AVATECH SOLUTIONS INC
SECURITY AGREEMENT
<DOCUMENT>
<TYPE>EX-10.07
<SEQUENCE>4
<FILENAME>dex1007.txt
<DESCRIPTION>SECURITY AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.07

                               SECURITY AGREEMENT

          SECURITY AGREEMENT dated as of July 22, 2003 by and between AVATECH
SOLUTIONS SUBSIDIARY, INC., a Delaware corporation (the "Grantor"), and
Strategic Partner (name withheld and filed separately with the SEC) (the
"Secured Party").

                              W I T N E S S E T H:

          WHEREAS, the Secured Party has entered into a Loan Agreement, dated as
of July 22, 2003 (the "Loan Agreement"), with the Grantor pursuant to which the
Secured Party will make Loans to the Grantor; and

          WHEREAS, it is condition precedent to the making of the Initial Loan
under the Loan Agreement that the Grantor shall have granted to the Secured
Party the security interests set forth in this Agreement; and

          WHEREAS, all capitalized terms used herein without definition shall
have the respective meanings ascribed thereto in the Loan Agreement; and

          NOW, THEREFORE, in consideration of the foregoing premises and in
order to induce the Secured Party to make the loans pursuant to the Loan
Agreement, the Grantor hereby agrees with the Secured Party as follows:

     1. Grant of Security. The Grantor hereby assigns and pledges to and for the
ratable benefit of the Secured Party a continuing security interest in all of
the Grantor's right, title and interest in and to the following, whether now
owned or existing or hereafter arising or acquired and wheresoever located and
including all products and proceeds thereof (collectively, the "Collateral"):

     Accounts: All present and future "accounts" (as defined in the Uniform
Commercial Code as in effect in the State of Delaware (the "Code")), accounts
receivable and other rights of the Grantor to payment for goods sold or leased
or for services rendered, whether now existing or hereafter arising and wherever
arising, and whether or not they have been earned by performance (collectively,
"Accounts");

     Inventory: All "inventory" (as defined in the Code), including goods now
owned or hereafter acquired by the Grantor (wherever located, whether in the
possession of the Grantor or of a bailee or other person for sale, storage,
transit, processing, use or otherwise and whether consisting of whole goods,
spare parts, components, supplies or materials, or consigned, returned or
repossessed goods) which are held for sale or lease or to be furnished under any
present or future contract of service or which are raw materials, work in
process, finished goods, office supplies, maintenance supplies, packaging
materials, spare parts or similar items of Grantor or materials used or consumed
solely in the Grantor's business (collectively, "Inventory");

                                        1

<PAGE>

     Equipment: All "equipment" (as defined in the Code), including all
machinery, equipment, tools, production fixtures, maintenance machinery and
equipment, furniture and leasehold improvements, distribution, selling, data
processing and office equipment, appliances, fixtures and trade fixtures, tools,
vehicles, and all other goods of every type and description (other than
Inventory), in each instance whether now owned or hereafter acquired by the
Grantor and wherever located (collectively, "Equipment");

     General Intangibles: All rights, interest, choses in action, causes of
action, claims and all other intangible property of the Grantor of every kind
and nature (other than Accounts), in each instance whether now owed or hereafter
acquired by the Grantor, and however and whenever arising, including, without
limitation, all corporate and other business records; all loans, royalties, and
other obligations receivable; all inventions, designs, trade secrets, computer
programs and prototypes, software and related documentation, printouts and other
computer materials; all the goodwill of the business of Grantor in connection
with the use, and symbolized by, each trademark, service mark and trade name of
Grantor; all licenses, franchises, customer lists, credit files, correspondence,
and advertising materials; all customer and supplier contracts, firm sale
orders, rights under license and franchise agreements, and other contracts and
contract rights; all interests in partnerships and joint ventures; all tax
refunds and tax refund claims; all right, title and interest under leases,
subleases, licenses and concessions and other agreements relating to real or
personal property; all payments due or made to the Grantor in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of any
property by any person or governmental authority; all deposit accounts (general
or special) with any bank or other financial institution, including, without
limitation, any deposits or other sums at any time credited by or due to the
Grantor from the Secured Party, any lender or any of their respective
affiliates, with the same rights therein as if the deposits or other sums were
credited by or due from the Secured Party or any lender; all credit with and
other claims against carriers and shippers; all rights to indemnification; all
patents, trademarks, service marks, tradenames, patent applications and
trademark applications, and all claims by Grantor against third parties for any
infringement of any trademark, service mark or copyright; all reversionary
interests in pension and profit sharing plans and reversionary, beneficial and
residual interest in trusts; all proceeds of insurance of which the Grantor is
beneficiary; all letters of credit, guaranties, liens, security interests and
other security held by or granted to the Grantor; any restrictive covenants and
obligations of Grantor's officers, employees, former officers and former
employees and all rights, claims and causes of action against any of Grantor's
officers, former officers, employees or former employees; and all other
intangible property, whether or not similar to the foregoing;

     Chattel Paper, Instruments and Documents: All "chattel paper" (as defined
in the Code), all leases, all "instruments" (as defined in the Code) and all
payments thereunder and instruments and other property from time to time
delivered in respect thereof or in exchange therefor and all bills of lading,
warehouse receipts, documents of title and other "documents" (as defined in the
Code), in each instance whether now owned or hereafter acquired by the Grantor;

                                        2

<PAGE>

     Investment Property: All "investment property" (as defined in the Code)
(including, without limitation, all (A) securities, whether certificated or
uncertificated, (B) security entitlements, (C) securities accounts, (D)
commodity contracts and (E) commodity accounts) in which such Grantor has now,
or acquires from time to time hereafter, any right, title or interest in any
manner, and the certificates or instruments, if any, representing or evidencing
such investment property, and all dividends, interest, distributions, value,
cash, instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
investment property; and

     Other Property: All personal property or interests in personal property now
owned or hereafter acquired by the Grantor which now may be owned or hereafter
may come into the possession, custody or control of the Grantor or any agent of
the Grantor in any way or for any purpose (whether for safekeeping, deposit,
custody, pledge, transmission, collection or otherwise); and all rights and
interests of the Grantor, now existing or hereafter arising and however and
wherever arising, in respect of any and all (i) notes, drafts, letters of
credit, stocks, bonds, and debt and equity securities, whether or not
certificated, and warrants, options, puts and calls and other rights, to acquire
or otherwise relating to the same; (ii) money; (iii) proceeds of loans; and (iv)
insurance proceeds and books and records relating to any of the property covered
by this Agreement; together, in each instance, with all accessions and additions
to any of the property covered by this Agreement, any substitutions therefor,
and any replacements, proceeds and products therefor.

     2. Security For Obligations. This Agreement secures the payment and
performance of all obligations of the Grantor now or hereafter existing under
the Loan Agreement and this Agreement, in each case, as the same may be amended
and modified from time to time, whether for payment of principal, interest
(including, without limitation, interest accruing following the filing by or
against the Grantor of a bankruptcy proceeding), fees, expenses or otherwise
(all such obligations of the Grantor being hereinafter referred to collectively
as the "Secured Obligations").

     3. Grantor Remains Liable. Anything herein to the contrary notwithstanding,
(a) the Grantor shall remain solely liable under the contracts, agreements,
instruments and chattel paper included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement and the Loan Agreement had not been executed, (b)
the exercise by the Secured Party of any of its rights hereunder or under the
Loan Agreement shall not release the Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral and
(c) the Secured Party shall not have any responsibility, obligation or liability
under the contracts, agreements, instruments, chattel paper or investment
property included in the Collateral by reason of this Agreement or the Loan
Agreement, nor shall the Secured Party be required or obligated, in any manner,
to (i) perform or fulfill any of the obligations or duties of the Grantor
thereunder, (ii) make any payment, or make any inquiry as to the nature or
sufficiency of any payment received by the Grantor or the

                                        3

<PAGE>

sufficiency of any performance by any party under any such contracts,
agreements, instruments or chattel paper, or (iii) present or file any claim, or
take any action to collect or enforce any claim for payment assigned hereunder.

     4. Representations and Warranties of the Grantor. The Grantor represents
and warrants to the Secured Party with respect to the Collateral to the effect
set forth in the Loan Agreement, which representations and warranties are
incorporated herein by reference in their entirety as if made on and as of the
date hereof.

     5. Perfection and Maintenance of Security Interest and Lien; Further
Assurances. The Grantor agrees that until this Agreement has been terminated in
accordance with Section 12 hereof, the Secured Party's security interests in and
liens on and against the Collateral and all proceeds and products thereof shall
continue in full force and effect. The Grantor shall perform, from time to time,
any and all steps reasonably requested by the Secured Party to perfect, maintain
and protect the Secured Party's security interests in and liens on and against
the Collateral granted or purported to be granted hereby and to enable the
Secured Party to exercise its rights and remedies hereunder and under the Loan
Agreement, including, without limitation, (i) executing and filing financing or
continuation statements, upon an Event of Default and during the continuance
thereof, tradename and copyright assignments or any amendments thereof, in form
and substance reasonably satisfactory to the Secured Party and (ii) executing
and delivering all further instruments and documents as the Secured Party may
reasonably request to perfect or continue the perfection of their respective
security interests in the Collateral.

     6. Filing Costs. The Grantor shall pay the reasonable costs of, or
incidental to, all recordings or filings of all financing statements (including,
without limitation, all recording, documentary and intangible recording taxes).

     7. Appointment of Attorney-in-Fact. The Grantor hereby irrevocably appoints
the Secured Party as the Grantor's attorney-in-fact, with full authority in the
place and stead of the Grantor and in the name of the Grantor or otherwise, from
time to time in the discretion of the Secured Party and at any time and from
time to time during the continuance of an Event of Default (as defined in the
Loan Agreement), to take any action and to execute any instrument which the
Secured Party may deem necessary, for and on behalf of the Secured Party, to
accomplish the purposes of this Agreement, including, without limitation:

     (i) to ask, demand, collect, sue for, recover, compromise, receive and give
     acquittance and receipts for moneys due and to become due under or in
     respect of any of the Collateral;

     (ii) to receive, endorse, and collect any drafts or other instruments,
     documents and chattel paper, in connection with clause (i) above;

     (iii) to file any claims or take any action or institute any proceedings
     which the Secured Party may deem necessary or desirable for the collection
     of any of the

                                        4

<PAGE>

     Collateral or otherwise to enforce the rights of the Secured Party with
     respect to any of the Collateral;

     (iv) to discharge any lien or encumbrance on or against the Collateral or
     bond the same; and

     (v) to take such other action as may be necessary to enforce the Secured
     Party's rights under this Agreement and the Loan Agreement.

     8. The Secured Party's Duties. The powers conferred on the Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon the Secured Party to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the accounting for
moneys actually received by the Secured Party hereunder, the Secured Party shall
have no duties as to any Collateral. The Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which the Secured Party accords its own properties.

     9. Remedies. If any Event of Default shall have occurred and be continuing:

     (i) the Secured Party shall have, in addition to the other rights and
     remedies provided for herein and in the Loan Agreement or otherwise
     available to the Secured Party, all the rights and remedies of a secured
     party upon default under the Code; and

     (ii) the Secured Party shall apply all cash proceeds received by it in
     respect of any sale of, collection from, or other realization upon all or
     any part of the Collateral from, or other realization upon all or any part
     of the Collateral, for the benefit of the Secured Party, against all or any
     part of the Secured Obligations in such order as the Secured Party may
     select. Any surplus of such cash or cash proceeds held by the Secured Party
     and remaining after payment in full of all the Secured Obligations shall be
     paid over to the Grantor or to whomsoever may be lawfully entitled to
     receive such surplus.

     10. Indemnity and Expense. Upon the occurrence and during the continuance
of an Event of Default, the Grantor will upon demand pay to the Secured Party
the amount of any and all reasonable out-of-pocket expenses, including the fees
and disbursements of counsel and of any experts and agents, which the Secured
Party may incur in connection with (i) the custody (and protection during any
period of custody) of, collection from, or other realization upon, any of the
Collateral, (ii) the exercise or enforcement of any of the rights of the Secured
Party hereunder or under the Loan Agreement, or (iii) the failure by the Grantor
to perform or observe any of the provisions hereof. All of the foregoing fees,
costs and expenses shall be part of the Secured Obligations and shall be secured
by the Collateral. The Grantor shall indemnify and hold the Secured Party and
its officers, directors, employee, affiliates, counsel and agents (each, an
"Indemnified Person ") harmless from and against any and all liabilities,
obligations, losses, damages, penalties,

                                        5

<PAGE>

actions or other proceedings (commenced or threatened and whether or not any
such Indemnified Person is a party thereto), judgments, costs, expenses and
disbursements of any kind, including reasonable attorneys' fees and
disbursements and other reasonable costs and expenses of investigation or
defense resulting from, arising out of or in any way relating to this Agreement,
the Loan Agreement or any transaction contemplated hereby or thereby (all of the
foregoing, collectively, the "Indemnified Liabilities "); provided that the
Grantor shall have no liability to an Indemnified Person hereunder with respect
to Indemnified Liabilities arising from the gross negligence or willful
misconduct of such Indemnified Person. All amounts due under this Section shall
be payable on demand of the Secured Party.

     11. Notices. Any notice, direction or other communication to be given under
this Agreement shall, except as otherwise permitted, be in writing and given by
delivering it or sending it by facsimile or other similar form of recorded
communication addressed:

to the Grantor at:

                     11403 A Cronhill Drive
                     Owings Mills, MD 21117
                     Attention: Donald R. Walsh
                     Telephone: (410) 902-6900
                     Facsimile: (410) 902-8324

with a copy to:

                     Neuberger, Quinn, Gielen, Rubin & Gibber, P.A.
                     One South Street
                     27th Floor
                     Baltimore, MD 21202
                     Attention: Christopher Olander
                     Telephone: (410) 332-8550
                     Facsimile: (410) 332-8594

to the Secured Party at:
                     Strategic Partner
                     (Address withheld and filed separately with the SEC.)

with a copy to:      Ropes & Gray LLP
                     45 Rockefeller Plaza
                     New York, New York 10111
                     Attention: Jonathan Cramer, Esq.
                     Telephone: (212) 841-0690
                     Facsimile: (212) 841-5725

or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.

     12. Continuing Security Interest; Termination. This Agreement shall create
a continuing security interest in the Collateral and shall remain in full force
and effect until

                                        6

<PAGE>

the earlier of (i) the payment in full of the Secured Obligations or (ii) the
termination of this Agreement by the Secured Party. This Agreement shall be
binding upon the Grantor and its successors and assigns and shall inure,
together with the rights and remedies of the Secured Party, to the benefit of
the Secured Party and its successors and assigns. Upon the termination of this
Agreement in accordance with this Section 12, the security interests granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantor. Upon any such termination, the Secured Party will, at the Grantor's
expense, execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such termination, without representations or
warranties. The Grantor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession thereof or therefor.

     13. Choice of Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of Delaware without regard of
the principles of conflicts of laws thereof, except as required by mandatory
provisions of law and except to the extent that the validity or perfection of
the security interest hereunder, or remedies hereunder, in respect of any
particular Collateral is governed by the laws of a jurisdiction other than the
State of Delaware. Unless otherwise defined herein terms used in Article 9 of
the Uniform Commercial Code in the State of Delaware are used herein as therein
defined.

     14. Execution in Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
instrument. Delivery of an executed signature page to this Agreement by any
party by facsimile transmission shall be as effective as delivery of a manually
executed copy of this Agreement by such party.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                        7

<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Security Agreement on
the date appearing on the first page hereof.

                                            AVATECH SOLUTIONS SUBSIDIARY, INC.


                                            By:         /s/
                                                --------------------------------
                                               Name:
                                               Title:

                                            Strategic Partner


                                            By:         /s/
                                                --------------------------------
                                               Name: (Name withheld and filed
                                               Title:  separately with the SEC.)

                                        8

</TEXT>
</DOCUMENT>
