Exhibit 10.1

 
SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “Agreement”), dated as of September 30, 2013, is
made by PAGOSA HEALTH LLC, an Indiana corporation, with an address at 62 Doughty
Road, Lawrenceburg, IN 47025 (collectively, “Debtor”), in favor of MELROSE
CAPITAL ADVISORS, LLC, an Ohio limited liability company with an address at c/o
Statman, Harris & Eyrich, LLC, 441 Vine Street, 37th Floor, Cincinnati,
Ohio  45202 (the “Lender”).
 
WHEREAS, Debtor is indebted to Lender pursuant to the Promissory Note of even
date herewith, executed by Debtor in favor of Lender in the original principal
amount of $600,000 (“Note”), and all agreements, instruments and documents
executed or delivered in connection with the foregoing or otherwise related
thereto (together with any amendments, modifications, or restatements thereof,
the “Loan Documents”);
 
WHEREAS, under the terms hereof, the Lender desires to obtain and the Debtor
desires to grant the Lender security for all of the Obligations (as hereinafter
defined);
 
NOW, THEREFORE, the Debtor and the Lender, intending to be legally bound, hereby
agree as follows:

1.  Definitions.

(a)  “Collateral” shall include all personal property of the Debtor, including
the following, all whether now owned or hereafter acquired or arising and
wherever located:  (i) accounts (including health-care-insurance receivables and
credit card receivables); (ii) securities entitlements, securities accounts,
commodity accounts, commodity contracts and investment property; (iii) deposit
accounts; (iv) instruments (including promissory notes); (v) documents
(including warehouse receipts); (vi) chattel paper (including electronic chattel
paper and tangible chattel paper); (vii) inventory, including raw materials,
work in process, or materials used or consumed in Debtor’s business, items held
for sale or lease or furnished or to be furnished under contracts of service,
sale or lease, goods that are returned, reclaimed or repossessed; (viii) goods
of every nature; (ix) equipment, including machinery, vehicles and furniture;
(x) fixtures; (xi) commercial tort claims; (xii) letter of credit rights; (xiii)
general intangibles, of every kind and description, including payment
intangibles, websites, domain names, software, computer information, source
codes, object codes, records and data, all existing and future customer lists,
choses in action, claims, books, records, patents and patent applications,
copyrights, trademarks and  tradenames1 tradestyles, trademark applications,
goodwill, blueprints, drawings, designs and plans, trade secrets, contracts,
licenses, license agreements, formulae, tax and any other types of refunds,
returned and unearned insurance premiums, rights and claims under insurance
policies; (xiv) all supporting obligations of all of the foregoing property;
(xv) all property of the Debtor now or hereafter in the Lender’s possession or
in transit to or from, or under the custody or control of, the Lender or any
affiliate thereof; (xvi) all cash and cash equivalents thereof; and (xvii) all
cash and noncash proceeds (including insurance proceeds) of all of the foregoing
property, all products thereof and all additions and accessions thereto,
substitutions therefor and replacements thereof.
 
(b)  “Obligations” shall include all loans, advances, debts, liabilities and
obligations of the Debtor to the Lender of any kind or nature, present or
future, whether or not evidenced by any note, guaranty or other instrument,
whether arising under any agreement, instrument or document, whether or not for
the payment of money, whether arising by reason of an extension of credit, loan,
or guarantee, or in any other manner,  including but not limited to the Loan
Documents, whether direct or indirect, absolute or contingent, joint or several,
due or to become due, now existing or hereafter arising, and any amendments,
extensions, renewals or increases, and all costs and expenses of the Lender
incurred in connection with any of the foregoing, including reasonable
attorneys' fees and expenses.
 
 
 

 
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(c)  “UCC” means the Uniform Commercial Code, as adopted and enacted and as in
effect from time to time in the State of Ohio.  Terms used herein which are
defined in the UCC and not otherwise defined herein shall have the respective
meanings ascribed to such terms in the UCC.

2.  Grant of Security Interest.  To secure the Obligations, the Debtor, as
debtor, hereby assigns and grants to the Lender, as secured party, a continuing
lien on and security interest in the Collateral.

3.  Change in Name or Locations.  The Debtor hereby agrees that if the location
of the Collateral changes from the locations listed on Exhibit “A” hereto and
made part hereof, or if the Debtor changes its name, its type of organization,
its state of organization, its chief executive office, or establishes a new name
in which it may do business, the Debtor will immediately notify the Lender in
writing of the additions or changes.

4.  Representations and Warranties.  The Debtor represents, warrants and
covenants to the Lender that: (a) all information set forth on Exhibit “A”
hereto is true and correct in all material respects on the date hereof;  (b) the
Debtor has good, marketable and indefeasible title to the Collateral, has not
made any prior sale, pledge, encumbrance, assignment or other disposition of any
of the Collateral, and the Collateral is free from all encumbrances and rights
of setoff of any kind except the lien in favor of the Lender created by this
Agreement and Permitted Liens (as such term is defined in the Note (the
“Permitted Liens”);  (c) except as herein provided, the Debtor will not
hereafter without the Lender’s prior written consent sell, pledge, encumber,
assign or otherwise dispose of any of the Collateral or permit any right of
setoff, lien or security interest to exist thereon except to the Lender and the
other Permitted Liens; and (d) the Debtor will defend the Collateral against all
claims and demands of all persons at any time claiming the same or any interest
therein except with regards to Permitted Liens.

5.  Debtor’s Covenants.  The Debtor covenants that it shall:
 
(a)  from time to time and upon reasonable prior notice and at all reasonable
times allow the Lender, by or through any of its officers, agents, attorneys, or
accountants, to examine or inspect the Collateral, and obtain valuations and
audits of the Collateral, at the Debtor’s expense, wherever located; ; provided,
however, that unless an Event of Default exists Debtor shall not be required to
pay for more than one valuation or audit of the Collateral in any consecutive
twelve month period.  The Debtor shall do, obtain, make, execute and deliver all
such additional and further acts, things, deeds, assurances and instruments as
the Lender may reasonably require to vest in and assure to the Lender its rights
hereunder and in or to the Collateral, and the proceeds thereof, including
waivers from landlords, warehousemen and mortgagees.
 
(b)  keep the Collateral in good order and repair (normal wear and tear
excepted) at all times and immediately notify the Lender of any event causing a
material loss or decline in value of the Collateral, whether or not covered by
insurance, and the amount of such loss or depreciation;
 
(c)  only use or permit the Collateral to be used in accordance in all material
respects with all applicable federal, state, county and municipal laws and
regulations; and
 
(d)  have and maintain insurance at all times with respect to all Collateral
against risks of fire (including so-called extended coverage), theft, sprinkler
leakage, and other risks (including risk of flood if any Collateral is
maintained at a location in a flood hazard zone) as the Lender may reasonably
require, in such form, in such amount, for such period and written by such
companies as may be reasonably satisfactory to the Lender.  Each such casualty
insurance policy shall contain a standard Lender’s Loss Payable Clause issued in
favor of the Lender under which all losses thereunder shall be paid to the
Lender as the Lender’s interest may appear.  Such policies shall expressly
provide that the requisite insurance cannot be altered or canceled without at
least thirty (30) days prior written notice to the Lender and shall insure the
Lender notwithstanding the act or neglect of the Debtor.  Promptly upon the
Lender’s demand, the Debtor shall furnish the Lender with duplicate original
policies of insurance or such other evidence of insurance as the Lender may
require.  In the event of failure to provide insurance as herein provided, the
Lender may, at its option, obtain such insurance and the Debtor shall pay to the
Lender, promptly upon demand, the cost thereof.  Proceeds of insurance may be
applied by the Lender to reduce the Obligations or to repair or replace
Collateral, all in the Lender’s sole discretion.; provided, however, that if no
Event of Default exists, Debtor may apply proceeds of insurance to repair or
replace the Collateral.
 
 
 
 

 
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6.  Negative Pledge; No Transfer.  The Debtor will not sell or offer to sell or
otherwise transfer or grant or allow the imposition of a lien or security
interest upon the Collateral (except for sales of inventory and collections of
accounts in the Debtor’s ordinary course of business and Permitted Liens), will
not allow any third party to gain control of all or any part of the Collateral
except for third parties with regards to Permitted Liens, and will not use any
portion thereof in any manner inconsistent with this Agreement or with the terms
and conditions of any policy of insurance thereon.

7.  Further Assurances.  By its signature hereon, the Debtor hereby irrevocably
authorizes the Lender to execute (on behalf of the Debtor) and file against the
Debtor one or more financing, continuation or amendment statements pursuant to
the UCC in form satisfactory to the Lender, and the Debtor will pay the cost of
preparing and filing the same in all jurisdictions in which such filing is
reasonably deemed by the Lender to be necessary or desirable in order to
perfect, preserve and protect its security interests.  If required by the
Lender, the Debtor will execute all documentation necessary for the Lender to
obtain and maintain perfection of its security interests in the Collateral.

8.  Events of Default.  The Debtor shall, at the Lender’s option, be in default
under this Agreement upon the happening of any of the following events or
conditions (each, an “Event of Default”):  (a) any default under any of the
Obligations (subject to the expiration of any applicable notice or grace
periods); (b) the failure by the Debtor to perform any of its obligations under
this Agreement and such failure continues for 10 days; (c) any material falsity,
inaccuracy or material breach by the Debtor of any written warranty,
representation or statement made or furnished to the Lender by or on behalf of
the Debtor; or (d) the failure of the Lender to have a perfected security
interest in the Collateral.

9.  Remedies.  Upon the occurrence of any such Event of Default and at any time
thereafter, the Lender may declare all Obligations secured hereby immediately
due and payable and shall have, in addition to any remedies provided herein or
by any applicable law or in equity, all the remedies of a secured party under
the UCC. The Lender’s remedies include, but are not limited to, the right to (a)
peaceably by its own means or with judicial assistance enter the Debtor’s
premises and take possession of the Collateral without prior notice to the
Debtor or the opportunity for a hearing, (b) render the Collateral unusable, (c)
dispose of the Collateral on the Debtor’s premises, (d) require the Debtor to
assemble the Collateral and make it available to the Lender at a place
designated by the Lender.  Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, the Lender will give the Debtor reasonable notice of the time and place
of any public sale thereof or of the time after which any private sale or any
other intended disposition thereof is to be made.  The requirements of
commercially reasonable notice shall be met if such notice is sent to the Debtor
at least ten (10) days before the time of the intended sale or
disposition.  Expenses of retaking, holding, preparing for disposition,
disposing or the like shall include the Lender’s reasonable attorneys’ fees and
legal expenses, incurred or expended by the Lender to enforce any payment due it
under this Agreement either as against the Debtor, or in the prosecution or
defense of any action, or concerning any matter growing out of or connection
with the subject matter of this Agreement and the Collateral pledged
hereunder.  The Debtor waives all relief from all appraisement or exemption laws
now in force or hereafter enacted.

10.  Power of Attorney.  After and during the existence of an Event of Default,
the Debtor does hereby make, constitute and appoint any officer or agent of the
Lender as the Debtor’s true and lawful attorney-in-fact, with power to
(a) endorse the name of the Debtor or any of the Debtor’s officers or agents
upon any notes, checks, drafts, money orders, or other instruments of payment or
Collateral that may come into the Lender’s possession in full or part payment of
any Obligations; (b) sue for, compromise, settle and release all claims and
disputes with respect to, the Collateral; and (c) sign, for the Debtor, such
documentation required by the UCC, or supplemental intellectual property
security agreements; granting to the Debtor’s said attorney full power to do any
and all things necessary to be done in and about the premises as fully and
effectually as the Debtor might or could do.  The Debtor hereby ratifies all
that said attorney shall lawfully do or cause to be done by virtue hereof.  This
power of attorney is coupled with an interest, and is irrevocable.
 
 
 

 
 
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11.  Payment of Expenses.  Upon Debtor’s failure to do so and at Lender’s
option, the Lender may discharge taxes, liens, security interests or such other
encumbrances as may attach to the Collateral, may pay for required insurance on
the Collateral and may pay for the maintenance, appraisal or reappraisal, and
preservation of the Collateral, as determined by the Lender to be
necessary.  The Debtor will reimburse the Lender promptly upon demand for any
payment so made or any expense incurred by the Lender pursuant to the foregoing
authorization, and the Collateral also will secure any advances or payments so
made or expenses so incurred by the Lender.

12.  Preservation of Rights.  No delay or omission on the Lender’s part to
exercise any right or power arising hereunder will impair any such right or
power or be considered a waiver of any such right or power, nor will the
Lender’s action or inaction impair any such right or power.  The Lender’s rights
and remedies hereunder are cumulative and not exclusive of any other rights or
remedies which the Lender may have under other agreements, at law or in equity.

13.  Changes in Writing.  No modification, amendment or waiver of, or consent to
any departure by the Debtor from, any provision of this Agreement will be
effective unless made in a writing signed by the Lender and the Debtor, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.  No notice to or demand on the Debtor will entitle
the Debtor to any other or further notice or demand in the same, similar or
other circumstance.

14.  Entire Agreement.  This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof.

15.  Successors and Assigns.  This Agreement will be binding upon and inure to
the benefit of the Debtor and the Lender and their respective heirs, executors,
administrators, successors and assigns.

16.  Governing Law and Jurisdiction.  This Agreement will be governed by Ohio
law.  Debtor agrees that service of process may be made, and personal
jurisdiction over Debtor obtained, by serving a copy of the Summons and
Complaint upon Debtor at its address set forth in this Agreement in accordance
with the applicable laws of the State of Ohio.

17.  WAIVER OF JURY TRIAL.  EACH OF THE DEBTOR AND THE LENDER IRREVOCABLY WAIVES
ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN
CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH
DOCUMENTS.  THE DEBTOR AND THE LENDER ACKNOWLEDGE THAT THE FOREGOING WAIVER IS
KNOWING AND VOLUNTARY.

Executed as of the date first written above.

Debtor:
 
PAGOSA HEALTH LLC
an Indiana corporation

By: /s/           Lalit
Dhadphale                                                        
Print Name:  Lalit Dhadphale
Title:             President & Chief Executive Officer

Lender:
 
MELROSE CAPITAL ADVISORS, LLC

By: /s/           Timothy E.
Reilly                                                      
                       Timothy E. Reilly, Managing Member

 

 

 
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EXHIBIT “A”
TO SECURITY AGREEMENT

Locations of Collateral

62 Doughty Road, Lawrenceburg, IN 47025
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 
A - 1

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UCC-1 collateral description:

All assets and all personal property now owned and hereafter acquired and the
proceeds thereof.  All now owned and hereafter acquired inventory, equipment,
fixtures, goods, accounts (including health-care-insurance receivables and
credit card receivables), chattel paper (including electronic chattel paper),
documents, instruments, general  intangibles, trademarks and tradenames
(including but not limited to HEALTHWAREHOUSE and HEALTHWAREHOUSE.COM registered
with the U.S. Patent and Trademark Office), websites, domain names, software,
investment property, deposit accounts, letter of credit rights, payment
intangibles, supporting obligations, software, commercial tort claims, and all
rents, issues, profits and products and proceeds thereof, wherever any of the
foregoing is located.
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
UCC - 1

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