Exhibit 10.4

SECURITY AGREEMENT

          THIS SECURITY AGREEMENT (this “Agreement”), dated as of July 24, 2014,
is by and between MGC DIAGNOSTICS CORPORATION, a Minnesota corporation (the
“Debtor”), and BMO HARRIS BANK N.A. (the “Secured Party”).

RECITALS:

          A.          The Debtor and Medical Graphics Corporation (individually
and collectively, the “Borrower”) and the Secured Party are parties to that
certain Credit Agreement of even date herewith (as such agreement may be
amended, modified, supplemented, restated or replaced from time to time, the
“Credit Agreement”), pursuant to which the Secured Party is providing financial
accommodations to the Borrower.

          B.          The Debtor desires to grant to the Secured Party a
security interest in all of the Debtor’s property, all as provided herein.

AGREEMENTS:

          IN CONSIDERATION of one dollar and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:

          1.          Grant of Security Interest and Collateral. In order to
secure payment and performance of each and every debt, liability and obligation
of every type and description which Debtor and/or the Borrower may now or at any
time hereafter owe to Secured Party, including without limitation the
“Obligations” as such term is defined in the Credit Agreement, whether such
debt, liability or obligation now exists or is hereafter created or incurred,
whether it arises under or is evidenced by this Security Agreement, the Credit
Agreement or any other present or future instrument or agreement or by operation
of law, and whether it is or may be direct or indirect, due or to become due,
absolute or contingent, primary or secondary, liquidated or unliquidated, or
sole, joint, several or joint and several (all such debts, liabilities and
obligations and any amendments, extensions, renewals or replacements thereof are
herein collectively referred to as the “Obligations”), Debtor hereby grants
Secured Party a first priority security interest (the “Security Interest”)
subject only to Permitted Liens (as defined in the Credit Agreement) in all of
Debtor’s property (the “Collateral”), including without limitation the
following:

 

 

 

           (a)          Inventory and Goods: All inventory of Debtor, whether
now owned or hereafter acquired and wherever located and other tangible personal
property held for sale or lease or furnished or to be furnished under contracts
of service or consumed in Debtor’s business, and all goods of Debtor, whether
now owned or hereafter acquired and wherever located, including without
limitation all computer programs embedded in goods, and all other Inventory and
Goods, as each such term may be defined in the Uniform Commercial Code as in
effect in the state of Minnesota from time to time (the “UCC”), of the Debtor,
whether now owned or hereafter acquired;

 

 

 

           (b)           Equipment: All equipment of Debtor, whether now owned
or hereafter acquired and wherever located, including but not limited to all
present and future

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equipment, machinery, tools, motor vehicles, trade fixtures, furniture,
furnishings, office and recordkeeping equipment and all goods for use in
Debtor’s business, and all other Equipment (as such term may be defined in the
UCC) of the Debtor, whether now owned or hereafter acquired, together with all
parts, equipment and attachments relating to any of the foregoing;

 

 

 

           (c)           Accounts, Contract Rights and Other Rights to Payment:
Each and every right of Debtor to the payment of money, whether such right to
payment now exists or hereafter arises, whether such right to payment arises out
of a sale, lease, license, assignment or other disposition of goods or other
property by Debtor, out of a rendering of services by Debtor, out of a loan by
Debtor, out of the overpayment of taxes or other liabilities of Debtor, or
otherwise arises under any contract or agreement, whether such right to payment
is or is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including all
liens and security interests) which Debtor may at any time have by law or
agreement against any account debtor or other obligor obligated to make any such
payment or against any of the property of such account debtor or other obligor;
all including but not limited to all present and future debt instruments,
chattel paper, accounts, license fees, contract rights, loans and obligations
receivable and tax refunds, and all other Accounts (as such term may be defined
in the UCC) of the Debtor, whether now owned or hereafter acquired;

 

 

 

          (d)           Instruments: All instruments, chattel paper, letters of
credit or other documents of Debtor, whether now owned or hereafter acquired,
including but not limited to promissory notes, drafts, bills of exchange and
trade acceptances; all rights and interests of Debtor, whether now existing or
hereafter created or arising, under leases, licenses or other contracts, and all
other Instruments (as such term may be defined in the UCC) of the Debtor,
whether now owned or hereafter acquired;

 

 

 

           (e)           Deposit Accounts and Investment Property: All right,
title and interest of Debtor in all deposit and investment accounts maintained
with any bank, savings and loan association, broker, brokerage, or any other
financial institution, together with all monies and other property deposited or
held therein, including, without limitation, any checking account, savings
account, escrow account, savings certificate and margin account, and all
securities, whether certificated or uncertificated, security entitlements,
securities accounts, commodity contracts, and commodity accounts, and all other
Deposit Accounts and Investment Property (as each such term may be defined in
the UCC) of the Debtor, whether now owned or hereafter acquired;

 

 

 

           (f)           General Intangibles: All general intangibles of Debtor,
whether now owned or hereafter acquired, including, but not limited to,
applications for patents, patents, copyrights, trademarks (other than
“intent-to-use” trademark applications as described below), trade secrets, good
will, tradenames, customer lists, permits and franchises, software, and the
right to use Debtor’s name, and any and all membership interests, governance
rights, and financial rights in each and every limited liability company, and
all payment intangibles, and all other General Intangibles (as such term may be
defined in the UCC) of the Debtor, whether now owned or hereafter acquired;

 

 

 

           (g)           Chattel Paper: All Chattel Paper (as such term may be
defined in the UCC) of the Debtor, whether tangible or electronic, and whether
now owned or hereafter acquired; and

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           (h)           Documents, Embedded Software, Etc.: All of Debtor’s
rights in promissory notes, documents, embedded software, letter of credit
rights and supporting obligations (and security interests and liens securing
them) (as any such term may be defined in the UCC) whether now owned or
hereafter acquired;

together with all substitutions and replacements for and products of any of the
foregoing property and proceeds of any and all of the foregoing property and, in
the case of all tangible Collateral, together with (i) all accessories,
attachments, parts, equipment, accessions, repairs and embedded software, now or
hereafter attached or affixed to or used in connection with any such goods,
(ii) all warehouse receipts, bills of lading and other documents of title now or
hereafter covering such goods, (iii) insurance proceeds, and (iv) all books and
records of Debtor.

Notwithstanding the forgoing, in no event shall Collateral include the
following: (x) more than 66% of the voting equity interests in any Foreign
Subsidiary (as defined in the Credit Agreement) which is not a pass-thru entity
for United States income tax purposes, (y) any U.S. intent-to-use trademark
application for which a statement of use has not been filed with and duly
accepted by the United States Patent and Trademark Office (but only until such
statement is accepted by the United States Patent and Trademark Office) and (z)
any rights or interests in any lease, license, contract, or agreement, as such
or the assets subject thereto if under the terms of such lease, license,
contract, or agreement, or applicable law with respect thereto, the valid grant
of a Lien therein or in such assets to Secured Party is prohibited and such
prohibition has not been or is not waived or the consent of the other party to
such lease, license, contract, or agreement has not been or is not otherwise
obtained or under applicable law such prohibition cannot be waived; provided,
however, the foregoing exclusions shall in no way be construed (i) to apply if
any such prohibition would be rendered ineffective under the UCC (including
Sections 9-406, 9-407 and 9-408 thereof) or other applicable law (including the
United States bankruptcy code) or principles of equity, (ii) so as to limit,
impair or otherwise affect Secured Party’s unconditional continuing liens upon
any rights or interests of Debtor in or to the proceeds thereof (including
proceeds from the sale, license, lease or other disposition thereof), including
monies due or to become due under any such lease, license, contract, or
agreement (including any Accounts or other Receivables (as such terms are
defined in the UCC)), or (iii) to apply at such time as the condition causing
such prohibition shall be remedied or cease to exist and, to the extent
severable, “Collateral” shall include any portion of such lease, license,
contract, agreement or assets subject thereto that does not result in such
prohibition.

          2.          Representations, Warranties and Agreements. Debtor
represents, warrants and agrees that:

 

 

 

           (a)          Debtor is an entity of the type identified on Exhibit A
hereto, duly organized, validly existing and in good standing under the laws of
the state of its organization as identified on Exhibit A hereto. This Security
Agreement has been duly and validly authorized by all necessary entity action.
Debtor has full power and authority to execute this Agreement, to perform
Debtor’s obligations hereunder and to subject the Collateral to the Security
Interest. Debtor will give at least 30 days’ advance written notice to Secured
Party of any change in Debtor’s name, type of entity or jurisdiction of
organization.

 

 

 

          (b)          Debtor’s chief place of business is located at the
address set forth on Exhibit A hereto. Debtor’s records concerning its
Collateral are kept at such address. The

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Collateral is located at the addresses set forth on Exhibit A hereto. Debtor
will give at least 30 days’ advance written notice to Secured Party of any
change in Debtor’s chief place of business and any change in or addition of any
Collateral location or any change in the location of Debtor’s records concerning
the Collateral.

 

 

 

           (c)            Debtor has (or will have at the time Debtor acquires
rights in Collateral hereafter arising) and will maintain absolute title to each
item of Collateral free and clear of all security interests, liens and
encumbrances, except the Security Interest and the Permitted Liens (as defined
in the Credit Agreement), and will defend the Collateral against all claims or
demands of all persons other than Secured Party and the holders of the Permitted
Liens (as defined in the Credit Agreement).

 

 

 

           (d)            Except as otherwise provided in the Credit Agreement,
Debtor will not sell or otherwise transfer or dispose of the Collateral or any
interest therein.

 

 

 

           (e)            Debtor will not permit any tangible Collateral to be
located in any jurisdiction outside of the United States.

 

 

 

           (f)            All rights to payment and all instruments, documents,
chattel papers and other agreements constituting or evidencing Collateral are
(or will be when arising or issued) the valid, genuine and legally enforceable
obligation, subject to no defense, set-off or counterclaim (other than those
arising in the ordinary course of business) of each account debtor or other
obligor named therein or in Debtor’s records pertaining thereto as being
obligated to pay such obligation. Debtor will not agree to any modification,
amendment or cancellation of any such obligation without Secured Party’s prior
written consent except discounts provided by Debtor, or resolutions of
discrepancies or disputes, in each case in the ordinary course of business, and
will not subordinate any such right to payment to claims of other creditors of
such account debtor or other obligor.

 

 

 

           (g)            Debtor will keep all tangible Collateral in good
repair, working order and condition, normal depreciation excepted, and will,
from time to time, replace any worn, broken or defective parts thereof as deemed
necessary in Debtor’s reasonable business judgment.

 

 

 

           (h)            Except as otherwise provided in the Credit Agreement,
Debtor will promptly pay all taxes and other governmental charges levied or
assessed upon or against any Collateral or upon or against the creation,
perfection or continuance of the Security Interest.

 

 

 

           (i)            Debtor will promptly notify Secured Party of any
material loss of or damage to any Collateral or of any adverse change in the
prospect of payment of any sums due on or under any instrument, chattel paper,
account or contract right constituting Collateral nonpayment of which reasonably
could be expected to have an Adverse Effect (as defined in the Credit
Agreement).

 

 

 

           (j)            Debtor will if Secured Party at any time so requests,
promptly deliver to Secured Party any instrument, document or chattel paper
constituting Collateral, duly endorsed or assigned by Debtor to Secured Party.

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           (k)            Debtor will at all times keep all tangible Collateral
insured in accordance with the terms of the Credit Agreement.

 

 

 

           (l)            Debtor hereby authorizes the filing of such financing
statements as Secured Party may deem necessary or useful to be filed in order to
perfect the Security Interest and, if any Collateral is covered by a certificate
of title, Debtor will from time to time execute such documents as may be
required to have the Security Interest properly noted on a certificate of title.
In addition, Debtor authorizes Secured Party to file from time to time such
financing statements against the Collateral described as “all personal property”
or “all assets” or the like as Secured Party deems necessary or useful to
perfect the Security Interest.

 

 

 

           (m)            Debtor will pay when due or reimburse Secured Party on
demand for all costs of collection of any of the Obligations and all other
out-of-pocket expenses (including in each case all reasonable attorneys’ fees)
incurred by Secured Party in connection with the creation, perfection,
satisfaction or enforcement of the Security Interest or the execution or
creation, continuance or enforcement of this Security Agreement or any or all of
the Obligations.

 

 

 

          (n)          Debtor will take all such actions as Secured Party may
reasonably request to permit the Secured Party to establish, perfect and
maintain the Security Interest in all jurisdictions Secured Party deems
necessary. Without in any way limiting the generality of the foregoing, Debtor
will execute, deliver or endorse any and all instruments, documents,
assignments, security agreements and other agreements and writings which Secured
Party may at any time reasonably request in order to secure, protect, perfect or
enforce the Security Interest and Secured Party’s rights under this Security
Agreement.

 

 

 

          (o)          Debtor will not use or keep any Collateral, or permit it
to be used or kept, for any unlawful purpose or in violation of any federal,
state or local law, statute or ordinance.

 

 

 

          (p)          Without in any way limiting the generality of any other
provision herein, Debtor shall take all such action as the Secured Party may
request from time to time, and as may be necessary, to cause the Secured Party
to have “control” (within the meaning of the UCC) of the Collateral consisting
of investment property or instruments. All certificates and instruments, if any,
representing or evidencing Collateral received by the Debtor after the execution
of this Agreement shall be delivered to the Secured Party promptly upon the
Debtor’s receipt thereof. All such certificates and instruments shall be held by
or on behalf of the Secured Party pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed instruments
of transfer or assignment in blank, all in form and substance satisfactory to
the Secured Party. The Secured Party shall have the right at any time to cause
any or all of the Collateral to be transferred of record into the name of the
Secured Party or its nominee and to exchange certificates and instruments
representing or evidencing Collateral for certificates and instruments of
smaller or larger denominations.

If Debtor at any time fails to perform or observe any of the foregoing
agreements, immediately upon the occurrence of such failure, without notice or
lapse of time, Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of Debtor (or, at Secured
Party’s option, in Secured Party’s own name) and may (but need not) take any and
all

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other actions which Secured Party may reasonably deem necessary to cure or
correct such failure (including, without limitation, the payment of taxes, the
satisfaction of security interests, liens, or encumbrances, the performance of
obligations under contracts or agreements with account debtors or other
obligors, the procurement and maintenance of insurance, the endorsement of
instruments, and the procurement of repairs, transportation or insurance); and,
except to the extent that the effect of such payment would be to render any loan
or forbearance of money usurious or otherwise illegal under any applicable law,
Debtor shall thereupon pay Secured Party on demand the amount of all moneys
expended and all costs and expenses (including reasonable attorneys’ fees)
incurred by Secured Party in connection with or as a result of Secured Party’s
performing or observing such agreements or taking such actions, together with
interest thereon from the date expended or incurred by Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate the
performance or observance by Secured Party of such agreements of Debtor, Debtor
hereby irrevocably appoints (which appointment is coupled with an interest)
Secured Party, or its delegate, as the attorney-in-fact of Debtor with the right
(but not the duty) from time to time after Debtor fails to perform or observe
any of the agreements contained in this Section 2 to create, prepare, complete,
execute, deliver, endorse or file, in the name and on behalf of Debtor, any and
all instruments, documents, financing statements, applications for insurance and
other agreements and writings required to be obtained, executed, delivered or
endorsed by Debtor under this Section 2.

          3.          Lock Box; Collateral Account. If Secured Party so requests
at any time after the occurrence and during the continuance of an Event of
Default (as defined in Section 7 of this Agreement), Debtor will direct each of
its account debtors to make payments due under the relevant account or chattel
paper directly to a special lock box to be under the control of Secured Party
(the “Lock Box”). Debtor hereby authorizes and directs Secured Party to deposit
into a special collateral account to be established and maintained with Secured
Party (the “Collateral Account”) all checks, drafts, and cash payments received
in the Lock Box. All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of any Obligation. At
its option, Secured Party shall, at any time, apply finally collected funds on
deposit in the Collateral Account to the payment of the Obligations in such
order of application as Secured Party may determine, or permit Debtor to
withdraw all or any part of the balance. If a Lock Box is so established, Debtor
agrees that it will promptly deliver to Secured Party, for deposit into the Lock
Box, all payments on accounts and chattel paper received by it. All such
payments shall be delivered to Secured Party in the form received (except for
Debtor’s endorsement where necessary). Until so deposited, all such payments on
accounts and chattel paper received by Debtor shall be held in trust by Debtor
for and as the property of Secured Party and shall not be commingled with any
funds or property of Debtor.

          4.          Account Verification and Collection Rights of Secured
Party. Secured Party shall have the right to verify any accounts in the name of
Debtor or in Secured Party’s own name; and Debtor, whenever requested, shall
furnish Secured Party with duplicate statements of the accounts, which
statements may be mailed or delivered by Secured Party for that purpose. Whether
or not Secured Party exercises its rights under Section 3 of this Agreement,
Secured Party may at any time during the continuance of an Event of Default
notify any account debtor or any other person obligated to pay any amount due,
that such chattel paper, account or other right to payment has been assigned or
transferred to Secured Party for security and shall be paid directly to Secured
Party. If Secured Party so requests at any time during the continuance of an
Event of Default, Debtor will so notify such account debtors and other obligors
in writing and will indicate on all invoices to such account debtors or other
obligors that the amount due is payable directly to Secured Party. At any time
after Secured Party or Debtor gives such notice to an

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account debtor or other obligor, Secured Party may (but need not), in Secured
Party’s own name or in Debtor’s name, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such chattel paper, account or other right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor.

          5.          Assignment of Insurance. Debtor hereby assigns to Secured
Party, as additional security for the payment of the Obligations, any and all
moneys (including but not limited to proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of Debtor
under or with respect to, any and all policies of insurance covering the
Collateral. Debtor hereby directs the issuer of any such policy to pay any such
moneys directly to Secured Party. Secured Party may (but need not), in Secured
Party’s own name or in Debtor’s name, execute and deliver proofs of claim,
receive all such moneys, endorse checks and other instruments representing
payment of such moneys, and adjust, litigate, compromise or release any claim
against the issuer of any such policy. For the avoidance of doubt, Debtor shall
be entitled to use any such insurance proceeds to repair or replace any
Collateral so long as no Default (as defined in the Credit Agreement) or Event
of Default then exists.

          6.          Right to Offset. Nothing in this Agreement shall be deemed
a waiver or prohibition of Secured Party’s right of banker’s lien, offset, or
counterclaim, which right Debtor hereby grants to Secured Party.

          7.          Events of Default. The occurrence and continuance of any
Event of Default, as defined in the Credit Agreement, shall constitute an “Event
of Default” hereunder.

          8.          Remedies Upon Event of Default. Upon the occurrence of an
Event of Default and at any time thereafter until such Event of Default is cured
to the written satisfaction of Secured Party, Secured Party may exercise any one
or more of the rights or remedies set forth in Section 10.2 of the Credit
Agreement. All rights and remedies of Secured Party shall be cumulative and may
be exercised singularly or concurrently, at Secured Party’s option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other.

          9.          Amendment; Waivers. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security Interest can be
released, only explicitly in a writing signed by Secured Party and Debtor. A
waiver shall be effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of Secured Party’s rights or remedies.

          10.          Notices. All notices to be given to Debtor shall be
deemed sufficiently given if given to Debtor in the manner provided in the
Credit Agreement.

          11.          Miscellaneous. Secured Party’s duty of care with respect
to Collateral in its possession (as imposed by law) shall be deemed fulfilled if
Secured Party exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and Secured Party need not otherwise preserve,
protect, insure or care for any Collateral. Secured Party shall not be obligated
to preserve any rights Debtor may have against prior parties, to realize on the
Collateral at all or in any particular manner or order, or to

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apply any cash proceeds of Collateral in any particular order of application.
This Agreement shall be binding upon and inure to the benefit of Debtor and
Secured Party and their respective representatives, successors and assigns and
shall take effect when signed by Debtor and delivered to Secured Party, and
Debtor waives notice of Secured Party’s acceptance hereof.

          12.          Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Agreement by
signing any such counterpart. Any executed counterpart of this Agreement
delivered by facsimile or other electronic transmission shall constitute an
original counterpart of this Agreement.

          13.          Governing Law. The validity, construction and
enforceability of this Agreement shall be governed by the internal laws of the
State of Minnesota, without giving effect to the conflicts of laws principles
thereof.

          14.          Consent to Jurisdiction. AT THE OPTION OF SECURED PARTY,
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT
OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND DEBTOR
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT DEBTOR COMMENCES ANY
ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
SECURED PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO
ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT
BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.

          15.          Waiver of Jury Trial. EACH OF DEBTOR AND SECURED PARTY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

[The signature page follows.]

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          THE PARTIES have executed this Security Agreement as of the day and
year first above written.

 

 

 

Secured Party:

BMO HARRIS BANK N.A.

 

 

 

By: 

/s/ Sean T. Ball

 

Name: Sean T. Ball

 

Its:

Vice President

 

 

Debtor:

MGC DIAGNOSTICS CORPORATION

 

 

 

By: 

/s/ Wesley W. Winnekins

 

Name: Wesley W. Winnekins

 

Its: Chief Financial Officer, Chief Operating

 

 

Officer and Secretary

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EXHIBIT A

 

 

Debtor’s entity type: corporation

 

 

Debtor’s jurisdiction of organization: Minnesota

 

 

Debtor’s chief place of business:

 

 

 

350 Oak Grove Parkway

 

St. Paul, MN 55127-8599

 

 

Addresses where Collateral is kept:

 

 

350 Oak Grove Parkway

 

St. Paul, MN 55127-8599

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