Exhibit 10.1

 

BB&T

LOAN AGREEMENT

 

 

This Loan Agreement (the "Agreement") is made this 30th day of June, 2009 by and
among BRANCH BANKING AND TRUST COMPANY, a North Carolina banking corporation
("Bank"), INDUSTRIAL SERVICES OF AMERICA, INC., a Florida corporation
("Borrower"), having its chief executive office at 7100 Grade Lane in
Louisville, Kentucky, and ISA REAL ESTATE, LLC; a Kentucky limited liability
company, ISA INDIANA REAL ESTATE, LLC, a Kentucky limited liability company, and
7021 GRADE LANE LLC, a Kentucky limited liability company (collectively
"Mortgagors").

 

The Borrower has applied to Bank for and the Bank has agreed to make, subject to
the terms of this Agreement, the following loan(s) (hereinafter referred to,
singularly or collectively, if more than one, as "Loan"):

 

Loan (the "Loan") is a non-revolving credit facility in the principal amount of
$5,000,000 for the purpose of financing Borrower's ability to accommodate and
fulfill pending orders from North American Stainless, which shall be evidenced
by the Borrower's Promissory Note dated on or after the date hereof which shall
mature September 28, 2009, when the entire unpaid principal balance then
outstanding plus accrued interest thereon shall be paid in full. Prior to
maturity or the occurrence of any Event of Default hereunder, as applicable, the
Borrower may borrow under the Loan through maturity. The Loan shall bear
interest at the rate set forth in any such Note evidencing all or any portion of
the Loan, the terms of which are incorporated herein by reference.

 

Other Credit Relationship (collectively, "Other Credit Relationship"): (a) in
the maximum principal amount not to exceed $10,000,000 outstanding at any time
pursuant to the terms and conditions of a loan agreement between Bank and
Borrower dated December 22,2006 (the "2006 Revolver"); (b) in a maximum
principal amount not to exceed $12,000,0000, pursuant to the terms and
conditions of a loan agreement between Bank and Borrower dated February l I,
2009 (the "Venture Loan"); (c) in the principal sum of $6,000,000, pursuant to
the terms and conditions of a loan agreement between Bank and Borrower dated May
7, 2008 (the "Shredder Loan"); (d) in the principal amount of $3,000,000,
pursuant to the terms and conditions of a loan agreement between Bank and
Borrower dated May 7, 2008 (the "Rental Fleet Loan"); and (e) in the maximum
principal amount not to exceed $2,500,000 outstanding at any time pursuant to
the terms and conditions of the BB&T Bankcard Corporation Commercial Card Plan
Agreement for the purpose described in that agreement, dated December 8, 2003,
as the same has been amended from time to time, by and between Borrower and BB&T
Bankcard Corporation, such credit card facility having been reduced to a
principal sum not to exceed $500,000 so long as the Loan shall be outstanding.

 

The promissory notes evidencing the Loan and/or the Other Credit Relationship
are referred to herein as the "Note(s)" and shall include all extensions,
renewals, modifications and substitutions thereof, The Loan and/or the Other
Credit Relationship shall be secured by the some or all of the collateral
described in the security documents described below.

 

Section 1 Conditions Precedent

 

The Bank shall not be obligated to make any disbursement of Loan proceeds until
all of the following conditions have been satisfied by proper evidence,
execution, and/or delivery to the Bank of the following items in addition to
this Agreement, all in form and substance satisfactory to the Bank and the
Bank's counsel in their sole discretion:

USA Patriot Act Verification Information: Information or documentation,
including but not limited to the legal name, address, tax identification number,
driver's license, and date of birth (if the Borrower is an individual) of the
Borrower sufficient for the Bank to verify the identity of the Borrower in
accordance with the USA Patriot Act.

Note(s): The Note(s) evidencing the Loans(s) duly executed by the Borrower.

Mortgages: The Mortgages securing the Loans in which each Mortgagor shall grant
to Bank a first priority mortgage in the real property specified therein. (If
Bank has or will have a mortgage in any collateral which is inferior to the
mortgage of another creditor, Mortgagors must fully disclose to Bank any and all
prior mortgages, and Bank must specifically approve any such mortgage which will
continue during the Loan.)

Assignment of Leases and Rents: The Assignment of Leases and Rents in which each
Mortgagor shall grant to Bank a first priority collateral assignment and lien on
all leases and rents relative to the leases of real property specified therein.
(If Bank has or will have a collateral assignment and lien in any collateral
which is inferior to the collateral assignment and lien of another creditor,
Mortgagors must fully disclose to Bank any and all prior liens and assignments,
and Bank must specifically approve any such liens and assignments which will
continue during the Loan.)

Security Agreement(s): Security Agreement(s) in which Borrower and any other
owner (a "Debtor") of personal property collateral shall grant to Bank a first
priority security interest in the personal property specified therein. (if Bank
has or will have a security interest in any collateral which is inferior to the
security interest of another creditor, Borrower must fully disclose to Bank any
and all prior security interests, and Bank must specifically approve any such
security interest which will continue during the Loan.)

UCC Financing Statements: Acknowledged copies of UCC Financing Statements duly
filed in Borrower's or other owner's state of incorporation, organization or
residence, and in all jurisdictions necessary, or in the opinion of the Bank
desirable, to perfect the security interests granted in the Security
Agreement($, and certified copies of Information Requests identifying all
previous financing statements on record for the Borrower or other owner, as
appropriate from all jurisdictions indicating that no security interest has
previously been granted in any of the collateral described in the Security
Agreement(s), unless prior approval bas been given by the Bank.

Authorization and Certificate: An Authorization and Certificate executed by each
Debtor under which such Debtor authorizes Bank to file a UCC Financing Statement
describing collateral owned by such Debtor.

Corporate Resolution: A Corporate Resolution duly adopted by the Board of
Directors of the Borrower authorizing the execution, delivery and performance of
the Loan Documents on or in a form provided by or acceptable to Bank.

Articles of Incorporation: A copy of the Articles of Incorporation and all other
charter documents of the Borrower, all filed with and certified by the Secretary
of State of the State of the Borrower's incorporation.

By-Laws: A copy of the By-Laws of the Borrower, certified by the Secretary of
the Borrower as to their completeness and accuracy.

Certificate of Incumbency: A certificate of the Secretary of the Borrower
certifying the names and true signatures of the officers of the Borrower
authorized to sign the Loan Documents.

Certificate of Existence: A certification of the Secretary of State (or other
government authority) of the State of the Borrower's incorporation or
Organization as to the existence or good standing of the Borrower and its
charter documents on file.

Members' Certifications and Consents: A Members' Certification and Consent for
each Mortgagor, duly authorized by each Mortgagor's members authorizing the
execution, delivery and performance of the Mortgages and Assignments of Leases
and Rents on or in a form provided by or acceptable to Bank.

Articles of Organization: A copy of the Articles of Organization and all other
charter documents of each Mortgagor, all tiled with and certified by the
respective Secretaries of State of the State of the Mortgagors' organization.

Certificate of Existence: A certification of the Secretary of State (or other
government authority) of the State of each Mortgagor's organization as to the
existence or good standing of the Mortgagor.

Opinion of Counsel: An opinion of counsel for the Borrower and Mortgagors
satisfactory to the Bank and the Bank's counsel.

Additional Documents: Receipt by the Bank of other approvals, opinions, or
documents as the Bank may reasonably request.

Overadvance Paydown: Borrower will repay any and all overadvances as may be
outstanding on the 2006 Revolver as of this date. Borrower acknowledges that
overadvances on the 2006 Revolver shall not be permitted on the 2006 Revolver
during the term of the Loan.

 

Section 2 Representations and Warranties

 

The Borrower and Guarantor(s) represent and warrant to Bank that:

2.01. Financial Statements. The balance sheet of the Borrower and its
subsidiaries, if any, and the related Statements of Income and Retained Earnings
of the Borrower and its subsidiaries, the accompanying footnotes together with
the accountant's opinion thereon, and all other financial information previously
furnished to the Bank, are true and correct and fairly reflect the financial
condition of the Borrower and its subsidiaries as of the dates thereof,
including all contingent liabilities of every type, and the financial condition
of the Borrower and its subsidiaries as stated therein has not changed
materially and adversely since the date thereof. Each Guarantor further
represents and warrants that all financial statements provided by such Guarantor
to Bank concerning such Guarantor's financial condition are hue and correct and
fairly represent such Guarantor's financial condition as of the dates thereof

2.02. Name, Capacity and Standing. The Borrower's and Mortgagors' exact legal
name are correctly stated in the initial paragraph of the Agreement. If the
Borrower, Mortgagors and/or any Guarantor is a corporation, general partnership,
limited partnership, limited liability partnership, or limited liability
company, each warrants and represents that it is duly organized and validly
existing under the laws of its respective state of incorporation or
organization; that it and/or its subsidiaries, if any, are duly qualified and in
good standing in every other state in which the nature of their business shall
require such qualification, and are each duly authorized by their board of
directors, general partners or member/manager(s), respectively, to enter into
and perform the obligations under the Loan Documents.

2.03. No Violation of Other Agreements. The execution of the Loan Documents. and
the performance by the Borrower, by any and all pledgors (whether the Borrower
or other owners of collateral property securing payment of the Loan, including
without limitation Mortgagors) or by the Guarantor(s) thereunder will not
violate any provision, as applicable, of its articles of incorporation, by-laws,
articles of organization, operating agreement, agreement of partnership, limited
partnership or limited liability partnership, or, of any law, other agreement,
indenture, note, or other instrument binding upon the Borrower, Mortgagors or
Guarantor(s), or give cause for the acceleration of any of the respective
obligations of the Borrower or Guarantor(s).

2.04. Authority. All authority from and approval by any federal, state, or local
governmental body, commission or agency necessary to the making, validity, or
enforceability of this Agreement and the other Loan Documents has been obtained.

2.05. Asset Ownership. The Borrower and each Guarantor have good and marketable
title to all of the properties and assets reflected on the balance sheets and
financial statements furnished to the Bank, and all such properties and assets
are free and clear of mortgages, deeds of trust, pledges, liens, and all other
encumbrances except as otherwise disclosed by such financial statements. In
addition, each other owner of collateral has good and marketable title to such
collateral, free and clear of any liens, security interests and encumbrances,
except as otherwise disclosed to Bank.

2.06. Discharge of Liens and Taxes. The Borrower and its subsidiaries, if any,
and each Guarantor have filed, paid, and/or discharged all taxes or other claims
which may become a lien on any of their respective properties or assets,
excepting to the extent that such items are being appropriately contested in
good faith and for which an adequate reserve (in an amount acceptable to Bank)
for the payment thereof is being maintained.

2.07. Regulation U. None of the Loan proceeds shall be used directly or
indirectly for the purpose of purchasing or carrying any margin stock in
violation of the provisions of Regulation U of the Board of Governors of the
Federal Reserve System.

2.08. ERISA. Each employee benefit plan, as defined by the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), maintained by the Borrower or
by any subsidiary of the Borrower or Guarantor(s) meets, as of the date hereof,
the minimum funding standards of Section 302 of ERISA, all applicable
requirements of ERISA and of the Internal Revenue Code of 1986, as amended, and
no "Reportable Event" nor "Prohibited Transaction" (as defined by ERISA) has
occurred with respect to any such plan.

2.09. Litigation. There is no claim, action, suit or proceeding pending,
threatened or reasonably anticipated before any court, commission,
administrative agency, whether State or Federal, or arbitration which will
materially adversely affect the financial condition, operations, properties, or
business of the Borrower or its subsidiaries, if any, or the Guarantor(s), or
the ability of the Borrower or the Guarantor(s) to perform their obligations
under the Loan Documents, except as set forth on Exhibit A attached hereto and
incorporated herein by reference.

2.10. Other Agreements. The representations and warranties made by Borrower to
Bank in the other Loan Documents are true and correct in all respects on the
date hereof.

2.11. Binding and Enforceable. The Loan Documents, when executed, shall
constitute valid and binding obligations of the Borrower and Guarantors
respectively, the execution of such Loan Documents has been duly authorized by
the parties thereto, and are enforceable in accordance with their terms, except
as may be limited by bankruptcy, insolvency, moratorium, or similar laws
affecting creditors' rights generally.

2.12. Commercial Purpose. The Loan(s) are not "consumer transactions", as
defined in the Kentucky Uniform Commercial Code, and none of the collateral was
or will be purchased or held primarily for personal, family or household
purposes.

 

Section 3 Affirmative Covenants

 

The Borrower covenants and agrees that from the date hereof and until payment in
full of all indebtedness and performance of all obligations owed under the Loan
Documents. Borrower shall:

3.01. Maintain Existence and Current Legal Form of Business. (a) Maintain its
existence and good standing in the state of its incorporation or organization,
(b) maintain its current legal form of business indicated above, (c) as
applicable, qualify and remain qualified as a foreign corporation, general
partnership, limited partnership, limited liability partnership or limited
liability company in each jurisdiction in which such qualification is required;
(d) maintain its current management and ownership; and (e) in the event of its
merger with any other entity, be the surviving entity.

3.02. Maintain Records. Keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP consistently applied,
reflecting all financial transactions of the Borrower.

3.03. Maintain Properties. Maintain, keep, and preserve all of its properties
(tangible and intangible) including the collateral necessary or useful in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted.

3.04. Conduct of Business. Continue to engage in an efficient, prudent. and
economical manner in a business of the same general type as now conducted.

3.05. Maintain Insurance. Maintain insurance with financially sound and
reputable insurance companies or associations in such amounts and covering such
risks as are usually carried by companies engaged in the same or a similar
business, and business interruption insurance if required by Bank, which
insurance may provide for reasonable deductible(s). The Bank shall be named as
loss payee (Long Form) on all policies which apply to the Bank's collateral, and
the Borrower shall deliver certificates of insurance at closing evidencing sane.
All such insurance policies shall provide, and the certificates shall state,
that no policy will be terminated without 20 days prior written notice to Bank.

3.06. Comply With Laws. Comply in all respects with all applicable laws, rules,
regulations, and orders including, without limitation, paying before the
delinquency of all taxes, assessments, and governmental charges imposed upon it
or upon its property, and all Environmental Laws.

3.07. Right of Inspection. Permit the officers and authorized agents of the
Bank, at any reasonable time or times in the Bank's sole discretion, to examine
and make copies of the records and books of account of, to visit the properties
of the Borrower, and to discuss such matters with any officers, directors,
managers, members or partners, limited or general of the Borrower, and the
Borrower's independent accountant as the Bank deems necessary and proper.

3.08. Reporting Requirements. Furnish to the Bank:

Quarterly Financial Statements: As soon as available and not more than twenty
(20) days after the end of each quarter, balance sheets, statements of income,
cash flow, and retained earnings for the period ended and a statement of changes
in the financial position, all in reasonable detail, and all prepared in
accordance with GAAP consistently applied and certified as true and correct by
an officer, general partner or manager (or member(s)) of the Borrower, as
appropriate.

Annual Financial Statements: As soon as available and not more than one hundred
twenty (120) days after the end of each fiscal year, balance sheets, statements
of income, and retained earnings for the period ended and a statement of changes
in the financial position, all in reasonable detail, and all prepared in
accordance with GAAP consistently applied. The financial statements must be of
the following quality or better: Audited.

Notice of Litigation: Promptly after the receipt by the Borrower, or by any
Guarantor of which Borrower has knowledge, of notice or complaint of any action,
suit, and proceeding before any court or administrative agency of any type
which, if determined adversely, could have a material adverse effect on the
financial condition, properties, or operations of the Borrower or Guarantor, as
appropriate.

Tax Returns: As soon as available each year, complete copies (including all
schedules) of all state and federal tax returns filed by Borrower.

Notice of Default: Promptly upon discovery or knowledge thereof, notice of the
existence of any event of default under this Agreement or any other Loan
Documents.

USA Patriot Act Verification Information: Information or documentation,
including but not limited to the legal name, address, tax identification number,
driver's license, and date of birth (if the Borrower in an individual) of the
Borrower sufficient for the Bank to verify the identity of the Borrower in
accordance with the USA Patriot Act.  Borrower shall notify Bank promptly of any
change in such information.

Other Information: Such other information as the Bank may from time to time
reasonably request including, but not limited to, the following information:
annual corporate income tax returns (including all schedules) for K&R, LLC and
K&R Resources, LLC.

3.09. Deposit Accounts. Maintain substantially all of its demand
deposit/operating accounts with the Bank.

3.10. Affirmative Covenants from other Loan Documents. All affirmative covenants
contained in any Mortgage, Security Agreement, Assignment of Leases and Rents,
or other security document executed by the Borrower and Mortgagors which are
described in paragraph 2 hereof are hereby incorporated by reference herein.

3.11 Indemnification. Borrower agrees to indemnify and hold harmless Bank from
and against any and all claims, costs, damages, liabilities and expenses which
may be incurred by or asserted against Bank in connection with any proceeding
arising out of or related to this Loan or the Other Credit Relationship.

3.12 Filings. Borrower represents and warrants that its standard practice, with
regard to equipment owned by Borrower and leased to its customers, is to provide
public notice of the ownership of the equipment and existence of said leases by
filing UCC Financing Statements for items of equipment so leased. Borrower
agrees to follow said practice for the term of this Agreement as to all its
equipment so leased, regardless of whether said equipment is collateral for the
Loan or any other indebtedness owing Bank by Borrower.

3.13 Post-Closing Survey Requirements. Borrower agrees to provide Bank with
current and/or updated surveys for the real estate subject to the Mortgages
securing the Loan. Such surveys shall comply with Bank's survey requirements and
shall be acceptable to the title insurance company issuing the mortgagee title
insurance policies for this Loan to delete the survey exceptions from the
mortgagee title insurance policies insuring the Bank. Such surveys shall be
delivered to Bank no later than September 1, 2009.

3.14 Post-Closing Environmental Requirements. Borrower agrees to comply with
such additional environmental testing as may be required by Bank, and shall
provide Bank with additional reports, permits and letters from governmental
agencies responsible for environmental matters no later than September 15, 2009.

 

Section 4 Guarantor(s) Covenants

N/A

 

Section 5 Financial Covenants

 

The Borrower covenants and agrees that from the date hereof until payment in
full of all indebtedness and the performance of all obligations under the Loan
Documents, the Borrower shall at all times maintain the following financial
covenants and ratios all in accordance with GAAP unless otherwise specified:

5.01 Minimum Tangible Net Worth. A minimum Tangible Net Worth of not less than
$6,000,000.00 as of December 31, 2005, and increasing annually by 50% of all net
income, plus 100% of all new equity. minus $0 for net losses. Tangible Net Worth
is defined as net worth plus obligations contractually subordinated to debts
owed to Bank, minus goodwill, contract rights, and assets representing claims on
stockholders or affiliated entities.

5.02 EBITDA Ratio. Ratio of EBITDA to the preceding twelve (12) months interest
expense plus the projected maturities of long-term debt for the next succeeding
twelve months on a rolling basis, of not less than 1.25:1.00, to be measured
annually.

5.03. Debt/Tangible Net Worth. Ratio of Debt to Tangible Net Worth of not more
than 4.00:1.00, to be measured annually. Tangible Net Worth is defined as set
forth in Section 5.01 above. Debt is defined as all Borrower's liabilities minus
obligations contractually subordinated to debts owed to Bank.

5.04. Limitation on Loans and Advances to Owners. Loans and advances to owners
of Borrower shall not to exceed $500,000 per calendar year.

 

Section 6 Negative Covenants

 

The Borrower covenants and agrees that from the date hereof and until payment in
full of all indebtedness and performance of all obligations under the Loan
Documents, the Borrower shall not, without the prior written consent of the
Bank:

6.01. Liens. Create, incur, assume, or suffer to exist any lien upon or with
respect to any of Borrower's properties, or the properties of any Mortgagor
securing payment of the Loan, now owned or hereafter acquired, except:

(a) Liens and security interests in favor of the Bank;

(b) Liens for taxes not yet due and payable or otherwise being contested in good
faith and for which appropriate reserves are maintained;

(c) Other liens imposed by law not yet due and payable, or otherwise being
contested in good faith and for which appropriate reserves are maintained;

(d) Liens securing obligations to any creditor other than Bank not to exceed
$1,000,000 per year;

(e) purchase money security interests on any property hereafter acquired,
provided that such lien shall attach only to the property acquired.

(f) The Permitted Liens, as set forth on Exhibit B attached hereto and
incorporated herein by reference.

6.02. Debt. Create, incur, assume, or suffer to exist additional funded debt,
except:

(a) Debt to the Bank;

(b) Debt outstanding on the date hereof and shown on the most recent financial
statements submitted to the Bank;

(c) Accounts payable to trade creditors incurred in the ordinary course of
business not to exceed $1,000,000.

(d) Debt secured by purchase money security interests secured only by the asset
purchased, not to exceed $1,000.000.

(e) Debt to any creditor other than Bank not to exceed $1,000,000 per year.

6.03. Change of Legal Form of Business or Management; Purchase of Assets. Change
Borrower's name or the legal form of Borrower's business as shown above, whether
by merger, consolidation, conversion or otherwise, or change its current
management, and Borrower shall not purchase all or substantially all of the
assets or business of any Person.

6.04. Leases. Create, incur, assume, or suffer to exist any leases, except:

(a) Leases outstanding on the date hereof and showing on the most recent
financial statement submitted to the Bank;

(b) Operating Leases for machinery and equipment which do not in the aggregate
require payments in excess of $N/A in any fiscal year of the Borrower.

6.05. Dividends or Distributions; Acquisition of Capital Stock or Other
Ownership Interests. Declare or pay any dividends or distributions of any kind,
or purchase or redeem, retire, or otherwise acquire any of Borrower's capital
stock or other ownership interests, now or hereafter outstanding, in excess of
$N/A in any fiscal year of the Borrower.

6.06. Salaries. Salaries and any other cash compensation to
owners/officers/partners/managers shall be limited as follows: N/A.

6.07. Guaranties. Assume, guarantee, endorse, or otherwise be or become directly
or contingently liable for obligations of any Person, except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.

6.08. Loans. Loans to directors, officers, partners, members, shareholders,
subsidiaries and affiliates shall be limited as follows: Limited to $500,000 in
the aggregate per year. All such loans to directors, officers, partners,
members, shareholders, subsidiaries and affiliates shall be subordinated to the
Loan pursuant to subordination agreements in form and substance satisfactory to
Bank.

6.09. Disposition of Assets. Sell, lease, or otherwise dispose of any of its
assets or properties except in the ordinary and usual course of its business.

6.10. Transfer of Ownership. If Borrower is a corporation, (a) issue, transfer
or sell any new class of stock, or (b) issue, transfer or sell, in the
aggregate, from its treasury stock and/or currently authorized but unissued
shares of any class of stock, more than 10% of the total number of all such
issued and outstanding shares as of the date of this Agreement. If Borrower is a
general partnership, limited partnership, limited liability partnership or
limited liability company, issue, transfer or sell any interest in Borrower.

6.11. Negative Covenants from other Loan Documents. All negative covenants
contained in any Mortgage, Deed of Trust, Security Agreement, Assignment of
Leases or Rents, or other security document executed by the Borrower which are
described in paragraph 2 hereof are hereby incorporated by reference herein.

 

Section 7 Hazardous Materials and Compliance with Environmental Laws

 

7.01. Investigation. Borrower and Mortgagors hereby certify that they have
exercised due diligence to ascertain whether their respective real property are
or have been affected by the presence of asbestos, oil, petroleum or other
hydrocarbons, urea formaldehyde, PCBs, hazardous or nuclear waste, toxic
chemicals and substances, or other hazardous materials (collectively, "Hazardous
Materials"), as defined in applicable Environmental Laws. Borrower and
Mortgagors represent and warrant that to Borrower's and Mortgagors' respective
knowledge, except as disclosed in those environmental reports delivered to Bank
more particularly described on Exhibit C attached hereto and incorporated herein
by reference, there are no such Hazardous Materials contaminating their
respective real property, nor, to Borrower's and Mortgagors' knowledge, except
as disclosed in the aforesaid environmental reports have any such materials been
released on or stored on or improperly disposed of on their respective real
property during their respective ownership, occupancy or operation thereof.
Borrower and Mortgagors hereby agree that, except in strict compliance with
applicable Environmental Laws, they shall not knowingly permit any release,
storage or contamination as long as any indebtedness or obligations to Bank
under the Loan Documents remains unpaid or unfulfilled. In addition, except as
disclosed in the aforesaid environmental reports Borrower and Mortgagors do not
have or use any underground storage tanks on any of their respective real
property which are not registered with the appropriate Federal and/or State
agencies and which are not properly equipped and maintained in accordance with
all Environmental Laws. If requested by Bank, Borrower and Mortgagors shall
provide Bank with all necessary and reasonable assistance required for purposes
of determining the existence of Hazardous Materials on Borrower's and
Mortgagors' real property.

7.02. Compliance. Borrower and Mortgagors agree to comply with all applicable
Environmental Laws. Including, without limitation. all those relating to
Hazardous Materials. Borrower and Mortgagors further agree to provide Bank, and
all appropriate Federal and State authorities, with immediate notice in writing
of any release of Hazardous Materials on any of their respective real property
and to pursue diligently to completion all appropriate and/or required remedial
action in the event of such release.

 

Section 8 Events of Default

 

The following shall be "Events of Default" by Borrower or any Guarantor:

8.01. The failure to make prompt payment of any installment of principal or
interest on any of the Note(s) when due or payable.

8.02. Should any representation or warranty made in the Loan Documents prove to
be false or misleading in any material respect.

8.03 Should any report, certificate, financial statement, or other document
furnished prior to the execution of or pursuant to the terms of this Agreement
prove to be false or misleading in any material respect.

8.04. Should the Borrower or any Guarantor default on the performance of any
other obligation of indebtedness when due or in the performance of any
obligation incurred in connection with money borrowed.

8.05. Should the Borrower, any Guarantor or any Mortgagor breach any covenant,
condition, or agreement made under any of the Loan Documents.

8.06. Should a custodian be appointed for or take possession of any or all of
the assets of the Borrower or any Mortgagor or Guarantor, or should the Borrower
or any Mortgagor or Guarantor either voluntarily or involuntarily become subject
to any insolvency proceeding, including becoming a debtor under the United
States Bankruptcy Code, any proceeding to dissolve the Borrower or any Mortgagor
or Guarantor, any proceeding to have a receiver appointed, or should the
Borrower or any Mortgagor or Guarantor make an assignment for the benefit of
creditors, or should there be an attachment, execution, or other judicial
seizure of all or any portion of the Borrower's or any Mortgagor's or
Guarantor's assets, including an action or proceeding to seize any funds on
deposit with the Bank, and such seizure is not discharged within 30 days.

8.07. Should final judgment for the payment of money be rendered against the
Borrower or any Mortgagor or Guarantor which is not covered by insurance and
shall remain undischarged for a period of 30 days unless such judgment or
execution thereon be effectively stayed.

8.08. Upon the death of, or termination of existence of, or dissolution of. any
Borrower, Mortgagor, or Guarantor.

8.09. Should the Bank in good faith deem itself, its liens and security
interests, if any, or any debt thereunder unsafe or insecure, or should the Bank
believe in good faith that the prospect of payment of any debt or other
performance by the Borrower or any Mortgagor or Guarantor is impaired.

8.10. Should any lien or security interest granted to Bank to secure payment of
the Note(s) terminate, fail for any reason to have the priority agreed to by
Bank on the date granted, or become unperfected or invalid for any reason.

 

Section 9 Remedies Upon Default

 

Upon the occurrence of any of the above listed Events of Default, the Bank may
at any time thereafter, at its option, take any or all of the following actions,
at the same or at different times:

9.01. Declare the balance(s) of the Note(s) to be immediately due and payable,
both as to principal and interest, without presentment, demand, protest, or
notice of any kind, all of which are hereby expressly waived by Borrower and
each Guarantor, and such balance(s) shall accrue interest at the Default Rate as
provided herein until paid in full;

9.02. Require the Borrower or Guarantor(s) to pledge additional collateral to
the Bank from the Borrower's or any Guarantor's assets and properties, the
acceptability and sufficiency of such collateral to be determined in the Bank's
sole discretion;

9.03. Take immediate possession of and foreclose upon any or all collateral
which may be granted to the Bank as security for the indebtedness and
obligations of Borrower or any Guarantor under the Loan Documents;

9.04. Exercise any and all other rights and remedies available to the Bank under
the terms of the Loan Documents and applicable law, including the Kentucky
Uniform Commercial Code;

9.05. Any obligation of the Bank to advance funds to the Borrower or any other
Person under the terms of under the Note(s) and all other obligations, if any,
of the Bank under the Loan Documents shall immediately cease and terminate
unless and until Bank shall reinstate such obligation in writing.

 

Section 10 Miscellaneous Provisions

 

10.01. Definitions.

     "Default Rate" shall mean a rate of interest equal to Bank's Prime Rate
plus five percent (5%) per annum (not to exceed the legal maximum rate) from and
after the date of an Event of Default hereunder which shall apply, in the Bank's
sole discretion, to all sums owing, including principal and interest, on such
date.

     "Environmental Laws" shall mean all federal and state laws and regulations
which affect or may affect the Borrower's and Mortgagors' real property,
including without limitation the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Sections 9601 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.), the Federal
Water Pollution Control Act (33 U.S.C. Sections 1251 et seq.), the Clean Air Act
(42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
Section 2601 et seq.), all such applicable environmental laws and regulations of
the Commonwealth of Kentucky, as such laws and regulations may be amended from
time to time.

     "Loan Documents" shall mean this Agreement including any schedule attached
hereto, the Note(s), the Mortgages, the Assignments of Leases and Rents, the
Security Agreement(s), all UCC Financing Statements, and all other documents,
certificates, and instruments executed in connection therewith, and all
renewals, extensions, modifications, substitutions, and replacements thereto and
therefore.

     "Person" shall mean an individual, partnership, corporation, trust,
unincorporated organization, limited liability company, limited liability
partnership, association, joint venture, or a government agency or political
subdivision thereof.

     "GAAP" shall mean generally accepted accounting principles as established
by the Financial Accounting Standards Board or the American Institute of
Certified Public Accountants, as amended and supplemented from time to time.

     "Prime Rate" shall mean the rate of interest per annum announced by the
Bank from time to time and adopted as its Prime Rate, which is one of several
rate indexes employed by the Bank when extending credit, and may not necessarily
be the Bank's lowest lending rate.

10.02. Non-impairment. If any one or more provisions contained in the Loan
Documents shall be held invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
therein shall not in any way be affected or impaired thereby and shall otherwise
remain in full force and effect.

10.03. Applicable Law. The Loan Documents shall be construed in accordance with
and governed by the laws of the Commonwealth of Kentucky, except as to those
Mortgages, Assignments of Leases and Rents and Environmental Certifications and
Indemnity Agreements relative to real property in the State of Indiana. As to
the rights of Bank thereunder, same shall be governed by applicable Indiana law,

10.04. Waiver. Neither the failure or any delay on the part of the Bank in
exercising any right, power or privilege granted in the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise of any other right, power, or privilege
which may be provided by law.

10.05. Modification. No modification, amendment, or waiver of any provision of
any of the Loan Documents shall be effective unless in wilting and signed by the
Borrower and Bank.

10.06. Payment Amount Adjustment. In the event that any Loan(s) referenced
herein has a variable (floating) interest rate and the interest rate increases,
Bank, at its sole discretion, may at any time adjust the Borrower's payment
amount(s) to prevent the amount of interest accrued in a given period to exceed
the periodic payment amount or to cause the Loan(s) to be repaid within the same
period of time as originally agreed upon.

10.07. Stamps and Fees. The Borrower shall pay all federal or state stamps,
taxes, or other fees or charges, if any are payable or are determined to be
payable by reason of the execution, delivery, or issuance of the Loan Documents
or any security granted to the Bank; and the Borrower and Guarantor agree to
indemnify and hold harmless the Bank against any and all liability in respect
thereof.

10.08. Attorneys' Fees. In the event the Borrower or any Mortgagor or Guarantor
shall default in any of its obligations hereunder and the Bank believes it
necessary to employ an attorney to assist in the enforcement or collection of
the indebtedness of the Borrower to the Bank, to enforce the terms and
provisions of the Loan Documents. to modify the Loan Documents, or in the event
the Bank voluntarily or otherwise should become a party to any suit or legal
proceeding (including a proceeding conducted under the Bankruptcy Code), the
Borrower and Guarantors agree to pay the reasonable attorneys' fees of the Bank
and all related costs of collection or enforcement that may be incurred by the
Bank. The Borrower and Guarantor shall be liable for such attorneys' fees and
costs whether or not any suit or proceeding is actually commenced.

10.09. Bank Making Required Payments. In the event Borrower shall fail to
maintain insurance, pay taxes or assessments, costs and expenses which Borrower
is, under any of the terms hereof or of any Loan Documents, required to pay, or
fail to keep any of the properties and assets constituting collateral free from
new security interests, liens, or encumbrances, except as permitted herein, Bank
may at its election make expenditures for any or all such purposes and the
amounts expended together with interest thereon at the Default Rate, shall
become immediately due and payable to Bank, and shall have benefit of and be
secured by the collateral; provided, however, the Bank shall be under no duty or
obligation to make any such payments or expenditures.

10.10. Right of Offset. Any indebtedness owing from Bank to Borrower may be set
off and applied by Bank on any indebtedness or liability of Borrower to Bank, at
any time and from time to time after maturity, whether by acceleration or
otherwise, and without demand or notice to Borrower. Bank may sell
participations in or make assignments of any Loan made under this Agreement, and
Borrower agrees that any such participant or assignee shall have the same right
of setoff as is granted to the Bank herein.

10.11. UCC Authorization. Borrower authorizes Bank to file such UCC Financing
Statements describing the collateral in any location deemed necessary and
appropriate by Bank.

10.12. Modification and Renewal Fees. Bank may at its option, charge any fees
for modification, renewal, extension, or amendment of any terms of the Note(s)
not prohibited by Kentucky law, and as otherwise permitted by law if Borrower is
located in another state.

10.13. Conflicting Provisions. lf provisions of this Agreement shall conflict
with any terms or provisions of any of the Note(s) or Security Agreement(s), the
provisions of such Note(s) or Security Agreement(s). as appropriate, shall take
priority over any provisions in this Agreement.

10.14. Notices. Any notice permitted or required by the provisions of this
Agreement shall be deemed to have been given when delivered in writing to the
City Executive or any Vice President of the Bank at its offices in Louisville,
Kentucky, and to the President of the Borrower at its offices in Louisville,
Kentucky, when sent by certified mail and return receipt requested.

10.15. Consent to Jurisdiction. Borrower hereby irrevocably agrees that any
legal action or proceeding arising out of or relating to this Agreement may be
instituted in any Kentucky state court or federal court sitting in the state of
Kentucky, or in such other appropriate court and venue as Bank may choose in its
sole discretion. Borrower consents to the jurisdiction of such courts and waives
any objection relating to the basis for person or in rem jurisdiction or to
venue which Borrower may now or hereafter have in any such legal action or
proceedings.

10.16.  WAIVER OF JURY TRIAL.  UNLESS EXPRESSLY PROHIBITED BY APPLICABLE LAW,
THE UNDERSIGNED HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS OR CLAIMS
ARISING OUT OF THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS EXECUTED IN
CONNECTION THEREWITH OR OUT OF THE CONDUCT OF THE RELATIONSHIP BETWEEN THE
UNDERSIGNED AND BANK.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK TO MAKE
THE LOAN AND ENTER INTO THIS AGREEMENT.  FURTHER, THE UNDERSIGNED HEREBY CERTIFY
THAT NO REPRESENTATIVE OR AGENT OF BANK, NOR BANK'S COUNSEL, HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT BANK WOULD NOT SEEK TO ENFORCE THIS WAIVER OR GITH
TO JURY TRIAL PROVISION.  NO REPRESENTATIVE OR AGENT OF BANK, NOR BANK'S
COUNSEL, HAS THE AUTHORITY TO WAIVE, CONDITION OR MODIFY THIS PROVISION.

10.17  Counterparts.  This Agreement may be executed by one or more parties on
any number of separate counterparts and all of such counterparts taken together
shall be deemed to constitute one and the same instrument.

10.18  Entire Agreement.  The Loan Documents embody the entire agreement between
Borrower and Bank with respect to the Loans and there are no oral or parol
agreements existing between Bank and Borrower with respect to the Loans which
are not expressly set forth in the Loan Documents.

 

SIGNATURE PAGE

 

IN WITNESS WHEREOF, the Bank, Borrower and Guarantor(s) have caused this
Agreement to be duly executed under seal all on the date first above written.

 

 

BORROWER:

 

INDUSTRIAL SERVICES OF AMERICA, INC.

WITNESS:

 

 

 

/s/ Sharon C. Hardy

By:

/s/ Harry Kletter

 

 

Harry Kletter

/s/ Nicholas R. Halaris

Title:

Chief Financial Officer and President

 

 

 

 

Additional Co-Borrowers or Guarantors:

 

 

 

 

 

 

(SEAL)

 

 

 

(SEAL)

 

 

 

(SEAL)

 

 

 

(SEAL)

 

 

MORTGAGORS:

 

ISA REAL ESTATE, LLC
(a Kentucky limited liability company)

By: INDUSTRIAL SERVICES OF AMERICA, INC.

(a Florida corporation), Manager

WITNESS:

 

 

 

/s/ Sharon C. Hardy

By:

/s/ Harry Kletter

 

 

Harry Kletter

/s/ Nicholas R. Halaris

Title:

Chief Financial Officer and President

 

 

 

 

 

ISA INDIANA REAL ESTATE, LLC
(a Kentucky limited liability company)

By: INDUSTRIAL SERVICES OF AMERICA, INC.

(a Florida corporation), Manager

WITNESS:

 

 

 

/s/ Sharon C. Hardy

By:

/s/ Harry Kletter

 

 

Harry Kletter

/s/ Nicholas R. Halaris

Title:

Chief Financial Officer and President

 

 

 

 

 

7021 GRADE LANE LLC

(a Kentucky limited liability company)

WITNESS:

 

 

 

/s/ Sharon C. Hardy

By:

/s/ Harry Kletter

 

 

Harry Kletter

/s/ Nicholas R. Halaris

Title:

Manager

 

 

 

 

 

BANK:

 

BRANCH BANKING AND TRUST COMPANY

WITNESS:

 

 

 

/s/ Sharon C. Hardy

By:

/s/ Johnny L. Perry

 

 

Johnny L. Perry

 

Title:

Senior Vice President

 

 

 

 

 

BB&T BANKCARD CORPORATION

WITNESS:

 

 

 

/s/ Sharon C. Hardy

By:

/s/ Johnny L. Perry

 

 

Johnny L. Perry

 

Title:

Senior Vice President

 

 

 

 

 

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EXHIBIT A

 

LITIGATION

 

1.         Lennox Industries, Inc. vs. Industrial Services of America, Inc.
(Circuit Court of Arkansas County CV-2007-004)

 

            On January 4, 2007, Lennox Industries, Inc., a commercial heating
and air-conditioning manufacturer, filed suit against ISA in the Arkansas
County, Arkansas Circuit Court in the case styled Lennox Industries, Inc. v.
Industrial Services of America, Inc., Case No. CV-2007-004. Because of
settlement negotiations, Lennox did not serve ISA until May 23,2007. Lennox
alleges that ISA breached a 2001 contract with Lennox where ISA agreed to act as
agent for Lennox, by ISA's failure to properly evaluate, categorize, classify
and value the production scrap and waste of Lennox, thereby brokering such
products at prices below market value. Lennox also alleges negligence and breach
of fiduciary duty related to the same alleged failure.

 

            Lennox is taking the position that ISA had a duty to obtain a price
that was consistent with the materials being sold on their behalf and that it
failed to show a proper duty of care in its dealings with Lennox. On July 9,
2008, Lennox amended its Complaint to add a cause of action based on fraud and
misrepresentation (civil fraud).  The Lennox complaint does not state any
specific monetary damages. ISA has filed an answer denying all claims.

 

            The litigation is in its discovery phase with a trial date currently
set for August 2009. ISA currently believe that the claims have no merit.

 

2.         Carolyn Meers vs. Industrial Services of America, Inc. (Index
#08C1012646,

Policy #389-80-72 and Claim #861-008778).

 

            Carolyn Meers is a former employee of ISA. On or about December
1,2008 filed an action in Jefferson County Court. She is claiming she was
subjected to discrimination on the basis of sex and age, subjected to a hostile
work environment, and harassed.

 

            The Complaint was answered by Marvin Coan on behalf of ISA on
December 19, 2008. ISA believes Ms. Meer's case is without merit.

 

            ISA maintains an Employment Practices Liability ("EPL") insurance
policy with AIG. Upon receipt of the lawsuit, ISA notified AIG. AIG has agreed
to cover the case under a customary reservation of rights (aka an "ROR'). AIG
has requested that ISA use one of its "panel counsel" for actions that occur in
Kentucky. ISA has chosen Larry Woods from the firm of Frost Brown.

 

            A deposition of Carolyn Meers took place on January 28th, 2009.
Subsequent to that date, Ms. Meer's counsel submitted discovery requests
(interrogatories and document production requests) to ISA.  ISA is working on
those discovery requests and are engaged in mediation discussions with Ms. Meers
and her counsel.

 

--------------------------------------------------------------------------------

 

 

INDUSTRIAL SERVICES OF AMERICA, INC.

7100 Grade Lane (40213)

P.O. Box 32428

Louisville, Kentucky  40232

502.366.1415

800.233.9923

 

June 30, 2009

 

 

Johnny L. Perry

Senior Vice President

Branch Banking and Trust Company

401 West Main Street

Louisville, Kentucky  40202

 

Dear Johnny:

 

            Per your request and in connection with that certain loan on or
about the date hereof from Branch Banking and Trust Company to Industrial
Services of America, Inc., in the principal amount of $5,000,000, below is a
summary of the current litigation matters for Industrial Services of America,
Inc.

 

1.         Lennox Industries, Inc. vs. Industrial Services of America, Inc.
(Circuit Court of Arkansas County CV-2007-004)

 

On January 4, 2007, Lennox Industries, Inc., a commercial heating and
air-conditioning manufacturer, filed suit against ISA in the Arkansas County,
Arkansas Circuit Court in the case styled Lennox Industries, Inc. v. Industrial
Services of America, Inc., Case No. CV-2007-004. Because of settlement
negotiations, Lennox did not serve ISA until May 23,2007. Lennox alleges that
ISA breached a 2001 contract with Lennox where ISA agreed to act as agent for
Lennox, by ISA's failure to properly evaluate, categorize, classify and value
the production scrap and waste of Lennox, thereby brokering such products at
prices below market value. Lennox also alleges negligence and breach of
fiduciary duty related to the same alleged failure.

 

Lennox is taking the position that ISA had a duty to obtain a price that was
consistent with the materials being sold on their behalf and that it failed to
show a proper duty of care in its dealings with Lennox. On July 9, 2008, Lennox
amended its Complaint to add a cause of action based on fraud and
misrepresentation (civil fraud).  The Lennox complaint does not state any
specific monetary damages. ISA has filed an answer denying all claims.

 

The litigation is in its discovery phase with a trial date currently set for
August 2009. ISA currently believe that the claims have no merit.

 

2.         Carolyn Meers vs. Industrial Services of America, Inc. (Index
#08C1012646, Policy #389-80-72 and Claim #861-008778).

 

Carolyn Meers is a former employee of ISA. On or about December 1,2008 filed an
action in Jefferson County Court. She is claiming she was subjected to
discrimination on the basis of sex and age, subjected to a hostile work
environment, and harassed.

 

The Complaint was answered by Marvin Coan on behalf of ISA on December 19, 2008.
ISA believes Ms. Meer's case is without merit.

 

ISA maintains an Employment Practices Liability ("EPL") insurance policy with
AIG. Upon receipt of the lawsuit, ISA notified AIG. AIG has agreed to cover the
case under a customary reservation of rights (aka an "ROR'). AIG has requested
that ISA use one of its "panel counsel" for actions that occur in Kentucky. ISA
has chosen Larry Woods from the firm of Frost Brown.

 

A deposition of Carolyn Meers took place on January 28th, 2009. Subsequent to
that date, Ms. Meer's counsel submitted discovery requests (interrogatories and
document production requests) to ISA.  ISA is working on those discovery
requests and are engaged in mediation discussions with Ms. Meers and her
counsel.

 

                                                                       
Sincerely,

 

                                                                       
Industrial Services of America, Inc.

 

 

 

                                                                        By: /s/
Harry Kletter                                        

 

 

 

 

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EXHIBIT B

 

PERMITTED LIENS

 

 

Debtor

Secured Party

Collateral

File Number

Filing Location

Industrial Services of America, Inc.

Inter-Tel Leasing Inc.

Axxess Telephone System (Lease)

200407556840

Florida Secretary of State

Industrial Services of America, Inc.

VFS US LLC

2006 Volvo L70E, Serial Number ending in last four numbers of 1255

200602820179

Florida Secretary of State

Industrial Services of America, Inc.

VFS US LLC

2006 Volvo MC80 Skid Steer, Serial Number ending in last four numbers of 1006

200604375059

Florida Secretary of State

Industrial Services of America, Inc.

BB&T Bankcard Corporation

Accounts, Inventory, Equipment (except Rental Fleet), Deposit Accounts, General
Intangibles and Proceeds

200604449508

Florida Secretary of State

Industrial Services of America, Inc.

Branch Banking and Trust Company

Accounts, Inventory, Equipment (except Rental Fleet), Deposit Accounts, General
Intangibles and Proceeds

200604449516

Florida Secretary of State

Industrial Services of America, Inc.

VFS US LLC

2007 Volvo MC80B, Serial Number ending in last four numbers of 1160

200706132015

Florida Secretary of State

Industrial Services of America, Inc.

Branch Banking and Trust Company

Rental Fleet Equipment

200808294715

Florida Secretary of State

Industrial Services of America, Inc.

Branch Banking and Trust Company

Shredder

200808437605

Florida Secretary of State

Industrial Services of America, Inc.

Branch Banking and Trust Company

Crane, Serial # 194-43981

200809428693

Florida Secretary of State

Industrial Services of America, Inc.

Branch Banking and Trust Company (f/k/a Bank of Louisville)

Inventory, Chattel Paper, Accounts, Equipment, General Intangibles and Proceeds

2001172375826

Kentucky Secretary of State

Industrial Services of America, Inc.

Komatsu Financial and Brandeis Machinery and Supply Company

One Komatsu Excavator, PC 220LC-8, S/N 70100

2007223395114

Kentucky Secretary of State

Industrial Services of America, Inc.

Apollo Oil LLC

Specific Equipment as described therein

2008236011508

Kentucky Secretary of State

 

 

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EXHIBIT C

 

Environmental Reports

 

1.         Phase I assessment performed by Partners Engineering, project number
09-63 112.1 relative to 71 01,7103, 71 10,7023 and 7025 Grade Lane, Louisville,
Kentucky.

 

2.         Phase I assessment performed by Partners Engineering, project number
09-63 112.2 relative to 3409 Camp Ground Road Louisville, Kentucky.

 

3.         Phase I assessment performed by Partners Engineering, project number
09-631 12.3 relative to 1565 E. 4'h Street, Seymour, Indiana.

 

4.         Phase I assessment performed by Partners Engineering, project number
09-63 112.4 relative to 6709 Grade Lane, Louisville, Kentucky.

 

5.         Phase I assessment performed by Partners Engineering, project number
09-631 12.5 relative to 161 7 State Road 11 1, New Albany, Indiana.

 

 

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