EXHIBIT 10.8

 

THIRD PARTY SECURITY AGREEMENT

 

DATED:  October 17, 2003

 

DEBTOR:

 

SECURED PARTY:

 

 

 

Medacquisition, Inc.

 

M&I Marshall & Ilsley Bank

15301 Highway 55 West

 

651 Nicollet Mall

Plymouth, MN 55447

 

Minneapolis, MN 55402-1611

State of Formation: Minnesota

 

 

State Organizational No.:  574143-2

 

 

 

1.                                       Security Interest and Collateral.  To
secure the payment and performance of each and every debt, liability and
obligation of every type and description that MedAmicus, Inc. (the “Borrower”)
may now or at any time hereafter owe to Secured Party (whether such debt,
liability or obligation now exists or is hereafter created or incurred, 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 joint, several
or joint and several; all such debts, liabilities and obligations collectively
referred to as the “Obligations”), Debtor hereby grants Secured Party a security
interest (the “Security Interest”) in the following property (the “Collateral”):

 

(a) INVENTORY:

 

All inventory of Debtor, whether now owned or hereafter acquired and wherever
located;

 

(b) EQUIPMENT:

 

All equipment of Debtor, whether now owned or hereafter acquired, including but
not limited to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts and tools, and the goods described in any equipment schedule or list
herewith or hereafter furnished to Secured Party by Debtor (but no such
schedule or list need be

 

--------------------------------------------------------------------------------

 

furnished in order for the security interest granted herein to be valid as to
all of Debtor’s equipment);

 

(c) ACCOUNTS 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 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) that 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 payment intangibles, debt instruments,
chattel papers, accounts, loans and obligations receivable and tax refunds;

 

(d) INTANGIBLES:

 

All intangibles of Debtor, whether now owned or hereafter acquired, including
but not limited to, general intangibles, investment property, software,
applications for patents, patents, copyrights, trademarks, trade secrets,
goodwill, tradenames, customers lists, permits and franchises, internet domain
names, uniform resource locators (URL’s), website contracts and registration
rights and the right to use Debtor’s name;

 

together with all substitutions and replacements for and products of any of the
foregoing property and together with proceeds of any and all of the foregoing
property and, in the case of

 

2

--------------------------------------------------------------------------------

 

all tangible Collateral, together with all accessions and together with (i) all
accessories, attachments, parts, equipment and repairs now or hereafter attached
or affixed to or used in connection with any such goods, and (ii) all warehouse
receipts, bills of lading and other documents of title now or hereafter covering
such goods.

 

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

 

(a)                                  Debtor is a corporation.

 

(b)                                 The Collateral will be used primarily for
business purposes.

 

(c)                                  Debtor’s chief executive office is located
at the address of Debtor shown at the beginning of this Agreement.

 

3.                                       Additional Representations, Warranties
and Agreements.

 

Debtor represents, warrants and agrees that:

 

(a)                                  Debtor has (or will have at the time Debtor
acquires rights in Collateral hereafter arising) absolute title to each item of
Collateral free and clear of all security interests, liens and encumbrances,
except the Security Interest and Permitted Liens (as defined in the Loan
Agreement), and will defend the Collateral against all claims or demands of all
persons other than Secured Party and the holders of Permitted Liens.  Any such
security interests, liens or encumbrances not permitted under this Agreement
shall be void.  Debtor will not sell or otherwise dispose of the Collateral or
any interest therein without the prior written consent of Secured Party, except
that, until the occurrence of an Event of Default and the revocation by Secured
Party of Debtor’s right to do so, Debtor may sell any inventory constituting
Collateral to buyers in the ordinary

 

3

--------------------------------------------------------------------------------

 

course of business.  This Agreement has been duly and validly authorized by all
necessary corporate action.

 

(b)                                 Debtor will not permit any tangible
Collateral to be located in any state (and, if county filing is required, in any
county) in which a financing statement covering such Collateral is required to
be, but has not in fact been, filed in order to perfect the Security Interest.

 

(c)                                  Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (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 the account debtor or
other obligor named therein or in Debtor’s records pertaining thereto as being
obligated to pay such obligation.  Debtor will neither agree to any material
modification or amendment nor agree to any cancellation of any such obligation
without Secured Party’s prior written consent, and will not subordinate any such
right to claims of other creditors of such account debtor or other obligor.

 

(d)                                 Debtor will:

 

(i)                                     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;

 

(ii)                                  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
except as Debtor shall contest in good faith and by appropriate proceedings
providing such reserves as are required by generally accepted accounting
principles;

 

4

--------------------------------------------------------------------------------

 

(iii)                               keep all Collateral free and clear of all
security interests, liens and encumbrances except the Security Interest and
Permitted Liens;

 

(iv)                              at all reasonable times, permit Secured Party
or its representatives to examine or inspect any Collateral, wherever located,
and to examine, inspect and copy Debtor’s books and records pertaining to the
Collateral and to send and discuss with account debtors and other obligors
requests for verifications of amounts owed to Debtor;

 

(v)                                 keep accurate and complete records
pertaining to the Collateral and submit to Secured Party such periodic reports
concerning the Collateral as Secured Party may from time to time reasonably
request;

 

(vi)                              promptly notify Secured Party of any loss of
or material damage to any Collateral or of any adverse change, known to Debtor,
in the prospect of payment of any sums due on or under any instrument, chattel
paper, or account constituting Collateral;

 

(vii)                           if Secured Party at any time so requests
(whether the request is made before or after the occurrence of an Event of
Default), promptly deliver to Secured Party any instrument, document or chattel
paper constituting Collateral, duly endorsed or assigned by Debtor;

 

(viii)                        at all times keep all tangible Collateral insured
against risks of fire (including so-called extended coverage), theft, collision
(in case of Collateral consisting of motor vehicles) and such other risks and in
such amounts as Secured Party may reasonably request with any loss payable to
Secured Party to the extent of its interest;

 

(ix)                                from time to time authorize such financing
statements as Secured Party may reasonably require in order to perfect the
Security Interest and, if any Collateral consists of an asset subject to a
certificate of title, execute such documents as may be required to have the
Security Interest properly noted on a certificate of title;

 

(x)                                   pay when due or reimburse Secured Party on
demand for all out-of-pocket expenses (including reasonable

 

5

--------------------------------------------------------------------------------

 

attorneys’ fees) incurred by Secured Party in connection with the satisfaction,
protection, defense or enforcement of the Security Interest or the continuance,
protection, defense or enforcement of this Agreement, including expenses
incurred in any litigation or bankruptcy or insolvency proceedings;

 

(xi)                                execute, deliver or endorse any and all
instruments, documents, assignments, security agreements and other agreements
and writings that 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 Agreement;

 

(xii)                             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;

 

(xiii)                          not permit any tangible Collateral to become
part of or to be affixed to any real property without first assuring to the
reasonable satisfaction of Secured Party that the Security Interest will be
prior and senior to any interest, or lien then held or thereafter acquired by
any mortgagee of such real property or the owner or purchaser of any interest
therein; and

 

(xiv)                         inform Secured Party of any change to Debtor’s
name, address or state of formation prior to the effective date of such change
and authorize and deliver to Secured Party any financing statement that is
necessary as a result of that change to maintain the perfected status of the
Security Interest.

 

If Debtor at any time fails to perform or observe any agreement contained in
this Section 3(d), and if such failure shall continue for a period of ten
calendar days after Secured Party gives Debtor written notice thereof (or, in
the case of the agreements contained in clauses (viii) and (ix) of this
Section 3(d), 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

 

6

--------------------------------------------------------------------------------

 

Secured Party’s option, in Secured Party’s own name) and may (but need not) take
any and all other actions that 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 filing of
financing statements, 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
to create, prepare, complete, execute, deliver, endorse or file, in the name and
on behalf of Debtor, any and all instruments, documents, financing statements,
termination statements for filings not permitted under this Agreement held by
other secured parties, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by Debtor
under this Section 3 and Section 4.

 

7

--------------------------------------------------------------------------------

 

4.                                       Lock Box, Collateral Account.  If
Secured Party so requests at any time after the occurrence of an Event of
Default, Debtor will direct each of its account debtors to make payments due
under the relevant account or chattel paper directly to a special lockbox to be
under the control of Secured Party.  Debtor hereby authorizes and directs
Secured Party to deposit into a special collateral account to be established and
maintained with Secured Party all checks, drafts and cash payments, received in
said lockbox.  All deposits in said collateral account shall constitute proceeds
of Collateral and shall not constitute payment of any Obligations.  At its
option, Secured Party may at any time, apply finally collected funds on deposit
in said 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 on deposit in said collateral account.  If a collateral
account is so established, Debtor agrees that it will promptly deliver to
Secured Party, for deposit into said collateral account 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 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.

 

5.                                       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 its 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.  Notwithstanding Secured Party’s rights under Section 4 with respect to
any and all debt instruments, chattel papers, accounts, and other rights to
payment constituting Collateral

 

8

--------------------------------------------------------------------------------

 

(including proceeds), Secured Party may at any time after the occurrence 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 such time,
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 account debtor or other obligor, Secured
Party may (but need not), in its 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.

 

6.                                       Assignment of Insurance.  Effective
upon the occurrence of an Event of Default, 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, and Debtor hereby directs the issuer of any such policy to pay any
such moneys directly to Secured Party.  After the occurrence of an Event of
Default, Secured Party may (but need not), in its 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 such policy.

 

9

--------------------------------------------------------------------------------

 

7.                                       Events of Default.  An Event of Default
under the Revolving Credit and Term Loan Agreement (the “Loan agreement”)
between Borrower and Secured Party dated as of the date hereof shall be an Event
of Default hereunder.

 

8.                                       Remedies upon Event of Default.  Upon
the occurrence of an Event of Default under Section 7 and at any time
thereafter, Secured Party may exercise any one or more of the following rights
and remedies: (i) declare all unmatured Obligations to be immediately due and
payable, and the same shall thereupon be immediately due and payable, without
presentment of other notice or demand; (ii) exercise and enforce any or all
rights and remedies available upon default to a secured party under the Uniform
Commercial Code, including but not limited to the right to take possession of
any Collateral, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which Debtor hereby expressly
waives), and the right to sell, lease or otherwise dispose of any or all of the
Collateral, and in connection therewith, Secured Party may require Debtor to
make the Collateral available to Secured Party at a place to be designated by
Secured Party that is reasonably convenient to both parties, and if notice to
Debtor of any intended disposition of Collateral or any other intended action is
required by law in a particular instance, such notice shall be deemed
commercially reasonable if given (in the manner specified in Section 12) at
least 10 calendar days prior to the date of intended disposition or other
action; (iii) exercise or enforce any or all other rights or remedies available
to Secured Party by law or agreement against the Collateral, against Borrower,
against Debtor or against any other person or property.  Secured Party is hereby
granted a nonexclusive, worldwide and royalty-free license to use or otherwise
exploit all trademarks, trade secrets, franchises, copyrights and patents of
Debtor that Secured Party deems necessary or appropriate to the disposition of
any Collateral.

 

10

--------------------------------------------------------------------------------

 

9.                                       Waivers by Debtor.  Debtor waives
notice of Secured Party’s acceptance hereof and notice of the creation,
existence and payment or nonpayment of the Obligations.  None of the following
acts or things (that Secured Party is authorized to do or not to do with or
without notice to Debtor) shall in any way affect or impair the Security
Interest or Debtor’s liabilities and obligations hereunder: (a) any extension or
renewal (whether or not for longer than the original period) of any or all of
the Obligations; (b) any change in the terms of payment or other terms of any or
all of the Obligations or any collateral therefor, or any substitution or
exchange of any evidence of any or all of the Obligations or collateral
therefor, or any release of any collateral for any or all of the Obligations;
(c) any waiver or forbearance granted to Borrower or any other person liable
with respect to any or all of the Obligations or any release of, compromise
with, or failure to assert rights against Borrower or any such other person; (d)
the procurement or failure to procure any other collateral for or guarantors or
sureties of any or all of the Obligations; (e) the transfer to any person, at
any time, of any interest in any of the Obligations or any collateral therefor;
(f) any arrangement, composition, extension, moratoria or other relief granted
to Borrower pursuant to any statute now in force or hereafter enacted; (g) any
interruption in business relations between Secured Party and Borrower; (h) the
failure or neglect to protect or preserve any obligation or any collateral
therefor, or to exercise any right that may be available to Secured Party by law
or agreement prior to or after an Event of Default or a default under any other
agreement, or any delay in doing any of the foregoing; (i) the failure or
neglect to ascertain or assure that the proceeds of any loan to Borrower are
used in any particular manner; and (j) the application or failure to apply in
any particular manner any payments or credits upon the Obligations.  Debtor
waives any right Debtor may have to a discharge now or hereafter under Uniform
Commercial Code § 3-605.

 

11

--------------------------------------------------------------------------------

 

10.                                 Other Collateral.  Whether or not Debtor
requests or demands that Secured Party do so, Secured Party shall not be
required before exercising and enforcing its rights under this Agreement first
to resort for payment of the Obligations to Borrower or to any guarantor or
surety or other person obligated with respect to any Obligation, or to their
properties or estates, or to any security interest or other collateral securing
payment of any or all of the Obligations, or to any other interests, properties,
liens, rights or remedies whatsoever.  Debtor agrees to defer exercising, and
hereby waives, any and all rights that Debtor might otherwise have to obtain
reimbursement or payment from Borrower or other persons obligated with respect
to any or all of the Obligations or out of the property of Borrower or of such
other persons (whether such rights to obtain reimbursement or payment are rights
of recourse, rights of subrogation, rights of contribution, or otherwise) until
all the Obligations shall have been fully paid to Secured Party.  If any payment
applied by Secured Party to the Obligations is thereafter set aside, recovered,
rescinded or required to be returned for any reason (including, without
limitation, the bankruptcy, insolvency or reorganization of Borrower or any
other obligor), the Obligations to which such payment was applied shall for the
purposes of this Agreement be deemed to have continued in existence,
notwithstanding such application, and this Agreement shall be enforceable as to
any Collateral released by Secured Party in reliance on such payment.

 

11.                                 Other Personal Property.  Unless at the time
Secured Party takes possession of any tangible Collateral, or within seven days
thereafter, Debtor gives written notice to Secured Party of the existence of any
goods, papers or other property of Debtor, not affixed to or constituting a part
of such Collateral, but that are located or found upon or within such
Collateral, describing such property, Secured Party shall not be responsible or
liable to Debtor for any action taken or omitted by or on behalf of Secured
Party with respect to such property

 

12

--------------------------------------------------------------------------------

 

without actual knowledge of the existence of any such property or without actual
knowledge that it was located or to be found upon or within such Collateral.

 

12.                                 Miscellaneous.  This Agreement does not
contemplate a sale of accounts, payment intangibles or chattel paper.  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.  A waiver signed by Secured Party shall be effective only in a
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.  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.  All
notices to be given to Debtor shall be deemed sufficiently given if delivered or
mailed by registered or certified mail, postage prepaid, to Debtor at its
address set forth above or at the most recent address shown on Secured Party’s
records.  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 apply any cash proceeds of Collateral in
any particular order of application and Secured Party may disclaim any and all
implied warranties (as imposed by law) in connection with the disposition of
Collateral.  This Agreement shall be binding upon and inure to the benefit of
Debtor and

 

13

--------------------------------------------------------------------------------

 

Secured Party and their respective heirs, 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.  Secured
Party may execute this Agreement if appropriate for the purpose of filing, but
the failure of Secured Party to execute this Agreement shall not affect or
impair the validity or effectiveness of this Agreement.  This Agreement shall be
governed by the internal laws of the State of Minnesota.  If any provision or
application of this Agreement is held unlawful or unenforceable in any respect,
such illegality or unenforceability shall not affect other provisions or
applications that can be given effect and this Agreement shall be construed as
if the unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby.  All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations. 
Debtor hereby irrevocably submits to the jurisdiction of the Minnesota District
Court, Fourth District, and the Federal District Court, District of Minnesota,
Fourth Division, over any action or proceeding arising out of or relating to
this Agreement and agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court.

 

 

M&I Marshall and Ilsley Bank

Medacquisition, Inc.

 

 

 

 

 

 

By

 

 

By

 

 

Its

 

 

 

James D. Hartman

 

 

 

 

Its President & CEO

 

 

 

 

 

 

By

 

 

 

 

 

Its

 

 

 

 

 

14

--------------------------------------------------------------------------------