Document:

Exhibit 10.3 Security Agreement Final

EXHIBIT 10.3

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this "Agreement") is made and entered into effective as of October 15, 2013 by WESSCO, LLC, a Delaware limited liability company ("Debtor"), and THE BANK OF KENTUCKY, INC., a Kentucky banking corporation, its successors and assigns, as secured party ("Secured Party").

R E C I T A L S:

A.Secured Party has agreed to loan the following to Debtor: (i) a secured line of credit loan in the principal amount of up to of One Million and 00/100 DOLLARS ($1,000,000.00) (the "Line of Credit Loan"), and (ii) a secured term loan in the amount of Three Million and 00/100 DOLLARS ($3,000,000.00) (the "Equipment Loan") (collectively, the "Loan"). 

B.    As a condition precedent to Secured Party's extension of the Loan to Debtor and in consideration therefor, Secured Party has required the execution and delivery of, among other things: (i) this Agreement, (ii) that certain Promissory Note of even date herewith from Debtor to the order of Secured Party in the principal amount of up of One Million and 00/100 DOLLARS ($1,000,000.00), (iii) that certain Promissory Note of even date herewith from Debtor to the order of Secured Party in the principal amount of Three Million and 00/100 DOLLARS ($3,000,000.00) (collectively referred to herein as, the "Note"), and (iv) various other Loan Documents (as defined in the Note).
D.    Debtor: (i) will or is expected to benefit from the Loan, (ii) understands that Secured Party would not make the Loan to Debtor but for the execution and delivery of this Agreement, (iii) acknowledges that this Agreement is being executed and delivered to Secured Party in exchange for valuable consideration which is legally sufficient to support and justify Debtor’s obligations hereunder, and (iv) has knowingly and voluntarily executed and delivered this Agreement to Secured Party after having had the opportunity to review the same with legal counsel.  

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, Debtor and Secured Party hereby agree and covenant as follows:

1.    Debtor does hereby grant to Secured Party a security interest in all personal property owned by Debtor, including, without limitation, the property described in Exhibits A, B, C, and D, attached hereto and made a part hereof and any and all accessions thereto and the proceeds thereof (collectively, the "Collateral").  The security interest granted pursuant to this Security Agreement is given by Debtor to Secured Party to secure (a) the payment of the Loan and all interest, late charges, LIBOR breakage charges , prepayment premiums, if any, exit fee, if any, interest rate swap or hedge expenses (if any), reimbursement obligations, fees and expenses for letters of credit issued by the Secured Party for the benefit of the Debtor, if any, and other indebtedness evidenced by or owing under the Note, any of the other Loan Documents, and any application for letters of credit and master letter of credit agreement, together with any extensions, modifications, renewals 

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or refinancings of any of the foregoing; (b) the obligations and liabilities of the Debtor to the Secured Party under and pursuant to (i) that certain ISDA Master Agreement and any and all schedules and exhibits thereto, dated as of October 7, 2013, executed by and between the Debtor and the Secured Party, as amended from time to time, together with interest thereon at the Default Rate (as defined in the Note), and (ii) any other interest rate, currency or commodity swap agreement, cap agreement or collar agreement, executed by and between the Debtor and the Secured Party from time to time (collectively, “Interest Rate Agreements”), (c) the performance and observance of the covenants, conditions, agreements, representations, warranties and other liabilities and obligations of the Debtor or any other obligor to or benefiting the Secured Party which are evidenced or secured by or otherwise provided in the Note, this Agreement or any of the other Loan Documents; and (d) the reimbursement to the Secured Party of any and all sums incurred, expended or advanced by the Secured Party pursuant to any term or provision of or constituting additional indebtedness under or secured by this Agreement, any of the other Loan Documents or any Interest Rate Protection Products or Interest Rate Protection Documents (as such terms are defined in the Note) or any application for letters of credit and master letter of credit agreement, with interest thereon as provided herein or therein.
 
2.    Debtor hereby represents, warrants, and covenants to Secured Party that: 
         
		
	A.
	The Collateral is or is to be used by the Debtor primarily for business use.  

B.    The Collateral will be kept in the Commonwealth of Kentucky except such of the Collateral as is subject to third party Agreements and Miscellaneous Agreements, and the Other Agreements (as such terms are defined in Exhibits A and D, respectively (“Third Party Agreements”), in which cases the Collateral shall be kept in the location(s) described in each Third Party Agreement.  The Debtor’s principal place of business is located in the Commonwealth of Kentucky.  Debtor will promptly notify Secured Party of any change in the location of the Collateral and Debtor will not remove the Collateral from the above described locations without the written consent of the Secured Party.  The Debtor shall not change its name, its principal place of business or its state of organization or registration or merge with another entity without first providing written notice to Secured Party.
      
C.    Except for the security interest granted herein, Debtor is the owner of the Collateral free from any prior lien, security interest or encumbrance other than the interests described in the Third Party Agreements, and Debtor will defend the Collateral against all claims and demands of any and all persons at any time claiming the same or any other interest therein.
         
D.     Except in the ordinary course of business for reasonable consideration, Debtor will not sell, exchange, lease or otherwise dispose of any interest in the Collateral without the written consent of the Secured Party and will not permit any lien, security interest or encumbrance to attach to the Collateral.
         

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E.     No financing statement covering the Collateral is on file in any public office and, at the request of Secured Party, Debtor will join with Secured Party in executing and/or authorizing one or more financing statements pursuant to the Uniform Commercial Code of Kentucky in form satisfactory to the Secured Party and Debtor will pay the cost of filing in all public offices wherever filing is deemed necessary by Secured Party. A carbon, photographic or other reproduction of this Agreement or a financing statement will be sufficient as a financing statement.
         
F.    Debtor will maintain the Collateral in good condition and repair; will maintain insurance on the Collateral with a coverage amount at least equal to the replacement value of the Collateral against fire, theft, and such other hazards and in such form and amount as Secured Party may require (but in no event less than replacement value of such Collateral as described in Exhibit A hereto) and for the benefit of Debtor and Secured Party as their interest shall appear and will pay and discharge all taxes imposed on the Collateral. Debtor assigns to Secured Party all right to proceeds of any insurance not exceeding the unpaid balance hereunder, and directs any insurer to pay all proceeds directly to Secured Party and authorizes Secured Party to indorse any draft for the proceeds. Such policy or policies (or certificates thereof) shall be delivered to the Secured Party and shall be with a company or companies satisfactory to Secured Party.
         
G.    At its option, Secured Party may discharge taxes, liens or other encumbrances at any time levied or placed on the Collateral, pay for insurance on the Collateral, and pay for the maintenance and preservation of the Collateral should Debtor fail to do so. Debtor agrees to reimburse Secured Party on demand for any payment so made and until such reimbursement, the amount so paid by Secured Party shall be added to the principal amount of the indebtedness.
         
H.    Upon happening of any of the following events or conditions: (a) a default in the payment or performance of any of the obligations or of any covenant or liability contained or referred to in the Note or any of the other Loan Documents; (b) loss, theft, destruction, sale or encumbrance of or to the Collateral; (c) death, dissolution, termination of existence, insolvency, business failure, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceedings under any bankruptcy or insolvency laws by or against Debtor; or (d) any default under the terms hereunder; Secured Party may at its election, declare the entire amount of the indebtedness then outstanding under the Note and other Loan Documents due and payable at once and Secured Party shall have the rights and remedies of a secured party under any applicable Uniform Commercial Code, including the right to enter any premises of the Debtor, without legal process and take possession of and remove the Collateral and the right to act in Debtor’s place under any of the Third Party Contracts. Debtor agrees, upon request of the Secured Party, to assemble the Collateral and to make it available at the place designated by Secured Party. Any requirement of reasonable notice of any disposition of the Collateral shall be satisfied if such notice is mailed to the address of the Debtor shown in this Agreement at least ten (10) days before the time of such disposition.
         

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3.    No waiver by Secured Party of any default shall be effective unless in writing nor 
shall operate as a waiver of any other default or of the same default on a subsequent occasion. Secured Party is hereby authorized to fill any blank spaces hereunder. All rights of Secured Party hereunder shall inure to the benefit of the heirs, executors, administrators, successors and assigns of Secured Party; and all obligations of Debtor shall bind the heirs, executors, administrators, successors and assigns of Debtor. If there is more than one Debtor, their obligations hereunder shall be joint and several. This Agreement constitutes the entire agreement between the parties.  This Agreement shall be governed by Kentucky law.  
4.    Any notice that Secured Party or Debtor is required or entitled to give to the other party hereunder shall be in writing and shall be deemed given when sent by certified mail, return receipt requested, postage prepaid or upon receipt, if hand delivered or sent by facsimile, at the addresses specified below:

		
	Secured Party:
	The Bank of Kentucky, Inc.

111 Lookout Farm Drive
Crestview Hills, Kentucky 41017
Attn:  Brett Blackwell
    
With a copy to:        Strauss Troy Co., LPA
50 E. Rivercenter Blvd., Suite 1400
Covington, KY   41011
Attn:  William O. Williamson, Esq.

Debtor:            Wessco, LLC
7100 Grade Lane
Louisville, KY 40213
Attn:  Orson Oliver
    
With a copy to:        Frost Brown Todd LLC
400 West Market Street, 32nd Floor
Louisville, KY 40202
Attn: John S. Egan, Esq. 

The addresses set forth above may be changed as to any party by such party delivering to the other parties written notice as to such change of address.

5.    Upon the payment in full of all amounts secured by this Security Agreement, Secured Party agrees that it will promptly terminate this Agreement and cause, at Debtor’s reasonable expense, all financing statements filed to perfect Secured Party’s security interest in the Collateral to be released.    

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6.    DEBTOR AND SECURED PARTY (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITION-ALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO THIS INSTRUMENT, THE NOTE, ANY OTHER LOAN DOCUMENT OR ANY RELATIONSHIP BETWEEN DEBTOR AND SECURED PARTY.  THIS PROVISION IS A MATERIAL INDUCEMENT TO SECURED PARTY TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER RELATED DOCUMENTS.  THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY SECURED PARTY'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN THIS INSTRUMENT, ANY NOTE OR ANY OTHER GUARANTY OF PAYMENT, AGREEMENT, INSTRUMENT OR DOCUMENT RELATED THERETO.

7.This Agreement may be executed in one or more original or facsimile counterparts, each of which, when taken together, shall constitute a single enforceable instrument.

Executed effective as of the date first set forth above.   

[SIGNATURE PAGES FOLLOW]

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SIGNATURE PAGE OF SECURED PARTY FOR SECURITY AGREEMENT

                
THE BANK OF KENTUCKY INC., a Kentucky                     banking corporation
    

By:    /s/ Brett N. Blackwell            
Printed Name:  Brett N. Blackwell        
Title:    Vice President Commercial Banking  
                

STATE OF KENTUCKY    )
)  SS.
COUNTY OF KENTON    )

The undersigned, a Notary Public in and for the said County, in the State aforesaid, DO HEREBY CERTIFY that Brett N. Blackwell, the Vice President Commercial Banking of The Bank of Kentucky, Inc., a Kentucky banking corporation, who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such, appeared before me this day in person and acknowledged that he signed and delivered the said instrument as his own free and voluntary act and as the free and voluntary act of said entity, for the uses and purposes therein set forth.

GIVEN under my hand and notarial seal this ____ day of ____________, 2013.

______________________________________
Notary Public

My Commission Expires:            

 

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SIGNATURE PAGE OF DEBTOR FOR SECURITY AGREEMENT

WESSCO, LLC, a Delaware limited liability company 

By:    Industrial Services of America, Inc., a 
Florida corporation, its Manager

By:    /s/ Alan Schroering                    
Printed Name:     Alan Schroering            
Title:    Interim Chief Financial Officer and VP of Finance   

STATE OF KENTUCKY    )
)  SS.
COUNTY OF KENTON    )

The undersigned, a Notary Public in and for the said County, in the State aforesaid, DO HEREBY CERTIFY that Alan Schroering, the Interim Chief Financial Officer and VP of Finance on behalf of Industrial Services of America, Inc., a Florida corporation, which corporation is the Manger on behalf of Wessco, LLC, a Delaware corporation, who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such, appeared before me this day in person and acknowledged that he/she signed and delivered the said instrument as his/her own free and voluntary act and as the free and voluntary act of said company, for the uses and purposes therein set forth.

GIVEN under my hand and notarial seal this ____ day of ____________, 2013.

______________________________________
Notary Public

My Commission Expires:            

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EXHIBIT A
TO
SECURITY AGREEMENT

                    
	
		
	Debtor:

Wessco, LLC
7100 Grade Lane
Louisville, KY 40213
            
	Secured Party:

The Bank of Kentucky, Inc.
111 Lookout Farm Drive
Crestview Hills, Kentucky 41017

Collateral Description

All of Debtor's right, title and interest in and to the following:

1.    The equipment described on Exhibit B, attached hereto and incorporated herein by reference (the “Equipment’);

2.    The agreements described on Exhibit C, attached hereto and incorporated herein by reference (the “Agreements”);

3.    All agreements (“Miscellaneous Agreements”) between or among Debtor and other persons related to the Equipment or the Agreements, including, without limitation, all of the following to the extent produced by or from or otherwise related to the Equipment or the Agreements: (a) all monies, revenues, rent, rent equivalents, receipts, deposits, letters of credit, income and profits due and to become due to Debtor thereunder; (b) all claims, demands, and causes of action that Debtor has now or which may arise in the future; (c) all rights and options, including, without limitation, the full power and authority possessed by Debtor to exercise the same pursuant to their terms; (d) all permits, approvals, and consents, previously granted and those granted in the future; (e) all plans, reports, appraisals, investigations, and examinations; (f) all licenses; and (g) all leases to or from Debtor whether existing now or in the future;

4.    (a)    that certain Promissory Note from Industrial Services of America, Inc., a Florida corporation, payable to the order of Debtor, dated  October 15, 2013, in the maximum principal amount of $3,000,000.00 (said note and any and all renewals, amendments, modifications, additions supplements, increases and extensions thereof are hereinafter collectively called the “Assigned Note”), including without limitation rights to receive payments to which Debtor is or may become entitled under the Assigned Note and to enforce compliance by each and every party or any one or more of them with the Assigned Note, and with all or any of the terms and provisions thereof,  and to make all waivers, modifications and agreements, to give all notices, consents and releases, to take all action upon the 

Exhibit A
-1-

happening of any default or event of default or equivalent giving rise to a right in favor of Debtor under the Assigned Note and to do any and all other things whatsoever which Debtor is or may become entitled to do under the Assigned Note; and 

(b)    all monies due and to become due under the Assigned Note and all proceeds and products thereof;

5.    The other property described on Exhibit D, attached hereto and incorporated herein by reference; and 

6.    To the extent not otherwise included, all proceeds and products of any of the foregoing.

Exhibit A
-2-

EXHIBIT B
TO
SECURITY AGREEMENT

(List/Description of Equipment)

Exhibit B
-1-

Exhibit B
-2-

Exhibit B
-3-

Exhibit B
-4-

Exhibit B
-5-

Exhibit B
-6-

EXHIBIT C
TO
SECURITY AGREEMENT
(List/Description of Agreements)

Exhibit C
-1-

Exhibit C
-2-

Exhibit C
-3-

Exhibit C
-4-

Exhibit C
-5-

Exhibit C
-6-

	
					
	WESSCO CURRENT EQUIPMENT RENTALS BY RENTAL NUMBER

	RENTAL #
	EQUIPMENT DESCRIPTION
	TERM
	START
	END

	100917
	Apt. Style compactor
	60
	6/1/2013
	6/1/2018

	100918
	Apt. Style compactor
	60
	6/1/2013
	6/1/2018

	100919
	6 Yard VIP
	60
	6/15/2013
	6/15/2018

	100920
	Cram A Lot Baler - # 5 Mac
	60
	7/1/2013
	7/1/2018

	100920
	Cram A Lot Baler - # 4 J5
	60
	7/15/2013
	7/15/2018

	100920
	Cram A Lot Baler - 3 4 L-15
	60
	7/1/2013
	7/1/2108

	100920
	Cram A Lot Baler - #2 N-9
	60
	7/1/2013
	7/1/2018

	100920
	Cram A Lot Baler - 31 Plastic N-9
	60
	7/1/2013
	7/1/2018

	100922
	Baler
	60
	8/8/2013
	8/8/2018

	100923
	Pre-Crusher compactor
	60
	8/15/2013
	8/15/2018

	100923
	Compactor
	60
	8/15/2013
	8/15/2018

	100924
	30 Yard Self contained compactor
	60
	8/1/2013
	8/1/2018

	100925
	6 Yd VIP Rear Feed
	60
	9/1/2013
	9/1/2018

	100926
	2 Yard Stationary compactor
	60
	8/15/2013
	8/15/2018

	100927
	3 Yard Stationary compactor
	60
	9/15/2013
	9/15/2018

	100928
	Baler
	60
	10/1/2013
	10/1/2018

Exhibit C
-7-

EXHIBIT D
TO
SECURITY AGREEMENT

All Accounts, Other Equipment, General Intangibles, Intellectual Property, Inventory, Deposit Accounts, all products and proceeds thereof, and the items set forth in subparagraph (h) below, whether now owned or existing or hereafter acquired or arising.  The following definitions apply to the terms used in this Financing Statement:

(a)    Accounts - All accounts, accounts receivable, other receivables, contract rights, chattel paper, instruments and documents, and notes; any other obligations or indebtedness owed to Debtor from whatever source arising; all rights of Debtor to receive any performance or any payments in money or kind; all guaranties of the foregoing and security therefor; all of the right, title and interest of Debtor in and with respect to the goods, services, or other property that gave rise to or that secure any of the foregoing and insurance policies and proceeds relating thereto, and all rights of Debtor as an unpaid seller of goods and services, including but not limited to, the rights to stoppage in transit, replevin, reclamation, and resale; and all of the foregoing whether now owned or existing or hereafter created or acquired (the "Accounts").

(b)    Other Equipment - All of Debtor's now owned or hereafter acquired machinery, equipment, furniture, furnishings and fixtures, together with tools and motor vehicles of every kind and description, all parts therefor, and all improvements, accessions or appurtenances thereto (the "Other Equipment").

(c)    General Intangibles - All choses in action and causes of action and all other intangible personal property of Debtor of every kind and nature (other than Accounts) now owned or hereafter acquired by Debtor, including, without limitation, corporate or other business records, trademarks, trade names, brand names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, tax refund claims, insurance proceeds, including without limitation, insurance covering the lives of key employees on which the Debtor is beneficiary, and any letter of credit, guarantee, claim, security interest or other security held by or granted to Debtor to secure payment by an account debtor of any of the Accounts (the "Intangibles").

(d)    Intellectual Property - All of Debtor's present and future: trade secrets and other proprietary information; trademarks, service marks and business names and the goodwill of the business relating thereto; copyrights (including without limitation copyrights for computer programs) and all tangible property embodying the copyrights; unpatented inventions (whether or not patentable); patent applications and patents, license agreements related to any of the foregoing and income therefrom; books, records, computer tapes or disks, flow diagrams, specification sheets, source codes, object codes and other physical manifestations of the foregoing; the right to sue for all past, present and future infringements of the foregoing; and proceeds of the foregoing (the "Intellectual Property").

Exhibit D
-1-

(e)    Inventory - Any and all now owned or hereafter acquired goods, merchandise, or other personal property, raw materials, parts, supplies, work-in-process and finished products intended for sale, of every kind and description, in the custody or possession, actual or constructive, of Debtor, including such inventory as is temporarily out of the custody or possession of Debtor, including insurance proceeds from insurance on any of the above, any returns upon any Accounts and other proceeds, resulting from the sale or disposition of any of the foregoing, including without limitation, raw materials, work-in-process, and finished goods (the "Inventory").

(f)    Deposit Accounts - All deposit accounts of Debtor maintained with Secured Party or any other bank, savings and loan association, credit union or like organization, including all demand, time, savings, passbook or other accounts.

(g)    All products and proceeds of the collateral described in this Exhibit D and all additions and accessions to, replacements of, insurance or condemnation proceeds of, and documents covering said collateral, all property received wholly or partly in trade or exchange for said collateral, and all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance, collection, or any other temporary or permanent disposition of, said collateral or any interest therein.

(h)    In addition, all ledger sheets, books, records and documents concerning any of the collateral described in this Exhibit D, including all formulations, manufacturing procedures, quality control procedures, product specifications, computer records, programs, storage media and computer software useful or required in connection therewith.

Exhibit D
-2-Exhibit 10.4 Guaranty of Payment

EXHIBIT 10.4

GUARANTY OF PAYMENT 

This GUARANTY OF PAYMENT is dated as of October 15, 2013 (this “Guaranty”), and executed by INDUSTRIAL SERVICES OF AMERICA, INC., a Florida corporation, (the “Guarantor”), to and for the benefit of THE BANK OF KENTUCKY, INC., a Kentucky banking corporation, (the “Lender”).

R E C I T A L S:

A.The Lender has agreed to make two loans in the principal amount of Three Million and 00/100 Dollars ($3,000,000.00) and One Million Dollars and 00/100 Dollars ($1,000,000.00) (collectively, the “Loan”) to WESSCO, LLC, a Delaware limited liability company, (the “Borrower.)  

B.As a condition precedent to the Lender’s extension of the Loan to the Borrower and in consideration therefor, the Lender has required the execution and delivery of (i) this Guaranty by the Guarantor, (ii) one or more Promissory Notes dated even date herewith, executed by the Borrower and made payable to the order of the Lender (collectively, the “Note”) evidencing the Loan, (iii) that certain Security Agreement dated as of even date herewith, executed by the Borrower to and for the benefit of the Lender (the “Security Agreement”) encumbering the property described therein (the “Collateral”), and (iv) the other Loan Documents (as defined in the Note).

C.Guarantor is the manager and sole member of the Borrower and, having a financial interest in the Collateral, has agreed to execute and deliver this Guaranty to the Lender.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by Guarantor and hereby agrees as follows:

A G R E E M E N T S:

1.Guaranty of Payment.  Guarantor hereby unconditionally, absolutely and irrevocably guaranties to the Lender the punctual payment and performance when due, whether at stated maturity or by acceleration or otherwise, of the indebtedness and other obligations of the Borrower to the Lender evidenced by the Note, any interest rate management agreement and any other amounts that may become owing by the Borrower under the Loan Documents (such indebtedness, obligations and other amounts are hereinafter referred to as “Payment Obligations”).  This Guaranty is a present and continuing guaranty of payment and not of collectability, and the Lender shall not be required to prosecute collection, enforcement or other remedies against the Borrower or guarantor of the Payment Obligations, or to enforce or resort to any collateral for the repayment of the Payment Obligations or other rights or remedies pertaining thereto, before calling the Guarantor for payment.  If for any reason the Borrower shall fail or be unable to pay, punctually and fully, any of the Payment Obligations, the Guarantor shall pay such obligations to the Lender in full immediately upon demand.  One or more successive actions may be brought against the Guarantor, as often as the Lender deems advisable, until all of the Payment Obligations are paid and performed in full.  The Payment Obligations, together with all other payment and performance obligations of the Guarantor hereunder, are referred to herein as the “Obligations”.

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2.Representations and Warranties.  The following shall constitute representations and warranties of the Guarantor, and the Guarantor hereby acknowledges that the Lender intends to make the Loan in reliance thereon:

(a)Guarantor is not in default, and no event has occurred which, with the passage of time and/or the giving of notice, would constitute a default, under any agreement to which any Guarantor is a party, the effect of which will impair performance by such Guarantor of its obligations under this Guaranty.  Neither the execution and delivery of this Guaranty nor compliance with the terms and provisions hereof will violate any applicable law, rule, regulation, judgment, decree or order, or will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of any indenture, mortgage, deed of trust, instrument, document, agreement or contract of any kind that creates, represents, evidences or provides for any lien, charge or encumbrance upon any of the property or assets of the Guarantor, or any other indenture, mortgage, deed of trust, instrument, document, agreement or contract of any kind to which the Guarantor is a party or to which the Guarantor or the property of such Guarantor may be subject.

(b)There are no litigation, arbitration, governmental or administrative proceedings, actions, examinations, claims or demands pending, or to the knowledge of the Guarantor, threatened that could adversely affect performance by the Guarantor of its obligations under this Guaranty.

(c)Neither this Guaranty nor any statement or certification as to facts previously furnished or required herein to be furnished to the Lender by any of the Guarantor, contains any material inaccuracy or untruth in any representation, covenant or warranty or omits to state a fact material to this Guaranty.

3.Continuing Guaranty.  Guarantor agrees that the performance of the Obligations by the Guarantor shall be a primary obligation, shall not be subject to any counterclaim, set-off, abatement, deferment or defense based upon any claim that the Guarantor may have against the Lender, the Borrower, any other guarantor of the Obligations or any other person or entity, and shall remain in full force and effect without regard to, and shall not be released, discharged or affected in any way by, any circumstance or condition (whether the Guarantor shall have any knowledge thereof), including without limitation:

(a)any lack of validity or enforceability of any of the Loan Documents;

(b)any termination, amendment, modification or other change in any of the Loan Documents, including, without limitation, any modification of the interest rate(s) described therein;

(c)any furnishing, exchange, substitution or release of any collateral securing repayment of the Loan, or any failure to perfect any lien in such collateral;

(d)any failure, omission or delay on the part of the Borrower, the Guarantor, any other guarantor of the Obligations or the Lender to conform or comply with any term of any of the Loan Documents or any failure of the Lender to give notice of any Event of Default (as defined in the Note);

(e)any waiver, compromise, release, settlement or extension of time of payment or performance or observance of any of the obligations or agreements contained in any of the Loan Documents;

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(f)any action or inaction by the Lender under or in respect of any of the Loan Documents, any failure, lack of diligence, omission or delay on the part of the Lender to perfect, enforce, assert or exercise any lien, security interest, right, power or remedy conferred on it in any of the Loan Documents, or any other action or inaction on the part of the Lender;

(g)any voluntary or involuntary bankruptcy, insolvency, reorganization, arrangement, readjustment, assignment for the benefit of creditors, composition, receivership, liquidation, marshalling of assets and liabilities or similar events or proceedings with respect to the Borrower, any Guarantor or any other guarantor of the Obligations, as applicable, or any of their respective property or creditors, or any action taken by any trustee or receiver or by any court in any such proceeding;

(h)any merger or consolidation of the Borrower into or with any entity, or any sale, lease or transfer of any of the assets of the Borrower, any Guarantor or any other guarantor of the Obligations to any other person or entity;

(i)any change in the ownership of the Borrower or any change in the relationship between the Borrower, the Guarantor or any other guarantor of the Obligations, or any termination of any such relationship;

(j)any release or discharge by operation of law of the Borrower, the Guarantor or any other guarantor of the Obligations from any obligation or agreement contained in any of the Loan Documents; or

(k)any other occurrence, circumstance, happening or event, whether similar or dissimilar to the foregoing and whether foreseen or unforeseen, which otherwise might constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or which otherwise might limit recourse against the Borrower or the Guarantor to the fullest extent permitted by law.

4.Waivers.  Guarantor expressly and unconditionally waives (i) notice of any of the matters referred to in Section 3 above, (ii) all notices which may be required by statute, rule of law or otherwise, now or hereafter in effect, to preserve intact any rights against the Guarantor, including, without limitation, any demand, presentment and protest, proof of notice of non-payment under any of the Loan Documents and notice of any Event of Default or any failure on the part of the Borrower, the Guarantor or any other guarantor of the Obligations to perform or comply with any covenant, agreement, term or condition of any of the Loan Documents, (iii) any right to the enforcement, assertion or exercise against the Borrower,  the Guarantor or any other guarantor of the Obligations of any right or remedy conferred under any of the Loan Documents, (iv) any requirement of diligence on the part of any person or entity, (v) any requirement on the part of the Lender to exhaust any remedies or to mitigate the damages resulting from any default under any of the Loan Documents, and (vi) any notice of any sale, transfer or other disposition of any right, title or interest of the Lender under any of the Loan Documents.

5.Subordination.  Guarantor agrees that any and all present and future debts and obligations of the Borrower to the Guarantor are hereby subordinated to the claims of the Lender and are hereby assigned by the Guarantor to the Lender as security for the Obligations and the obligations of the Guarantor under this Guaranty.

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6.Subrogation Waiver.  Until the Obligations are paid in full and all periods under applicable bankruptcy law for the contest of any payment by the Guarantor or the Borrower as a preferential or fraudulent payment have expired, the Guarantor knowingly, and with advice of counsel, waives, relinquishes, releases and abandons all rights and claims to indemnification, contribution, reimbursement, subrogation and payment which the Guarantor may now or hereafter have by and from the Borrower and the successors and assigns of the Borrower, for any payments made by the Guarantor to the Lender, including, without limitation, any rights which might allow the Borrower, the Borrower’s successors, a creditor of the Borrower, or a trustee in bankruptcy of the Borrower to claim in bankruptcy or any other similar proceedings that any payment made by the Borrower or the Borrower’s successors and assigns to the Lender was on behalf of or for the benefit of the Guarantor and that such payment is recoverable by the Borrower, a creditor or trustee in bankruptcy of the Borrower as a preferential payment, fraudulent conveyance, payment of an insider or any other classification of payment which may otherwise be recoverable from the Lender.

7.Reinstatement.  The obligations of the Guarantor pursuant to this Guaranty shall continue to be effective or automatically be reinstated, as the case may be, if at any time payment of any of the Obligations or the obligations of the Guarantor under this Guaranty is rescinded or otherwise must be restored or returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Guarantor or the Borrower or otherwise, all as though such payment had not been made.

8.Financial Statements.  Guarantor represents and warrants to the Lender that (a) the financial statements of such Guarantor previously submitted to the Lender are true, complete and correct in all material respects, disclose all actual and contingent liabilities, and fairly present the financial condition of such Guarantor, and do not contain any untrue statement of a material fact or omit to state a fact material to the financial statements submitted or this Guaranty, and (b) no material adverse change has occurred in the financial statements from the dates thereof until the date hereof.  Guarantor covenants and agrees to furnish to the Lender or its authorized representatives information regarding the business affairs, operations and financial condition of such Guarantor, including, but not limited to, (i) promptly when available, and in any event, within thirty (30) days after the close of its fiscal year, a copy of the annual audited financial statements of such Guarantor, including balance sheet, statement of income and retained earnings, statement of cash flows for the fiscal year then ended and such other information (including nonfinancial information) as the Lender may reasonably request, in reasonable detail, prepared and certified without adverse reference to going concern value and without qualification by an independent auditor of recognized standing, selected by such Guarantor and reasonably acceptable to the Lender; and (ii) promptly when available, and in any event, within  thirty (30) days following the end of each fiscal quarter, a copy of the financial statements of such Guarantor regarding such fiscal quarter, including balance sheet, statement of income and retained earnings, statement of cash flows for the fiscal quarter then ended and such other information (including nonfinancial information) as the Lender may reasonably request, in reasonable detail, prepared and certified as true and correct by such Guarantor’s treasurer or chief financial officer.  

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9.Transfers; Sales, Etc.  Guarantor shall not sell, lease, transfer, convey or assign any of its assets, unless such sale, lease, transfer, conveyance or assignment is performed in the ordinary course of its business consistent with past practices, and will not have a material adverse effect on the business or financial condition of the Guarantor or its ability to perform its obligations hereunder. In addition, Guarantor shall not either (i) become a party to any merger or consolidation, or (ii) except in the ordinary course of its business consistent with past practices, acquire all or substantially all of the assets of, a controlling interest in the stock of, or a partnership or joint venture interest in, any other entity.

10.Enforcement Costs.  If:  (a) this Guaranty, is placed in the hands of one or more attorneys for collection or is collected through any legal proceeding; (b) one or more attorneys is retained to represent the Lender in any bankruptcy, reorganization, receivership or other proceedings affecting creditors’ rights and involving a claim under this Guaranty, or (c) one or more attorneys is retained to represent the Lender in any other proceedings whatsoever in connection with this Guaranty, then the Guarantor shall pay to the Lender upon demand all fees, costs and expenses incurred by the Lender in connection therewith, including, without limitation, reasonable attorney’s fees, court costs and filing fees (all of which are referred to herein as the “Enforcement Costs”), in addition to all other amounts due hereunder.

11.Successors and Assigns; Joint and Several Liability.  This Guaranty shall inure to the benefit of the Lender and its successors and assigns.  This Guaranty shall be binding on the Guarantor and its heirs, legatees, successors and assigns, as the case may be.  Guarantor agrees and acknowledges that the liability of the Guarantor hereunder is independent of any other guarantees or other obligations at any time in effect with respect to the Obligations or any part thereof, and that the liability of the Guarantor hereunder may be enforced regardless of the existence, validity, enforcement or non-enforcement of any such other guarantees or other obligations

12.No Waiver of Rights.  No delay or failure on the part of the Lender to exercise any right, power or privilege under this Guaranty or any of the other Loan Documents shall operate as a waiver thereof, and no single or partial exercise of any right, power or privilege shall preclude any other or further exercise thereof or the exercise of any other power or right, or be deemed to establish a custom or course of dealing or performance between the parties hereto. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.  No notice to or demand on any of the Guarantor in any case shall entitle any of the Guarantor to any other or further notice or demand in the same, similar or other circumstance.

13.Modification.  The terms of this Guaranty may be waived, discharged, or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.  No amendment, modification, waiver or other change of any of the terms of this Guaranty shall be effective without the prior written consent of the Lender.

14.Joinder.  Any action to enforce this Guaranty may be brought against any of the Guarantor without any reimbursement or joinder of the Borrower, any other Guarantor or any other guarantor of the Obligations in such action.

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15.Severability.  If any provision of this Guaranty is deemed to be invalid by reason of the operation of law, or by reason of the interpretation placed thereon by any administrative agency or any court, the Guarantor and the Lender shall negotiate an equitable adjustment in the provisions of the same in order to effect, to the maximum extent permitted by law, the purpose of this Guaranty and the validity and enforceability of the remaining provisions, or portions or applications thereof, shall not be affected thereby and shall remain in full force and effect.

16.Applicable Law.  This Guaranty is governed as to validity, interpretation, effect and in all other respects by laws and decisions of the State of Kentucky.

17.Notices.  All notices, communications and waivers under this Guaranty shall be in writing and shall be (a) delivered in person, (b) mailed, postage prepaid, either by registered or certified mail, return receipt requested, or (c) sent by overnight express carrier, addressed in each case as follows:
	
			
	To the Lender:
	 
	The Bank of Kentucky, Inc.                          111 Lookout Farm                                Crestview Hills, KY 41017                          Attn:  Commercial Real Estate 

	
			
	With a copy to:
	 
	Strauss Troy Co., LPA
50 East Fourth Street, Suite 1400
Covington, KY 41011
Attn:  Bill Williamson, Esq.

	 
	 
	 

	To the Guarantor:
	 
	Industrial Services of America, Inc. 
7100 Grade Lane
Louisville, KY 40213
Attn: Orson Oliver 

	 
	 
	 

	With a copy to:
	 
	Frost Brown Todd LLC
400 West Market Street, 32nd Floor
Louisville, KY 40202
Attn: John S. Egan, Esq.

or to any other address as to any of the parties hereto, as such party shall designate in a written notice to the other parties hereto.  All notices sent pursuant to the terms of this Section shall be deemed received (i) if personally delivered, then on the date of delivery, (ii) if sent by overnight, express carrier, then on the next federal banking day immediately following the day sent, or (iii) if sent by registered or certified mail, then on the earlier of the third federal banking day following the day sent or when actually received.

18.CONSENT TO JURISDICTION.  TO INDUCE THE LENDER TO ACCEPT THIS GUARANTY, GUARANTOR IRREVOCABLY AGREES THAT, SUBJECT TO THE LENDER’S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF OR RELATED TO THIS GUARANTY WILL BE LITIGATED IN COURTS HAVING SITUS IN CRESTVIEW HILLS, KENTUCKY.  GUARANTOR HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY COURT LOCATED WITHIN CRESTVIEW HILLS, KENTUCKY, WAIVES PERSONAL SERVICE OF PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO THE GUARANTOR AT THE ADDRESSES STATED HEREIN AND SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT.

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19.WAIVER OF DEFENSES.  OTHER THAN CLAIMS BASED UPON THE FAILURE OF THE LENDER TO ACT IN A COMMERCIALLY REASONABLE MANNER, GUARANTOR WAIVES EVERY PRESENT AND FUTURE DEFENSE (OTHER THAN THE DEFENSE OF PAYMENT IN FULL), CAUSE OF ACTION, COUNTERCLAIM OR SETOFF WHICH THE GUARANTOR OR THE BORROWER MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY LENDER IN ENFORCING THIS GUARANTY OR ANY OF THE LOAN DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWER.

20.WAIVER OF JURY TRIAL.  GUARANTOR AND THE LENDER (BY ACCEPTANCE HEREOF), HAVING BEEN REPRESENTED BY COUNSEL, KNOWINGLY AND VOLUNTARILY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH AND AGREES THAT ANY SUCH ACTION OR PROCEEDING WILL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. GUARANTOR AGREES THAT SUCH GUARANTOR WILL NOT ASSERT ANY CLAIM AGAINST THE LENDER ON ANY THEORY OF LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES.

21.Counterparts; Facsimile Signatures.  This Guaranty may be executed in any number of counterparts, all of which shall be taken to be one and the same instrument, for the same effect as if all parties hereto had signed the same signature page.  Receipt of an executed signature page to this Guaranty by facsimile or other electronic transmission shall constitute effective delivery thereof.

22.Security for Guaranty.  This Guaranty is secured by that certain Assignment of Promissory Note as Collateral Security (“Assignment of Note”) given by Guarantor to Lender and dated effective as of even date herewith.  The Assignment of Note shall be deemed for all purposes to be one of the “Loan Documents” as such term is further defined in the Note.

23.Distributions From Borrower.  Guarantor represents and warrants to Lender that Guarantor, as a member of Borrower, shall not authorize or carry out any distributions by Borrower to Guarantor during any period in which either Borrower or Guarantor is in default, beyond applicable notice and cure periods, if any, under the Loan Documents and, absent any default, shall not authorize or carry out any distributions by Borrower during any period in which the Fixed Charge Coverage Ratio (defined in the $3,000,000.00 Note) is not in compliance with Section 15.3 of said Note; provided, however, by its acceptance of this Guaranty, Lender hereby consents to a single distribution by Borrower to Guarantor, on the effective date of this Guaranty, of the proceeds of the $3,000,000.00 Loan to Borrower.

24.    Statutory Compliance Provision.  For purposes of KRS § 371.065, the maximum aggregate liability of the Guarantor hereunder for the Payment Obligations is $4,000,000, and the termination date of this Guaranty, unless sooner terminated by Lender in writing, is October 31, 2019, except that such termination date shall not affect the liability of the Guarantor with respect to (i) obligations created or incurred prior to such date or (ii) extensions or renewals of, interest accruing on, or fees, costs or expenses, including reasonable attorneys’ fees, incurred with respect to, such obligations on or after such date.

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IN WITNESS WHEREOF, the Guarantor has executed this Guaranty of Payment as of the date first above written.
INDUSTRIAL SERVICES OF AMERICA, INC., 
a Florida corporation

By:         /s/ Alan Schroering             
Printed Name:       Alan Schroering     
Title:         Interim Chief Financial Officer and VP of Finance     

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