Exhibit 10.4

 
EXECUTION COPY

SECURITY AGREEMENT

Name: MISCOR Group, Ltd.
No. and Street:  1125 South Walnut Street
City:  South Bend
County:  St. Joseph
State:  Indiana
 
Name: Magnetech Industrial Services, Inc.
No. and Street:  3496 East 83rd Place
City:  Merrillville
County:  Lake
State:  Indiana
 

 

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MISCOR GROUP, LTD., an Indiana corporation ("MISCOR"), and MAGNETECH INDUSTRIAL
SERVICES, INC., an Indiana corporation ("MIS" and together with MISCOR, the
"Debtors" and each a "Debtor"), for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each hereby grant, pledge and
assign to John A. Martell, a resident of the State of Michigan ("Lender"), a
security interest in the all of Debtors' personal property, tangible and
intangible, whether Debtors' interest therein as owner, co-owner, lessee,
consignee, secured party, or otherwise be now owned or existing or hereafter
arising or acquired, and wherever located, together with all substitutions,
replacements, additions and accessions therefor or thereto, all replacement and
repair parts therefor, all negotiable documents relating thereto, all products
thereof and all cash and non-cash proceeds thereof including, but not limited
to, notes, drafts, checks, instruments, insurance proceeds, indemnity proceeds,
warranty and guaranty proceeds and proceeds arising in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the following property by any governmental body, authority, bureau or
agency (or any person acting under color of governmental authority), and
including, without limitation, the following:
 
(a)           All of Debtors' machinery, equipment, tools, furniture and
furnishings including, but not limited to, all manufacturing, fabricating,
processing, transporting and packaging equipment, power systems, heating,
cooling and ventilating systems, lighting and communication systems, electric,
gas and water distribution systems, food service systems, fire prevention, alarm
and security systems, laundry systems and computing and data processing systems
(hereinafter sometimes called the "Equipment"), some or all of which Equipment
may be more fully described in the schedule set forth at the end of this
agreement or in a separate schedule attached hereto;
 
 
(b)           All of Debtors' inventory including, but not limited to, parts,
supplies, raw materials, work in process, finished goods, materials used or
consumed in Debtors' business, repossessed and returned goods (hereinafter
sometimes called the "Inventory"), some or all of which Inventory may be more
fully described in the schedule set forth at the end of this agreement or in a
separate schedule attached hereto;
 
 
(c)           All of Debtors' accounts, accounts receivable, contract rights,
chattel paper,
 

 
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general intangibles, income tax refunds, instruments, negotiable documents,
notes, drafts, acceptances and other forms of obligations and receivables
arising from or in connection with the operation of Debtors' business including,
but not limited to, those arising from or in connection with Debtors' sale,
lease or other disposition of Inventory (hereinafter sometimes called the
"Receivables");
 
(d)           All trade names, trademarks, goodwill, patents, patent
applications, copyrights, deposit accounts, licenses and franchises; and
 
(e)           All of MISCOR's right, title, and interest in and to the capital
stock of MIS and American Motive Power, Inc., a Nevada corporation, and the
membership interest and units in HK Engine Components, LLC, an Indiana limited
liability company.

(all of the foregoing hereinafter sometimes called the "Collateral").

The security interest hereby granted is to secure the prompt and full payment
and complete performance of all Obligations of MISCOR to Lender. The word
"Obligations" shall mean all indebtedness, debts and liabilities (including
principal, interest, late charges and, to the extent permitted by law,
collection costs, attorneys' fees and the like) of MISCOR to Lender under that
certain Secured Promissory Note executed and delivered by MISCOR in favor of
Lender dated February __,  2010 ("Note") evidencing a loan in the original
principal amount of Four Hundred Twenty-Five Thousand One Hundred Forty-Nine and
00/100 Dollars ($425,149.00) and any other indebtedness owed by MISCOR to Lender
from and after the date of this agreement.  MIS hereby acknowledges that Lender
was unwilling to enter into that certain transaction with MISCOR and was
unwilling to accept the Note from MISCOR unless MIS agreed to execute and
deliver this agreement, and MIS will realize substantial benefits from the Note
and the transaction between MISCOR and Lender.

1.           General Covenants. Each Debtor, jointly and severally, represents,
warrants and covenants, with respect to the individual Debtor's Collateral, as
follows:
 
(a)           Except for such claims and interests, if any, shown in the
schedule set forth at the end of this agreement, or in any schedule attached
hereto and signed by both Debtor and Lender and the security interest granted
hereby, (i) Debtor is, or as to Collateral arising or to be acquired after the
date hereof, shall be, the sole owner of the Collateral free from any and all
liens, security interests, encumbrances, claims and interests; and (ii) no
security agreement, financing statement, equivalent security or lien instrument
or continuation statement covering any of the Collateral is on file or of record
in any public office.
 
(b)           Debtor shall not create, permit or suffer to exist, and shall take
such action as is necessary to remove, any claim to or interest in or lien or
encumbrance upon the Collateral, other than those, if any, shown in the schedule
set forth at the end of this agreement or in any schedule attached hereto and
signed by both Debtor and Lender and the security interest granted hereby, and
shall defend the right, title and interest of Lender in and to the Collateral
against all claims and demands of all persons and entities at any time claiming
the same or any interest therein.
 

 
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(c)           Debtor's principal place of business and chief executive
office/residence is located at the address set forth at the beginning of this
agreement; Debtor has no other place of business/residence, except as shown in
the schedule set forth at the end of this agreement or in any schedule attached
hereto and signed by both Debtor and Lender; and, unless Lender consents in
writing to a change in the location of the Equipment, Inventory or Debtor's
records concerning the Receivables prior to such a change in location, the
Equipment, Inventory and Debtor's records concerning the Receivables shall be
kept at that address or at the locations set forth in such schedules.
 
(d)           At least thirty (30) days prior to the occurrence of any of the
following events, Debtor shall deliver to Lender written notice of such
impending events: (i) a change in Debtor's principal place of business, chief
executive office and/or residence; (ii) the opening or closing of any place of
business; or (iii) a change in Debtor's name, identity or corporate structure.
 
(e)           Subject to any limitation stated therein or in connection
therewith, all information furnished by Debtor concerning the Collateral or
otherwise in connection with the Obligations, is or shall be at the time the
same is furnished, accurate, correct and complete in all material respects.
 
(f)           The Collateral is and shall be used primarily for business
purposes.
 
 
2.           Preservation and Disposition of Collateral.
 
(a)           Except for such claims and interests, if any, shown in the
schedule set forth at the end of this agreement or in any schedule attached
hereto and signed by the Debtors and Lender and the security interest granted
hereby, Debtors shall keep the Collateral free from any and all liens, security
interests, encumbrances, claims and interests. Debtors shall advise Lender
promptly, in writing and in reasonable detail, (i) of any material encumbrance
upon or claim asserted against any of the Collateral; (ii) of any material
change in the composition of the Collateral; and (iii) of the occurrence of any
other event that would have a material effect upon the aggregate value of the
Collateral or upon the security interest of Lender.
 
(b)           Debtors shall not sell or otherwise dispose of the Collateral;
provided, however, that until default, Debtors may use the Equipment and
Inventory in any lawful manner not inconsistent with this agreement or with the
terms or conditions of any policy of insurance thereon and may also sell or
otherwise dispose of the Inventory in the ordinary course of Debtors' business.
A sale in the ordinary course of business shall not include a transfer in
partial or total satisfaction of a debt.
 
(c)           Debtors shall keep the Collateral in good condition and shall not
misuse, abuse, secrete, waste or destroy any of the same.
 
(d)           Debtors shall not use the Collateral in violation of any statute,
ordinance, regulation, rule, decree or order.
 

 
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(e)           Debtors shall pay promptly when due all taxes, assessments,
charges or levies upon the Collateral or in respect to the income or profits
therefrom, except that no such charge need be paid if (i) the validity thereof
is being contested in good faith by appropriate proceedings; (ii) such
proceedings do not involve any danger of sale, forfeiture or loss of any
Collateral or any interest therein; and (iii) such charge is adequately reserved
against in accordance with generally accepted accounting principles.
 
(f)           At its option, Lender may discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on the Collateral
and may pay for the maintenance and preservation of the Collateral. Debtors each
agree to reimburse Lender upon demand for any payment made or any expense
incurred (including reasonable attorneys' fees) by Lender pursuant to the
foregoing authorization. Should Debtors fail to pay said sum to Lender upon
demand, interest shall accrue thereon, from the date of demand until paid in
full, at the highest rate set forth in any document or instrument evidencing any
of the Obligations.
 
(g)           Upon Lender's request at any time or times, Debtors shall each
assign and deliver to Lender any collateral and shall furnish to Lender
additional collateral of value and character satisfactory to Lender as security
for the Obligations.
 
3.           Extensions and Compromises. With respect to any Collateral held by
Lender as security for the Obligations, Debtors each assent to all extensions or
postponements of the time of payment thereof or any other indulgence in
connection therewith, to each substitution, exchange or release of Collateral,
to the addition or release of any party primarily or secondarily liable, to the
acceptance of partial payments thereon and to the settlement, compromise or
adjustment thereof, all in such manner and at such time or times as Lender may
deem advisable. Lender shall have no duty as to the collection or protection of
Collateral or any income therefrom, nor as to the preservation of rights against
prior parties, nor as to the preservation of any right pertaining thereto,
beyond the safe custody of Collateral in the possession of Lender.
 
4.           Financing Statements.  Debtors each authorize Lender to file one or
more financing statements in a form satisfactory to Lender and shall pay the
cost of filing the same in all public offices wherever filing is deemed by
Lender to be necessary or desirable. A carbon, photographic or other
reproduction of a financing statement shall be sufficient as a financing
statement.  Upon payment in full of the Obligations, Lender shall terminate any
financing statements relating to the security interest granted under this
Agreement.
 

 
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5.           Lender's Appointment as Attorney-in-Fact. Debtors each hereby
irrevocably constitute and appoint Lender and any officer or agent thereof, with
full power of substitution, as each Debtor's true and lawful attorney-in-fact
with full irrevocable power and authority in the place and stead of any Debtor
and in the name of any Debtor or in Lender's own name, from time to time in
Lender's discretion, for the purpose of carrying out the terms of this
agreement, to take any and all appropriate action and to execute any and all
documents and instruments that may be necessary or desirable to accomplish the
purposes of this agreement and, without limiting the generality of the
foregoing, hereby grant to Lender the power and right, on behalf of each Debtor,
without notice to or assent by Debtors:
 
(a)           To execute, file and record all such financing statements,
certificates of title and other certificates of registration and operation and
similar documents and instruments including, but not limited to, those relating
to aircraft or marine vessels, as Lender may deem necessary or desirable to
protect, perfect and validate Lender's security interest therein.
 
(b)           Upon the occurrence and continuance of any event of default under
paragraph 6 hereof, (i) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts and other
documents relating to the Collateral; (ii) to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral; (iii) to defend any suit, action or
proceeding brought against any Debtors with respect to any Collateral; (iv) to
settle, compromise or adjust any suit, action or proceeding described above and,
in connection therewith, to give such discharges or releases as Lender may deem
appropriate; and (v) generally, to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof for all purposes,
and to do, at Lender's option and each Debtor's expense, at any time or from
time to time, all acts and things which Lender deems necessary to protect,
preserve or realize upon the Collateral and Lender's security interest therein,
in order to effect the intent of this agreement, all as fully and effectively as
any Debtor might do.

Debtors each hereby ratify all that said attorneys shall lawfully do or cause to
be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable. The powers conferred upon Lender hereunder
are solely to protect its interests in the Collateral and shall not impose any
duty upon Lender to exercise any such powers. Lender shall be accountable only
for amounts that Lender actually receives as a result of the exercise of such
powers and neither Lender nor any of its officers, directors, employees or
agents shall be responsible to any Debtor for any act or failure to act, except
for Lender's own gross negligence or willful misconduct.
 
6.           Default.  Subject to the rights of prior lienholders identified on
the schedules to this Agreement, if any event of default in the payment or
performance of any of the Obligations secured by this agreement or the
performance of any covenant contained herein shall occur and be continuing; or
after notice if any warranty, representation or statement made or furnished to
Lender by any Debtor proves to have been false in any material respect when made
or furnished;
 

 
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or after notice if Lender shall for any reason deem itself insecure as to the
prospect of payment of any of the Obligations:
 
(a)           Lender may, at its option and without notice, declare the unpaid
balance of any or all of the Obligations immediately due and payable and this
agreement and any or all of the Obligations in default.
 
(b)           All payments received by any Debtor under or in connection with
any of the Collateral shall be held by the Debtor in trust for Lender, shall be
segregated from other funds of the Debtor and shall forthwith upon receipt by
the Debtor be turned over to Lender in the same form as received by the Debtor
(duly endorsed by the Debtor to Lender, if required). Any and all such payments
so received by Lender (whether from Debtor or otherwise) may, in the sole
discretion of Lender, be held by Lender as collateral security for, and/or then
or at any time thereafter be applied in whole or in part by Lender against, all
or any part of the Obligations in such order as Lender may elect. Any balance of
such payments held by Lender and remaining after payment in full of all the
Obligations shall be paid over to the applicable Debtor or to whomsoever may be
lawfully entitled to receive the same. Nothing set forth in this subparagraph
(b) shall authorize or be construed to authorize any Debtor to sell or otherwise
dispose of any Collateral except as provided in subparagraph 2(b) hereof.
 
(c)           Lender shall have the rights and remedies of a secured party under
this agreement, under any other instrument or agreement securing, evidencing or
relating to the Obligations and under the law of the State of Indiana. Without
limiting the generality of the foregoing, Lender shall have the right to take
possession of the Collateral and all books and records relating to the
Collateral and for that purpose Lender may enter upon, with or without breaking
into, any premises on which the Collateral or books and records relating to the
Collateral or any part thereof may be situated and remove the same therefrom.
Debtors each expressly agree that Lender, without demand of performance or other
demand, advertisement or notice of any kind (except the notices specified below
of time and place of public sale or disposition or time after which a private
sale or disposition is to occur) to or upon any Debtor or any other person or
entity (all and each of which demands, advertisements and/or notices are hereby
expressly waived), may forthwith collect, receive, appropriate and realize upon
the Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give option or options to purchase or sell or otherwise dispose of and deliver
the Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any of Lender's offices or
elsewhere at such prices as Lender may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. Lender shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in any Debtor.
Debtors each further agree, at Lender's request, to assemble the Collateral and
to make it available to Lender at such places as Lender may reasonably select,
whether at Debtors' premises or elsewhere. Debtors each further agree to allow
Lender to use or occupy each Debtor's premises, without charge, for the purpose
of effecting Lender's remedies in respect of the Collateral. Lender shall apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred in connection therewith or incidental to the care or safekeeping
of any or all of the
 

 
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Collateral or in any way relating to the rights of Lender hereunder, including
reasonable attorneys' fees and legal expenses, to the payment in whole or in
part of the Obligations, in such order as Lender may elect, and only after so
paying over such net proceeds and after the payment by Lender of any other
amount required by any provision of law, including Indiana Code Section
26-1-9.1-615, need Lender account for the surplus, if any, to any Debtor. To
the extent permitted by applicable law, each Debtor waves all claims, damages
and demands against Lender arising out of the repossession, retention, sale or
disposition of the Collateral and waives relief from valuation and appraisement
laws. Debtors each agree that Lender need not give more than five (5) days'
notice (which notification shall be deemed given when mailed, postage prepaid,
addressed to Debtors at Debtors' address set forth at the beginning of this
agreement, or when telecopied or telegraphed to that address or when telephoned
or otherwise communicated orally to Debtors or any agent of Debtors at that
address) of the time and place of any public sale or of the time after which a
private sale may take place and that such notice is reasonable notification of
such matters. Debtors each shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient to pay
all amounts to which Lender is entitled. Debtors each shall also be liable for
the costs of collecting any of the Obligations or otherwise enforcing the terms
thereof or of this agreement including reasonable attorneys' fees.
 
7.           General. Any provision of this agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Lender shall not be deemed to have waived any of its rights
hereunder or under any other agreement, instrument or paper signed by any Debtor
unless such waiver be in writing and signed by Lender. No delay or omission on
the part of Lender in exercising any right shall operate as a waiver of such
right or any other right. All of Lender's rights and remedies, whether evidenced
hereby or by any other agreement, instrument or paper, shall be cumulative and
may be exercised singularly or concurrently. Any written demand upon or written
notice to any Debtor shall be effective when deposited in the mails addressed to
the applicable Debtor at the address shown at the beginning of this agreement.
This agreement and all rights and obligations hereunder, including matters of
construction, validity and performance, shall be governed by the law of the
State of Indiana. The provisions hereof shall, as the case may require, bind or
inure to the benefit of, the respective heirs, successors, legal representatives
and assigns of any Debtor and Lender.
 

* * * * *
 

 
 
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IN WITNESS WHEREOF, Debtors have each signed this agreement this 3rd day of
February, 2010.

 
DEBTORS:
         
MISCOR GROUP, LTD.
   
  an Indiana corporation
               
By:
/s/ Michael D. Topa
   
Michael D. Topa
Chief Financial Officer

STATE OF INDIANA
)
   
) SS:
 
COUNTY OF ST. JOSEPH
)
 

Personally appeared before me, a Notary Public in and for the State of Indiana,
Michael D. Topa, who, being first duly sworn, acknowledged the execution of the
foregoing instrument.

IN WITNESS WHEREOF, I have hereunto set my signature and Notarial Seal this 3rd
day of February 2010.

 
/s/ James M. Lewis
 
James M. Lewis, Notary Public
   

My Commission Expires:  Feb. 9, 2016
I am a resident of St. Joseph County, Indiana.

 
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IN WITNESS WHEREOF, Debtors have each signed this agreement this 3rd day of
February, 2010.

 
DEBTORS:
         
MAGNETECH INDUSTRIAL SERVICES, INC.
 
  an Indiana corporation
               
By:
/s/ Michael D. Topa
   
Michael D. Topa, Treasurer

STATE OF INDIANA
)
   
) SS:
 
COUNTY OF ST. JOSEPH
)
 

Personally appeared before me, a Notary Public in and for the State of Indiana,
Michael D. Topa, who, being first duly sworn, acknowledged the execution of the
foregoing instrument.

IN WITNESS WHEREOF, I have hereunto set my signature and Notarial Seal this 3rd
day of February 2010.

 
/s/ James M. Lewis
 
James M. Lewis, Notary Public
   

My Commission Expires:  Feb. 9, 2016
I am a resident of St. Joseph County, Indiana.

 
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Schedule of Additional Places of Business
 

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800 Nave Road SE
Massillon, OH   44646

870 Crescentville Road
Cincinnati, OH   45246

1825 Summer Street
Hammond, IN   46320

821 Bev Road
Boardman, OH   44512

1029 7th Avenue
Huntington, WV   25701

701 Bill Myles Drive West
Saraland, AL   36571

7515 W. Sunnyview Avenue
Visalia, CA   93291

1125 S. Walnut Street
South Bend, IN   46619

 
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Schedule of Additional Claims and Interests

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The Lender's interest in the Collateral shall be subordinate to existing blanket
liens in favor of Wells Fargo Bank, BDewees, Inc. and Xgen 3, Ltd., and to any
purchase money security interests.
 
 
 
 
 
 

 
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Supplemental Schedule of Collateral
 
 

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EXHIBIT
(FOR ATTACHMENT TO FINANCING STATEMENT)
BLANKET

All of Debtor's personal property, tangible and intangible, whether Debtor's
interest therein as owner, co-owner, lessee, consignee, secured party, or
otherwise be now owned or existing or hereafter arising or acquired, and
wherever located, together with all substitutions, replacements, additions and
accessions therefor or thereto, all replacement and repair parts therefor, all
negotiable documents relating thereto, all products thereof and all cash and
non-cash proceeds thereof including, but not limited to, notes, drafts, checks,
instruments, insurance proceeds, indemnity proceeds, warranty and guaranty
proceeds and proceeds arising in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the following property
by any governmental body, authority, bureau or agency (or any person acting
under color of governmental authority), and including, without limitation, the
following:
 
(a)           All of Debtor's machinery, equipment, tools, furniture and
furnishings including, but not limited to, all manufacturing, fabricating,
processing, transporting and packaging equipment, power systems, heating,
cooling and ventilating systems, lighting and communication systems, electric,
gas and water distribution systems, food service systems, fire prevention, alarm
and security systems, laundry systems and computing and data processing systems
(hereinafter sometimes called the "Equipment"), some or all of which Equipment
may be more fully described in the schedule set forth at the end of this
agreement or in a separate schedule attached hereto;

(b)           All of Debtor's inventory including, but not limited to, parts,
supplies, raw materials, work in process, finished goods, materials used or
consumed in Debtor's business, repossessed and returned goods (hereinafter
sometimes called the "Inventory"), some or all of which Inventory may be more
fully described in the schedule set forth at the end of this agreement or in a
separate schedule attached hereto;

(c)           All of Debtor's accounts, accounts receivable, contract rights,
chattel paper, general intangibles, income tax refunds, instruments, negotiable
documents, notes, drafts, acceptances and other forms of obligations and
receivables arising from or in connection with the operation of Debtor's
business including, but not limited to, those arising from or in connection with
Debtor's sale, lease or other disposition of Inventory; and

(d)           All trade names, trademarks, goodwill, patents, patent
applications, copyrights, deposit accounts, licenses and franchises.
 
 
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