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