Document:

EXHIBIT 10.2

 

REVOLVING LINE OF CREDIT

PROMISSORY NOTE

	
$3,000,000.00

	
January 28, 2014

FOR VALUE RECEIVED, the undersigned, SHARPS COMPLIANCE, INC. OF TEXAS, a Texas corporation (the "Maker", whether one or more, and if more than one, jointly and severally) promises to pay to the order of [REDACTED], a [REDACTED] state chartered bank (the "Payee", together with any and all subsequent owners and holders of this Note), at its offices at [REDACTED], or such other place as Payee, in Payee's sole discretion, shall designate in writing to Maker, which at the time of payment is legal tender of the United States of America for payment of public and private debts, without offset, the principal sum of $3,000,000.00, or so much thereof as may be advanced and outstanding hereunder, together with interest thereon from and after the date hereof until maturity at a rate per annum which shall from day to day be equal to the lesser of (a) a fluctuating rate per annum (the "Contract Rate") which is equal to the Index Rate (as hereinafter defined) in effect from day to day, each such change in the Contract Rate to become effective, without notice to Maker, on the effective date of each change in the Index Rate, or (b) the Maximum Rate (as hereinafter defined); provided, however, if at any time the Contract Rate shall exceed the Maximum Rate, thereby causing the Contract Rate to be limited to the Maximum Rate, then notwithstanding any subsequent change in either the Contract Rate or the Maximum Rate that would otherwise reduce the Contract Rate to less than the Maximum Rate, the Contract Rate shall remain equal to the Maximum Rate until the total amount of interest accrued equals the amount of interest which would have accrued if the Contract Rate had at all times been in effect.  As used herein, the term "Index Rate" shall mean at any time the prime rate of interest per annum then most recently published in The Wall Street Journal's "Money Rates" table.  If more than one prime rate is quoted in the table, then the highest prime rate will be the Index Rate.  Interest on this Note shall be computed on the basis of a year of 360 days, and for the actual number of days elapsed, unless such calculation would result in a usurious rate, in which case interest shall be calculated on the per annum basis of 365 or 366 days, as the case may be.

It is expressly understood, notwithstanding any provision herein to the contrary, that this Note is a revolving line of credit Note established pursuant to the terms of a Letter Loan Agreement (the "Loan Agreement") of even date herewith, by and between Maker and Payee.  Subsequent and periodic advances in various increments will be made to Maker pursuant to the Loan Agreement up to, but in no event to exceed, the maximum of the face value hereof.  The unpaid principal balance of this Note at any time shall be the total amounts loaned or advanced hereunder by Payee, less the amount of payments or prepayments of principal made hereon by or for the account of Maker.  It is contemplated that by reason of prepayments hereon, there may be times when no indebtedness is owing hereunder; provided, notwithstanding such occurrence, this Note shall remain valid and shall be in full force and effect as to the advances made pursuant to and under the terms of this Note subsequent to such occurrence.  Each advance and each payment on account of principal or interest shall be reflected by a notation made by Payee in its records kept in the ordinary course of its business with regard to this Note.  The aggregate unpaid amount of advances reflect­ed by the notations in such records shall be deemed rebuttable presumptive evidence of the principal amount owing under this Note, which amount Maker unconditionally promises to pay to the order of Payee under the terms hereof.  In the event that the unpaid principal amount hereof at any time, for any reason, exceeds the maximum amount specified in the Loan Agreement, Maker covenants and agrees to pay the excess principal amount immedi­ately upon demand and such excess principal amount shall in all respects be deemed to be included among the advances made pursuant to the terms of this Note and shall bear interest at the rate specified above.  Interest on this Note shall accrue only on the principal advanced from the time it is so advanced, at the Contract Rate.

Interest only, accruing and to accrue on this Note, shall be due and payable monthly as it accrues, beginning 1 month from the date hereof, and continuing regularly on the same day of each succeeding calendar month thereafter until 2 years from the date hereof, when the entire amount, principal and interest then remaining unpaid, shall be due and payable.

If a payment is 10 or more days late, Maker will pay a delinquency charge in an amount equal to the greater of (i) 5.0% of the amount of the delinquent payment up to the maximum amount of $1,500.00, or (ii) $25.00.  This amount is stipulated by Maker to be reasonable in order to compensate Payee for its additional costs incurred as a result of having to attend to such delinquency.  This late charge should be paid only once, but promptly, as to each respective late payment.  It is further agreed that the imposition of any such late payment fee shall in no way prejudice or limit Payee's right or remedies against Maker under this Note or the Security Instruments (as defined below).  All payments due under this Note shall be made by Maker without offset or other reduction.  Upon an Event of Default (as defined below) and the expiration of any notice and/or cure period provided in the Loan Agreement, regardless of whether or not there has been an acceleration of the indebtedness evidenced by this Note, and at all times after the maturity of the indebtedness evidenced by this Note (whether by acceleration or otherwise), Payee, at its option, may also, if permitted under Applicable Law (as defined below), do one or both of the following: (a) increase the Contract Rate to the Maximum Rate, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased Contract Rate).

If any payment of principal or interest on this Note shall become due on a day which is not a Business Day (as defined below), such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computing of interest in connection with such payment.  In the event an installment, or the maturity date as set forth herein, is due on the 29th, 30th, or 31st day of the month, for each month which does not have a 29th, 30th, or 31st day, such installment, or the final payment, as applicable, shall be due on the last day of such month.  Payments received after Payee's cut-off times established from time to time or on weekends or bank holidays will be credited as of the next Business Day.  Any check, draft, money order or other instrument given in payment of all or any portion of this Note may be accepted by Payee and handled in collection in the customary manner, but the same shall not constitute payment or diminish any rights of Payee except to the extent that actual cash proceeds of such instrument are unconditionally received by Payee.

In the event any check, draft, money order, or other instrument or other form of remittance  used to make a payment to Payee is returned or dishonored for any reason, Maker shall pay to Payee, in addition to any other amounts to which Payee may be entitled hereunder, a reasonable processing fee of $30.00 (or the maximum amount provided from time to time in Section 3.506(b) of the Texas Business and Commerce Code, as it may be amended).  This processing fee should be paid once with respect to each return or dishonor.  It is further agreed that the imposition of any such processing fee shall in no way prejudice or limit Payee's rights or remedies against Maker under this Note or any of the Security Instruments or any other instrument.

Unless otherwise agreed in writing, or otherwise required by Applicable Law, interest on this Note will be cal­culated on the unpaid principal balance to the date each install­ment is paid and payments received will be applied in the following order of priority: (i) the payment or reimbursement of any expenses, costs, or obligations (other than the outstanding principal balance hereof and interest hereon) for which either Maker shall be obligated or Payee shall be entitled pursuant to the provisions of this Note or the other Security Instruments, (ii) the payment of accrued but unpaid interest hereon, and (iii) the payment of principal; provided, however, upon delinquency or other Event of Default, Payee reserves the right to apply installment payments among principal, interest, delinquency charges, collection costs, and other charges, at its discretion.

Maker shall have the privilege to prepay at any time, and from time to time, all or any part of the princi­pal amount of this Note, without notice, penalty or fee.  Except as expressly provided herein to the contrary, all prepayments on this Note shall be applied in the following order of priority: (i) the payment or reimbursement of any expenses, costs, or obligations (other than the outstanding principal balance hereof and interest hereon) for which either Maker shall be obligated or Payee shall be entitled pursuant to the provisions of this Note or the other Security Instruments, (ii) the payment of accrued but unpaid interest hereon, and (iii) the payment of all or any portion of the principal balance hereof then outstanding hereunder, in the inverse order of maturity.

In the event the Index Rate becomes unavailable or ceases to exist for any reason, Payee, in its sole discretion, shall designate a substi­tute Index Rate which is based upon comparable information to the prior index.  Payee shall notify Maker of the change of the index, but the failure of Payee to notify Maker shall in no way affect the calculation of the interest to accrue hereun­der or the effec­tive date of such change.

Maker agrees that upon the occurrence of any one or more of the following events of default ("Event of Default"):

(1)            failure of Maker to pay any installment of principal of or interest on this Note or on any other indebtedness of Maker to Payee when due; or

(2)            the occurrence of any event of default specified in any of the other documents evidencing, securing, governing, guaranteeing and/or pertaining to this Note including, but not limited to, the Loan Agreement and the Security Instruments;

the holder of this Note may, at its option, after the expiration of the notice and right to cure period provided in the Loan Agreement, (i) declare the outstanding principal balance of and accrued but unpaid interest on this Note at once due and payable, (ii) foreclose all liens securing payment hereof, (iii) pursue any and all other rights, remedies, and recourses available to the holder hereof, including but not limited to any such rights, remedies, or recourses under the Loan Agreement, any of the Security Instruments, or other loan documents, at law or in equity, or (iv) pursue any combination of the foregoing; PROVIDED, HOWEVER, IMMEDIATELY UPON THE OCCURRENCE OF ANY OF SUCH EVENT OF DEFAULT, PAYEE, AT ITS OPTION, MAY CEASE ALL ADVANCES ON THIS NOTE.

All makers, endorsers, sureties and guarantors hereof, as well as all other parties to become liable on this Note, hereby sever­ally: (i) except as specifically provided in the Loan Agreement,  waive notice of default, demand, notice of intent of demand, presentment for payment, notice of non‐payment, protest, notice of pro­test, grace, notice of intent to accelerate maturity, notice of accel­eration of maturity, filing of suit, diligence in collection or enforcing any of the security for this Note; (ii) except as specifically provided otherwise in the Security Instruments, agree that they are and shall be jointly, severally, directly, and primarily liable for the repayment of all sums due and owing under this Note; (iii) consent to any and all renewals, ex­tensions, and modification in the time of payment and to any other indulgence with respect to this Note; (iv) agree that Payee shall not be required first to institute suit or exhaust its remedies against Maker or others liable or to become liable on this Note, or to enforce its rights against them or any security for this Note; (v) agree to any substitution, subor­dination, exchange, or release of any security for this Note, or the release of any party primarily or secondarily liable on this Note; and (vi) acknowledge that Payee has no duty of good faith to Maker and that no fiduciary, trust, or other special relationship exists between Maker and Payee.  Maker acknowledges and agrees that it may be required to pay this Note in full without assistance from any other party, or any collateral or security for this Note.  Payee shall not be required to mitigate damages, file suit, or take any action to foreclose, proceed against, or exhaust any collateral or security in order to enforce the payment of this Note.

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Upon the occurrence of an Event of Default, and if any action is taken by Payee to enforce the terms and provisions of this Note, including, but not limited to, this Note is placed in the hands of an attorney for collection, or suit is brought on same, or this Note is collected through any Probate, Bankruptcy Court, or any judicial proceeding whatsoever, then Maker agrees and promises to pay Payee's reasonable expenses and costs, including, but not limited to, attorney's fees.

This Note, and its validity, enforcement, and interpretation, shall be governed by and construed in accordance with Applicable Law, without regard to any conflict of law rules and principles.  It is expressly provided and stipulated that notwith­standing any provision of this Note or any other instrument evidencing or securing the loan evidenced hereby, in no event shall the aggregate of all interest paid by Maker to Payee under this Note ever exceed the Maximum Rate on the principal balance of this Note from time to time advanced and remaining unpaid.  In this connection, it is expressly stip­ulated and agreed that it is the intent of Payee and Maker in the execution and delivery of this Note to contract in strict compliance with Applicable Law as defined below.  In further­ance thereof, none of the terms of this Note or any other instrument evidencing or securing the loan evidenced hereby, shall ever be construed to create a contract to pay for the use, forbearance or detention of money, at a rate in excess of the Maximum Rate permitted to be charged of Maker under Applicable Law.  Maker or any guarantors, endorsers, or other parties now or hereafter becoming liable for payment of this Note shall never be liable for interest in excess of the Maximum Rate, and the provision of this paragraph and the immediately succeeding paragraph shall govern over all other provisions of this Note and any instru­ments evidencing or securing the loan evidenced hereby, should such provisions be in apparent conflict here­with.

Specifically and without limiting the generality of the foregoing paragraph, it is expressly provided that:

(i)              In the event of prepayment of the principal of this Note (if permitted hereunder) or the payment of the principal of this Note prior to the stated maturity date hereof resulting from acceleration of maturity of this Note, if the aggregate amounts of interest accru­ing hereon prior to such payment plus the amount of any interest accruing after maturity and plus any other amounts paid or accrued in connection with the loan evi­denced hereby which by Applicable Law are deemed interest on the loan evi­denced by this Note and which aggregate amount paid or accrued (if calculated in accordance with the provisions of this Note other than this paragraph) would exceed the Maximum Rate, then in such event the amount of such excess shall be credited, as of the date paid, toward the payment of principal of this Note so as to reduce the amount of the final payment of principal due on this Note;

(ii)            If under any circumstance the aggregate amounts paid on the loan evidenced by this Note prior to and incident to the final payment hereof include amounts which by Applicable Law are deemed interest and which would exceed the Maximum Rate, Maker stipulates that such payment and collection will have been and will be deemed to have been the result of a mathematical error on the part of both Maker and Payee, and any excess shall be credited on the Note by Payee.  If this Note shall have been paid in full, Payee shall promptly refund the amount of such excess (to the extent only of the excess of such interest pay­ments above the Maximum Rate) upon the discovery of such error or notice thereof; and

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(iii)           All amounts paid or agreed to be paid in connection with the indebtedness evidenced by this Note which would under Applicable Law be deemed interest shall, to the extent provided by Applicable Law, be amortized, prorated, allocated and spread throughout the full term of this Note.

As security for this Note and all indebtedness which may at any time be owing by any Maker under this Note to Payee, upon the occurrence of an Event of Default and the expiration of any right to cure period in the Loan Agreement, each Maker grants Payee a right of setoff on any property of any Maker in Payee's possession, including, without limitation, that which Payee may hold for collection or safekeep­ing, and on any money or accounts on deposit with Payee, and Payee may retain and apply the property, money, secu­rities, or ac­counts to the payment of this Note or such other indebtedness with or without notice to any Maker.  This right of Payee is in addition to any other right of setoff which Payee may have under Applicable Law.

As used herein, the term "Applicable Law" means the laws of the State of Texas and laws of the United States of America in effect from time to time and applicable to this Note.

As used herein, the term "Business Day" shall mean any day other than a Saturday, Sunday or federal banking holiday upon which Payee is closed.

As used herein, the term "Maximum Rate" means the maximum lawful non-usurious rate of interest (if any) which, under Applicable Law, Payee is permitted to charge Maker on this Note from time to time.  It is intended that Chapter 303 of the Texas Finance Code shall be included in the laws of the State of Texas in determining Applicable Law, and including, to the extent permitted by Applicable Law, any future amendments or any new laws coming into effect in the future to the extent a higher rate of interest is permitted by any such amendment or new law.  If Applicable Law does not provide for a maximum non-usurious rate of interest, the Maximum Rate shall be 24% per annum.

Except as otherwise provided herein or required by Applicable Law, any notice or communication required or permitted hereunder to be given to either Maker or Payee pursuant to the terms hereof shall be given in writing, sent by (i) personal delivery, or (ii) expedited delivery service with proof of delivery, or (iii) United States mail, postage prepaid, registered or certified mail, return receipt requested, or (iv) facsimile (provided that such facsimile is confirmed by expedited delivery service or by United States mail in the manner previously described), addressed to Maker or Payee at the address as contained herein or to such other address as either party shall have designated by written notice, sent in accordance with this paragraph at least 30 days prior to the date of the giving of such notice.  Except as provided otherwise, any such notice or communication shall be deemed to have been given and received either at the time of personal delivery, or in the case of mail, as of the date 3 Business Days after deposit in an official depository of the United States mail, or in the case of either delivery service or facsimile, upon receipt.  To the extent actual receipt is required, rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was received shall be deemed to be receipt of the notice, demand, request or other communication sent.

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This Note is secured by all security agreements, guaranty agreements, loan agreements, collateral assignments, mortgages, deeds of trust and any other lien instruments executed by Maker, or any other party as pledgor, surety, or guarantor for Maker, in favor of Payee, includ­ing those executed simultaneously herewith, those previously executed and those hereafter executed (the "Security Instruments"), including, but not limited to, that certain Security Agreement of even date herewith, executed by Maker to Payee, covering accounts and inventory.

Where appropriate, any pertinent noun, verb or pronoun shall be construed and interpreted to include both the proper number and gender.  This Note shall not be renewed, extended, or modified except by a written instrument evidencing the same.

	
Address:

	
 

	
SHARPS COMPLIANCE, INC. OF TEXAS

	
9220 Kirby Drive, Suite 500

	
 

	
 

	
Houston, Texas 77054

	
 

	
 

	
 

	
 

	
 

	
 

	
By:

	
 

	
 

	
 

	
Diana Precht Diaz, VP/CFO

 

 

- 6 -EXHIBIT 10.3

SECURITY AGREEMENT

This Security Agreement is executed as of January 28, 2014, by Debtor in favor of Secured Party.

As used in this Security Agreement, the following underlined terms shall have the respective meanings as indicated, unless the context otherwise requires:

	
Debtor:

	
SHARPS COMPLIANCE, INC. OF TEXAS, a Texas corporation

	
 

	
 

	
Debtor's Mailing Address:

	
9220 Kirby Drive, Suite 500, Houston, Texas 77054

	
 

	
 

	
Secured Party:

	
[REDACTED] state chartered bank

	
 

	
 

	
Secured Party's Mailing Address:

	
[REDACTED]

Note:

 

	
Date:

	
Of even date herewith

	
Amount:

	
$ 3,000,000.00

	
Borrower:

	
SHARPS COMPLIANCE, INC. OF TEXAS, a Texas corporation

	
Payee:

	
[REDACTED]

	
Final Maturity Date:

	
As specified in the Note

 

	Location of Collateral:	(i)	9220 Kirby Drive, Suite 500, Houston, Texas 77054;

		(ii)	2730 Reed Road, Houston, Texas 77051; and

		(iii)	4900 St. Joe Blvd., College Park, Georgia 30337

ARTICLE I

SECURITY INTEREST

1.1       Collateral.  For value received, Debtor hereby grants to Secured Party a security interest in and agrees and acknowledges that Secured Party has and shall continue to have a security inter­est in the following described property:

A.            Accounts.  All of Debtor's Accounts (as such term is defined in the Code [as defined below]) now owned or existing, as well as any and all that may hereafter arise or be acquired by Debtor, and all the proceeds and products thereof, including without limita­tion, all notes, drafts, acceptances, instruments and chattel paper arising therefrom, and all returned or repossessed goods arising from or relating to any such accounts, or other pro­ceeds of any sale or other disposi­tion of inven­tory or other property of Debtor.

B.            Inventory.  All of Debtor's Inventory (as such term is defined in the Code), including all goods, merchan­dise, raw materials, goods in process, finished goods and other tangible personal property, wheresoever located, now owned or hereafter acquired and held for sale or lease or furnish Debtor's busi­ness and all additions and accessions thereto and contracts with respect thereto and all documents of title evidencing or representing any part thereof, and all products and proceeds thereof.

The term "Collateral" as used in this Security Agreement shall mean and include, and the security interest, pledge, and/or assignment as applicable granted herein, shall cover, all of the foregoing property, as well as (i) all of Debtor's corporate and other business books, reports, memoranda, customer lists, credit files, data compilations, and computer software, in any form, including, without limitation, whether on tape, disk, card, strip, cartridge, or any other form, pertaining to any and all of the foregoing property, and (ii) any accessions, additions and attachments thereto and the proceeds and products thereof, including without limitation, all cash, general intangibles, accounts, inventory, equipment, fixtures, farm products, notes, drafts, acceptances, securities, instru­ments, chattel paper, insurance proceeds payable because of loss or damage, or other property, benefits or rights arising therefrom, and in and to all returned or repossessed goods arising from or relating to any of the property described herein or other proceeds of any sale or other disposition of such property.

1.2          Limited License.  Without limiting the security interest granted hereby, Debtor hereby grants to Secured Party a limited license in Debtor's assignable trade names, trademarks, and service marks, together with Debtor's goodwill associated with such tradenames, trademarks, and service marks, for purposes of allowing Secured Party to use upon the occurrence of an Event of Default (as hereinafter defined) and the same in connection with any foreclosure sale or any other disposition pursuant to the Code or this Security Agreement.

ARTICLE II

OBLIGATIONS SECURED

2.1            Obligations.  The security interest granted hereby is to secure full, prompt and complete payment as and when the same becomes due and payable on the following (collectively, the "Obligations"):

A.            The Note, together with all modifications, renewals, rearrange­ments and extensions thereof.

B.            Performance of all obligations of Debtor under any instrument or agreement between Debtor and Secured Party, or among Debtor, Secured Party and any third party, pertaining to or securing the payment of the Note, including but not limited to the Letter Loan Agreement ("Loan Agreement") of even date herewith, by and between Debtor and Secured Party, together with all funds advanced by Secured Party to or for the benefit of Debtor as contemplated by any covenant or provision herein contained.

C.            All other indebtedness, of whatever kind or character, presently owing or which may hereafter become owing by Debtor and/or Borrower to Secured Party, whether such indebtedness is secured or un­secured, direct or indirect, fixed or contingent, primary or secondary, joint or several or both, and whether evi­denced by promissory note, open account, overdraft, endorse­ment, security agreement, guaran­ty, or otherwise.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF DEBTOR

3.1          Ownership.  Except for the security interest granted hereby, Debtor warrants that Debtor is the owner of the Collat­eral free of any adverse claim, security interest or encum­brance.  Debtor agrees to defend the Collateral against all claims and demands of all persons at any time claiming the same or interest therein.

3.2           No Other Liens; Authority.  There is no lien, securi­ty interest or other encumbrance on the Collateral at the time of the execution of this Security Agreement, except as previously disclosed in writing to Secured Party.  Debtor owns the Collateral and has the full right and authority to transfer the full legal interest therein to Secured Party.

3.3          Debtor's Address.  Debtor's residence (or if Debtor is a partnership, limited liability company, or corporation, its principal place of business and executive offices) is Debtor's Mailing Address.

3.4          All Information Correct.  All information con­tained herein and the statements furnished to Secured Party by a party by or on behalf of Debtor in connection with Obligations secured by this Security Agree­ment are com­plete and accurate in all material respects.

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ARTICLE IV

AFFIRMATIVE COVENANTS AND AGREEMENTS OF DEBTOR

4.1          Operation and Condition of Collateral.  Debtor agrees to maintain and use the Collateral solely in the conduct of its own business, in a careful and proper manner, and in conformi­ty with all applicable permits and licenses.  Debtor shall maintain, service and repair the Collateral so as to keep it in good operating condition.  Debtor shall replace within a reasonable time all parts that may be worn out, lost, destroyed or otherwise rendered unfit for use, with the appropriate replacement parts.

4.2          Filing.  Debtor authorizes Secured Party to file, in jurisdictions where this authorization will be given effect, a Financing Statement covering the Collateral.   Debtor will pay the cost of filing the same in all public offices wherever filing or recording is deemed by Secured Party to be necessary or desirable.

4.3          Alienation.  Except as otherwise provided in this Security Agreement, Debtor will not sell or offer to sell or otherwise transfer or encumber the Collateral or any interest therein without the written consent of Secured Party.

4.4          No Removal.  Except as otherwise provided in this Security Agreement, Debtor shall not remove the Collateral from the Location(s) of Collateral stated above, without Secured Party's prior written consent.

4.5          Inspection.  Debtor shall at all reasonable times allow Secured Party by or through any of its officers, agents, attorneys or accountants, to examine the Collateral, wherever located, and to examine and make extracts from Debtor's books and records.

4.6          Insurance.  Debtor shall have and maintain insur­ance at all times with respect to all tangible Collat­eral insuring against risk of fire (including so‐called Extended Coverage), theft and other risk as Secured Party may re­quire, containing such terms, in such form and amounts and written by such companies as may be satisfactory to Secured Party, all such insurance to contain loss payable clauses in favor of Secured Party as its inter­est may appear.  All policies of insurance shall provide for copies of such insurance policies or certificates of insurance 10 days written minimum cancellation notice to Secured Party and at the request of Secured Party shall be delivered to and held by it.  Secured Party is hereby authorized to act as attor­ney for Debtor in obtaining, adjusting, settling, and canceling such insurance and endorsing any drafts or instruments.  In the event of a loss covered by the policies of insurance, provided there exists no uncured Event of Default, the proceeds of the insurance policies will be applied first to the reimbursement of all costs and expenses incurred by Secured Party and Debtor in connection with such casualty and the balance, to the replacement or restoration of the Collateral. Debtor specif­ically authorizes Secured Party to disclose informa­tion from the policies of insurance to prospective insurers regard­ing the Collateral.

4.7          Other Liens.  Debtor will keep the Collateral free from any and all adverse liens, security interests and encum­brances.

4.8          Landlord's Waiver.  Debtor shall furnish to Secured Party, if requested, a landlord's waiver of all liens with respect to any Collateral covered by this Securi­ty Agree­ment that is or may be located upon leased premises, such landlord waiver is to be in such form and upon such terms as are acceptable to Secured Party.

4.9          Expenses.  Debtor will pay to Secured Party, on demand, all expenses and expenditures, including reasonable attorney's fees and legal expenses, reasonably and actually incurred or paid by Secured Party in exercising or protecting its interest, rights and remedies under this Security Agreement.  Debtor agrees to pay interest on such amounts at the maximum non‐usurious rate of interest permitted by Applicable Law (as defined below).

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4.10       Payment of Taxes and Fees.  Debtor shall promptly pay when due (unless they are being contested in good faith) all taxes, assessments, costs, expenses and fees necessary to preserve, protect, maintain, and collect the Collateral; defend the Collateral against all claims and demands of all persons at any time claiming an interest therein adverse to Secured Party; and in the event of a failure to do so, Debtor agrees that Secured Party may make expenditures for any and all such purposes, and the reasonable amount so expended together with interest thereon at the maximum non-usurious rate allowed by law shall constitute one of Debtor's Obligations to Secured Party secured by this Security Agreement.

ARTICLE V

ADDITIONAL PROVISIONS REGARDING ACCOUNTS

5.1          Additional Warranties.  As of the time any Account becomes subject to the security interest (or pledge or assignment as applicable) granted hereby, Debtor shall be deemed further to have warranted as to each and all of such Accounts as follows:  1. each Account and all papers and documents relating thereto are genuine and in all respects what they purport to be; 2. each Account is valid and subsisting and arises out of a bona fide sale of goods sold and deliv­ered to, or out of and for services theretofore actually rendered by Debtor to, the Account debtor named in the Account; 3. the amount of the Account represented as owing is the correct amount actually and unconditionally owing except for normal cash discounts and is not subject to any setoffs, credits, defenses, deductions or counter­charges; and 4. Debtor is the owner thereof free and clear of any charges, liens, security interests, adverse claims and encumbrances of any and every nature whatsoever.

5.2          Collection of Accounts.  Secured Party shall have the right in its own name or in the name of Debtor, after an Event of Default and the expiration of any right to cure period, to require Debtor forthwith to transmit all proceeds of collection on all Accounts to Secured Party, to notify any and all Account debtors to make pay­ments of the Ac­counts directly to Secured Party, to demand, collect, receive, receipt for, sue for, compound and give acquittal for, any and all amounts due or to become due on the Accounts and to endorse the name of Debtor on all commercial paper given in payment or part payment thereof, and in Secured Party's discretion to file any claim or take any other action or proceeding that Secured Party may deem necessary or appro­priate to protect and preserve and realize upon the Accounts and related Collateral.  Unless and until Secured Party elects to collect Accounts, and the privilege of Debtor to collect Accounts is revoked by Secured Party in writing, Debtor shall continue to collect Accounts.  In order to assure collection of Accounts in which Secured Party has a security interest (or pledge or assignment of as appli­cable) hereunder, after an Event of Default and the expiration of any right to cure period, Secured Party may notify the post office authorities to change the address for delivery of mail addressed to Debtor to such address as Secured Party may desig­nate, and to open and dispose of such mail and receive the collections of Accounts included herewith.  Secured Party shall have no duty or obligation what­soever to collect any Account, or to take any other action to preserve or protect the Collateral; however, should Secured Party elect to collect any Account or take possession of any Collateral, Debtor releases Secured Party from any claim or claims for loss or damage arising from any act or omission there­with, unless caused by fraud, gross negligence, or willful act.

5.3          Identification and Assignment of Accounts.  Upon Secured Party's request, whether before or after an Event of Default, Debtor shall take such action and execute and deliver such documents as Secured Party may reasonably request in order to identify, confirm, mark, segregate and assign Accounts and to evi­dence Secured Party's interest in same.  Without limitation of the foregoing, Debtor, upon request, agrees to assign Accounts to Secured Party, identify and mark Accounts as being subject to the security interest (or pledge or assignment as applicable) granted hereby, mark Debtor's books and records to reflect such assignments, and forthwith to transmit to Secured Party in the form as received by Debtor any and all proceeds of collection of such Accounts.

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5.4          Account Reports.  Debtor shall immedi­ately notify Secured Party of the assertion by any Account debtor of any setoff, defense or claim regarding an Account or any other matter adversely affecting an Account.

5.5          Segregation of Returned Goods.  Returned or repos­sessed goods arising from or relating to any Accounts included within the Collateral shall, if requested by Secured Party, be held separate and apart from any other property.  Debtor shall as often as requested by Secured Party, but not less often than weekly even though no special request has been made, report to Secured Party the appro­priate identifying informa­tion with respect to any such returned or repossessed goods relating to Accounts included in assign­ments or identifica­tions made pursuant hereto.

ARTICLE VI

ADDITIONAL PROVISIONS REGARDING INVENTORY

6.1          Location of Inventory.  Debtor will promptly notify Secured Party in writing of any addition to, change in or discontinuance of its place(s) of business as shown in this Security Agreement, the places at which Inventory is located as shown herein, the location of its chief execu­tive office and the location of the office where it keeps its records as set forth herein.  All Collateral will be at the Location(s) of Collateral, as modified by any written notice given pursuant hereto.

6.2          Use of Inventory.  Unless and until the privilege of Debtor to use Inventory in the ordinary course of Debtor's business is revoked by Secured Party after an Event of Default and the expiration of any applicable cure period, Debtor may use the Inventory in any manner not inconsistent with this Security Agreement, may sell that part of the Collateral consisting of Inventory provided that all such sales are in the ordinary course of busi­ness, and may use and consume any raw materials or sup­plies that are necessary in order to carry on Debtor's business.  A sale in the ordinary course of business does not include a transfer in partial or total satisfac­tion of a debt.

6.3          Accounts as Proceeds.  All Accounts that are proceeds of the Inventory included within the Collater­al shall be subject to all of the terms and provisions hereof pertain­ing to Accounts.

6.4          Protection of Inventory.  Debtor shall take all action necessary to protect and preserve the Inventory.  Debtor shall immedi­ately notify Secured Party of any matter ad­versely affecting the Inventory, including, without limitation, any event causing loss or depreciation in the value of the Inventory and the amount of such possible loss or depreciation.

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

7.1          Event of Default.  Debtor shall be in default under this Security Agreement upon the happening of any of following events or conditions (an "Event of Default"):

A.            Default in the prompt payment when due, of the Obligations, or any part thereof.

B.            The failure to keep and perform (or failure to furnish evidence of the performance of) any of the covenants or agreements contained herein or in any other document evidencing or securing payment of, or otherwise relating to, the Obligations including, but not limited to any Event of Default specified in the Loan Agreement.

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7.2          Remedies and Rights.  Upon the occurrence of any of the Events of Default and the expiration of any right to cure period provided in the Loan Agreement, Secured Party may take any 1 or more of the following actions:

A.           Any or all of the Obligations shall become immedi­ately due and payable without presentment, demand, notice of intention to accelerate, notice of accele­ration, notice of non‐payment, protest, notice of dishonor, or any other notice whatsoever to Debtor, all of which are hereby expressly waived by Debtor, or any other person obligated thereon, and Secured Party shall have and may exercise, with reference to the Collateral and Obliga­tions, any and all of the rights and reme­dies of a secured party under the Code, and as otherwise granted herein or under any other Applicable Law or under any other agreement executed by Debtor (all of which rights and reme­dies shall be cumulative).

B.            With regard to that portion of the Collateral consist­ing of cash or cash equivalent items (i.e., checks or other items convertible at face) Secured Party may immediately apply them against the Obliga­tions, and for this purpose, Debtor agrees that such items will be con­sidered identical in character to cash proceeds.

C.            Secured Party will have the right immediately and without further action by it to set‐off against the Obliga­tions all money owed by Secured Party in any capacity to Debtor, including any such sums owed under property that is included in the Collateral, such as certificates of deposit, or demand, savings or passbook accounts, whether or not due, and Secured Party will be deemed to have exercised such right of set off and to have made a charge against any such money at the time of any acceleration upon an Event of Default even though such charge is made or entered on Secured Party's books subsequent thereto.

D.           As regards to that portion of the Collateral other than cash or cash equivalent items, unless such portion is perishable or threatens to decline speedily in value or is of the type customarily sold in a recognized market, Secured Party shall have, without limita­tion, the right and power to sell, at public or private sale or sales, or otherwise dispose of or utilize the Collateral and any part or parts thereof in any manner authorized or permit­ted under this Security Agreement or under the Code and to apply the proceeds thereof toward payment of any costs, expenses, and legal expenses thereby incurred by Secured Party and toward payment of the Obliga­tions, in such order or manner as Secured Party may elect.  To the extent permitted by law, Debtor expressly waives any notice of sale or other disposi­tion of the Collat­eral and any other rights or remedies of Debtor or formalities prescribed by law relative to sale or disposition of the Collat­eral or exercise of any other right or remedy of Secured Party existing after an Event of Default hereunder; and, to the extent any such notice is required and cannot be waived, Debtor agrees that if such notice is given as provided below at least 20 days before the time of the sale or disposition, such notice shall be deemed reason­able and shall fully satisfy any requirement for giving of notice.  Specifically, Debtor agrees that Secured Party shall have the right to sell the Collateral at public or private sale to the highest bidder for cash and Secured Party shall transfer to the Purchaser at such sale the Collateral, together with all liens, rights, titles, equities and interests in and to the Collateral and their recitals in such transfer shall be prima facie evidence of the truth of the matters therein stated and all prerequi­sites to such sale required hereunder and under the laws of this state shall be presumed to have been per­formed.  Secured Party shall have the right to purchase at any public sale or sales, being the highest bidder therefor, for credit against the Obligations.  In the event the Collat­eral is sold at a public sale pursuant to the pro­visions hereof, Debtor expressly agrees that the sale will be conclusively deemed to have been conducted in a "commercially reasonable manner", as that term is used in the Code.  All of the collections or proceeds from the sale or disposi­tion of the Collateral will be applied by Secured Party, first to the payment of the reasonable and bona fide expenses of said sale or disposition, including reasonable attorney's fees, if any, and then to the due payment of the principal, inter­est and attorney's fees due and unpaid upon the Obliga­tions, rendering the balance, if any, and sur­plus, if any, to the person or persons legally entitled thereto under the Code, but if there be any deficiency, Debtor shall remain liable therefor.

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E.            Demand, sue for, collect or make any compromise or settle­ment Secured Party deems desirable with reference to the Collateral.  Secured Party shall not be obligated to take any steps necessary to preserve any rights in the Collateral against prior parties all which shall be the responsibility of Debtor.

ARTICLE VIII

MISCELLANEOUS

8.1          Waiver.  No delay or omission on the part of Secured Party in exercising any rights hereunder shall operate as a waiver of any such right or any other right.  A waiver on any one or more occasions shall not be construed as a bar to or waiver of any right or remedy on any future occasion.

8.2          Applicable Law.  The law of the State of Texas and the United States (the "Applicable Law") shall govern this Security Agreement and its construction and interpretation shall be enforceable in the county of the Location of Collateral.  As used herein, the term "Code" shall mean the Uniform Commercial Code of Texas in effect as of the date of execution hereof and any amendment to the Uniform Commercial Code of Texas to become effective after the date of execution hereof.

8.3          Interest Rate.  It is the intention of the parties hereto to comply with the Applicable Law.  Accordingly, it is agreed that notwithstanding any provisions to the contrary in the Note, any instrument evidencing the Obligations, or in any of the documents or instruments securing payment of the Obligations or otherwise relating thereto, in no event shall the Note or such documents require the payment or permit the collection of interest in excess of the maximum amount permitted by such Applicable Law.  If any such excess of interest is contracted for, charged or received, under the Note or any instrument evidencing the Obligations, under this Security Agreement or under the terms of any of the other documents securing payment of the Obliga­tions or otherwise relating thereto, or if the maturity of any of the Obligations is accelerated in whole or in part, or if all or part of the principal or interest of the Obligations shall be prepaid, so that under any of such circumstances, the amount of interest contracted for, charged or received, under the Note or any instruments evidencing the Obligations, under this Security Agreement or under any of the instrument securing payment of the Obligations or otherwise relating thereto, on the amount of principal actually outstanding from time to time under the Note and other instruments evidencing the Obligations shall exceed the maximum amount of interest permitted by applicable usury laws, then in any such event (a) the provisions of this paragraph shall govern and control, (b) neither Debtor nor any other person or entity now or hereafter liable for the payment of the Note or any instrument evidencing the Obligations, shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable usury laws; (c) any such excess that may have been collected shall be either applied as a credit against the then unpaid principal amount of the Note or refunded to Debtor, at Secured Party's option and (d) the effec­tive rate of interest shall be automatically reduced to the maximum non-usurious rate allowed under Applicable Law as now or hereafter construed by the courts having jurisdiction thereof.  It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under the Note, or any instrument evidencing the Obligations, under this Security Agreement or under such other documents that are made for the purpose of determining whether such rate exceeds the maximum non-usurious applicable rate, shall be made, to the extent permitted, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the loans evidenced by the Note or the instruments evidencing the Obligations, all interest at any time contracted for, charged or received from Debtor or otherwise by the holder or holders hereof in connection with such loans or Obligations.

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8.4          Binding Effect.  All rights of Secured Party here­under shall inure to the benefit of Secured Party's succes­sors and assigns; and all Obligations of Debtor shall bind Debtor's heirs, executors, administrators, successors and/or assigns.  If this Security Agreement is executed by more than one Debtor, the Obligations of each party constitut­ing Debtor, shall be joint and several.

8.5          Cumulative Rights.  The rights and remedies of Secured Party hereunder are cumulative, and the exercise of any one or more of the remedies provided herein shall not be construed as a waiver of any of the other remedies of Secured Party.

8.6          Notices.  Except as otherwise provided herein or required by applicable law, any notice or communication required or permitted hereunder to be given to either Debtor or Secured Party pursuant to the terms hereof shall be given in writing, sent by (i) personal delivery, or (ii) expedited delivery service with proof of delivery, or (iii) United States mail, postage prepaid, registered or certified mail, return receipt requested, or (iv) facsimile (provided that such facsimile is confirmed by expedited delivery service or by United States mail in the manner previously described), addressed to Debtor or Secured Party at the address as contained herein or to such other address as either party shall have designated by written notice, sent in accordance with this paragraph at least 30 days prior to the date of the giving of such notice.  Except as provided otherwise, any such notice or communication shall be deemed to have been given and received either at the time of personal delivery, or in the case of mail, as of the date 3 business days after deposit in an official depository of the United States mail, or in the case of either delivery service or facsimile, upon receipt.  To the extent actual receipt is required, rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was received shall be deemed to be receipt of the notice, demand, request or other communication sent.

 

8.7          Termination.  The security interest hereby granted and all the terms and provisions hereof shall be deemed a continuing security agreement and shall continue in full force and effect, and all the terms and provisions hereof shall remain effective until the repayment of all Obligations secured hereby and the specific release hereof by Secured Party.

8.8          Prior Agreements.  This Security Agreement and the security interest herein granted are in addition to, and not in substitution, novation or discharge of, any and all prior or contemporaneous security agreements and security interests in favor of Secured Party or assigned to Secured Party by others.  All rights, powers and remedies of Secured Party in all such security agreements are cumula­tive, but in the event of actual conflict in terms and conditions, the terms and conditions of the latest security agreement shall govern and control.

8.9          Invalidity.  Any provision found to be invalid under Applicable Law shall be invalid only with respect to the offending provision.

IN WITNESS WHEREOF, the undersigned has duly executed this Security Agreement as of the date of the acknowledg­ment(s) set forth below, to be effective for all purposes, however, as of the date first above written.

	 	
DEBTOR:

	 		
	 	
SHARPS COMPLIANCE, INC. OF TEXAS

		 	 
		
By:

	 
			
Diana Precht Diaz, VP/CFO

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THE STATE OF TEXAS

	
 

	
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'

 

	
COUNTY OF

	
 

	
'

 

This instrument was acknowledged before me on the ___ day of  _________________, 2014, by Diana Precht Diaz, VP/CFO, for and on behalf of SHARPS COMPLIANCE, INC. OF TEXAS, a Texas corporation, for and on behalf of such corporation.

		
		
NOTARY PUBLIC, STATE OF TEXAS

 

 

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