the date hereof, no Obligor nor any ERISA Affiliate of any Obligor (i)
maintains or has maintained any Pension Plan, (ii) contributes or has
contributed to any Multiemployer Plan or (iii) provides or has provided
post-retirement medical or insurance benefits with respect to employees or
former employees (other than benefits required under Section 601 of ERISA,
Section 4980B of the IRC or applicable state law). No Obligor nor any ERISA
Affiliate of any Obligor has received any notice or has any knowledge to the
effect that it is not in full compliance with any of the requirements of ERISA,
the IRC or applicable state law with respect to any Plan. No Reportable Event
exists in connection with any Pension Plan. Each Plan which is intended to
qualify under the IRC is so qualified, and no fact or circumstance exists which
may have an adverse effect on the Plan's tax-qualified status. No Obligor nor
any ERISA Affiliate of any Obligor has (x) any accumulated funding deficiency
(as defined in Section 302 of ERISA and

                                       33
<PAGE>

Section 412 of the IRC) under any Plan, whether or not waived, (y) any liability
under Section 4201 or 4243 of ERISA for any withdrawal, partial withdrawal,
reorganization or other event under any Multiemployer Plan or (z) any liability
or knowledge of any facts or circumstances which could result in any liability
to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the
Department of Labor or any participant in connection with any Plan (other than
routine claims for benefits under the Plan).

            SECTION 5.13 DEFAULT. Except as set forth on Schedule 5.13, each
Obligor is in compliance with all provisions of all agreements, instruments,
decrees and orders to which it is a party or by which it or its property is
bound or affected, the breach or default of which could have a Material Adverse
Effect.

            SECTION 5.14 ENVIRONMENTAL MATTERS.

            (a) Except as set forth on Schedule 5.14, to each Obligor's best
      knowledge, there are not present in, on or under the Premises any
      Hazardous Substances in such form or quantity as to create any material
      liability or obligation for either any Obligor or the Lender under common
      law of any jurisdiction or under any Environmental Law, and no Hazardous
      Substances have ever been stored, buried, spilled, leaked, discharged,
      emitted or released in, on or under the Premises in such a way as to
      create any such material liability.

            (b) To each Obligor's best knowledge, no Obligor has disposed of
      Hazardous Substances in such a manner as to create any material liability
      under any Environmental Law.

            (c) Except as set forth on Schedule 5.14, to each Obligor's best
      knowledge, there are not and there never have been any requests, claims,
      notices, investigations, demands, administrative proceedings, hearings or
      litigation, relating in any way to the Premises or any Obligor, alleging
      material liability under, violation of, or noncompliance with any
      Environmental Law or any license, permit or other authorization issued
      pursuant thereto. To each Obligor's best knowledge, no such matter is
      threatened or impending.

            (d) Except as set forth on Schedule 5.14, to each Obligor's best
      knowledge, each Obligor's businesses are and have in the past always been
      conducted in accordance with all Environmental Laws and all licenses,
      permits and other authorizations required pursuant to any Environmental
      Law and necessary for the lawful and efficient operation of such
      businesses are in the appropriate Obligor' s possession and are in full
      force and effect. No permit required under any Environmental Law is
      scheduled to expire within 12 months and there is no threat that any such
      permit will be withdrawn, terminated, limited or materially changed.

            (e) To each Obligor's best knowledge, the Premises are not and never
      have been listed on the National Priorities List, the Comprehensive
      Environmental Response, Compensation and Liability Information System or
      any similar federal, state or local list, schedule, log, inventory or
      database.

                                       34
<PAGE>

            (f) The Obligors have delivered to Lender all environmental
      assessments, audits, reports, permits, licenses and other documents
      describing or relating in any way to the Premises or any Obligor's
      businesses.

            SECTION 5.15 SUBMISSIONS TO LENDER. All financial and other
information provided to the Lender by or on behalf of any Obligor in connection
with the Obligors' request for the Credit Facility is (i) true and correct in
all material respects, (ii) does not omit any material fact necessary to make
such information not misleading and, (iii) as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.

            SECTION 5.16 INTENTIONALLY OMITTED.

            SECTION 5.17 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral is (or, in the case of all future Collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the applicable Obligor's records pertaining thereto
as being obligated to pay such obligation except as set forth in Schedule 5.17.

            SECTION 5.18 BANK ACCOUNTS. Except for the Cash Collateral Account,
any payroll account or the Blocked Accounts, no Obligor maintains or otherwise
has any (a) checking, savings or other accounts at any bank or other financial
institution or investment fund, (b) investment account, securities account,
commodity account or any similar account with any securities intermediary or
commodity intermediary or (c) other account where money is or may be deposited
or maintained with any Person except as set forth in Schedule 5.18.

            SECTION 5.19 PRODUCT WARRANTY CLAIMS. To the knowledge of Obligors,
Schedule 5.19 sets forth the only account debtors with asserted or known
potential Product Warranty Claims against any Obligor.

                                   ARTICLE VI
                                    COVENANTS

            So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower and each other Obligor, as the
case may be, will comply with the following requirements, unless the Lender
shall otherwise consent in writing:

                                       35
<PAGE>

            SECTION 6.1 REPORTING REQUIREMENTS. The Borrower will deliver, or
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:

            (a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any
      event within 90 days after the end of each fiscal year of the Borrower,
      the Borrower will deliver, or cause to be delivered, to the Lender, the
      Borrower's unaudited financial statements, which annual financial
      statements shall include the Borrower's balance sheet as at the end of
      such fiscal year and the related statements of the Borrower's income,
      retained earnings and cash flows for the fiscal year then ended, prepared,
      if the Lender so requests, on a consolidating and consolidated basis to
      include any Affiliates, all in reasonable detail and prepared in
      accordance with GAAP and a certificate of the Borrower's chief financial
      officer in the form of Exhibit D hereto stating that such financial
      statements have been prepared in accordance with GAAP, fairly represent
      the Borrower's financial position and the results of its operations, and
      whether or not such officer has knowledge of the occurrence of any Default
      or Event of Default and, if so, stating in reasonable detail the facts
      with respect thereto.

            (b) MONTHLY FINANCIAL STATEMENTS. As soon as available and in any
      event within 20 days after the end of each month, the Borrower will
      deliver to the Lender an unaudited/internal balance sheet and statements
      of income and retained earnings of the Borrower as at the end of and for
      such month and for the year to date period then ended, prepared, if the
      Lender so requests, on a consolidating and consolidated basis to include
      any Affiliates, in reasonable detail and stating in comparative form the
      figures for the corresponding date and periods in the previous year, all
      prepared in accordance with GAAP, subject to year-end audit adjustments;
      and accompanied by a certificate of the Borrower's chief financial
      Officer, substantially in the form of Exhibit D hereto stating (i) that
      such financial statements have been prepared in accordance with GAAP,
      subject to year-end audit adjustments and fairly represent the Borrower's
      financial position and the results of its operations, (ii) whether or not
      such officer has knowledge of the occurrence of any Default or Event of
      Default not theretofore reported and remedied and, if so, stating in
      reasonable detail the facts with respect thereto, and (iii) all relevant
      facts in reasonable detail to evidence, and the computations as to,
      whether or not the Borrower is in compliance with the Budget.

            (c) WEEKLY FINANCIAL REPORTS. By the second Banking Day of each
      week, the Borrower will deliver to the Lender (i) a weekly cash flow
      statement as of the end of the previous week setting forth the actual
      revenues and expenses of the Obligors for such week, and (ii) a weekly
      reconciliation with respect to the Budget as of the end of the previous
      week setting forth the actual revenues and expenses of the Obligors as
      compared to the budgeted amounts for such categories.

            (d) COLLATERAL REPORTS. By the second Banking Day of each week, or
      more frequently if the Lender so requires, the Borrower will deliver to
      the Lender (i) agings of the Borrower's Accounts receivable and its
      accounts payable, (ii) an inventory

                                       36
<PAGE>

      certification report, (iii) a calculation of the Borrower's Accounts,
      Eligible Accounts, Inventory and Eligible Inventory, including an updated
      Schedule 5.19 clearly identifying Product Warranty Claims that were not
      previously listed on Schedule ~ and (iv) a listing and copies of all
      credit memos relating to disputes or claims by the Borrower's customers,
      in each case determined as at the end of the previous week. The Borrower
      shall also provide such information to the Lender by the third Banking Day
      of each month, prepared as of the end of the previous month.

            (e) BANKRUPTCY SCHEDULES AND U.S. TRUSTEE REPORTS. The Obligors
      shall deliver to the Lender a copy of all reports they submit to the
      Bankruptcy Court, including, but not limited to, their schedules of assets
      and liabilities, schedules of current income and expenditures, schedules
      of executory contracts and unexpired leases, statements of financial
      affairs and lists of equity security holders, all as required and in the
      form prescribed by Bankruptcy Rule 1007, within the time period prescribed
      by the Bankruptcy Court. The Obligors shall also deliver to the Lender a
      copy of any and all interim, operating or other statements or reports
      required to be filed by the Bankruptcy Code, the Bankruptcy Rules, the
      local rules of the Bankruptcy Court or the rules or procedures of the
      Office of the U.S. Trustee.

            (f) DEFAULTS. As promptly as practicable (but in any event not later
      than five (5) business days) after an Officer of any Obligor obtains
      knowledge of the occurrence of any Default or Event of Default, the
      Borrower or such other Obligor will deliver to the Lender notice of such
      occurrence, together with a detailed statement by a responsible Officer of
      the Borrower or such other Obligor of the steps being taken by the
      Borrower or such other Obligor to cure the effect thereof.

            (g) BENEFIT PLANS. As soon as possible, and in any event within 30
      days after any Obligor knows or has reason to know that any Reportable
      Event with respect to any Pension Plan has occurred, the Borrower will
      deliver to the Lender a statement of the Borrower's chief financial
      Officer setting forth details as to such Reportable Event and the action
      which the Borrower proposes to take with respect thereto, together with a
      copy of the notice of such Reportable Event to the Pension Benefit
      Guaranty Corporation. As soon as possible, and in any event within 10 days
      after any Obligor fails to make any quarterly contribution required with
      respect to any Pension Plan under Section 4 12(m) of the IRC, the Borrower
      will deliver to the Lender a statement of the Borrower's chief financial
      Officer setting forth details as to such failure and the action which the
      Borrower proposes to take with respect thereto, together with a copy of
      any notice of such failure required to be provided to the Pension Benefit
      Guaranty Corporation. As soon as possible, and in any event with 10 days
      after any Obligor knows or has reason to know that it has or is reasonably
      expected to have any liability under Section 4201 or 4243 of ERISA for any
      withdrawal, partial withdrawal, reorganization or other event under any
      Multiemployer Plan, the Borrower will deliver to the Lender a statement of
      the Borrower's chief financial Officer setting forth details as to such
      liability and the action which Borrower proposes to take with respect
      thereto.

            (h) INTENTIONALLY OMITTED

                                       37
<PAGE>

            (i) OFFICERS AND DIRECTORS. Promptly upon knowledge thereof, the
      Obligors will deliver to the Lender notice of any change in the persons
      constituting the Officers and Directors of any Obligor.

            (j) COLLATERAL. Promptly upon knowledge by any Obligor thereof, the
      Borrower will deliver to the Lender notice of any loss of or material
      damage to any Collateral or of any substantial adverse change in any
      Collateral or the prospect of payment thereof.

            (k) COMMERCIAL TORT CLAIMS. Promptly upon knowledge thereof, the
      Borrower will deliver to the Lender notice of any commercial tort claims
      any Obligor may bring against any person, including the name and address
      of each defendant, a summary of the facts, an estimate of the Obligor's
      damages, copies of any complaint or demand letter submitted by such
      Obligor, and such other information as the Lender may request.

            (l) INTELLECTUAL PROPERTY.

                  (i) INTENTIONALLY OMITTED

                  (ii) Promptly upon knowledge thereof, the Borrower will
            deliver to the Lender notice of (A) any Infringement of its
            Intellectual Property Rights by others, (B) claims that any Obligor
            is Infringing another Person's Intellectual Property Rights and (C)
            any threatened cancellation, termination or material limitation of
            its Intellectual Property Rights.

                  (iii) Promptly upon receipt, the Borrower will give the Lender
            copies of all registrations and filings with respect to the
            Intellectual Property Rights of any Obligor.

            (m) INTENTIONALLY OMITTED

            (n) INTENTIONALLY OMITTED

            (o) INTENTIONALLY OMITTED

            (p) VIOLATIONS OF LAW. Promptly upon knowledge thereof, the Borrower
      will deliver to the Lender notice of any Obligor's violation of any law,
      rule or regulation, the non-compliance with which could have a Material
      Adverse Effect.

            (q) OTHER REPORTS. From time to time, with reasonable promptness,
      the Borrower will deliver to the Lender any and all receivables schedules,
      collection reports, deposit records, equipment schedules, copies of
      invoices to account debtors, shipment documents and delivery receipts for
      goods sold, and such other material, reports, records or information with
      respect to any Obligor as the Lender may request.

                                       38
<PAGE>

            SECTION 6.2 VARIANCE FROM BUDGET. The weekly net total of receipts
and disbursements for the Obligors, collectively, as reflected in the Weekly Net
Cash Inflows/Outflows line item in the Budget, shall not, for any week, have a
negative variance of more than fifteen percent (15%) unless otherwise agreed to
by the Lender in its sole discretion.

            SECTION 6.3 NEGATIVE PLEDGE. No Obligor will create, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired by it (or
any income therefrom or any right to receive income therefrom), or apply to the
Bankruptcy Court for authority to do any of the foregoing, except:

            (a) Liens existing as of the Petition Date which are set forth on
      Schedule 5.10 hereto;

            (b) Permitted Liens;

            (c) the Security Interest and Liens of the Lender; and

            (d) the adequate protection Lien provided to the holder of any Lien
      set forth on Schedule 5.10 pursuant to the Orders and which is junior and
      subordinate to the Security Interest and Liens described in clause (c)
      above.

            SECTION 6.4 INDEBTEDNESS. No Obligor will incur, create, assume or
permit to exist any indebtedness or liability on account of deposits or advances
or any indebtedness for borrowed money or letters of credit issued on such
Obligor's behalf, or any other indebtedness or liability evidenced by notes,
bonds, debentures or similar obligations, except:

            (a) the Obligations;

            (b) indebtedness in existence on the Petition Date and listed on
      Schedule 6.4 hereto (the "Pre-Petition Indebtedness") and

            (c) indebtedness incurred consistent with Section 2.17.

            SECTION 6.5 GUARANTIES. No Obligor will assume, guarantee, endorse
or otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:

            (a) the endorsement of negotiable instruments by such Obligor for
      deposit or collection or similar transactions in the ordinary course of
      its business;

            (b) guaranties, endorsements and other direct or contingent
      liabilities in connection with the obligations of other Persons, in
      existence on the date hereof and listed in Schedule 6.4 hereto; and

            (c) the guarantees hereunder.

                                       39
<PAGE>

            SECTION 6.6 INVESTMENTS AND SUBSIDIARIES. No Obligor will purchase
or hold beneficially any stock or other securities or evidences of indebtedness
of, make or permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including any partnership
or joint venture, except:

            (a) investments in direct obligations of the United States of
      America or any agency or instrumentality thereof whose obligations
      constitute full faith and credit obligations of the United States of
      America having a maturity of one year or less, commercial paper issued by
      U.S. corporations rated "A-i" or "A-2" by Standard & Poors Corporation or
      "P-l" or "P-2" by Moody's Investors Service or certificates of deposit or
      bankers' acceptances having a maturity of one year or less issued by
      members of the Federal Reserve System having deposits in excess of
      $100,000,000 (which certificates of deposit or bankers' acceptances are
      fully insured by the Federal Deposit Insurance Corporation);

            (b) expenses set forth as a line item in the Budget; and

            (c) current investments in the Subsidiaries in existence on the date
      hereof and listed in Schedule 5.5 hereto.

            SECTION 6.7 DIVIDENDS AND DISTRIBUTIONS. No Obligor will declare or
pay any dividends on any class of its stock or make any payment on account of
the purchase, redemption or other retirement of any shares of such stock or make
any distribution in respect thereof, either directly or indirectly.

            SECTION 6.8 SALARIES. No Obligor will pay excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation; or
increase the salary, bonus, commissions, consultant fees or other compensation
of any Director, Officer or consultant, or any member of their families, from
the rate of compensation in effect on the Petition Date.

            SECTION 6.9 INTENTIONALLY OMITTED

            SECTION 6.10 BOOKS AND RECORDS: INSPECTION AND EXAMINATION. Each
Obligor will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to its business and financial condition and such
other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all company and
financial books and records of such Obligor at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to such Obligor, and to discuss such
Obligor's affairs with any of its Directors, Officers, employees or agents. Each
Obligor hereby irrevocably authorizes all accountants and third parties to
disclose and deliver to Lender, at such Obligor's expense, all financial
information, books and records, work papers, management reports and other
information in their possession regarding such Obligor.

                                       40
<PAGE>

Each Obligor will permit the Lender, or its employees, accountants, attorneys or
agents, upon request, to examine and inspect any Collateral or any other
property of such Obligor at any time during ordinary business hours.

            SECTION 6.11 ACCOUNT VERIFICATION. The Lender may at any time, and
from time to time, send or require the Borrower or any other Obligor to send
requests for verification of accounts or notices of assignment to account
debtors and other obligors with respect to Accounts. The Lender may also at any
time, and from time to time, telephone account debtors and other obligors with
respect to Accounts to verify Accounts.

            SECTION 6.12 COMPLIANCE WITH LAWS.

            (a) Each Obligor will (i) comply with the requirements of applicable
      laws and regulations, the non-compliance with which would materially and
      adversely affect its business or its financial condition and (ii) use and
      keep the Collateral, and require that others use and keep the Collateral,
      only for lawful purposes, without violation of any federal, state or local
      law, statute or ordinance.

            (b) Without limiting the foregoing undertakings, each Obligor
      specifically agrees that it will comply with all applicable Environmental
      Laws and obtain and comply with all permits, licenses and similar
      approvals required by any Environmental Laws, and will not generate, use,
      transport, treat, store or dispose of any Hazardous Substances in such a
      manner as to create any material liability or obligation under the common
      law of any jurisdiction or any Environmental Law.

            SECTION 6.13 PAYMENT OF TAXES AND OTHER CLAIMS. Each Obligor will
pay or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including the Collateral) or upon or against the creation,
perfection or continuance of the Security Interest, prior to the date on which
penalties attach thereto, (b) all federal, state and local taxes required to be
withheld by it, and (c) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a Lien upon any properties of such
Obligor; provided, that such Obligor shall not be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which proper reserves
have been made.

            SECTION 6.14 MAINTENANCE OF PROPERTIES.

            (a) Each Obligor will keep and maintain the Collateral and all of
      its other properties necessary or useful in its business in good
      condition, repair and working order (normal wear and tear excepted) and
      will from time to time replace or repair any worn, defective or broken
      parts; provided, however, that nothing in this Section 6.14 shall prevent
      such Obligor from discontinuing the operation and maintenance of any of
      its properties if such discontinuance is, in such Obligor' s judgment,
      desirable in the conduct of such Obligor's business and not
      disadvantageous in any material respect to the Lender.

                                       41
<PAGE>

      Each Obligor will take all commercially reasonable steps necessary to
      protect and maintain its Intellectual Property Rights.

            (b) Each Obligor will defend the Collateral against all Liens,
      claims or demands of all Persons (other than the Lender) claiming the
      Collateral or any interest therein. The Obligors will keep all Collateral
      free and clear of all Liens except Permitted Liens. Each Obligor will take
      all commercially reasonable steps necessary to prosecute any Person
      Infringing its Intellectual Property Rights and to defend itself against
      any Person accusing it of Infringing any Person's Intellectual Property
      Rights.

            SECTION 6.15 INSURANCE. The Obligors will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Obligors operate.
Without limiting the generality of the foregoing, the Obligors will at all times
keep all tangible Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender's loss payable endorsement
for the Lender's benefit. All policies of liability insurance required hereunder
shall name the Lender as an additional insured.

            SECTION 6.16 PRESERVATION OF EXISTENCE. Each Obligor will preserve
and maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.

            SECTION 6.17 DELIVERY OF INSTRUMENTS, ETC. Upon request by the
Lender, each Obligor will promptly deliver to the Lender in pledge all
instruments, documents and chattel paper constituting Collateral, duly endorsed
or assigned by such Obligor.

            SECTION 6.18 SALE OR TRANSFER OF ASSETS: SUSPENSION OF BUSINESS
OPERATIONS. Except as otherwise set forth herein, no Obligor will sell, lease,
assign, transfer or otherwise dispose of (i) the stock of any Subsidiary, (ii)
all or a substantial part of its assets, or (iii) any Collateral or any interest
therein (whether in one transaction or in a series of transactions) to any other
Person other than the sale of Inventory in the ordinary course of business and
the Sale, and will not liquidate, dissolve or suspend business operations. No
Obligor will transfer any part of its ownership interest in any Intellectual
Property Rights and will not permit any agreement under which it has licensed
Licensed Intellectual Property to lapse, except that any Obligor may transfer
such rights or permit such agreements to lapse if it shall have reasonably
determined that the applicable Intellectual Property Rights are no longer useful
in its business. If any Obligor transfers any Intellectual Property Rights for
value, such Obligor will pay over the proceeds to the Lender for application to
the Obligations. No Obligor will license any other Person to use

                                       42
<PAGE>

any of its Intellectual Property Rights, except that any Obligor may grant
licenses in the ordinary course of its business in connection with sales of
Inventory or provision of services to its customers.

            SECTION 6.19 CONSOLIDATION AND MERGER: ASSET ACQUISITIONS. No
Obligor will consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.

            SECTION 6.20 SALE AND LEASEBACK. No Obligor will enter into any
arrangement, directly or indirectly, with any other Person whereby such Obligor
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which such Obligor intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.

            SECTION 6.21 RESTRICTIONS ON NATURE OF BUSINESS. No Obligor will
engage in any line of business materially different from that presently engaged
in by such Obligor and will not purchase, lease or otherwise acquire assets not
related to its business.

            SECTION 6.22 ACCOUNTING. No Obligor will adopt any material change
in accounting principles other than as required by GAAP. No Obligor will adopt,
permit or consent to any change in its fiscal year.

            SECTION 6.23 DISCOUNTS. ETC. After notice from the Lender, the
Obligors will not grant any discount, credit or allowance to any customer of
such Obligor or accept any return of goods sold. The Obligors will not at any
time modify, amend, subordinate, cancel or terminate the obligation of any
account debtor or other obligor with respect to my amount owing to any Obligor.

            SECTION 6.24 BENEFIT PLANS. Neither any Obligor nor any ERISA
Affiliate will (i) adopt, create, assume or become a party to any Pension Plan,
(ii) incur any obligation to contribute to any Multiemployer Plan, (iii) incur
any obligation to provide post-retirement medical or insurance benefits with
respect to employees or former employees (other than benefits required by law)
or (iv) amend any Plan in a manner that would materially increase its funding
obligations.

            SECTION 6.25 PLACE OF BUSINESS: NAME. No Obligor will transfer its
chief executive office or principal place of business, or move, relocate, close
or sell any business location except for the Ocala Real Property. The Obligors
will not permit any tangible Collateral or any records pertaining to the
Collateral to be located in any state or area in which, in the event of such
location, a financing statement covering such Collateral would be required to
be, but has not in fact been, filed in order to perfect the Security Interest.
No Obligor will change its name or jurisdiction of organization.

                                       43
<PAGE>

            SECTION 6.26 CONSTITUENT DOCUMENTS. The Obligors will not amend
their Constituent Documents.

            SECTION 6.27 PERFORMANCE BY THE LENDER. If any Obligor at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein or in any other Loan Document, and if such
failure shall continue for a period of three (3) Banking Days after the Lender
gives such Obligor written notice thereof (or in the case of the agreements
contained in Sections 6.13 and immediately upon the occurrence of such failure,
without notice or lapse of time), the Lender may, but need not, perform or
observe such covenant on behalf and in the name, place and stead of such Obligor
(or, at the Lender's option, in the Lender's name) and may, but need not, take
any and all other actions which the Lender may reasonably deem necessary to cure
or correct such failure (including the payment of taxes, the satisfaction of
Liens, the performance of obligations owed to account debtors or other obligors,
the procurement and maintenance of insurance, the execution of assignments,
security agreements and financing statements, and the endorsement of
instruments); and the Obligors shall thereupon pay to the Lender on demand the
amount of all monies expended and all costs and expenses (including reasonable
attorneys' fees and legal expenses) incurred by the Lender in connection with or
as a result of the performance or observance of such agreements or the taking of
such action by the Lender, together with interest thereon from the date expended
or incurred at the Default Rate. To facilitate the Lender's performance or
observance of such covenants of any Obligor, each Obligor hereby irrevocably
appoints the Lender, or the Lender's delegate, acting alone, as such Obligor' s
attorney in fact (which appointment is coupled with an interest) with the right
(but not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file in the name and on behalf of such Obligor any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by such Obligor under this Section
6.27.

            SECTION 6.28 REMEDIES OF THE LENDER. No Obligor shall seek to obtain
any stay in respect of the exercise of the remedies available to the Lender
under this Agreement.

                                  ARTICLE VII
                     EVENTS OF DEFAULT, RIGHTS AND REMEDIES

            SECTION 7.1 EVENTS OF DEFAULT. "Event of Default", wherever used
herein, means any one of the following events:

            (a) Default in the payment of any Obligations when they become due
and payable;

            (b) Default in the performance, or breach, of any covenant or
      agreement of any Obligor contained in this Agreement or any other Loan
      Document;

            (c) INTENTIONALLY OMITTED;

                                       44
<PAGE>

            (d) Non-payment when due of the premium on any insurance policy
      required to be maintained hereunder, following expiration of all
      applicable cure periods available to the Borrower;

            (e) Suspension of the operation of the Borrower's present business
      (including manufacturing operations) other than the Borrower's operation
      in Ocala, Florida;

            (f) The Obligors' shall fail to satisfy each of the Sale Milestones
      as provided for by Section 2.3 hereof;

            (g) Intentionally Omitted;

            (h) Intentionally Omitted;

            (i) Intentionally Omitted;

            (j) Any representation or warranty made by any Obligor in this
      Agreement or any other Loan Document or by the Borrower (or any of its
      Officers) or any Guarantor in any agreement, certificate, instrument or
      financial statement or other statement contemplated by or made or
      delivered pursuant to or in connection with this Agreement shall prove to
      have been incorrect in any material respect when deemed to be effective;

            (k) Any Reportable Event, which the Lender determines in good faith
      might constitute grounds for the termination of any Pension Plan or for
      the appointment by the appropriate United States District Court of a
      trustee to administer any Pension Plan, shall have occurred and be
      continuing 30 days after written notice to such effect shall have been
      given to the Borrower by the Lender; or a trustee shall have been
      appointed by an appropriate United States District Court to administer any
      Pension Plan; or the Pension Benefit Guaranty Corporation shall have
      instituted proceedings to terminate any Pension Plan or to appoint a
      trustee to administer any Pension Plan; or any Obligor or any ERISA
      Affiliate shall have filed for a distress termination of any Pension Plan
      under Title IV of ERISA; or any Obligor or any ERISA Affiliate shall have
      failed to make any quarterly contribution required with respect to any
      Pension Plan under Section 412(m) of the IRC, which the Lender determines
      in good faith may by itself, or in combination with any such failures that
      the Lender may determine are likely to occur in the future, result in the
      imposition of a Lien on any Obligor's assets in favor of the Pension Plan;
      or any withdrawal, partial withdrawal, reorganization or other event
      occurs with respect to a Multiemployer Plan which results or could
      reasonably be expected to result in a material liability of any Obligor to
      the Multiemployer Plan under Title IV of ERISA;

            (l) An event of default shall occur under any Security Document;

            (m) Intentionally Omitted;

            (n) any Bankruptcy Case shall be dismissed or converted to a case
      under

                                       45
<PAGE>

      Chapter 7 of the Bankruptcy Code, or any Obligor shall file an application
      for an order dismissing its Bankruptcy Case or converting its Bankruptcy
      Case to a case under Chapter 7 of the Bankruptcy Code;

            (o) the Bankruptcy Court shall enter an order that is not stayed
      pending appeal granting relief from the automatic stay applicable under
      Section 362 of the Bankruptcy Code to the holder or holders of any
      security interest to permit foreclosure (or the granting of a deed in lieu
      of foreclosure or the like) in any assets of any Obligor with an orderly
      liquidation value equal to or in excess of $100,000.00 in the aggregate;
      or an order shall be entered by the Bankruptcy Court granting relief from
      the automatic stay applicable under Section 362 of the Bankruptcy Code to
      permit the creation, perfection or enforcement of any judgment, Lien, levy
      or attachment based on any judgment, whether or not such judgment arises
      from or gives rise to a prepetition or post-petition claim with a value
      equal to or in excess of $100,000.00 in the aggregate; or an order shall
      be entered by the Bankruptcy Court that is not stayed pending appeal
      otherwise granting relief from the automatic stay to any creditor of any
      Obligor with respect to any claim or claims with a value equal to or in
      excess of $100,000.00 in the aggregate; or an order shall be entered by
      the Bankruptcy Court that is not stayed pending appeal otherwise granting
      relief from the automatic stay if such stay relief could reasonably be
      expected to have a Material Adverse Effect; provided, however, that it
      shall not be an Event of Default if relief from the automatic stay is
      lifted solely for the purpose of (i) allowing such creditor to determine
      the liquidated amount of its claim against any Obligor or (ii) seeking
      payment from a source other than any Obligor or any of their assets;

            (p) any Person shall propose a sale pursuant to Section 363 of the
      Bankruptcy Code, or a Plan of Reorganization, or the Bankruptcy Court
      shall approve any such sale or plan that does not require the payment in
      full in cash of all Obligations of the Obligors hereunder and under the
      other Loan Documents (including the cancellation and return of all Letters
      of Credit or the delivery of cash collateral with respect to such Letters
      of Credit in an amount equal to 110% of the aggregate undrawn amount of
      such Letters of Credit) on or before the closing of such sale or the
      effective date of such Plan of Reorganization;

            (q) an order of the Bankruptcy Court shall be entered, or any
      Obligor shall file an application for an order, dismissing any Bankruptcy
      Case, which order does not require a provision for payment in full in cash
      of all Obligations of the Obligors hereunder (including the cancellation
      and return of all Letters of Credit or the delivery of cash collateral
      with respect to such Letters of Credit in an amount equal to 110% of the
      aggregate undrawn amount of such Letters of Credit) prior to any such
      dismissal;

            (r) either (i) an order of the Bankruptcy Court shall be entered in
      or with respect to any Bankruptcy Case or any Obligor shall file an
      application for an order with respect to any Bankruptcy Case (A) to
      revoke, reverse, stay, rescind, modify, vacate, supplement or amend the
      Interim Order or the Final Order without the Lender's written consent, (B)
      to permit any administrative expense or any claim (now existing or
      hereafter arising, of any kind or nature whatsoever) to have an
      administrative priority as to any

                                       46
<PAGE>

      Obligor equal or superior to the priority of the claims of the Lender in
      respect of the Obligations (other than the Carve-Out), (C) to grant or
      permit the grant of a Lien on the property of any Obligor without the
      Lender's written consent, or (D) that shall impair the Lender's
      Superpriority Claim in respect of the Obligations, or (ii) an application
      for any of the orders described and proscribed in any or all of Sections
      7.1(m), (n), (o), (p) or (q) shall be made by a Person other than any
      Obligor and such application is not contested by the applicable Obligor in
      good faith and the relief requested is granted in an order that is not
      vacated, reversed, rescinded or stayed pending appeal;

            (s) (i) the Interim Order shall cease to be in full force and effect
      and the Final Order shall not have been entered prior to such cessation,
      or (ii) the Final Order shall not have been entered by the Bankruptcy
      Court on or before the date that is thirty (30) days after the Interim
      Order, or (iii) from and after the date of entry thereof, the Final Order
      shall cease to be in full force and effect, or (iv) any Obligor shall fail
      to comply with the terms of the Interim Order or the Final Order in any
      material respect; or

            (t) the Bankruptcy Court shall enter an order appointing a trustee
      in any Bankruptcy Case or appointing a responsible officer or an examiner
      with powers beyond the duty to investigate and report, as set forth in
      Sections 11 .06(a)(3) and (4) of the Bankruptcy Code, in any Bankruptcy
      Case.

            SECTION 7.2 Section 7.2 Rights and Remedies. Subject to the Orders,
during any Default Period, the Lender may exercise any or all of the following
rights and remedies:

            (a) the Lender may, by notice to the Borrower, declare the
      Commitment to be terminated, whereupon the same shall forthwith terminate;

            (b) the Lender may, by notice to the Obligors, declare the
      Obligations to be forthwith due and payable, whereupon all Obligations
      shall become and be forthwith due and payable, without presentment, notice
      of dishonor, protest or further notice of any kind, all of which each
      Obligor hereby expressly waives;

            (c) the Lender may decrease the advance rates set forth in the
      definition of "Borrowing Base" in Section 1.1

            (d) the Lender may, without notice to the Obligors and without
      further action, apply any and all money owing by the Lender or any of its
      affiliates to any Obligor to the payment of the Obligations;

            (e) the Lender may exercise and enforce any and all rights and
      remedies available upon default to a secured party under the UCC,
      including the right to take possession of Collateral, or any evidence
      thereof, proceeding without judicial process or by judicial process
      (without a prior hearing or notice thereof, which each Guarantor hereby
      expressly waives) and the right to sell, lease or otherwise dispose of any
      or all of the Collateral (with or without giving any warranties as to the
      Collateral, title to the Collateral or similar warranties), and, in
      connection therewith, the Obligors will on

                                       47
<PAGE>

      demand assemble the Collateral and make it available to the Lender at a
      place to be designated by the Lender which is reasonably convenient to
      both parties;

            (f) [INTENTIONALLY OMITTED];

            (g) the Lender may make demand upon the Borrower and, forthwith upon
      such demand, the Borrower will pay to the Lender in immediately available
      funds for deposit in the Special Account pursuant to Section 2.15 an
      amount equal to the aggregate maximum amount available to be drawn under
      all Letters of Credit then outstanding, assuming compliance with all
      conditions for drawing thereunder;

            (h) the Lender may exercise and enforce its rights and remedies
      under the Loan Documents; and

            (i) the Lender may exercise any other rights and remedies available
      to it by law or agreement.

If the Lender sells any of the Collateral on credit, the Obligations will be
reduced only to the extent of payments actually received by the Lender. If the
purchaser fails to pay for the Collateral, the Lender may resell the Collateral
and shall apply any proceeds actually received by the Lender to the Obligations.

            SECTION 7.3 CERTAIN NOTICES. If notice to any Obligor of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten
calendar days before the date of intended disposition or other action.

                                  ARTICLE VIII
                              AFFILIATE GUARANTIES

            SECTION 8.1 AFFILIATE GUARANTIES. Each of the Guarantors hereby
unconditionally and irrevocably, jointly and severally, guarantees the full
payment and performance by the Borrower of all of the Obligations, whether now
existing or hereafter arising. Each Guarantor hereby unconditionally and
irrevocably agrees that upon default in the payment when due (whether at stated
maturity, by acceleration or otherwise) of any principal of, or interest on, any
Advance or any other Obligation, it will forthwith pay the same, without notice
or demand.

            SECTION 8.2 OBLIGATIONS ABSOLUTE. Each Guarantor agrees that the
Obligations will be paid strictly in accordance with the terms of the Loan
Documents, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the Lender with
respect thereto. All Obligations shall be conclusively presumed to have been
created in reliance hereon. The Guarantors' obligations under this Agreement
shall be absolute and unconditional irrespective of: (a) any lack of validity or
enforceability of any Loan Document or any other agreement or instrument
relating thereto; (b) any change in the time,

                                       48
<PAGE>

manner or place of payments of, or in any other term of, all or any part of the
Obligations, or any other amendment or waiver thereof or any consent to
departure therefrom, including any increase in the Obligations resulting from
the extension of additional credit to the Borrower or otherwise; (c) any taking,
exchange, release or non-perfection of any Collateral, or any release or
amendment or waiver of or consent to departure from any guaranty for all or any
of the Obligations; (d) any change, restructuring or termination of the
corporate structure or existence of any Obligor; or (e) any other circumstance
which might otherwise constitute a defense available to, or a discharge of, any
Obligor. The Guarantors' obligations under this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Obligations is rescinded or must otherwise be returned by the Lender
upon the insolvency, bankruptcy or reorganization of any Obligor or otherwise,
all as though such payment had not been made. The Guarantors' obligations under
this Agreement may be deemed by the Lender to be an agreement of guaranty or
surety.

            SECTION 8.3 WAIVER OF SURETYSHIP DEFENSES. Each Guarantor agrees
that the joint and several liability of the Guarantors provided for in Section
8.1 shall not be impaired or affected by any modification, supplement, extension
or amendment of any contract or agreement to which any other Obligor may
hereafter agree (other than an agreement signed by the Lender specifically
releasing such liability), nor by any delay, extension of time, renewal,
compromise or other indulgence granted by the Lender with respect to any of the
Obligations, nor by any other agreements or arrangements whatever with the other
Obligors or with anyone else, each Guarantor hereby waiving all notice of such
delay, extension, release, substitution, renewal, compromise or other
indulgence, and hereby consenting to be bound thereby as fully and effectually
as if it had expressly agreed thereto in advance. The liability of each
Guarantor is direct and unconditional as to all of the Obligations, and may be
enforced without requiring the Lender first to resort to any other right, remedy
or security. Each Guarantor hereby expressly waives promptness, diligence,
notice of acceptance and any other notice (except to the extent expressly
provided for herein or in another Loan Document) with respect to any of the
Obligations, this Agreement or any other Loan Document and any requirement that
the Lender protect, secure, perfect or insure any Lien or any property subject
thereto or exhaust any right or take any action against any Obligor or any other
Person or any Collateral, including any rights any Guarantor may otherwise have
under law, including, but not limited to, any law in any jurisdiction under
which any Guarantor is incorporated or in which any Guarantor conducts business.
To the extent that, notwithstanding the foregoing waivers, any notice is
required to be delivered to a Guarantor under the provisions of any applicable
law, this Agreement or any other Loan Document, each Guarantor hereby appoints
the Borrower, and the Borrower shall act, as such Guarantor's agent for the
purpose of receiving such notice.

            SECTION 8.4 CONTRIBUTION AND INDEMNIFICATION. To the extent that any
Guarantor shall repay any of the Obligations (an "Accommodation Payment"), then,
to the extent that such Guarantor has not received the benefit of such repaid
Obligations (whether through an inter-company loan or otherwise), the Guarantor
making such Accommodation Payment shall be entitled to contribution and
indemnification from, and be reimbursed by, each of the other Obligors in an
amount, for each of such other Obligors, equal to a fraction of such
Accommodation Payment, the numerator of which fraction is such other Obligor's
"Allocable Amount" (as defined below) and the denominator of which is the sum of
the Allocable Amounts

                                       49
<PAGE>

of all of the Obligors. As of any date of determination, the "Allocable Amount"
of each Obligor shall be equal to the greater of (a) the amount of such repaid
Obligations actually received by such Obligor (whether through inter-company
loan or otherwise), and (b) the maximum amount of liability for Accommodation
Payments which could be asserted against such Obligor hereunder without (i)
rendering such Obligor "insolvent" within the meaning of the Bankruptcy Code,
Section 2 of the Uniform Fraudulent Transfer Act (the "UFTA"), or Section 2 of
the Uniform Fraudulent Conveyance Act ("UFCA"), (ii) leaving such Obligor with
unreasonably small capital or assets, within the meaning of Section 548 of the
Bankruptcy Code, Section 4 of the UFTA, or Section 4 of the UFCA, or (iii)
leaving such Obligor unable to pay its debts as they become due within the
meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section
5 of the UFCA. All rights and claims of contribution, indemnification and
reimbursement under this Section 8.4 shall be subordinate in right of payment to
the prior payment in full of the Obligations.

            SECTION 8.5 SUBORDINATION OF INTERCOMPANY DEBT. Each of the Obligors
hereby agrees that (a) all Debt owing by any Obligor or any Affiliate of any
Obligor to any other Obligor or any Affiliate of any Obligor shall be subject
and subordinate in all respects to the Obligations, (b) it shall deliver, or
cause to be delivered, to the Lender the original of each promissory note
evidencing such Debt, properly endorsed over to the Lender, and (c) all such
promissory notes shall contain a legend in the form set forth below:

            INDEBTEDNESS EVIDENCED BY THIS PROMISSORY NOTE IS SUBJECT AND
            SUBORDINATE TO THE "OBLIGATIONS" AS DESCRIBED IN THAT CERTAIN CREDIT
            AND SECURITY AGREEMENT, DATED AS OF SEPTEMBER 7, 2004, AMONG U.S.
            PLASTIC LUMBER LTD., AND CERTAIN OF ITS AFFILIATES, AND AMPAC
            CAPITAL SOLUTIONS, LLC, AS AMENDED, MODIFIED AND SUPPLEMENTED FROM
            TIME TO TIME.

                                   ARTICLE IX
                                  MISCELLANEOUS

            SECTION 9.1 NO WAIVER: CUMULATIVE REMEDIES: COMPLIANCE WITH LAWS. No
failure or delay by the Lender in exercising any right, power or remedy under
the Loan Documents shall operate as a waiver thereol~ nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law. The Lender may
comply with any applicable state or federal law requirements in connection with
a disposition of the Collateral and such compliance will not be considered
adversely to affect the commercial reasonableness of any sale of the Collateral.

            SECTION 9.2 AMENDMENTS, ETC. No amendment, modification, termination
or waiver of any provision of any Loan Document or consent to any departure by
any Obligor

                                       50
<PAGE>

therefrom or any release of a Security Interest shall be effective unless the
same shall be in writing and signed by the Lender, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances.

            SECTION 9.3 ADDRESSES FOR NOTICES: REQUESTS FOR ACCOUNTING. Except
as otherwise expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below next to its
signature or, as to each party, at such other address or telecopier number as
may hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender. All requests under Section 9-210 of the
UCC (i) shall be made in a writing signed by a person authorized under Section
2.2(a), (ii) shall be personally delivered, sent by registered or certified
mail, return receipt requested, or by overnight courier of national reputation,
(iii) shall be deemed to be sent when received by the Lender and (iv) shall
otherwise comply with the requirements of Section 9-2 10 of the UCC. Each
Obligor requests that the Lender respond to all such requests which on their
face appear to come from an authorized individual and releases the Lender from
any liability for so responding. The Obligors shall pay Lender the maximum
amount allowed by law for responding to such requests.

            SECTION 9.4 INTENTIONALLY OMITTED.

            SECTION 9.5 FURTHER DOCUMENTS. Each Obligor will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements, control agreements and
other agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights
under the Loan Documents (but any failure to request or assure that any Obligor
executes, delivers or endorses any such item shall not affect or impair the
validity, sufficiency or enforceability of the Loan Documents and the Security
Interest, regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion).

            SECTION 9.6 COSTS AND EXPENSES. Each Obligor, jointly and severally,
shall pay on demand all costs and expenses, including reasonable attorneys'
fees, incurred by the Lender in connection with the Obligations, this Agreement,
the Loan Documents, any Letter of Credit and any other document or agreement
related hereto or thereto, and the transactions contemplated hereby, including
all such costs, expenses and fees incurred in connection with the

                                       51
<PAGE>

negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.

            SECTION 9.7 INDEMNITY. In addition to the payment of expenses
pursuant to Section 9.6, each Obligor, jointly and severally, shall indemnify,
defend and hold harmless the Lender, and any of its participants, parent
corporations, subsidiary corporations, affiliated corporations, successor
corporations, and all present and future officers, directors, employees,
attorneys and agents of the foregoing (the "Indemnitees") from and against any
of the following (collectively, "Indemnified Liabilities"):

                  (i) any and all transfer taxes, documentary taxes, assessments
      or charges made by any governmental authority by reason of the execution
      and delivery of the Loan Documents or the making of the Advances;

                  (ii) any claims, loss or damage to which any Indemnitee may be
      subjected if any representation or warranty contained in Section 5.14
      proves to be incorrect in any respect or as a result of any violation of
      the covenant contained in Section 6.12(b) and

                  (iii) any and all other liabilities, losses, damages,
      penalties, judgments, suits, claims, costs and expenses of any kind or
      nature whatsoever (including the reasonable fees and disbursements of
      counsel) in connection th the foregoing and any other investigative,
      administrative or judicial proceedings, whether or not such Indemnitee
      shall be designated a party thereto, which may be imposed on, incurred by
      or asserted against any such Indemnitee, in any manner related to or
      arising out of or in connection with the making of the Advances and the
      Loan Documents or the use or intended use of the proceeds of the Advances

If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Obligors, or counsel designated by the Obligors and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Obligor's sole cost and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, each Obligor shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Obligors' obligations
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Obligors' other obligations hereunder. The foregoing
undertaking to indemnify, defend and hold harmless by the Indemitees shall not
apply if the act or omission results from the Lender's own bad faith.

            SECTION 9.8 PARTICIPANTS. The Lender and its participants, if any,
are not partners or joint venturers, and the Lender shall not have any liability
or responsibility for any

                                       52
<PAGE>

obligation, act or omission of any of its participants. All rights and powers
specifically conferred upon the Lender may be transferred or delegated to any of
the Lender's participants, successors or assigns.

            SECTION 9.9 EXECUTION IN COUNTERPARTS: TELEFACSIMILE EXECUTION. This
Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.

            SECTION 9.10 RETENTION OF OBLIGORS' RECORDS. The Lender shall have
no obligation to maintain any electronic records or any documents, schedules,
invoices, agings, or other papers delivered to the Lender by any Obligor or in
connection with the Loan Documents for more than four months after receipt by
the Lender.

            SECTION 9.11 BINDING EFFECT: ASSIGNMENT: COMPLETE AGREEMENT:
EXCHANGING INFORMATION. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that no Obligor shall have the right to assign its rights
thereunder or any interest therein. To the extent permitted by law, each Obligor
waives and will not assert against any assignee any claims, defenses or set-offs
which such Obligor could assert against the Lender. This Agreement shall also
bind all Persons who become a party to this Agreement as a borrower or
guarantor. This Agreement, together with the Loan Documents, comprises the
complete and integrated agreement of the parties on the subject matter hereof
and supersedes all prior agreements, written or oral, on the subject matter
hereof. Without limiting the Lender's right to share information regarding any
Obligor and its Affiliates with the Lender's participants, accountants, lawyers
and other advisors, the Lender, may exchange any and all information they may
have in their possession regarding any Obligor and its Affiliates, and each
Obligor waives any right of confidentiality it may have with respect to such
exchange of such information.

            SECTION 9.12 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.

            SECTION 9.13 HEADINGS. Article, Section and Subsection headings in
this Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.

            SECTION 9.14 GOVERNING LAW: JURISDICTION, VENUE. Except to the
extent otherwise provided in the Mortgages, this Agreement, the Loan Documents
and the rights of the parties shall be construed and interpreted, and the rights
of the parties shall be determined, in

                                       53
<PAGE>

accordance with the Bankruptcy Code and the substantive laws of the State of
Florida, without regard to choice or conflict of law principles of that or any
other jurisdiction. Without limiting any party's right to appeal any order of
the Bankruptcy Court, (a) the Bankruptcy Court shall retain exclusive
jurisdiction to enforce the terms of this Agreement and to decide any claims or
disputes which may arise or result from, or be connected with, this Agreement,
any breach or default hereunder, or the transactions contemplated hereby, and
(b) any and all claims, actions, causes of action, suits and proceedings related
to the foregoing shall be filed and maintained only in the Bankruptcy Court, and
the parties hereby consent to and submit to the jurisdiction and venue of the
Bankruptcy Court and shall receive notices at such locations as indicated in
Section 3.6 hereof. The parties hereby consent to the jurisdiction of the
Bankruptcy Court for any action or proceeding arising from or relating to this
Agreement.

            SECTION 9.15 Jury Trial Waiver. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE PARTIES HERETO WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT.

                         [Signatures on following page]

                                       54
<PAGE>

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

Notice Address for Obligors:                Borrower:

____________________________                U.S. PLASTIC LUMBER LTD., a Delaware
Telecopier:_________________                corporation, as debtor and debtor in
Attention:__________________                possession
e-mail:_____________________
                                            By: /s/ Mark Alsentzer
                                               ------------------
                                            Its:__________________

Notice Address for Lender:                  Guarantors:

AMPAC Capital Solutions, LLC                U.S. PLASTIC LUMBER CORP., a Nevada
                                            corporation, as debtor and debtor in
7380 S. Eastern Ave., Ste. 150              possession
LasVegas, NV 89123
Telecopier: 909-387-0810                    By: /s/ Mark Alsentzer
                                               ------------------------
Attention: Larry R. Polhill, Manager        Its: Vice President
e-mail:____________________________

                                            U.S. PLASTIC LUMBER FINANCE
                                            CORPORATION, a Delaware corporation,
                                            As debtor and debtor in possession

                                            By: /s/ Mark Alsentzer
                                               ------------------------
                                            Its: Vice President

                                            U.S. PLASTIC LUMBER IP CORPORATION,
                                            a Delaware corporation, as debtor
                                            and debtor in possession

                                            By: /s/ Mark Alsentzer
                                               ------------------------
                                            Its: Vice President

                                            THE EAGLEBROOK GROUP, INC., a
                                            Delaware corporation, as debtor and
                                            debtor in possession

                                            By: /s/ Mark Alsentzer
                                               ------------------------
                                            Its: Vice President

                                       55
<PAGE>

                                            Lender:

                                            AMPAC CAPITAL SOLUTIONS, LLC, a
                                            Nevada limited liability company

                                            By: /s/ Larry R. Polhill
                                               ---------------------------------
                                            Its: Manager

                                       56
<PAGE>

                         TABLE OF EXHIBITS AND SCHEDULES

      EXHIBIT A     FORM OF PROMISSORY NOTE

      EXHIBIT B     PREMISES

      EXHIBIT C     FORM OF NOTICE OF BORROWING

      EXHIBIT D     FORM OF OFFICER CERTIFICATION REGARDING FINANCIAL STATEMENTS

      SCHEDULE 5.1  LEGAL NAME, TRADE NAMES, CHIEF EXECUTIVE OFFICE, PRINCIPAL
                    PLACE OF BUSINESS, AND LOCATIONS OF COLLATERAL

      SCHEDULE 5.2  CAPITALIZATION AND ORGANIZATIONAL CHART

      SCHEDULE 5.5  SUBSIDIARIES

      SCHEDULE 5.10 PRE-PETITION LIENS

      SCHEDULE 5.11 INTELLECTUAL PROPERTY DISCLOSURES

      SCHEDULE 5.13 DEFAULTS CREATING MATERIAL ADVERSE EFFECT

      SCHEDULE 5.14 ENVIRONMENTAL MATTERS

      SCHEDULE 5.17 RIGHTS TO PAYMENTS

      SCHEDULE 5.18 BANK ACCOUNTS

      SCHEDULE 5.19 PRODUCT WARRANTY CLAIMS

      SCHEDULE 6.4  PRE-PETITION INDEBTEDNESS AND GUARANTIES

                                       57

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