Document:

SECURITY AGREEMENT

     THIS SECURITY AGREEMENT ("Agreement") dated July 19, 2002 by
TEMCO FIREPLACE PRODUCTS, INC., a Texas corporation ("Debtor"), in
favor of JAMES E. UPFIELD (as further defined below "Secured
Party").  Debtor hereby agrees with Secured Party as follows:

     1.   Definitions.  As used in this Agreement, the following terms
shall have the meanings indicated below:

          (a)  The term "Code" shall mean the Uniform Commercial Code as in
     effect in the State of Texas on the date of this Agreement or as
     it may hereafter be amended from time to time.

          (b)  The term "Collateral" shall mean all of the property set
forth below:
               (i)  All present and hereafter acquired inventory (including
          without limitation, all raw materials, work in process and
          finished goods) held, possessed, owned, held on consignment, or
          held for sale, lease, return or to be furnished under contracts
          of services, in whole or in part, by Debtor wherever located, all
          records, to the extent relating in any way to the foregoing
          (including, without limitation, any computer software, whether on
          tape, disk, card, strip, cartridge or any other form), together
          with the PROCEEDS of the foregoing, including accounts
          receivable, to the extent such PROCEEDS (including accounts
          receivable) arose (A) after any sale, disposition or other
          realization of any of Debtor's assets, (B) after demand for
          payment of the Indebtedness (as hereinafter defined) by Secured
          Party, (C) upon any dissolution, liquidation, winding-up,
          reorganization, bankruptcy, insolvency or receivership of Debtor
          or any other marshaling of Debtor's assets that is similar
          thereto, (D) upon the enforcement of, or any action taken with
          respect to, any of Secured Party's or The Frost National Bank's
          security interest under the Frost Bank Loan (as hereinafter
          defined) in or other rights to such assets, (E) with respect to
          insurance proceeds as a result of the loss of, destruction of or
          damage to any of such assets, or (F) as a result of the
          expropriation or other condemnation of any of such assets.

          (ii) All equipment and fixtures of whatsoever kind and character
now or hereafter possessed, held, acquired, leased or owned by
Debtor and used or usable in Debtor's business, together with all
replacements, accessories, additions, substitutions and
accessions to all of the foregoing, all records, to the extent
relating in any way to the foregoing (including, without
limitation, any computer software, whether on tape, disk, card,
strip, cartridge or any other form), together with the PRODUCTS
and PROCEEDS of all of the foregoing (including without
limitation, insurance payable by reason of loss or damage to the
foregoing property).  To the extent that the foregoing property
is located on, attached to, annexed to, related to, or used in
connection with, or otherwise made a part of, and is or shall
become fixtures upon, real property, such real property and the
record owner thereof is described on Exhibit A attached hereto
and made a part hereof.
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          The designation of PROCEEDS under 1.(b)(i) and
          1.(b)(ii) above does not authorize Debtor to sell,
          transfer or otherwise convey any of the foregoing
          property except finished goods intended for sale in the
          ordinary course of Debtor's business or as otherwise
          provided herein.

          (c)  The term "Frost Bank Loan" shall mean that certain
     $4,000,000 Loan Agreement by and among The Frost National Bank,
     as lender, and Debtor and certain affiliates of Debtor, as
     borrowers, dated as of September 6, 2000, and all renewals,
     extensions, modifications, or replacements thereof.

          (d)  The term "Indebtedness" shall mean (i) all indebtedness,
obligations and liabilities of Debtor to Secured Party of any
kind or character, now existing or hereafter arising, arising
under the Secured Term Note dated July 19, 2002 (the "Note") in
the stated principal amount of $750,000 payable by Debtor and
Debtor's parent Temtex Industries, Inc. to the order of
Secured Party whether direct, indirect, related, unrelated,
fixed, contingent, liquidated, unliquidated, joint, several or
joint and several, (ii) all accrued but unpaid interest on any of
the indebtedness described in (i) above, (iii) all obligations of
Debtor to Secured Party under any documents evidencing, securing,
governing and/or pertaining to all or any part of the
indebtedness described in (i) and (ii) above, (iv) all costs and
expenses incurred by Secured Party in connection with the
collection and administration of all or any part of the
indebtedness and obligations described in (i), (ii) and (iii)
above or the protection or preservation of, or realization upon,
the collateral securing all or any part of such indebtedness and
obligations, including without limitation all reasonable
attorneys' fees, and (v) all renewals, extensions, modifications
and rearrangements of the indebtedness and obligations described
in (i), (ii), (iii) and (iv) above.

          (e)  The term "Loan Documents" shall mean all instruments and
documents evidencing, securing, governing, guaranteeing and/or
pertaining to the Indebtedness, including the Note.

          (f)  The term "Obligated Party" shall mean any party other than
Debtor who secures, guarantees and/or is otherwise obligated to
pay all or any portion of the Indebtedness.

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          (g)  The term "Permitted Liens" shall mean (i) liens created by
     this Agreement, (ii) liens created by or in connection with
     capitalized leases entered into in the ordinary course of
     Debtor's business, (iii) liens for taxes, assessments, or other
     governmental charges not yet due, or which are being contested in
     good faith by appropriate action promptly initiated and
     diligently conducted, and any reserve as shall be required by
     generally accepted accounting principles shall have been made
     therefor, (iv) liens of landlords, vendors, carriers,
     warehousemen, mechanics, laborers and materialmen arising by law
     in the ordinary course of Debtor's business for sums not yet due
     or, which are being contested in good faith by appropriate action
     promptly initiated and diligently conducted, and any reserve as
     shall be required by generally acceptable accounting principles
     shall have been made therefor, (v) pledges or deposits made in
     the ordinary course of Debtor's business in connection with
     workmen's compensation, unemployment insurance, social security
     and other like laws and (vi) liens in favor of The Frost National
     Bank under the Frost Bank Loan, subject to the superior rights of
     Secured Party in the Collateral described in Paragraph 1(b)(i)
     above, other than Returned Goods (as hereinafter defined).

          (h)  The term "Returned Goods" shall mean any of the Collateral
described in Paragraph 1.(b)(i) which has been returned to or
reclaimed or repossessed by Debtor or which has otherwise come
back into Debtor's possession for any reason after having been
sold or otherwise transferred by Debtor.

          (i)  The term "Secured Party" shall mean James E. Upfield, his
successors and assigns, or heirs and personal representatives,
including without limitation, any party to whom Secured Party, or
his successors or assigns, or heirs and personal representatives,
may assign his or its rights and interests under this Agreement.

          All words and phrases used herein which are expressly
defined in Section 1.201 or Chapter 9 of the Code shall have the
meaning provided for therein.  Other words and phrases defined
elsewhere in the Code shall have the meaning specified therein
except to the extent such meaning is inconsistent with a
definition in Section 1.201 or Chapter 9 of the Code.

     2.   Security Interest.  As security for the Indebtedness,
Debtor, for value received, hereby grants to Secured Party a
continuing security interest in the Collateral.

     3.   Representations and Warranties.  Debtor hereby represents
and warrants the following to Secured Party:

          (a)  Due Authorization.  The execution, delivery and performance
     of this Agreement and all of the other Loan Documents by Debtor
     have been duly authorized by all necessary corporate action of
     Debtor.

          (b)  Enforceability.  This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Debtor,
enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights and
except to the extent specific remedies may generally be limited
by equitable principles.

          (c)  Ownership and Liens.  Debtor has good and marketable title
to the Collateral free and clear of all liens, security
interests, encumbrances or adverse claims, except for the
Permitted Liens.  No dispute, right of setoff, counterclaim or
defense exists with respect to all or any part of the Collateral.
Debtor has not executed any other security agreement currently
affecting the Collateral and no effective financing statement or
other instrument similar in effect covering all or any part of
the Collateral is on file in any recording office except as may
have been executed or filed in favor of Secured Party or with
respect to the Permitted Liens.

                               -3-

<PAGE>

          (d)  No Conflicts or Consents.  Neither the ownership, the
     intended use of the Collateral by Debtor, the grant of the
     security interest by Debtor to Secured Party herein nor the
     exercise by Secured Party of its rights or remedies hereunder,
     will (i) conflict with any provision of (A) any domestic or
     foreign law, statute, rule or regulation, (B) the articles or
     certificate of incorporation, charter, bylaws or partnership
     agreement, as the case may be, of Debtor, or (C) any agreement,
     judgment, license, order or permit applicable to or binding upon
     Debtor, or (ii) result in or require the creation of any lien,
     charge or encumbrance upon any assets or properties of Debtor or
     of any person except as may be expressly contemplated in the Loan
     Documents.  Except as expressly contemplated in the Loan
     Documents, no consent, approval, authorization or order of, and
     no notice to or filing with, any court, governmental authority or
     third party is required in connection with the grant by Debtor of
     the security interest herein or the exercise by Secured Party of
     its rights and remedies hereunder.

          (e)  Security Interest.  Debtor has and will have at all times
full right, power and authority to grant a security interest in
the Collateral to Secured Party in the manner provided herein,
free and clear of any lien, security interest or other charge or
encumbrance except for Permitted Liens.  This Agreement creates a
legal, valid and binding security interest in favor of Secured
Party in the Collateral securing the Indebtedness.  Possession by
Secured Party of all certificates, instruments and cash
constituting Collateral from time to time and/or the filing of
the financing statements delivered prior hereto and/or
concurrently herewith by Debtor to Secured Party will perfect and
establish Secured Party's security interest hereunder in the
Collateral.

          (f)  Location.  Debtor's residence or chief executive office, as
the case may be, and the office where the records concerning the
Collateral are kept is located at its address set forth on the
signature page hereof.

     4.   Affirmative Covenants.  Debtor will comply with the
covenants contained in this Section 4 at all times during the
period of time this Agreement is effective unless Secured Party
shall otherwise consent in writing.

          (a)  Ownership and Liens.  Debtor will maintain good and
     marketable title to all Collateral free and clear of all liens,
     security interests, encumbrances or adverse claims, except for
     the security interest created by this Agreement and the Permitted
     Liens.

          (b)  Further Assurances.  Debtor will from time to time at its
     expense promptly execute and deliver all further instruments and
     documents and take all further action necessary or appropriate or
     that Secured Party may request in order (i) to perfect and
     protect the security interest created or purported to be created
     hereby and the priority of such security interest, (ii) to enable
     Secured Party to exercise and enforce its rights and remedies
     hereunder in respect of the Collateral, and (iii) to otherwise
     effect the purposes of this Agreement, including without
     limitation:  (A) executing and filing such financing or
     continuation statements, or amendments thereto; and (B)
     furnishing to Secured Party from time to time statements and
     schedules further identifying and describing the Collateral and
     such other reports in connection with the Collateral, all in
     reasonable detail satisfactory to Secured Party.

                               -4-

<PAGE>

          (c)  Inspection of Collateral.  Debtor will keep adequate records
     concerning the Collateral and will permit Secured Party and all
     representatives and agents appointed by Secured Party to inspect
     any of the Collateral and the books and records of or relating to
     the Collateral at any time during normal business hours, to make
     and take away photocopies, photographs and printouts thereof and
     to write down and record any such information.

          (d)  Payment of Taxes.  Debtor (i) will timely pay all property
     and other taxes, assessments and governmental charges or levies
     imposed upon the Collateral or any part thereof, (ii) will timely
     pay all lawful claims which, if unpaid, might become a lien or
     charge upon the Collateral or any part thereof, and (iii) will
     maintain appropriate accruals and reserves for all such
     liabilities in a timely fashion in accordance with generally
     accepted accounting principles.  Debtor may, however, delay
     paying or discharging any such taxes, assessments, charges,
     claims or liabilities so long as the validity thereof is
     contested in good faith by proper proceedings and provided Debtor
     has set aside on Debtor's books adequate reserves therefor;
     provided, however, Debtor understands and agrees that in the
     event of any such delay in payment or discharge and upon Secured
     Party's written request, Debtor will establish with Secured Party
     an escrow acceptable to Secured Party adequate to cover the
     payment of such taxes, assessments and governmental charges with
     interest, costs and penalties and a reasonable additional sum to
     cover possible costs, interest and penalties (which escrow shall
     be returned to Debtor upon payment of such taxes, assessments,
     governmental charges, interests, costs and penalties or disbursed
     in accordance with the resolution of the contest to the claimant)
     or furnish Secured Party with an indemnity bond secured by a
     deposit in cash or other security acceptable to Secured Party.
     Notwithstanding any other provision contained in this Subsection,
     Secured Party may at its discretion exercise its rights under
     Subsection 6(c) at any time to pay such taxes, assessments,
     governmental charges, interest, costs and penalties.

     5.   Negative Covenants.  Debtor will comply with the covenants
contained in this Section 5 at all times during the period of
time this Agreement is effective, unless Secured Party shall
otherwise consent in writing.

          (a)  Transfer or Encumbrance.  Debtor will not (i) sell, assign
     (by operation of law or otherwise), transfer, exchange, lease or
     otherwise dispose of any of the Collateral or (ii) grant a lien
     or security interest in or execute, file or record any financing
     statement or other security instrument with respect to the
     Collateral to any party other than Secured Party except with
     respect to the Permitted Liens, except for (A) sales of inventory
     and equipment in the ordinary course of business.

          (b)  Impairment of Security Interest.  Debtor will not take or
     fail to take any action which would in any manner impair the
     value or enforceability of Secured Party's security interest in
     any Collateral.

                               -5-

<PAGE>

          (c)  Financing Statement Filings.  Debtor will not cause or
     permit any change in the location of (i) any Collateral, (ii) any
     records concerning any Collateral, or (iii) Debtor's residence or
     chief executive office, as the case may be, to a jurisdiction
     other than as represented in Subsection 3(f) unless Debtor shall
     have notified Secured Party in writing of such change at least
     thirty (30) days prior to the effective date of such change, and
     shall have first taken all action required by Secured Party for
     the purpose of further perfecting or protecting the security
     interest in favor of Secured Party in the Collateral.  In any
     written notice furnished pursuant to this Subsection, Debtor will
     expressly state that the notice is required by this Agreement and
     contains facts that may require additional filings of financing
     statements or other notices for the purpose of continuing
     perfection of Secured Party's security interest in the
     Collateral.

     6.   Rights of Secured Party.  Secured Party shall have the
rights contained in this Section 6 at all times during the period
of time this Agreement is effective.

          (a)  Additional Financing Statements Filings.  Debtor hereby
     authorizes Secured Party to file, without the signature of
     Debtor, one or more financing or continuation statements, and
     amendments thereto, relating to the Collateral.  Debtor further
     agrees that a carbon, photographic or other reproduction of this
     Security Agreement or any financing statement describing any
     Collateral is sufficient as a financing statement and may be
     filed in any jurisdiction Secured Party may deem appropriate.

          (b)  Power of Attorney.  Debtor hereby irrevocably appoints
     Secured Party as Debtor's attorney-in-fact, such power of
     attorney being coupled with an interest, with full authority in
     the place and stead of Debtor and in the name of Debtor or
     otherwise, from time to time in Secured Party's discretion, to,
     during the existence of any Event of Default, take any action and
     to execute any instrument which Secured Party may deem necessary
     or appropriate to accomplish the purposes of this Agreement,
     including without limitation:  (i) to obtain and adjust insurance
     required by Secured Party hereunder; (ii) to demand, collect, sue
     for, recover, compound, receive and give acquittance and receipts
     for moneys due and to become due under or in respect of the
     Collateral; (iii) to receive, endorse and collect any drafts or
     other instruments, documents and chattel paper in connection with
     clause (i) or (ii) above; and (iv) to file any claims or take any
     action or institute any proceedings which Secured Party may deem
     necessary or appropriate for the collection and/or preservation
     of the Collateral or otherwise to enforce the rights of Secured
     Party with respect to the Collateral.

          (c)  Performance by Secured Party.  If Debtor fails to perform
     any agreement or obligation provided herein, Secured Party may
     itself perform, or cause performance of, such agreement or
     obligation, and the expenses of Secured Party incurred in
     connection therewith shall be a part of the Indebtedness, secured
     by the Collateral and payable by Debtor on demand.

     7.   Events of Default.  Each of the following constitutes an
"Event of Default" under this Agreement:

          (a)  Failure to Pay Indebtedness.  The failure, refusal or
     neglect of Debtor to make any payment of principal or interest on
     the Indebtedness, or any portion thereof, as the same shall
     become due and payable; or

                               -6-

<PAGE>

          (b)  Non-Performance of Covenants.  The failure of Debtor or any
     Obligated Party to timely and properly observe, keep or perform
     any covenant, agreement, warranty or condition required herein or
     in any of the other Loan Documents and such failure shall not be
     cured within ten (10) days after Debtor shall have received
     written notice of such failure from Second Party; or

          (c)  Default Under other Loan Documents.  The occurrence of an
     event of default under any of the other Loan Documents; or

          (d)  False Representation.  Any representation contained herein
     or in any of the other Loan Documents made by Debtor or any
     Obligated Party is false or misleading in any material respect;
     or

          (e)  Default to Third Party.  An event of default shall have
     occurred under any credit agreement, loan agreement, promissory
     note or other document or instrument evidencing indebtedness of
     Borrower and the holder of any such indebtedness shall have
     declared such indebtedness to be due and payable prior to the
     maturity thereof, or shall have instituted collection proceedings
     with respect thereto; or;

          (f)  Bankruptcy or Insolvency.  If Debtor or any Obligated Party:
     (i) becomes insolvent, or makes a transfer in fraud of creditors,
     or makes an assignment for the benefit of creditors, or admits in
     writing its inability to pay its debts as they become due; (ii)
     generally is not paying its debts as such debts become due; (iii)
     has a receiver, trustee or custodian appointed for, or take
     possession of, all or substantially all of the assets of such
     party or any of the Collateral, either in a proceeding brought by
     such party or in a proceeding brought against such party and such
     appointment is not discharged or such possession is not
     terminated within sixty (60) days after the effective date
     thereof or such party consents to or acquiesces in such
     appointment or possession; (iv) files a petition for relief under
     the United States Bankruptcy Code or any other present or future
     federal or state insolvency, bankruptcy or similar laws (all of
     the foregoing hereinafter collectively called "Applicable
     Bankruptcy Law") or an involuntary petition for relief is filed
     against such party under any Applicable Bankruptcy Law and such
     involuntary petition is not dismissed within sixty (60) days
     after the filing thereof, or an order for relief naming such
     party is entered under any Applicable Bankruptcy Law, or any
     composition, rearrangement, extension, reorganization or other
     relief of debtors now or hereafter existing is requested or
     consented to by such party; (v) fails to have discharged within a
     period of sixty (60) days any attachment, sequestration or
     similar writ levied upon any property of such party; or (vi)
     fails to pay within thirty (30) days any final money judgment
     against such party; or

          (g)  Execution on Collateral.  The Collateral or any portion
     thereof is taken on execution or other process of law in any
     action against Debtor; or

          (h)  Abandonment.  Debtor abandons the Collateral or any portion
     thereof; or

                               -7-

<PAGE>

          (i)  Action by Other Lienholder.  The holder of any lien or
     security interest on any of the assets of Debtor, including
     without limitation, the Collateral (without hereby implying the
     consent of Secured Party to the existence or creation of any such
     lien or security interest on the Collateral), declares a default
     thereunder and institutes foreclosure or other proceedings for
     the enforcement of its remedies thereunder; or

          (j)  Liquidation and Related Events.  The liquidation,
     dissolution, merger or consolidation of Debtor.

     8.   Remedies and Related Rights.  If an Event of Default shall
have occurred, and without limiting any other rights and remedies
provided herein, under any of the other Loan Documents or
otherwise available to Secured Party, Secured Party may exercise
one or more of the rights and remedies provided in this Section.

          (a)  Remedies.  Secured Party may from time to time at its
     discretion, without limitation and without notice except as
     expressly provided in any of the Loan Documents:

               (i)  exercise in respect of the Collateral all the rights and
          remedies of a secured party under the Code (whether or not the
          Code applies to the affected Collateral);

               (ii) require Debtor to, and Debtor hereby agrees that it will
          at its expense and upon request of Secured Party, assemble the
          Collateral as directed by Secured Party and make it available to
          Secured Party at a place to be designated by Secured Party which
          is reasonably convenient to both parties;

               (iii) reduce its claim to judgment or foreclose or otherwise
          enforce, in whole or in part, the security interest granted
          hereunder by any available judicial procedure;

               (iv) sell or otherwise dispose of, at its office, on the
          premises of Debtor or elsewhere, the Collateral, as a unit or in
          parcels, by public or private proceedings, and by way of one or more
          contracts (it being agreed that the sale or other disposition of
          any part of the Collateral shall not exhaust Secured Party's
          power of sale, but sales or other dispositions may be made from
          time to time until all of the Collateral has been sold or
          disposed of or until the Indebtedness has been paid and performed
          in full), and at any such sale or other disposition it shall not
          be necessary to exhibit any of the Collateral;

               (v)  buy the Collateral, or any portion thereof, at any public
          sale;

               (vi) buy the Collateral, or any portion thereof, at any private
          sale if the Collateral is of a type customarily sold in a
          recognized market or is of a type which is the subject of widely
          distributed standard price quotations;

               (vii) apply for the appointment of a receiver for the
          Collateral, and Debtor hereby consents to any such appointment;
          and

                               -8-

<PAGE>

               (viii)    at its option, retain the Collateral in satisfaction of
          the Indebtedness whenever the circumstances are such that Secured
          Party is entitled to do so under the Code or otherwise.

          Debtor agrees that in the event Debtor is entitled to
receive any notice under the Uniform Commercial Code, as it
exists in the state governing any such notice, of the sale or
other disposition of any Collateral, reasonable notice shall be
deemed given when such notice is deposited in a depository
receptacle under the care and custody of the United States Postal
Service, postage prepaid, at Debtor's address set forth on the
signature page hereof, ten (10) days prior to the date of any
public sale, or after which a private sale, of any of such
Collateral is to be held.  Secured Party shall not be obligated
to make any sale of Collateral regardless of notice of sale
having been given.  Secured Party may adjourn any public or
private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.

          (b)  Application of Proceeds.  If any Event of Default shall have
     occurred, Secured Party may at its discretion apply or use any
     cash held by Secured Party as Collateral, and any cash proceeds
     received by Secured Party in respect of any sale or other
     disposition of, collection from, or other realization upon, all
     or any part of the Collateral as follows in such order and manner
     as Secured Party may elect:

               (i)  to the repayment or reimbursement of the reasonable costs
          and expenses (including, without limitation, reasonable
          attorneys' fees and expenses) incurred by Secured Party in
          connection with (A) the custody, preservation, use or operation
          of, or the sale of, collection from, or other realization upon,
          the Collateral, and (B) the exercise or enforcement of any of the
          rights and remedies of Secured Party hereunder;

               (ii) to the payment or other satisfaction of any liens and other
          encumbrances upon the Collateral;

               (iii) to the satisfaction of the Indebtedness;

               (iv) by holding such cash and proceeds as Collateral;

               (v)  to the payment of any other amounts required by applicable
          law (including without limitation, Section 9.615 of the Code or
          any other applicable statutory provision); and

               (vi) by delivery to Debtor or any other party lawfully entitled
          to receive such cash or proceeds whether by direction of a court
          of competent jurisdiction or otherwise.

          (c)  Deficiency.  In the event that the proceeds of any sale of,
     collection from, or other realization upon, all or any part of
     the Collateral by Secured Party are insufficient to pay all
     amounts to which Secured Party is legally entitled, Debtor and
     any party who guaranteed or is otherwise obligated to pay all or
     any portion of the Indebtedness shall be liable for the
     deficiency, together with interest thereon as provided in the
     Loan Documents.

                               -9-

<PAGE>

          (d)  Non-Judicial Remedies.  In granting to Secured Party the
     power to enforce its rights hereunder without prior judicial
     process or judicial hearing, Debtor expressly waives, renounces
     and knowingly relinquishes any legal right which might otherwise
     require Secured Party to enforce its rights by judicial process.
     Debtor recognizes and concedes that non-judicial remedies are
     consistent with the usage of trade, are responsive to commercial
     necessity and are the result of a bargain at arm's length.
     Nothing herein is intended to prevent Secured Party or Debtor
     from resorting to judicial process at either party's option.

          (e)  Other Recourse.  Debtor waives any right to require Secured
     Party to proceed against any third party, exhaust any Collateral
     or other security for the Indebtedness, or to have any third
     party joined with Debtor in any suit arising out of the
     Indebtedness or any of the Loan Documents, or pursue any other
     remedy available to Secured Party.  Debtor further waives any and
     all notice of acceptance of this Agreement and of the creation,
     modification, rearrangement, renewal or extension of the
     Indebtedness.  Debtor further waives any defense arising by
     reason of any disability or other defense of any third party or
     by reason of the cessation from any cause whatsoever of the
     liability of any third party.  Until all of the Indebtedness
     shall have been paid in full, Debtor shall have no right of
     subrogation and Debtor waives the right to enforce any remedy
     which Secured Party has or may hereafter have against any third
     party, and waives any benefit of and any right to participate in
     any other security whatsoever now or hereafter held by Secured
     Party.  Debtor authorizes Secured Party, and without notice or
     demand and without any reservation of rights against Debtor and
     without affecting Debtor's liability hereunder or on the
     Indebtedness to (i) take or hold any other property of any type
     from any third party as security for the Indebtedness, and
     exchange, enforce, waive and release any or all of such other
     property, (ii) apply such other property and direct the order or
     manner of sale thereof as Secured Party may in its discretion
     determine, (iii) renew, extend, accelerate, modify, compromise,
     settle or release any of the Indebtedness or other security for
     the Indebtedness, (iv) waive, enforce or modify any of the
     provisions of any of the Loan Documents executed by any third
     party, and (v) release or substitute any third party.

     9.   Frost Bank Loan Liens.

     Notwithstanding anything to the contrary contained herein,
Secured Party and Debtor expressly acknowledge and agree that the
liens and security interests granted in this Agreement on or in
respect of the Collateral described in Paragraph 1.b(ii) of this
Agreement, products and proceeds therefrom and all Returned Goods
shall be subordinate and inferior to the liens granted to The
Frost National Bank in such Collateral under or pursuant to the
Frost Bank Loan pursuant to the terms of the Intercreditor
Agreement of even date  herewith between Secured Party and the
Frost Bank.

                              -10-

<PAGE>

     10.  Miscellaneous.

          (a)  Entire Agreement.  This Agreement contains the entire
     agreement of Secured Party and Debtor with respect to the
     Collateral.  If the parties hereto are parties to any prior
     agreement, either written or oral, relating to the Collateral,
     the terms of this Agreement shall amend and supersede the terms
     of such  prior  agreements as to transactions on or after the
     effective date of this Agreement, but all security agreements,
     financing statements, guaranties, other contracts and notices for
     the benefit of Secured Party shall continue in full force and
     effect to secure the Indebtedness unless Secured Party
     specifically releases its rights thereunder by separate release.

          (b)  Amendment.  No modification, consent or amendment of any
     provision of this Agreement or any of the other Loan Documents
     shall be valid or effective unless the same is in writing and
     signed by the party against whom it is sought to be enforced.

          (c)  Actions by Secured Party.  The lien, security interest and
     other security rights of Secured Party hereunder shall not be
     impaired by (i) any renewal, extension, increase or modification
     with respect to the Indebtedness, (ii) any surrender, compromise,
     release, renewal, extension, exchange or substitution which
     Secured Party may grant with respect to the Collateral, or (iii)
     any release or indulgence granted to any endorser, guarantor or
     surety of the Indebtedness.  The taking of additional security by
     Secured Party shall not release or impair the lien, security
     interest or other security rights of Secured Party hereunder or
     affect the obligations of Debtor hereunder.

          (d)  Waiver by Secured Party.  Secured Party may waive any Event
     of Default without waiving any other prior or subsequent Event of
     Default.  Secured Party may remedy any default without waiving
     the Event of Default remedied.  Neither the failure by Secured
     Party to exercise, nor the delay by Secured Party in exercising,
     any right or remedy upon any Event of Default shall be construed
     as a waiver of such Event of Default or as a waiver of the right
     to exercise any such right or remedy at a later date.  No single
     or partial exercise by Secured Party of any right or remedy
     hereunder shall exhaust the same or shall preclude any other or
     further exercise thereof, and every such right or remedy
     hereunder may be exercised at any time.  No waiver of any
     provision hereof or consent to any departure by Debtor therefrom
     shall be effective unless the same shall be in writing and signed
     by Secured Party and then such waiver or consent shall be
     effective only in the specific instances, for the purpose for
     which given and to the extent therein specified.  No notice to or
     demand on Debtor in any case shall of itself entitle Debtor to
     any other or further notice or demand in similar or other
     circumstances.

          (e)  Costs and Expenses.  Debtor will upon demand pay to Secured
     Party the amount of any and all costs and expenses (including
     without limitation, attorneys' fees and expenses), which Secured
     Party may incur in connection with (i) the custody, preservation,
     use or operation of, or the sale of, collection from, or other
     realization upon, the Collateral, (ii) the exercise or
     enforcement of any of the rights of Secured Party under the Loan
     Documents, or (iii) the failure by Debtor to perform or observe
     any of the provisions hereof.

                              -11-

<PAGE>

          (f)  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND
     CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND
     APPLICABLE FEDERAL LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE
     EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST
     GRANTED HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE
     GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
     TEXAS.

          (g)  Venue.  This Agreement has been entered into in Dallas
     County, Texas and it shall be performable for all purposes in
     such county.  Courts within the State of Texas shall have
     jurisdiction over any and all disputes arising under or
     pertaining to this Agreement and venue for any such disputes
     shall be in Dallas County, Texas.

          (h)  Severability.  If any provision of this Agreement is held by
     a court of competent jurisdiction to be illegal, invalid or
     unenforceable under present or future laws, such provision shall
     be fully severable, shall not impair or invalidate the remainder
     of this Agreement and the effect thereof shall be confined to the
     provision held to be illegal, invalid or unenforceable.

          (i)  No Obligation.  Nothing contained herein shall be construed
     as an obligation on the part of Secured Party to extend or
     continue to extend credit to Debtor.

          (j)  Notices.  All notices, requests, demands or other
     communications required or permitted to be given pursuant to this
     Agreement shall be in writing and given by (i) personal delivery,
     (ii) expedited delivery service with proof of delivery, or (iii)
     United States mail, postage prepaid, registered or certified
     mail, return receipt requested, sent to the intended addressee at
     the address set forth on the signature page hereof or to such
     different address as the addressee shall have designated by
     written notice sent pursuant to the terms hereof and shall be
     deemed to have been received either, in the case of personal
     delivery, at the time of personal delivery, in the case of
     expedited delivery service, as of the date of first attempted
     delivery at the address and in the manner provided herein, or in
     the case of mail, upon deposit in a depository receptacle under
     the care and custody of the United States Postal Service.  Either
     party shall have the right to change its address for notice
     hereunder to any other location within the continental United
     States by notice to the other party of such new address at least
     thirty (30) days prior to the effective date of such new address.

          (k)  Binding Effect and Assignment.  This Agreement (i) creates a
     continuing security interest in the Collateral, (ii) shall be
     binding on Debtor and the heirs, executors, administrators,
     personal representatives, successors and assigns of Debtor, and
     (iii) shall inure to the benefit of Secured Party and its
     successors and assigns.  Without limiting the generality of the
     foregoing, Secured Party may pledge, assign or otherwise transfer
     the Indebtedness and its rights under this Agreement and any of
     the other Loan Documents to any other party.  Debtor's rights and
     obligations hereunder may not be assigned or otherwise
     transferred without the prior written consent of Secured Party.

                              -12-

<PAGE>

          (l)  Termination.  It is contemplated by the parties hereto that
     from time to time there may be no outstanding Indebtedness, but
     notwithstanding such occurrences, this Agreement shall remain
     valid and shall be in full force and effect as to subsequent
     outstanding Indebtedness.  Upon (i) the satisfaction in full of
     the Indebtedness, (ii) the termination or expiration of any
     commitment of Secured Party to extend credit to Debtor, (iii)
     written request for the termination hereof delivered by Debtor to
     Secured Party, and (iv) written release or termination delivered
     by Secured Party to Debtor, this Agreement and the security
     interests created hereby shall terminate.  Upon termination of
     this Agreement and Debtor's written request, Secured Party will,
     at Debtor's sole cost and expense, return to Debtor such of the
     Collateral as shall not have been sold or otherwise disposed of
     or applied pursuant to the terms hereof and execute and deliver
     to Debtor such documents as Debtor shall reasonably request to
     evidence such termination.

          (m)  Cumulative Rights.  All rights and remedies of Secured Party
     hereunder are cumulative of each other and of every other right
     or remedy which Secured Party may otherwise have at law or in
     equity or under any of the other Loan Documents, and the exercise
     of one or more of such rights or remedies shall not prejudice or
     impair the concurrent or subsequent exercise of any other rights
     or remedies.

          (n)  Gender and Number.  Within this Agreement, words of any
     gender shall be held and construed to include the other gender,
     and words in the singular number shall be held and construed to
     include the plural and words in the plural number shall be held
     and construed to include the singular, unless in each instance
     the context requires otherwise.

          (o)  Descriptive Headings.  The headings in this Agreement are
     for convenience only and shall in no way enlarge, limit or define
     the scope or meaning of the various and several provisions
     hereof.

                    [Signature Page Follows]

                              -13-

<PAGE>

     EXECUTED as of the date first written above.

Debtor's Address:                  DEBTOR:
_____________________________
_____________________________      TEMTEX INDUSTRIES, INC.
_____________________________
_____________________________

                                   By:_____________________
                                   Name:___________________
                                   Title:__________________

Secured Party's Address:           SECURED PARTY:
____________________________
____________________________
___________________________        __________________________
                                   James E. Upfield

                              -14-

<PAGE>

                            EXHIBIT A
                               TO
                       SECURITY AGREEMENT

Exhibit A-1     1324 McArthur Drive
                Manchester, Tennessee 37355

Exhibit A-2     1190 West Oleander
                Perris, California 92571

Exhibit A-3     301 Perimeter Park Drive, Suite 227
                Nashville, Tennessee 37211EMPLOYMENT CONTRACT

     This Employment Contract (the "Agreement"), dated as of July
19, 2002, between Temtex Industries, Inc., a Delaware corporation
with offices at One Lincoln Centre, 5400 LBJ Freeway, Suite 1375,
Dallas, Texas 75240 (the "Company"), and Richard Anderson,
residing at 38 Lincoln Street, Lexington, MA 02421 (the
"Executive").

                            Recitals

     WHEREAS, the Company desires to employ Executive as an
executive officer of the Company.

     WHEREAS, Executive has agreed to his employment with the
Company pursuant to the terms and conditions of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises
and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the Company and Executive hereby
agree as follows:

     1.   TERM.

     The Company agrees to employ Executive, and the Executive
agrees to serve, on the terms and conditions of this Agreement
for a period commencing on July 19, 2002 and ending July 19, 2005
(the "Reference Date"), or such shorter period as may be provided
for herein. The period during which Executive is employed
hereunder is hereafter referred to as the "Employment Period."

     2.   DUTIES AND SERVICES.

     During the Employment Period, Executive shall be employed as
the President and Chief Executive Officer of the Company and
shall be responsible for the day-to-day management of the
Company, and shall also perform services in a responsible
executive or managerial capacity for any of the Company's
subsidiary corporations when and as appropriate to further the
interests of the Company. In performance of his duties, Executive
shall be subject to the direction of the Board of Directors of
the Company substantially. Executive agrees to his employment as
described in this Section 2 and agrees to devote all of his
business time and efforts to the performance of his duties under
this Agreement. Executive shall be available to travel as the
needs of the business require.

     3.   COMPENSATION.

     As compensation for his services hereunder, the Company
shall pay Executive, during the Employment Period, a base salary
payable in equal monthly installments at the annual rate of
$240,000. Executive shall also be eligible for a bonus up to 50%
of his base salary, as determined in the discretion of the Board
of Directors. During the Employment Period, the Company may
increase the base salary payable to the Executive, but cannot
reduce the base amount of Executive's salary. Executive will also
be eligible to participate in the regular employee benefit
programs now or hereafter established by the Company and in any
special executive benefits and perquisites established by the
Company's Board of Directors.

<PAGE>

     4.   EXPENSES.

     Executive shall be entitled to reimbursement for travel and
other out-of-pocket expenses incurred by Executive in the
performance of his duties hereunder, upon submission and approval
of written statements and bills in accordance with the then
regular procedures of the Company. Executive shall be entitled to
four weeks paid vacation each year, with no minimum employment
period being required before Executive may take vacation during
the initial year of Executive's employment. The Company
acknowledges that Executive currently resides in Lexington,
Massachusetts, that he may reside there during part or all of the
term hereof and that travel costs and related hotel and other
incidental expenses resulting from his travels from his place of
residence to the Company's facilities shall be reimbursed as
expenses hereunder.

     5.   NONCOMPETITION.

     Executive agrees that (a) he will not during the Employment
Period engage in, or otherwise directly or indirectly be employed
by, or act as a consultant or lender to, or be a director,
officer, employee, owner or partner of, any other business or
organization that directly or indirectly competes with the
business of the Company or any of its subsidiaries and (b) for a
period of two (2) years after he voluntarily terminates this
Agreement, Executive shall not directly or indirectly compete
with or be engaged in the same business as the Company or any of
its subsidiaries or be employed by, or act as consultant or
lender to, or be a director, officer, employee, owner, or partner
of, any business or organization which, at the time of such
cessation, directly or indirectly competes with or is engaged in
the same business as the Company or any of its subsidiaries;
provided, however, that notwithstanding the foregoing, the
provisions of this Section 5 will not be deemed breached merely
because Executive owns not more than 1 percent of the outstanding
equity securities of an entity, if, at the time of its
acquisition by Executive, such securities are listed on a
national securities exchange, is reported on NASDAQ, or is
regularly traded in the over-the-counter market by a member of a
national securities exchange. The provisions of this Section 5
shall survive the termination of this Agreement by either party.

     6.   CONFIDENTIAL INFORMATION.

     All confidential information which Executive may now
possess, may obtain from the Company or its subsidiaries during
or after the Employment Period, or may create prior to the end of
the Employment Period or otherwise relating to the financial
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company or of any
customer or supplier of any of them shall not be published,
disclosed, or made accessible by him to any other person or
entity either during or after the termination of his employment
or used by him except during the Employment Period in the
business and for the benefit of the Company and its subsidiaries,
in each case without prior written permission of the Company.
Executive shall deliver to the Company all tangible evidence of
such confidential information prior to or at the termination of
his employment. The provisions of this Section 6 shall survive
the termination of this Agreement by either party.

                               -2-

<PAGE>

     7.   TERMINATION.

          (a)  Executive's Death. If Executive shall die during the
     Employment Period, this Agreement shall terminate, except that
     Executive's estate shall be entitled to receive the base salary
     payable to Executive, accrued to the last day of the month in
     which his death occurs, together with any death benefits provided
     under employee benefit plans maintained by the Company.

          (b)  Executive's Disability. If, during the Employment Period,
     Executive shall become physically or mentally disabled, whether
     totally or partially, so that he is prevented from performing his
     usual duties and services hereunder for a period of six (6)
     consecutive or nonconsecutive months during any twelve (12) month
     period, this Agreement shall terminate effective on such
     incapacity, and Executive (or his legal representatives) shall be
     entitled only to the base compensation earned pro rata to the
     date of termination with no entitlement to any base salary after
     the date of termination; provided, however, that Executive shall
     be entitled to receive all benefits to which he may be entitled
     pursuant to the Company's employee benefit plans.

          (c)  Termination by the Company Without Cause. This Agreement may
     be terminated by the Company without cause upon thirty (30) days'
     prior written notice thereof given to Executive. In the event of
     termination without cause, the Company shall, until the Reference
     Date, continue to pay Executive the base salary effective at the
     time of termination in accordance with the Company's regular
     payroll cycle. Additionally, following termination without cause,
     Executive shall be entitled to continue to participate in all
     regular employee benefit plans of the Company until the Reference
     Date.

          (d)  Termination by the Company for Cause. This Agreement may be
     terminated by the Company "for cause", as defined below, by
     delivering to Executive written notice describing the cause and
     granting Executive fifteen (15) days to respond to the Board of
     Directors. If this Agreement is terminated by the Company for
     cause, Executive shall only be entitled to the base salary earned
     by him to the date of termination with no entitlement to any base
     salary continuation payments or benefits continuation (except as
     otherwise provided by the terms of an employee benefit plan of
     the Company). The determination as to whether termination shall
     be for cause shall be made by the Board of Directors of the
     Company in the exercise of its business judgment. Termination of
     this Agreement by the Company for cause shall be deemed to have
     occurred only if:

               (i)  termination shall have been the result of an act or
          acts of dishonesty on the Executive's part constituting a felony or
          intended to result directly or indirectly in substantial gain or
          personal enrichment to him at the expense of the Company; or

               (ii) termination shall have been the result of the Executive's
          willful and continued failure substantially to perform his duties
          and responsibilities as an officer of the Company (other than
          such failure resulting from his incapacity due to physical or
          mental illness) after a demand for substantial performance is
          delivered to the Executive by the Board of Directors of the
          Company which specifically identifies the manner in which such
          Board believes that the Executive has not substantially performed
          his duties and the Executive is given a reasonable time after
          such demand substantially to perform his duties; or

               (iii)     termination shall have been the result of a material
          breach of this Agreement.

                               -3-

<PAGE>

     Executive's employment shall in no event be considered to
have been terminated by the Company for cause if the act or
failure to act upon which the termination is based (A) was done
or omitted to be done without intent of gaining therefrom
directly or indirectly a profit to which the Executive was not
legally entitled and as a result of his good faith belief that
such act or failure to act was in or was not opposed to the
interests of the Company, or (B) is an act or failure to act in
respect of which the Executive meets the applicable standard of
conduct prescribed for indemnification or reimbursement of
expenses under the Bylaws of the Company or the laws of its state
of incorporation.

          (e)  Voluntary Termination by Executive. Executive may terminate
     this Agreement at any time upon delivering thirty (30) days'
     written notice to the Company. In the event of such voluntary
     termination other than for "good reason", as hereinafter defined,
     Executive shall be entitled to his base salary earned to the date
     of his resignation, but no base salary continuation payment or
     benefits continuation (except as provided by the terms of the
     Company's employee benefit plans). On or after the date the
     Company receives notice of Executive's resignation (other than
     resignation for good reason), the Company may, at its option, pay
     Executive his base salary through the effective date of his
     resignation and terminate his employment immediately.

          (f)  Termination by Executive For Good Reason. Executive may at
     any time voluntarily terminate his employment for "good reason",
     as defined below, upon thirty (30) days written notice thereof to
     the Company. In the event of such voluntary termination for "good
     reason", Executive shall be deemed to have been terminated
     without cause with the same payments and benefits set forth in
     Section 7(c) being applicable to Executive's termination under
     this Section 7(f).

          For purposes of this Agreement, "good reason" shall
     mean the occurrence of any of the following events:

               (i)  removal from the offices Executive holds on the date of
          this Agreement or a material reduction in Executive's authority or
          responsibility, but not including termination of Executive "for
          cause";

               (ii) reduction in the base salary payable to Executive; or

               (iii) the Company otherwise commits a material breach of this
          Agreement.

     8.   SURVIVAL.

     The covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive
Executive's termination of employment.

     9.   MODIFICATION.

     This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, supersedes all
existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by
each party.

                               -4-

<PAGE>

     10.  NOTICES.

     Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or by Federal Express,
Express Mail, or similar overnight delivery or courier service or
delivered (in person or by telecopy, telex, or similar
telecommunications equipment) against receipt to the party to
whom it is to be given at the address of such party set forth in
the preamble to this Agreement (or to such other address as the
party shall have furnished in writing in accordance with the
provisions of this Section 10). Any notice given to the Company
shall be addressed to the attention of the Corporate Secretary.
Notice to the estate of Executive shall be sufficient if
addressed to Executive as provided in this Section 10. Any notice
or other communication given by certified mail shall be deemed
given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the
time of receipt thereof. Any notice given by other means
permitted by this Section 10 shall be deemed given at the time of
receipt thereof.

     11.  WAIVER.

     Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a
waiver of any other breach of that provision or of any breach of
any other provision of this Agreement. The failure of a party to
insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any
waiver must be in writing.

     12.  BINDING EFFECT.

     Executive's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance, or the claims
of Executive's creditors, and any attempt to do any of the
foregoing shall be void. The provisions of this Agreement shall
be binding upon and inure to the benefit of Executive and his
heirs and personal representatives, shall be binding upon and
inure to the benefit of the Company and its successors and
assigns.

     13.  HEADINGS.

     The headings of this Agreement are solely for the
convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.

     14.  COUNTERPARTS; GOVERNING LAW.

     This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
It shall be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to the conflict
of laws rules.

                    [Signature Page Follows]

                               -5-

<PAGE>

     IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.

                              COMPANY:

                              TEMTEX INDUSTRIES, INC.

                              By:________________________________
                              Name:______________________________
                              Title:_____________________________

                              EXECUTIVE:

                              ___________________________________
                              Richard Anderson

                               -6-

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