EXHIBIT 10.3
 
 
SECURITY AGREEMENT
 
THIS SECURITY AGREEMENT (the “Agreement”) is made as of October 30, 2009, by
Elecsys Corporation, a Kansas corporation (“Debtor” ), whose mailing address is
846 N. Mart-Way Court, Olathe, Kansas 66061, in favor of UMB Bank, N.A., a
national banking association (together with its successors and assigns, “Secured
Party”), whose mailing address is 1010 Grand Boulevard, Kansas City, Missouri
64106.
 
PREMISES
 
WHEREAS, Debtor and Secured Party have entered into a Secured Loan Agreement of
even date herewith (the “Loan Agreement”), pursuant to which Secured Party may
extend revolving credit to Debtor in a principal amount of up to Six Million and
No/100th Dollars ($6,000,000.00) (the “Principal Amount”) pursuant to the terms
and provisions of that certain Secured Revolving Credit Note dated of even date
herewith executed by Debtor payable to the order of Secured Party (the “Note”);
and
 
WHEREAS, Debtor has agreed to grant a Security Interest (as hereinafter defined)
in the Collateral (as hereinafter defined) to Secured Party to secure the
Obligations (as defined in the Loan Agreement) in accordance with the terms and
conditions set forth herein;
 
NOW, THEREFORE, in consideration of the premises set forth above, and other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, and intending to be legally bound, Debtor represents, warrants,
covenants, and agrees with Secured Party as follows:
 
1.           Definitions.  All capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Loan Agreement.
 
2.           Security Interest.  Debtor hereby BARGAINS, SELLS, GRANTS, CONVEYS,
TRANSFERS, PLEDGES, and ASSIGNS to Secured Party a security interest (the
“Security Interest”) in all of Debtor’s business assets, including without
limitation, all Accounts and Inventory, whether now existing or hereafter
arising, and all proceeds thereof and all records pertaining to all of the
foregoing in whatever manner kept (collectively, the “Collateral”), to secure
the complete and timely payment, performance or discharge of all of the
Obligations and covenants of Debtor under this Agreement, the Loan Agreement,
the Note, and all modifications, substitutions, extensions and renewals of each,
whether absolute or contingent, liquidated or unliquidated, existing now or
arising in the future.  The Security Interest shall be effective with respect to
each item of Collateral for so long as any Obligation remains outstanding,
regardless of whether Debtor becomes the owner of such Collateral prior to or
contemporaneously with or subsequent to the incurring of any Obligations.  As
used herein, the terms “Accounts” and “Inventory” have the meanings ascribed
thereto in the Loan Agreement.
 
3.           Representations and Warranties.  Debtor expressly represents and
warrants to and covenants with Secured Party that, for so long as the Security
Interest shall remain in effect:
 
 
 

 

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(a)  Debtor has, or upon acquisition will have, and at all times until disposed
of in accordance with the terms hereof, will maintain, good and marketable title
to the Collateral, free and clear of any lien, pledge, security interest, or
other encumbrance except (i) the Security Interest; (ii) current and
nondelinquent taxes or taxes being contested as provided by Governing Law
(defined below) in good faith and by appropriate legal proceedings in a manner
which, in Debtor’s reasonable judgment, will not jeopardize Secured Party’s
Security Interest, and (iii) liens arising in the ordinary course of business
for sums not overdue or sums being contested in good faith and by appropriate
legal proceedings in a manner which, in Debtor’s reasonable judgment, will not
jeopardize Secured Party’s Security Interest, and Debtor warrants and will
defend title to and possession of the Collateral at Debtor’s expense against all
claims or demands of all persons other than Secured Party.
 
(b)           No financing statement (or other notice of any lien, security
interest or encumbrance) covering any of the Collateral is on file with any
governmental official or authority, or has been or will be delivered by Debtor
to any person other than Secured Party without the prior written consent of
Secured Party, which consent shall not be unreasonably withheld.
 
(c)           The execution and delivery of this Agreement shall not,
immediately or with the passage of time, the giving of notice, or otherwise,
constitute a breach of or default under any term or provision of, or trigger the
creation of a security interest in any of the Collateral (other than the
Security Interest) pursuant to, or accelerate the obligations of Debtor under,
any contract, mortgage, deed of trust, indenture, lease, license, permit,
agreement or other instrument to which Debtor is or may become a party or by
which Debtor or the Collateral is or may be bound or affected.
 
(d)           Debtor shall:
 
(i)           pay on a timely basis all taxes, assessments and other Federal,
State or local governmental charges and penalties levied or assessed upon or
against any Collateral or upon or against the creation, perfection or
continuance of the Security Interest, provided that no such taxes, assessments,
charges or penalties need be paid if the same are being contested in good faith
by appropriate proceedings diligently instituted and conducted;
 
(ii)           upon prior written notice during business hours, permit Secured
Party to examine or inspect any Collateral, wherever located, to examine,
inspect and copy Debtor’s business and financial records pertaining to the
Collateral, and submit to Secured Party such periodic reports concerning the
Collateral as Secured Party may, from time to time, request;
 
(iii)           promptly notify Secured Party of any material loss of or
material damage to any Collateral or any Event of Default as defined in the Loan
Agreement;
 
(iv)           not use or keep any Collateral, or permit it to be used or kept,
for any unlawful purpose or in violation of any law applicable to such
Collateral, or  in such a way as would limit or void any insurance maintained on
any portion of the Collateral;
 

 
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(v)           not conduct business under any name other than that given above,
nor change or reorganize the type of entity under which it operates, except upon
written notice to the Secured Party within thirty (30) days of such change;
 
(vi)           perform and comply with all the terms and conditions of the Note;
 
(vii)           perform and comply with all the terms and conditions of the Loan
Agreement;
 
(viii)           do and perform all acts and things and execute all documents
which Secured Party in its reasonable discretion deems necessary or appropriate
to perfect, renew, or give notice of the Security Interest, including without
limitation the execution and filing of such financing or continuation
statements, or amendments thereto, as Secured Party may request;
 
(ix)           notify Secured Party immediately of any legal process levied
against any of the Collateral or Debtor or any other event which materially and
adversely affects or may materially and adversely affect the value, use or
possession of the Collateral or any of the rights of Debtor or Secured Party in
relation to any of the Collateral;
 
(x)           except as provided in the Loan Agreement, preserve in existence
all of its rights, franchises, licenses, permits and privileges necessary to its
operation, and not dissolve, merge, or consolidate into another entity or sell,
lease, transfer, or otherwise dispose of all or a substantial part of its
assets, without the prior written consent of Secured Party; and
 
(xi)           maintain with insurers admitted to do business in the state where
the Collateral is located and otherwise reasonably acceptable to Secured Party,
insurance on the Collateral against loss by fire, theft, lightning, tornado, and
other perils and hazards reasonably covered by standard extended coverage
endorsement in an amount equal to full replacement value, and otherwise
reasonably acceptable to Secured Party, naming Secured Party as an additional
insured and loss payee and providing that there shall be no cancellation or
modification thereof with less than thirty (30) days prior written notification
to Secured Party.
 
4.           Disposition of Collateral.  So long as there is no Event of Default
under the Loan Agreement, Debtor may, in accordance with the other terms and
conditions contained herein, sell or otherwise dispose of the Collateral in the
ordinary course of business.
 
5.           Miscellaneous Undertakings.  Debtor, at its sole cost and expense,
agrees to:
 
(a)           pay all reasonable expenses, including without limitation,
reasonable attorneys’ fees and court costs to the fullest extent permitted by
Governing Law, actually
 
(b)   incurred by Secured Party in connection with the creation, perfection,
preservation, or enforcement of the Security Interest, the defense of the
Collateral, or the exercise by Secured Party of any of the rights, powers or
remedies granted to Secured Party under this Agreement, by law or otherwise; and
 

 
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(c)           reimburse Secured Party within ten (10) days of Secured Party’s
demand for any reasonable expense incurred by Secured Party pursuant to the
foregoing authorization, together with interest thereon at the default rate of
interest set forth in the Loan Agreement from the date that any such expense is
incurred, until reimbursed.
 
6.           Secured Party’s Rights Upon Event of Default.  Upon the occurrence
of an Event of Default and for so long as such Event of Default continues, then
Secured Party may, to the fullest extent permitted by and with such notice as
may be required by Governing Law (Debtor hereby waiving any such required notice
to the fullest extent permitted by Governing Law):
 
(a)           enter upon any property upon which the Collateral is located and
take possession of, assemble, collect, and move any or all of the Collateral and
store any of the Collateral at locations acceptable to Secured Party;
 
(b)           require Debtor to assemble any or all of the Collateral and make
it available at a mutually convenient place designated by Secured Party so as to
permit Secured Party to take possession of, move, or store, such Collateral;
 
(c)           sell, assign, or otherwise dispose of and deliver all or any part
of the Collateral at public or private sale, for cash or on credit, to a
wholesaler, retailer or user of each type of Collateral or at public auction;
 
(d)           bid and become purchaser at any public sale or auction of the
Collateral;
 
(e)           perform any of the Obligations, and apply any Collateral or the
proceeds therefrom to the payment of the Obligations in such order, priority and
manner as Secured Party in its sole discretion may determine;
 
(f)           consume, sell or dispose of any of the Collateral as Secured Party
deems appropriate for the purpose of performing any or all of the Obligations;
 
(g)           make any compromise or settlement which Secured Party may deem
desirable or proper with respect to any of the Collateral or any controversies
or disputes relating to the Collateral, and release any of the Collateral and
any persons liable on any of the Collateral;
 
(h)           endorse and deliver evidences of ownership, and receive, enforce
and collect by legal action or otherwise all or any portion of the Collateral;
and
 
(i)           enforce, adjust and receive payment or performance in connection
with any insurance claims, claims for breach of warranty, claims under any
letters of credit,
instruments, documents of title, chattel paper or contracts and similar matters
concerning any of the Collateral.
 

 
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7.           No Responsibility.  Debtor acknowledges that Secured Party has no
responsibility for, and does not assume any of, Debtor’s obligations or duties
under any agreement, instrument, or other contract or obligation relating to the
Collateral. Secured Party shall have no duty or obligation whatsoever to make or
give any presentments, demands for performance, notices of nonperformance,
notices of protest or notices of dishonor in connection with any of the
Collateral or to take any other action to preserve, protect or defend any of the
Collateral or to preserve any value or utility of any of the Collateral, except
to the extent required by Governing Law.
 
8.           Notices.  Except as otherwise required by Governing Law, all
notices, requests, consents and demands hereunder shall be in writing and
delivered personally or by reputable overnight carrier or U.S. first class mail,
postage prepaid, at the addresses set forth above or such other addresses as
shall be subsequently designated in writing, and shall be effective immediately,
in the case of personal delivery, twenty-four (24) hours after deposit with an
overnight carrier, or forty-eight (48) hours after deposit in the U.S. mail, in
the manner described above. Notice may also be delivered by confirmed electronic
facsimile and shall be effective upon receipt of confirmation.
 
9.           Successors and Assigns.  The terms of this Agreement shall be
binding upon and inure to the benefit of the successors-in-interest and
permitted assigns of Debtor and Secured Party; provided that Debtor may not
assign its obligations under this Agreement by contract, operation of law, or
otherwise without the prior written consent of Secured Party, which may be
withheld in Secured Party’s sole discretion.
 
10.           Time.  Time is an essential element to the performance of each
term of this Agreement.
 
11.           Headings.  All headings appearing in this Agreement are for
convenience of reference only and shall be disregarded in construing this
Agreement.
 
12.           Governing Law.  This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Missouri (the “Governing Law”).
 
13.           Miscellaneous.  The rights and remedies of Secured Party under
this Agreement are cumulative, and no exercise of any right or remedy shall
preclude the exercise of any other right or remedy or the later exercise of the
same right or remedy.  Waivers and approvals under this Agreement shall be in
writing and unless otherwise expressly stated, waivers and approvals shall apply
only to the specific circumstance addressed. Notwithstanding any other provision
of this Agreement, Secured Party shall not be deemed to have accepted any
property other than cash in satisfaction of any Obligation unless Secured Party
shall make an express written election of said remedy under Governing Law.
 
14.           Amendment.  This Agreement shall not be amended or modified in any
way except by a written instrument executed by Secured Party and Debtor.
 
15.   Severability.  In the event any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect under Governing Law, such invalidity, illegality or
unenforceability, at the option of Secured Party, shall not affect any other
provision of this Agreement, but this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein. If
the Security Interest is invalid or unenforceable as to any portion of the
Obligations or the Collateral, all payments made on the Obligations, whether
voluntary or under foreclosure or other enforcement action or procedure, shall,
at the election of the Secured Party, be applied first to the full payment of
that portion of the Obligations not secured or not fully secured by the
Collateral.
 

 
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16.           Secured Party’s Duty of Care.  Secured Party’s duty of care with
respect to Collateral in its possession shall be deemed fulfilled if Secured
Party exercises ordinary care in physically safekeeping and preserving such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, Secured Party exercises ordinary care in the
selection of the bailee or other third person.
 
17.           Preservation of Rights.  Secured Party shall not be obligated to
preserve any rights Debtor may have against other 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, except as
otherwise expressly provided herein.
 
18.           Financing Statements.  Debtor authorizes Secured Party to file one
or more financing or continuation statements, and amendments thereto, relative
to all or any part of the Collateral without the signature of Debtor where
permitted by law.  The description of collateral in the financing statement may
list “All Assets” or other description as selected by Secured Party. A carbon,
photographic or other reproduction of this Agreement or any financing statement
covering the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law.
 
[SIGNATURE PAGE TO FOLLOW]
 

 
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IN WITNESS WHEREOF, Debtor has caused this Agreement to be executed and
delivered to Secured Party as of the date first set forth above.
 

 
Elecsys Corporation, a Kansas corporation, Debtor
By:     _________________________________                                                           
Name: 
________________________________                                                                
Title:  _________________________________                                                              
 
Fax No.: 
_______________________________                                                               
 

 

 
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