EXHIBIT 10.4 SECURITY AGREEMENT

 

                                  EXHIBIT 10.4

 

                               SECURITY AGREEMENT

 

         THIS SECURITY AGREEMENT ("Agreement") is made as of the 21st day of

April, 2003, by and between INDUSTRIAL FABRICATION AND REPAIR, INC., a Tennessee

corporation, hereinafter called "Debtor", having offices at 2415 Sycamore Drive,

Knoxville, Tennessee 37921, and LESTER E. GANN, an individual, hereinafter

called "Secured Party," having an address c/o 2415 Sycamore Drive, Knoxville,

Tennessee 37921.

 

          1. SECURITY INTEREST. For good and valuable consideration, the receipt

and adequacy of which are hereby acknowledged, Debtor assigns and grants to the

Secured Party a security interest and lien in the Collateral (as hereinafter

defined) to secure the payment and the performance of the obligations evidenced

by those certain Promissory Notes of even date herewith in the aggregate

principal amount of $2,000,000 (the "Obligations").

 

         2. COLLATERAL. A blanket security interest is granted in all of

Debtor's assets, including but not limited to those assets listed on Schedule A

attached hereto and incorporated herein by such reference, whether tangible or

intangible, now existing or hereafter acquired, including without limitation the

following collateral ("Collateral"):

 

                  A. Any and all accounts and other rights of Debtor to the

payment for goods sold or leased or for services rendered whether or not earned

by performance, including, without limitation, contract rights, book debts,

checks, notes, drafts, instruments, chattel paper, acceptances, and any and all

amounts due to Debtor or other forms of obligations and receivables, now

existing or hereafter arising;

 

                  B. Any and all of Debtors goods held as inventory, whether now

owned or hereinafter acquired, including without limitation, any and all such

goods held for sale or lease or being processed for sale or lease in Debtor's

business, as now or hereafter conducted, including all materials, goods and work

in process, finished goods and other tangible property held for sale or lease or

furnished or to be furnished under contracts of service or used or consumed in

Debtor's business, along with all documents (including documents of title)

covering such inventory;

 

                   C. Any and all of Debtor's goods held as equipment, whether

now owned or hereinafter acquired, including without limitation, all equipment

in which Debtor has any rights, and all accessions thereto and substitutions

therefor, and all equipment in which Debtor hereafter acquires any rights,

whether in possession of a seller, in transit from seller to Debtor, on Debtor's

premises or elsewhere, all contractual rights to purchase equipment, all

shipping invoices, bills of lading, and warehouse receipts covering such

equipment, and all proceeds of such Collateral, whether the equipment be affixed

to realty or not. It is expressly agreed that any equipment affixed to realty

shall remain personal property. Debtor agrees not to affix any equipment or

realty or allow any equipment to become accessions to goods without prior

written consent of the Secured Party, and in no event in such a way that removal

would damage the realty or goods;

 

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                   D. Any and all of Debtor's instruments and other writings of

any type which evidence a right to the payment of money, whether now owned or

hereafter acquired, including without limitation, negotiable instruments,

promissory notes, and documents of title owned or to be owned by Debtor,

certificates of deposit, capital stock, and all liens, security agreements,

leases and other contracts securing or otherwise relating to any of said

instruments or documents;

 

                  E. Any and all of Debtor's intangible property, whether now

owned or hereafter acquired, including without limitation, all patents,

trademarks, services marks, web site addresses, copyrights and exclusive

licenses, literary rights, contract rights and all documents, applications,

materials and other maters related thereto, all inventions, all manufacturing,

engineering, design and production plans, drawings, specifications, processes,

codes and systems, all trade names, goodwill and all chattel paper, documents

and instruments relating to such general intangibles;

 

                  F. Any and all substitutes and replacements for, accessions,

attachments and other additions to, tools, parts and equipment now or hereafter

added to or used in connection with, and all cash or non-cash proceeds and

products of, the Collateral (including, without limitation, all income, benefits

and property receivable, received or distributed which results from any of the

Collateral, such as dividends payable or distributable in cash, property or

stock; insurance distributions of any kind related to the Collateral, including,

without limitation, returned premiums, interest, premium and principal payments;

redemption proceeds and subscription rights; and shares or other proceeds of

conversions or splits of any securities in the Collateral); any and all causes

in action of Debtor, whether now existing or hereafter arising, relating

directly or indirectly to the Collateral (whether arising in contract, tort or

otherwise and whether or not currently in litigation); all certificates of

title, manufacturer's statements of origin, other documents, accounts and

chattel paper, whether now existing or hereafter arising directly or indirectly

from or related to the Collateral; all warranties, wrapping, packaging,

advertising and shipping materials used or to be used in connection with or

related to the Collateral; all of Debtor's books, records, data, plans, manuals,

computer software, computer tapes, computer systems, computer disks, computer

programs, source codes and object codes containing any information, pertaining

directly or indirectly to the Collateral and all rights of Debtor to retrieve

data and other information pertaining directly or indirectly to the Collateral

from third parties, whether now existing or hereafter arising; and all returned,

refused, stopped in transit, or repossessed Collateral;

 

                  G. The balance of every deposit account of Debtor maintained

with any bank or savings and loan and all money, instruments, securities,

documents, chattel paper, credits, claims, demands, income, and any other

property, rights and interests of Debtor and the proceeds of any thereof; and

 

                  H. All proceeds of Collateral of every kind and nature and in

whatever form, including, without limitation, both cash and non-cash proceeds

resulting or arising from the rendering of services by Debtor or the sale, lease

or other disposition by Debtor of the inventory or other Collateral.

 

         SCHEDULE A represents a majority of the machinery and equipment

presently owned by

 

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Debtor, but is not meant to be an exhaustive list of all such Collateral

presently owned by Debtor nor in any way limit the granting by Debtor to the

Secured Party of the blanket security interest in all of its assets pursuant to

this Agreement..

 

         3. DEBTOR'S REPRESENTATIONS AND WARRANTIES. Debtor hereby warrants and

agrees that:

 

                  A. Except for the security interest granted hereby, Debtor is

the owner of the Collateral free from any lien, security interest, or

encumbrance, except as imposed by law; and Debtor will defend the Collateral

against all claims and demands of all persons at any time claiming the same or

any interest therein.

 

                  B. No financing statement covering any of the above Collateral

or any proceeds thereof is on file in any public office; Debtor authorizes the

Secured Party to file, in jurisdictions where this authorization will be given

effect, a Financing Statement signed only by the Secured Party describing the

Collateral in the same manner as it is described herein; and from time to time

at the request of the Secured Party, execute one or more Financing Statements

and such other documents and Debtor shall pay the cost of filing or recording

same in all public offices deemed necessary or desirable by the Secured Party

and do such other acts and things, all as the Secured Party may request to

establish and maintain a valid security interest in the Collateral (free of all

other liens and claims whatsoever) to secure the payment of the Obligations,

including, without limitation, deposit with the Secured Party of any certificate

of title issuable with respect to any of the Collateral and notation thereon of

the security interest hereunder.

 

                  C. Debtor will not sell, transfer, lease or otherwise dispose

of any of the Collateral or any interest therein, or offer so to do, other than

in the ordinary course of Debtor's business without the prior written consent of

the Secured Party.

 

                  D. At the written request of the Secured Parity, Debtor will

at all times keep the Collateral insured against loss, damage, theft, and such

other risks as the Secured Party may reasonably require in such amounts and

companies and under such policies and in such form, and for such periods, as

shall be satisfactory to the Secured Party, and each such policy shall provide

that loss thereunder and proceeds payable thereunder shall be payable to the

Secured Party (and the Secured Party may apply any proceeds of such insurance

which may be received by the Secured Party toward payment of the Obligations,

whether or not due, in such order of application as the Secured Party may

determine) and each such policy shall provide for twenty (20) days written

minimum cancellation notice to the Secured Party; and each such policy shall, if

the Secured Party so request, be deposited with the Secured Party; and the

Secured Party may act as attorney for Debtor in obtaining, adjusting, settling,

and canceling such insurance and endorsing any drafts.

 

                  E. Debtor shall at all times keep the Collateral free from any

lien, security interest, or encumbrance and in good order and repair, ordinary

wear and tear excepted, and will not waste or destroy the Collateral or any part

thereof; and Debtor will not use other Collateral in violation of any statute or

ordinance; and the Secured Party may examine and inspect the Collateral upon

reasonable notice wherever located.

 

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                  F. Debtor will pay promptly when due all taxes and assessments

upon the Collateral or for its use of operation or upon this agreement or upon

any note or notes evidencing the Obligations, or any of them, other than those

contested by Debtor in good faith.

 

                  G. At his option, the Secured Party may, after giving Debtor

fifteen (15) days notice and opportunity to cure, discharge taxes, liens or

security interests or other encumbrances at any time levied or placed on the

Collateral, may pay for insurance on the Collateral, and may pay for the

maintenance and preservation of the Collateral. Debtor agrees to reimburse the

Secured Party on demand for any payment made, or any expense incurred, by the

Secured Party, pursuant to the foregoing authorization. Until default, Debtor

may have possession of the Collateral and use it in any lawful manner not

inconsistent with this agreement and not inconsistent with any policy of

insurance thereon.

 

                   H. Debtor has full power and authority to make this Agreement,

and all necessary consents and approvals or any persons, entities, gove