SECURITY AGREEMENT

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

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

B.    As a condition precedent to Secured Party's extension of the Loan to Debtor and in consideration therefor, Secured Party has required the execution and delivery of, among other things: (i) this Agreement, (ii) that certain Promissory Note of even date herewith from Debtor to the order of Secured Party in the principal amount of up of One Million and 00/100 DOLLARS ($1,000,000.00), (iii) that certain Promissory Note of even date herewith from Debtor to the order of Secured Party in the principal amount of Three Million and 00/100 DOLLARS ($3,000,000.00) (collectively referred to herein as, the "Note"), and (iv) various other Loan Documents (as defined in the Note).

D.    Debtor: (i) will or is expected to benefit from the Loan, (ii) understands that Secured Party would not make the Loan to Debtor but for the execution and delivery of this Agreement, (iii) acknowledges that this Agreement is being executed and delivered to Secured Party in exchange for valuable consideration which is legally sufficient to support and justify Debtor’s obligations hereunder, and (iv) has knowingly and voluntarily executed and delivered this Agreement to Secured Party after having had the opportunity to review the same with legal counsel.

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

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

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

 

2.    Debtor hereby represents, warrants, and covenants to Secured Party that:

         

B.    The Collateral will be kept in the Commonwealth of Kentucky except such of the Collateral as is subject to third party Agreements and Miscellaneous Agreements, and the Other Agreements (as such terms are defined in Exhibits A and D, respectively (“Third Party Agreements”), in which cases the Collateral shall be kept in the location(s) described in each Third Party Agreement. The Debtor’s principal place of business is located in the Commonwealth of Kentucky. Debtor will promptly notify Secured Party of any change in the location of the Collateral and Debtor will not remove the Collateral from the above described locations without the written consent of the Secured Party. The Debtor shall not change its name, its principal place of business or its state of organization or registration or merge with another entity without first providing written notice to Secured Party.

      

C.    Except for the security interest granted herein, Debtor is the owner of the Collateral free from any prior lien, security interest or encumbrance other than the interests described in the Third Party Agreements, and Debtor will defend the Collateral against all claims and demands of any and all persons at any time claiming the same or any other interest therein.

         

D.     Except in the ordinary course of business for reasonable consideration, Debtor will not sell, exchange, lease or otherwise dispose of any interest in the Collateral without the written consent of the Secured Party and will not permit any lien, security interest or encumbrance to attach to the Collateral.

         

E.     No financing statement covering the Collateral is on file in any public office and, at the request of Secured Party, Debtor will join with Secured Party in executing and/or authorizing one or more financing statements pursuant to the Uniform Commercial Code of Kentucky in form satisfactory to the Secured Party and Debtor will pay the cost of filing in all public offices wherever filing is deemed necessary by Secured Party. A carbon, photographic or other reproduction of this Agreement or a financing statement will be sufficient as a financing statement.

         

F.    Debtor will maintain the Collateral in good condition and repair; will maintain insurance on the Collateral with a coverage amount at least equal to the replacement value of the Collateral against fire, theft, and such other hazards and in such form and amount as Secured Party may require (but in no event less than replacement value of such Collateral as described in Exhibit A hereto) and for the benefit of Debtor and Secured Party as their interest shall appear and will pay and discharge all taxes imposed on the Collateral. Debtor assigns to Secured Party all right to proceeds of any insurance not exceeding the unpaid balance hereunder, and directs any insurer to pay all proceeds directly to Secured Party and authorizes Secured Party to indorse any draft for the proceeds. Such policy or policies (or certificates thereof) shall be delivered to the Secured Party and shall be with a company or companies satisfactory to Secured Party.

         

G.    At its option, Secured Party may discharge taxes, liens or other encumbrances at any time levied or placed on the Collateral, pay for insurance on the Collateral, and pay for the maintenance and preservation of the Collateral should Debtor fail to do so. Debtor agrees to reimburse Secured Party on demand for any payment so made and until such reimbursement, the amount so paid by Secured Party shall be added to the principal amount of the indebtedness.

         

H.    Upon happening of any of the following events or conditions: (a) a default in the payment or performance of any of the obligations or of any covenant or liability contained or referred to in the Note or any of the other Loan Documents; (b) loss, theft, destruction, sale or encumbrance of or to the Collateral; (c) death, dissolution, termination of existence, insolvency, business failure, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceedings under any bankruptcy or insolvency laws by or against Debtor; or (d) any default under the terms hereunder; Secured Party may at its election, declare the entire amount of the indebtedness then outstanding under the Note and other Loan Documents due and payable at once and Secured Party shall have the rights and remedies of a secured party under any applicable Uniform Commercial Code, including the right to enter any premises of the Debtor, without legal process and take possession of and remove the Collateral and the right to act in Debtor’s place under any of the Third Party Contracts. Debtor agrees, upon request of the Secured Party, to assemble the Collateral and to make it available at the place designated by Secured Party. Any requirement of reasonable notice of any disposition of the Collateral shall be satisfied if such notice is mailed to the address of the Debtor shown in this Agreement at least ten (10) days before the time of such disposition.

         

3.    No waiver by Secured Party of any default shall be effective unless in writing nor

shall operate as a waiver of any other default or of the same default on a subsequent occasion. Secured Party is hereby authorized to fill any blank spaces hereunder. All rights of Secured Party hereunder shall inure to the benefit of the heirs, executors, administrators, successors and assigns of Secured Party; and all obligations of Debtor shall bind the heirs, executors, administrators, successors and assigns of Debtor. If there is more than one Debtor, their obligations hereunder shall be joint and several. This Agreement constitutes the entire agreement between the parties. This Agreement shall be governed by Kentucky law.

4.    Any notice that Secured Party or Debtor is required or entitled to give to the other party hereunder shall be in writing and shall be deemed given when sent by certified mail, return receipt requested, postage prepaid or upon receipt, if hand delivered or sent by facsimile, at the addresses specified below:

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

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

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

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

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

WESSCO, LLC, a Delaware limited liability company

By:    Industrial Services of America, Inc., a

Florida corporation, its Manager

By:    /s/ Alan Schroering                    

Title:    Interim Chief Financial Officer and VP of Finance

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

                    

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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