EXHIBIT
10.7


 


SECURITY AGREEMENT


 


DATED:  October 17, 2003


 


	
  DEBTOR:

  	
   

  	
  SECURED PARTY:

  
	
   

  	
   

  	
   

  
	
  MedAmicus, 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.:  3Y-537

  	
   

  	
   

  



 


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 Debtor 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 all tangible


 


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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 holder 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 course of


 


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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;


 


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


 


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(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 its business and
financial condition 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 pertaining to
Debtor’s business and financial condition and submit to Secured Party such
periodic reports concerning the Collateral and Debtor’s business and financial
condition 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 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 satisfaction, protection, defense or enforcement of the Security
Interest or the continuance, protection, defense or enforcement of this
Agreement or any or all of the Obligations, including expenses incurred in any
litigation or bankruptcy or insolvency proceedings;


 


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(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 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


 


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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.


 


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 such lockbox. 
All deposits in such collateral account shall


 


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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 such
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 such collateral account.  If a collateral account is so established,
Debtor agrees that it will promptly deliver to Secured Party, for deposit into
such 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 (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,


 


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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 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.


 


7.                                       Events
of Default.  An Event of Default
under the Revolving Credit and Term Loan Agreement (the “Loan Agreement”)
between Debtor 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


 


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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 10) 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 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.


 


9.                                       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 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.


 


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10.                                 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 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


 


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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 &
  Ilsley Bank  

  	
  MedAmicus, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  	
  By

  	
   

  	
   

  
	
  Its

  	
   

  	
   

  	
   

  	
  James D. Hartman

  
	
   

  	
   

  	
   

  	
   

  	
  Its President & CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Its

  	
   

  	
   

  	
   

  	
   

  
								



 


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