Exhibit 10.3
 
 
MISCOR GROUP, LTD. AND CERTAIN OF ITS SUBSIDIARIES
MASTER SECURITY AGREEMENT
 

To:
Laurus Master Fund, Ltd.
 
c/o M&C Corporate Services Limited
 
P.O. Box 309 GT
 
Ugland House
 
South Church Street
 
George Town
 
Grand Cayman, Cayman Islands

 
Date: May 31, 2006
 
To Whom It May Concern:
 
1.  To secure the payment of all Obligations (as hereafter defined), MISCOR
Group, Ltd., an Indiana corporation (the “Company”), each of the other
undersigned parties (other than Laurus Master Fund, Ltd., (“Laurus”)) and each
other entity that is required to enter into this Master Security Agreement (each
an “Assignor” and, collectively, the “Assignors”) hereby assigns and grants to
Laurus a continuing security interest in all of the following property now owned
or at any time hereafter acquired by such Assignor, or in which such Assignor
now has or at any time in the future may acquire any right, title or interest
(the “Collateral”): all cash, cash equivalents, accounts, accounts receivable,
deposit accounts , inventory, equipment, goods, fixtures, documents, instruments
(including, without limitation, promissory notes), contract rights, commercial
tort claims set forth on Exhibit B to this Master Security Agreement, general
intangibles (including, without limitation, payment intangibles and an absolute
right to license on terms no less favorable than those current in effect among
such Assignor’s affiliates), chattel paper, supporting obligations, investment
property (including, without limitation, all partnership interests, limited
liability company membership interests and all other equity interests owned by
any Assignor), letter-of-credit rights, trademarks, trademark applications,
tradestyles, patents, patent applications, copyrights, copyright applications
and other intellectual property in which such Assignor now has or hereafter may
acquire any right, title or interest, all proceeds and products thereof
(including, without limitation, proceeds of insurance) and all additions,
accessions and substitutions thereto or therefor. In the event any Assignor
wishes to finance the acquisition in the ordinary course of business of any
hereafter acquired equipment and has obtained a written commitment from an
unrelated third party financing source to finance such equipment, Laurus shall
release its security interest on such hereafter acquired equipment so financed
by such third party financing source. Except as otherwise defined herein, all
capitalized terms used herein shall have the meanings provided such terms in the
Security Agreement referred to below. All items of Collateral which are defined
in the UCC shall have the meanings set forth in the UCC.  For purposes hereof,
the term "UCC"  means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, that in the event that,
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of, or remedies with respect to, Laurus' security
interest in any Collateral is governed

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by the Uniform Commercial Code as in effect in a jurisdiction other than the
State of New York, the term “UCC” shall mean the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions of this
Agreement relating to such attachment, perfection, priority or remedies and for
purposes of definitions related to such provisions; provided further, that to
the extent that the UCC is used to define any term herein and such term is
defined differently in different Articles or Divisions of the UCC, the
definition of such term contained in Article or Division 9 shall govern.
 
2.  The term “Obligations” as used herein shall mean and include all debts,
liabilities and obligations owing by (i) each Assignor to Laurus arising under,
out of, or in connection with: that certain Guaranty made by Assignors in favor
of Laurus on the date hereof (the “Guaranty”); (ii) Magnetech Industrial
Services of Alabama, LLC (“MIS”) under that certain Security Agreement dated as
of the date hereof between MIS and Laurus (the “Security Agreement”) and (iii)
the Ancillary Agreements referred to in the Security Agreement (the Security
Agreement and each Ancillary Agreement, as each may be amended, modified,
restated or supplemented from time to time, collectively, the “Documents”), and
in connection with any documents, instruments or agreements relating to or
executed in connection with the Documents or any documents, instruments or
agreements referred to therein or otherwise, and in connection with any other
indebtedness, obligations or liabilities of each such Assignor to Laurus,
whether now existing or hereafter arising, direct or indirect, liquidated or
unliquidated, absolute or contingent, due or not due and whether under, pursuant
to or evidenced by a note, agreement, guaranty, instrument or otherwise,
including, without limitation, obligations and liabilities of each Assignor for
post-petition interest, fees, costs and charges that accrue after the
commencement of any case by or against such Assignor under any bankruptcy,
insolvency, reorganization or like proceeding (collectively, the “Debtor Relief
Laws”) in each case, irrespective of the genuineness, validity, regularity or
enforceability of such Obligations, or of any instrument evidencing any of the
Obligations or of any collateral therefor or of the existence or extent of such
collateral, and irrespective of the allowability, allowance or disallowance of
any or all of the Obligations in any case commenced by or against any Assignor
under any Debtor Relief Law.
 
3.  Each Assignor hereby jointly and severally represents, warrants and
covenants to Laurus that:
 
(a)  it is a corporation, partnership or limited liability company, as the case
may be, validly existing, in good standing and formed under the respective laws
of its jurisdiction of formation set forth on Schedule A, and each Assignor will
provide Laurus thirty (30) days’ prior written notice of any change in any of
its respective jurisdiction of formation;
 
(b)  its legal name is as set forth in its Articles of Incorporation or other
organizational document (as applicable) as amended through the date hereof and
as set forth on Schedule A, and it will provide Laurus thirty (30) days’ prior
written notice of any change in its legal name;
 
(c)  its organizational identification number (if applicable) is as set forth on
Schedule A hereto, and it will provide Laurus thirty (30) days’ prior written
notice of any change in its organizational identification number;

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(d)  it is the lawful owner of its Collateral and it has the sole right to grant
a security interest therein and will defend the Collateral against all claims
and demands of all persons and entities;
 
(e)  it will keep its Collateral free and clear of all attachments, levies,
taxes, liens, security interests and encumbrances of every kind and nature
(“Encumbrances”), except (i) Encumbrances securing the Obligations, (ii)
Encumbrances subordinated to Encumbrances securing the Obligations, provided
that such subordination is made under (A) the Subordination Agreement dated
August 24, 2005 among John Martell, Patricia Minehardt, Strasbourger Pearson
Tulcin Wolff Inc. (“Strasbourger”) and Laurus, (B) the Subordination Agreement
dated the date hereof among John Martell, Patricia Minehardt, Strasbourger and
Laurus, or (C) terms and conditions satisfactory to Laurus, or (iii)
Encumbrances securing indebtedness of each such Assignor not to exceed $50,000
in the aggregate for all such Assignors so long as all such Encumbrances are
removed or otherwise released to Laurus’ satisfaction within ten (10) days of
the creation thereof;
 
(f)  it will, at its and the other Assignors’ joint and several cost and expense
keep the Collateral in good state of repair (ordinary wear and tear excepted)
and will not waste or destroy the same or any part thereof other than ordinary
course discarding of items no longer used or useful in its or such other
Assignors’ business;
 
(g)  it will not, without Laurus’ prior written consent, sell, exchange, lease
or otherwise dispose of any Collateral, whether by sale, lease or otherwise,
except for the sale of inventory in the ordinary course of business and for the
disposition or transfer in the ordinary course of business during any fiscal
year of obsolete and worn-out equipment or equipment no longer necessary for its
ongoing needs, having an aggregate fair market value of not more than $150,000
and only to the extent that:
 
(i)  the proceeds of each such disposition are used to acquire replacement
Collateral which is subject to Laurus’ first priority perfected security
interest, or are used to repay the Obligations or to pay general corporate
expenses; or
 
(ii)  following the occurrence of an Event of Default which continues to exist
the proceeds of which are remitted to Laurus to be held as cash collateral for
the Obligations;
 
(h)  it will insure or cause the Collateral to be insured in Laurus’ name (as an
additional insured and loss payee) against loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as Laurus shall
specify in amounts and under policies by insurers acceptable to Laurus and all
premiums thereon shall be paid by such Assignor and the policies delivered to
Laurus. If any such Assignor fails to do so, Laurus may procure such insurance
and the cost thereof shall be promptly reimbursed by the Assignors, jointly and
severally, and shall constitute Obligations;
 
(i)  it will at all reasonable times allow Laurus or Laurus’ representatives
free access to and the right of inspection of the Collateral;

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(j)  such Assignor (jointly and severally with each other Assignor) hereby
indemnifies and saves Laurus harmless from all loss, costs, damage, liability
and/or expense, including reasonable attorneys’ fees, that Laurus may sustain or
incur to enforce payment, performance or fulfillment of any of the Obligations
and/or in the enforcement of this Master Security Agreement or in the
prosecution or defense of any action or proceeding either against Laurus or any
Assignor concerning any matter growing out of or in connection with this Master
Security Agreement, and/or any of the Obligations and/or any of the Collateral
except to the extent caused by Laurus’ own gross negligence or willful
misconduct (as determined by a court of competent jurisdiction in a final and
nonappealable decision); and
 
(k)  all commercial tort claims (as defined in the Uniform Commercial Code as in
effect in the State of New York) held by any Assignor are set forth on Schedule
B to this Master Security Agreement; each Assignor hereby agrees that it shall
promptly, and in any event within five (5) Business Days after the same is
acquired by it, notify Laurus of any commercial tort claim acquired by it and
unless otherwise consented to in writing by Laurus, it shall enter into a
supplement to this Master Security Agreement granting to Laurus a security
interest in such commercial tort claim, securing the Obligations.
 
4.  The occurrence of any of the following events or conditions shall constitute
an “Event of Default” under this Master Security Agreement:
 
(a)  any covenant or any other term or condition of this Master Security
Agreement is breached by an Assignor in any material respect and such breach, to
the extent subject to cure, shall continue without remedy for a period of
fifteen (15) days after the occurrence thereof;
 
(b)  any representation, warranty or statement made or furnished to Laurus under
this Master Security Agreement by any Assignor or on any Assignor’s behalf
should prove at any time to be false or misleading in any material respect on
the date as of which made or deemed made;
 
(c)  the loss, theft, substantial damage, destruction, sale or encumbrance to or
of any of the Collateral or the making of any levy, seizure or attachment
thereof or thereon except to the extent:
 
(i)  such loss is covered by insurance proceeds which are used to replace the
item or repay Laurus; or
 
(ii)  said levy, seizure or attachment does not secure indebtedness in excess of
$100,000 in the aggregate for all Assignors and such levy, seizure or attachment
has been removed or otherwise released within ten (10) days of the creation or
the assertion thereof;
 
(d)  an Event of Default shall have occurred under and as defined in any
Document.

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5.  Upon the occurrence of any Event of Default and at any time thereafter,
Laurus may declare all Obligations immediately due and payable and Laurus shall
have the remedies of a secured party provided in the UCC as in effect in the
State of New York, this Agreement and other applicable law. Upon the occurrence
of any Event of Default and at any time thereafter, Laurus will have the right
to take possession of the Collateral and to maintain such possession on any
Assignor’s premises or to remove the Collateral or any part thereof to such
other premises as Laurus may desire. Upon Laurus’ request, each Assignor shall
assemble or cause the Collateral to be assembled and make it available to Laurus
at a place designated by Laurus. If any notification of intended disposition of
any Collateral is required by law, such notification, if mailed, shall be deemed
properly and reasonably given if mailed at least ten (10) days before such
disposition, postage prepaid, addressed to the applicable Assignor either at
such Assignor’s address shown herein or at any address appearing on Laurus’
records for such Assignor. Any proceeds of any disposition of any of the
Collateral shall be applied by Laurus to the payment of all expenses in
connection with the sale of the Collateral, including reasonable attorneys’ fees
and other legal expenses and disbursements and the reasonable expenses of
retaking, holding, preparing for sale, selling, and the like, and any balance of
such proceeds may be applied by Laurus toward the payment of the Obligations in
such order of application as Laurus may elect, and each Assignor shall be liable
for any deficiency. For the avoidance of doubt, following the occurrence and
during the continuance of an Event of Default, Laurus shall have the immediate
right to withdraw any and all monies contained in any deposit account in the
name of any Assignor and controlled by Laurus and apply same to the repayment of
the Obligations (in such order of application as Laurus may elect). The parties
hereto each hereby agree that the exercise by any party hereto of any right
granted to it or the exercise by any party hereto of any remedy available to it
(including, without limitation, the issuance of a notice of redemption,
a borrowing request and/or a notice of default), in each case, hereunder, under
the Security Agreement or under any other Ancillary Agreement which has been
publicly filed with the SEC shall not constitute confidential information and
no party shall have any duty to the other party to maintain such information as
confidential.
 
6.  If any Assignor defaults in the performance or fulfillment of any of the
terms, conditions, promises, covenants, provisions or warranties on such
Assignor’s part to be performed or fulfilled under or pursuant to this Master
Security Agreement, Laurus may, at its option without waiving its right to
enforce this Master Security Agreement according to its terms, immediately or at
any time thereafter and without notice to any Assignor, perform or fulfill the
same or cause the performance or fulfillment of the same for each Assignor’s
joint and several account and at each Assignor’s joint and several cost and
expense, and the cost and expense thereof (including reasonable attorneys’ fees)
shall be added to the Obligations and such cost and expense shall be payable on
demand with interest thereon at the highest rate permitted by law, or, at
Laurus’ option, debited by Laurus from any other deposit accounts in the name of
any Assignor and controlled by Laurus.
 
7.  Each Assignor appoints Laurus, any of Laurus’ officers, employees or any
other person or entity whom Laurus may designate as such Assignor’s attorney,
with power to execute such documents in each such Assignor’s behalf and to
supply any omitted information and correct patent errors in any documents
executed by any Assignor or on any Assignor’s behalf; to file financing
statements against such Assignor covering the Collateral (and, in connection
with

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the filing of any such financing statements, describe the Collateral as “all
assets and all personal property, whether now owned and/or hereafter acquired”
(or any substantially similar variation thereof)); to sign such Assignor’s name
on public records; and to do all other things Laurus deem necessary to carry out
this Master Security Agreement. Each Assignor hereby ratifies and approves all
acts of the attorney and neither Laurus nor the attorney will be liable for any
acts of commission or omission, nor for any error of judgment or mistake of fact
or law other than gross negligence or willful misconduct (as determined by a
court of competent jurisdiction in a final and non-appealable decision). This
power being coupled with an interest, is irrevocable so long as any Obligations
remain unpaid.
 
8.  No delay or failure on Laurus’ part in exercising any right, privilege or
option hereunder shall operate as a waiver of such or of any other right,
privilege, remedy or option, and no waiver whatever shall be valid unless in
writing, signed by Laurus and then only to the extent therein set forth, and no
waiver by Laurus of any default shall operate as a waiver of any other default
or of the same default on a future occasion. Laurus’ books and records
containing entries with respect to the Obligations shall be admissible in
evidence in any action or proceeding and shall constitute prima facie proof
thereof. Laurus shall have the right to enforce any one or more of the remedies
available to Laurus, successively, alternately or concurrently. Each Assignor
agrees to join with Laurus in executing such documents or other instruments to
the extent required by the UCC in form satisfactory to Laurus and in executing
such other documents or instruments as may be required or deemed necessary by
Laurus for purposes of affecting or continuing Laurus’ security interest in the
Collateral.
 
9.  The Assignors shall jointly and severally pay all of Laurus’ out-of-pocket
costs and expenses, including reasonable fees and disbursements of in-house or
outside counsel and appraisers, in connection with the preparation, execution
and delivery of the Documents, and in connection with the prosecution or defense
of any action, contest, dispute, suit or proceeding concerning any matter in any
way arising out of, related to or connected with any Document. The Assignors
shall also jointly and severally pay all of Laurus’ reasonable fees, charges,
out-of-pocket costs and expenses, including reasonable fees and disbursements of
counsel and appraisers, in connection with (a) the preparation, execution and
delivery of any waiver, any amendment thereto or consent proposed or executed in
connection with the transactions contemplated by the Documents, (b) Laurus’
obtaining performance of the Obligations under the Documents, including, but not
limited to the enforcement or defense of Laurus’ security interests, assignments
of rights and liens hereunder as valid perfected security interests, (c) any
attempt to inspect, verify, protect, collect, sell, liquidate or otherwise
dispose of any Collateral, (d) any appraisals or re-appraisals of any property
(real or personal) pledged to Laurus by any Assignor as Collateral for, or any
other Person as security for, the Obligations hereunder and (e) any
consultations in connection with any of the foregoing. The Assignors shall also
jointly and severally pay Laurus’ customary bank charges for all bank services
(including wire transfers) performed or caused to be performed by Laurus for any
Assignor at any Assignor’s request or in connection with any Assignor’s loan
account (if any) with Laurus. All such costs and expenses together with all
filing, recording and search fees, taxes and interest payable by the Assignors
to Laurus shall be payable on demand and shall be secured by the Collateral. If
any tax by any nation or government, any state or other political subdivision
thereof, and any agency, department or other entity exercising executive,
legislative, judicial, regulatory or administrative

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functions of or pertaining to government (each, a “Governmental Authority”) is
or may be imposed on or as a result of any transaction between any Assignor, on
the one hand, and Laurus on the other hand, which Laurus is or may be required
to withhold or pay, the Assignors hereby jointly and severally indemnify and
hold Laurus harmless in respect of such taxes, and the Assignors will repay to
Laurus the amount of any such taxes which shall be charged to the Assignors’
account; and until the Assignors shall furnish Laurus with indemnity therefor
(or supply Laurus with evidence satisfactory to it that due provision for the
payment thereof has been made), Laurus may hold without interest any balance
standing to each Assignor’s credit (if any) and Laurus shall retain its liens in
any and all Collateral.
 
10.  THIS MASTER SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS. All of the rights, remedies, options, privileges and
elections given to Laurus hereunder shall inure to the benefit of Laurus’
successors and assigns. The term “Laurus” as herein used shall include Laurus,
any parent of Laurus’, any of Laurus’ subsidiaries and any co-subsidiaries of
Laurus’ parent, whether now existing or hereafter created or acquired, and all
of the terms, conditions, promises, covenants, provisions and warranties of this
Agreement shall inure to the benefit of each of the foregoing, and shall bind
the representatives, successors and assigns of each Assignor.
 
11.  Each Assignor hereby consents and agrees that the state of federal courts
located in the County of New York, State of New York shall have exclusive
jurisdiction to hear and determine any claims or disputes between Assignor, on
the one hand, and Laurus, on the other hand, pertaining to this Master Security
Agreement or to any matter arising out of or related to this Master Security
Agreement, provided, that Laurus and each Assignor acknowledges that any appeals
from those courts may have to be heard by a court located outside of the County
of New York, State of New York, and further provided, that nothing in this
Master Security Agreement shall be deemed or operate to preclude Laurus from
bringing suit or taking other legal action in any other jurisdiction to collect,
the Obligations, to realize on the Collateral or any other security for the
Obligations, or to enforce a judgment or other court order in favor of Laurus.
Each Assignor expressly submits and consents in advance to such jurisdiction in
any action or suit commenced in any such court, and each Assignor hereby waives
any objection which it may have based upon lack of personal jurisdiction,
improper venue or forum non conveniens. Each Assignor hereby waives personal
service of the summons, complaint and other process issues in any such action or
suit and agrees that service of such summons, complaint and other process may be
made by registered or certified mail addressed to such assignor at the address
set forth on the signature lines hereto and that service so made shall be deemed
completed upon the earlier of such Assignor’s actual receipt thereof or three
(3) days after deposit in the U.S. mails, proper postage prepaid.
 
The parties desire that their disputes be resolved by a judge applying such
applicable laws. Therefore, to achieve the best combination of the benefits of
the judicial system and of arbitration, the parties hereto waive all rights to
trial by jury in any action, suite, or proceeding brought to resolve any
dispute, whether arising in contract, tort, or otherwise between Laurus,

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and/or any Assignor arising out of, connected with, related or incidental to the
relationship established between them in connection with this Master Security
Agreement or the transactions related hereto.
 
12.  It is understood and agreed that any person or entity that desires to
become an Assignor hereunder, or is required to execute a counterpart of this
Master Security Agreement after the date hereof pursuant to the requirements of
any Document, shall become an Assignor hereunder by (x) executing a Joinder
Agreement in form and substance satisfactory to Laurus, (y) delivering
supplements to such exhibits and annexes to such Documents as Laurus shall
reasonably request and (z) taking all actions as specified in this Master
Security Agreement as would have been taken by such Assignor had it been an
original party to this Master Security Agreement, in each case with all
documents required above to be delivered to Laurus and with all documents and
actions required above to be taken to the reasonable satisfaction of Laurus.
 
13.  Assignors hereby acknowledge that the obligations and liabilities secured
by that certain Pledge Agreement dated as of August 24, 2005 between Assignors
and Laurus (as amended, modified or supplemented, the “Pledge Agreement”) shall
include, without limitation, all Obligations described herein, and hereby
ratifies and confirms the security interest granted by Assignor to Laurus set
forth in the Pledge Agreement.
 
14.  All notices from Laurus to any Assignor shall be sufficiently given if
mailed or delivered to such Assignor’s address set forth below.

 
 
Very truly yours,
 
MISCOR GROUP, LTD.
             
By:
/s/ John A. Martell  
Name:
John A. Martell  
Its:
President        
Address:
1125 S. Walnut Street
   
South Bend, Indiana
   
Telephone: 574-234-8131
   
Facsimile: 574-2332-7648
             
MAGNETECH INDUSTRIAL SERVICES, INC.
             
By:
/a/ John A. Martell  
Name:
John A. Martell  
Its:
President      

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Address:
1125 S. Walnut Street
   
South Bend, Indiana
   
Telephone: 574-234-8131
   
Facsimile: 574-2332-7648
             
MARTELL ELECTRIC, LLC
             
By:
/s/ John A. Martell  
Name:
John A. Martell  
Its:
President        
Address:
1125 S. Walnut Street
   
South Bend, Indiana
   
Telephone: 574-234-8131
   
Facsimile: 574-2332-7648
             
HK ENGINE COMPONENTS, LLC
             
By:
/s/ John A. Martell  
Name:
John A. Martell  
Its:
President        
Address:
1125 S. Walnut Street
   
South Bend, Indiana
   
Telephone: 574-234-8131
   
Facsimile: 574-2332-7648
 
 
ACKNOWLEDGED:
 
 
LAURUS MASTER FUND, LTD.
       
By:
/s/ David Grin  
Name:
David Grin  
Its:
Partner      

 

 

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SCHEDULE A
 
 

Entity
Jurisdiction of
Formation
Organization Identification Number
MISCOR Group, Ltd.
Indiana
 
Magnetech Industrial Services, Inc.
 
Indiana
 
Martell Electric, LLC
Indiana
 
HK Engine Components, LLC
Indiana
                   

 

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SCHEDULE B
 
COMMERCIAL TORT CLAIMS
 

 
None.