EXHIBIT 10.1
 
CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this "Agreement") is entered into as of July 15, 2010, by
and between SHARPS COMPLIANCE, INC. OF TEXAS, a Texas corporation ("Borrower"),
and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").

RECITALS

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

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

ARTICLE I
CREDIT TERMS

 SECTION 1.1.     LINE OF CREDIT.

(a)             Line of Credit.  Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including July 15, 2012, not to exceed at any time the aggregate
principal amount of Five Million Dollars ($5,000,000.00) ("Line of Credit"), the
proceeds of which shall be used to finance Borrower’s working capital and
capital expenditure requirements.  Borrower's obligation to repay advances under
the Line of Credit shall be evidenced by a promissory note dated as of July 15,
2010  ("Line of Credit Note"), all terms of which are incorporated herein by
this reference.

(b)             Letter of Credit Subfeature.  As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue or cause
an affiliate to issue standby letters of credit for the account of Borrower
(each, a "Letter of Credit" and collectively, "Letters of Credit"); provided
however, that the aggregate undrawn amount of all outstanding Letters of Credit
shall not at any time exceed Five Hundred Thousand Dollars ($500,000.00).  The
form and substance of each Letter of Credit shall be subject to approval by
Bank, in its sole discretion.  No Letter of Credit shall have an expiration date
subsequent to the maturity date of the Line of Credit.  The undrawn amount of
all Letters of Credit shall be reserved under the Line of Credit and shall not
be available for borrowings thereunder.  Each Letter of Credit shall be subject
to the additional terms and conditions of the Letter of Credit agreements,
applications and any related documents required by Bank in connection with the
issuance thereof.  Each drawing paid under a Letter of Credit shall be deemed an
advance under the Line of Credit and shall be repaid by Borrower in accordance
with the terms and conditions of this Agreement applicable to such advances;
provided however, that if advances under the Line of Credit are not available,
for any reason, at the time any drawing is paid, then Borrower shall immediately
pay to Bank the full amount drawn, together with interest thereon from the date
such drawing is paid to the date such amount is fully repaid by Borrower, at the
rate of interest applicable to advances under the Line of Credit.  In such event
Borrower agrees that Bank, in its sole discretion, may debit any account
maintained by Borrower with Bank for the amount of any such drawing.

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

SECTION 1.2.     INTEREST/FEES.

(a)             Interest.  The outstanding principal balance of each credit
subject hereto shall bear interest, and the amount of each drawing paid under
any the Standby Letter of Credit shall bear interest from the date such drawing
is paid to the date such amount is fully repaid by Borrower, at the rate of
interest set forth in each promissory note or other instrument or document
executed in connection therewith.

(b)             Computation and Payment.  Interest shall be computed on the
basis of a 360-day year, actual days elapsed, unless such calculation would
result in a usurious rate, in which case interest shall be computed on the basis
of a 365/366-day year, as the case may be, actual days elapsed.  Interest shall
be payable at the times and place set forth in each promissory note or other
instrument or document required hereby.

(c)             Commitment Fee.  Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to Ten Thousand Dollars
($10,000.00), which fee shall be due and payable in full on the date of this
agreement.

(d)             Unused Commitment Fee.  Borrower shall pay to Bank a fee equal
to one fifth percent (0.2%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of the Line of Credit,
which fee shall be calculated on an annual basis by Bank and shall be due and
payable by Borrower in arrears within ten (10) days after each billing is sent
by Bank.

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

SECTION 1.3.     COLLECTION OF PAYMENTS.  Borrower authorizes Bank to collect
all principal, interest and fees due under each credit subject hereto by
charging Borrower's deposit account number 4122046162 with Bank, or any other
deposit account maintained by Borrower with Bank, for the full amount
thereof.  Should there be insufficient funds in any such deposit account to pay
all such sums when due, the full amount of such deficiency shall be immediately
due and payable by Borrower.

SECTION 1.4.     COLLATERAL.

As security for all indebtedness and other obligations of Borrower to Bank
subject hereto, Borrower hereby grants to Bank security interests of first
priority in all Borrower's accounts receivable and other rights to payment,
general intangibles, inventory and equipment.

All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements, deeds or mortgages, and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank.  Borrower shall pay to Bank immediately upon demand the
full amount of all charges, costs and expenses (to include fees paid to third
parties and all allocated costs of Bank personnel), expended or incurred by Bank
in

 
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connection with any of the foregoing security, including without limitation,
filing and recording fees and costs of appraisals, audits and title insurance.
 
ARTICLE II
REPRESENTATIONS AND WARRANTIES

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

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

SECTION 2.2.     AUTHORIZATION AND VALIDITY.  This Agreement and each promissory
note, contract, instrument and other document required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.

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

SECTION 2.4.     LITIGATION.  There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.

SECTION 2.5.     CORRECTNESS OF FINANCIAL STATEMENT.  The annual financial
statement of Borrower dated June 30, 2009, and all interim financial statements
delivered to Bank since said date, true copies of which have been delivered by
Borrower to Bank prior to the date hereof, (a) are complete and correct and
present fairly the financial condition of Borrower, (b) disclose all liabilities
of Borrower that are required to be reflected or reserved against under
generally accepted accounting principles, whether liquidated or unliquidated,
fixed or contingent, and (c) have been prepared in accordance with generally
accepted accounting principles consistently applied.  Since the dates of such
financial statements there has been no material adverse change in the financial
condition of Borrower, nor has Borrower mortgaged, pledged, granted a security
interest in or otherwise encumbered any of its assets or properties except in
favor of Bank or as otherwise permitted by Bank in writing.

SECTION 2.6.     INCOME TAX RETURNS.  Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.

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

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

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

SECTION 2.10.   OTHER OBLIGATIONS.  Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.

SECTION 2.11.   ENVIRONMENTAL MATTERS.  Except as disclosed by Borrower to Bank
in writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time.  None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the
environment.  Borrower has no material contingent liability in connection with
any release of any toxic or hazardous waste or substance into the environment.

ARTICLE III
CONDITIONS

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

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

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

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

 
(ii)
Corporate Resolution: Borrowing.

 
(iii)
Certificate of Incumbency.

 
(iv)
Continuing Security Agreement Rights to Payment and Inventory.

 
(v)
Security Agreement Equipment.

 
(vi)
Agreement and Acknowledgement of Security Interest (3).

 
(v)
Such other documents as Bank may require under any other Section of this
Agreement.

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

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

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

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

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

(c)             Additional Letter of Credit Documentation.  Prior to the
issuance of each Letter of Credit, Bank shall have received a Letter of Credit
Agreement, properly completed and duly executed by Borrower.

ARTICLE IV
AFFIRMATIVE COVENANTS

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

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

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

SECTION 4.3.     FINANCIAL STATEMENTS.  Provide to Bank all of the following, in
form and detail satisfactory to Bank:

(a)             not later than 90 days after and as of the end of each fiscal
year, an unqualified audited financial statement of Sharps Compliance Corp.,
prepared by a certified public accountant acceptable to Bank, to include balance
sheet, income statement, and statement of cash flows;

(b)             not later than 45 days after and as of the end of each fiscal
quarter, a financial statement of Sharps Compliance Corp., prepared by Sharps
Compliance Corp., to include balance sheet, income statement, and statement of
cash flows;

(c)             contemporaneously with each annual and quarterly financial
statement of Sharps Compliance Corp. required hereby, a certificate of the
president or chief financial officer of Sharps Compliance Corp. that said
financial statements are accurate and that there exists no Event of Default nor
any condition, act or event which with the giving of notice or the passage of
time or both would constitute an Event of Default;

(d)             from time to time such other information as Bank may reasonably
request.

SECTION 4.4.     COMPLIANCE.  Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.

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

SECTION 4.6.     FACILITIES.  Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.

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

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

SECTION 4.9.     FINANCIAL CONDITION.  Maintain Borrower's financial condition
as follows using generally accepted accounting principles consistently applied
and used consistently with prior practices (except to the extent modified by the
definitions herein):

(a)             Consolidated Tangible Net Worth not at any time less than the
sum of $21,000,000.00, plus 50% of the consolidated net income for the following
fiscal quarter ends, plus 75% of all capital raised after July 15, 2010 by
issuance of equity ownership interests in Borrower.

(b)             Total Liabilities divided by Tangible Net Worth not greater than
1.0 to 1.0 at each fiscal quarter end, with "Total Liabilities" defined as the
aggregate of current liabilities and non-current liabilities less subordinated
debt, and with "Tangible Net Worth" as defined above.

SECTION 4.10.   NOTICE TO BANK.  Promptly (but in no event more than five (5)
days after the occurrence of each such event or matter) give written notice to
Bank in reasonable detail of:  (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property.

ARTICLE V
NEGATIVE COVENANTS

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

SECTION 5.1.     USE OF FUNDS.  Use any of the proceeds of any credit extended
hereunder except for the purposes stated in Article I hereof.

SECTION 5.2.     OTHER INDEBTEDNESS.  Create, incur, assume or permit to exist
any indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, (b) any other
liabilities of Borrower existing as of, and disclosed to Bank prior to, the date
hereof and (c) ordinary course of business operating leases.

SECTION 5.3.     MERGER, CONSOLIDATION, TRANSFER OF ASSETS.  Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material

 
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portion of Borrower's assets except in the ordinary course of its business in
excess of an aggregate of $1,000,000.00.
 
SECTION 5.4.     GUARANTIES.  Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.

SECTION 5.5.     LOANS, ADVANCES, INVESTMENTS.  Make any loans or advances to or
investments in any person or entity, except any of the foregoing existing as of,
and disclosed to Bank prior to, the date hereof or in amounts in excess of an
aggregate of $500,000.00.

SECTION 5.6.     PLEDGE OF ASSETS.  Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except any of the foregoing in favor of Bank or
which is existing as of, and disclosed to Bank in writing prior to, the date
hereof

ARTICLE VI
EVENTS OF DEFAULT

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

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

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

(c)             Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those specifically described as an “Event of Default” in
this section 6.1), and with respect to any such default that by its nature can
be cured, such default shall continue for a period of twenty (20) days from its
occurrence.

(d)             Any default in the payment or performance of any obligation, or
any defined event of default, under the terms of any contract, instrument or
document (other than any of the Loan Documents) pursuant to which Borrower, any
guarantor hereunder or any general partner or joint venturer in Borrower if a
partnership or joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") has incurred any
debt or other liability to any person or entity, including Bank.

(e)             Borrower or any Third Party Obligor shall become insolvent, or
shall suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment for
the benefit of creditors; Borrower or any Third Party Obligor shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the

 
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United States Code, as amended or recodified from time to time ("Bankruptcy
Code"), or under any state or federal law granting relief to debtors, whether
now or hereafter in effect; or Borrower or any Third Party Obligor shall file an
answer admitting the jurisdiction of the court and the material allegations of
any involuntary petition; or Borrower or any Third Party Obligor shall be
adjudicated a bankrupt, or an order for relief shall be entered against Borrower
or any Third Party Obligor by any court of competent jurisdiction under the
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors.
 
(f)             The filing of a notice of judgment lien against Borrower or any
Third Party Obligor; or the recording of any abstract of judgment against
Borrower or any Third Party Obligor in any county in which Borrower or such
Third Party Obligor has an interest in real property; or the service of a notice
of levy and/or of a writ of attachment or execution, or other like process,
against the assets of Borrower or any Third Party Obligor; or the entry of a
judgment against Borrower or any Third Party Obligor; or any involuntary
petition or proceeding pursuant to the Bankruptcy Code or any other applicable
state or federal law relating to bankruptcy, reorganization or other relief for
debtors is filed or commenced against Borrower or any Third Party Obligor.

(g)             There shall exist or occur any event or condition that Bank in
good faith believes impairs, or is substantially to impair, the prospect of
payment or performance by Borrower, any Third Party Obligor, or the general
partner of either if such entity is a partnership, of its obligations under any
of the Loan Documents.

(h)              The dissolution or liquidation of Borrower or any Third Party
Obligor if a corporation, partnership, joint venture or other type of entity; or
Borrower or any such Third Party Obligor, or any of its directors, stockholders
or members, shall take action seeking to effect the dissolution or liquidation
of Borrower or such Third Party Obligor.

(i)             Any change in control of Borrower or any entity or combination
of entities that directly or indirectly control Borrower, with “control” defined
as ownership of an aggregate of forty percent (40%) or more of the common stock,
members' equity or other ownership interest (other than a limited partnership
interest).

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

 
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ARTICLE VII
MISCELLANEOUS

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

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

BORROWER:            SHARPS COMPLIANCE, INC. OF TEXAS
9220 Kirby Drive, Suite 500
Houston, Texas 77054

BANK:                       WELLS FARGO BANK, NATIONAL ASSOCIATION
1000 Louisiana Street, 3rd Floor
Houston, Texas 77002-5027

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

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

SECTION 7.4.     SUCCESSORS, ASSIGNMENT.  This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interests or rights hereunder without
Bank's prior written consent.  Bank reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in,

 
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Bank's rights and benefits under each of the Loan Documents.  In connection
therewith, Bank may disclose all documents and information which Bank now has or
may hereafter acquire relating to any credit subject hereto, Borrower or its
business, or any collateral required hereunder.
 
SECTION 7.5.     AMENDMENT.  This Agreement may be amended or modified only in
writing signed by each party hereto.

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

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

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

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

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

SECTION 7.11.   SAVINGS CLAUSE.  It is the intention of the parties to comply
strictly with applicable usury laws.  Accordingly, notwithstanding any provision
to the contrary in the Loan Documents, in no event shall any of the Loan
Documents require the payment or permit the payment, taking, reserving,
receiving, collection or charging of any sums constituting interest under
applicable laws that exceed the maximum amount permitted by such laws, as the
same may be amended or modified from time to time (the “Maximum Rate”).  If any
such excess interest is called for, contracted for, charged, taken, reserved or
received in connection with any of the Loan Documents, or in any communication
by Bank or any other person to Borrower or any other person, or in the event
that all or part of the principal or interest hereof or thereof shall be prepaid
or accelerated, so that under any of such circumstances or under any other
circumstance whatsoever the amount of interest contracted for, charged, taken,
reserved or received on the amount of principal actually outstanding from time
to time under the Loan Documents shall exceed the Maximum Rate, then in such
event it is agreed that: (a) the provisions of this paragraph shall govern and
control; (b) neither Borrower nor any other person or entity now or hereafter
liable for the payment of any of the Loan Documents shall be obligated to pay
the amount of such interest to the extent it is in excess of the Maximum Rate;
(c) any such excess interest which is or has been received by Bank,
notwithstanding this paragraph, shall be credited against the then unpaid
principal balance hereof or thereof, or if any of the Loan Documents has been or
would be paid in full by such credit, refunded to Borrower; and (d) the
provisions of each of the Loan Documents, and any other communication to
Borrower, shall immediately be deemed reformed and such excess interest reduced,
without the necessity of executing any other document, to the Maximum Rate.  The
right to accelerate

 
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the maturity of the Loan Documents does not include the right to accelerate,
collect or charge unearned interest, but only such interest that has otherwise
accrued as of the date of acceleration.  Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, reserved or
received in connection with any of the Loan Documents which are made for the
purpose of determining whether such rate exceeds the Maximum Rate shall be made
to the extent permitted by applicable laws by amortizing, prorating, allocating
and spreading during the period of the full term of such Loan Documents,
including all prior and subsequent renewals and extensions hereof or thereof,
all interest at any time contracted for, charged, taken, reserved or received by
Bank.  The terms of this paragraph shall be deemed to be incorporated into each
of the other Loan Documents.
 
To the extent that either Chapter 303 or 306, or both, of the Texas Finance Code
apply in determining the Maximum Rate, Bank hereby elects to determine the
applicable rate ceiling by using the weekly ceiling from time to time in effect,
subject to Bank’s right subsequently to change such method in accordance with
applicable law, as the same may be amended or modified from time to time.

SECTION 7.12.   RIGHT OF SETOFF; DEPOSIT ACCOUNTS.  Upon and after the
occurrence of an Event of Default, (a) Borrower hereby authorizes Bank, at any
time and from time to time, without notice, which is hereby expressly waived by
Borrower, and whether or not Bank shall have declared any credit subject hereto
to be due and payable in accordance with the terms hereof, to set off against,
and to appropriate and apply to the payment of, Borrower's obligations and
liabilities under the Loan Documents (whether matured or unmatured, fixed or
contingent, liquidated or unliquidated), any and all amounts owing by Bank to
Borrower (whether payable in U.S. dollars or any other currency, whether matured
or unmatured, and in the case of deposits, whether general or special (except
trust and escrow accounts), time or demand and however evidenced), and (b)
pending any such action, to the extent necessary, to hold such amounts as
collateral to secure such obligations and liabilities and to return as unpaid
for insufficient funds any and all checks and other items drawn against any
deposits so held as Bank, in its sole discretion, may elect.  Borrower hereby
grants to Bank a security interest in all deposits and accounts maintained with
Bank and with any other financial institution to secure the payment of all
obligations and liabilities of Borrower to Bank under the Loan Documents.

SECTION 7.13.   BUSINESS PURPOSE.  Borrower represents and warrants that each
credit subject hereto is for a business, commercial, investment, agricultural or
other similar purpose and not primarily for a personal, family or household use.

SECTION 7.14.   ARBITRATION.

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

(b)             Governing Rules.  Any arbitration proceeding will (i) proceed in
a location in Texas selected by the American Arbitration Association (“AAA”);
(ii) be governed by the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
documents between the parties; and (iii) be conducted by the AAA, or

 
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such other administrator as the parties shall mutually agree upon, in accordance
with the AAA’s commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA’s optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to herein, as
applicable, as the “Rules”).  If there is any inconsistency between the terms
hereof and the Rules, the terms and procedures set forth herein shall
control.  Any party who fails or refuses to submit to arbitration following a
demand by any other party shall bear all costs and expenses incurred by such
other party in compelling arbitration of any dispute.  Nothing contained herein
shall be deemed to be a waiver by any party that is a bank of the protections
afforded to it under 12 U.S.C. §91 or any similar applicable state law.
 
(c)             No Waiver of Provisional Remedies, Self-Help and
Foreclosure.  The arbitration requirement does not limit the right of any party
to (i) foreclose against real or personal property collateral; (ii) exercise
self-help remedies relating to collateral or proceeds of collateral such as
setoff or repossession; or (iii) obtain provisional or ancillary remedies such
as replevin, injunctive relief, attachment or the appointment of a receiver,
before during or after the pendency of any arbitration proceeding.  This
exclusion does not constitute a waiver of the right or obligation of any party
to submit any dispute to arbitration or reference hereunder, including those
arising from the exercise of the actions detailed in sections (i), (ii) and
(iii) of this paragraph.

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

(e)             Discovery.  In any arbitration proceeding, discovery will be
permitted in accordance with the Rules.  All discovery shall be expressly
limited to matters directly relevant to the dispute being arbitrated and must be
completed no later than 20 days before the hearing date.  Any requests for an
extension of the discovery periods, or any discovery disputes, will be subject
to

 
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 final determination by the arbitrator upon a showing that the request for
discovery is essential for the party's presentation and that no alternative
means for obtaining information is available.
 
(f)             Class Proceedings and Consolidations.  No party hereto shall be
entitled to join or consolidate disputes by or against others in any
arbitration, except parties who have executed any Loan Document, or to include
in any arbitration any dispute as a representative or member of a class, or to
act in any arbitration in the interest of the general public or in a private
attorney general capacity.

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

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

NOTICE:  THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES RELATING TO THE INDEBTEDNESS.

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

WELLS FARGO BANK,
SHARPS COMPLIANCE, INC. OF
TEXAS                                                  NATIONAL ASSOCIATION

By:
_________________________                                                         By:
_______________________
      David P. Tusa,
President                                                                   
           Tim Gebauer, Relationship Manager

 
 
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