Document:

Exhibit
10.2

TERM
NOTE

	
  

 	
  

 
	
 $4,000,000

 	
 July 24, 2014

 

          FOR
VALUE RECEIVED, each of MGC DIAGNOSTICS CORPORATION, a Minnesota
corporation, and MEDICAL GRAPHICS CORPORATION, a Minnesota corporation
(individually and collectively, the “Borrower”), jointly and severally,
promises to pay to the order of BMO HARRIS BANK N.A., a national banking
association (the “Bank”), at its main office in Minneapolis, Minnesota
or at such other place as may be designated in writing from time to time by the
Bank, in lawful money of the United States of America, the principal sum of
Four Million Dollars ($4,000,000), together with interest (as provided in that
certain Credit Agreement, dated as of the date hereof, as amended from time to time,
among the Borrower and the Bank (the “Credit Agreement”)) on the unpaid
principal balance hereof from the date hereof until this Note is fully paid.

          This
Note is payable as provided in the Credit Agreement. The Borrower may prepay at
any time and from time to time, all or any portion of the balance from time to
time remaining on this Note as provided in the Credit Agreement. 

          This
Note is the “Term Note” referred to in the Credit Agreement, is issued pursuant
to and is subject to the Credit Agreement which, among other things, provides
for acceleration of the maturity hereof upon the occurrence of an Event of
Default, as defined in the Credit Agreement, and is secured by the Security
Agreements and other Loan Documents referred to in the Credit Agreement.

          The
Borrower, jointly and severally, agrees to pay all costs of collection,
including reasonable attorneys’ fees, in the event this Note is not paid when
due. This Note is being delivered in, and shall be governed by, the laws of the
State of Minnesota. Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.

	
  

 	
  

 	
  

 
	
  

 	
 MGC DIAGNOSTICS CORPORATION

 
	
  

 	
  

 	
  

 
	
  

 	
 By

 	
 /s/ Wesley
 W. Winnekins 

 
	
  

 	
 Its

 	
 Chief
 Financial Officer, Chief

 
	
  

 	
  

 	
 Operating
 Officer and Secretary

 
	
  

 	
  

 	
  

 
	
  

 	
 MEDICAL GRAPHICS CORPORATION

 
	
  

 	
  

 	
  

 
	
  

 	
 By

 	
 /s/ Wesley
 W. Winnekins

 
	
  

 	
 Its

 	
 Chief
 Financial Officer, Chief

 
	
  

 	
  

 	
 Operating
 Officer and Secretary

 

52Exhibit
10.3

REVOLVING
NOTE

	
  

 	
  

 
	
 $3,000,000

 	
 July 24, 2014

 

          FOR
VALUE RECEIVED, each of MGC DIAGNOSTICS CORPORATION, a Minnesota
corporation, and MEDICAL GRAPHICS CORPORATION, a Minnesota corporation
(individually and collectively, the “Borrower”), jointly and severally,
promises to pay to the order of BMO HARRIS BANK N.A., a national banking
association (the “Bank”), at its main office in Minneapolis, Minnesota
or at such other place as may be designated in writing from time to time by the
Bank, in lawful money of the United States of America, the principal sum of
Three Million Dollars ($3,000,000) or so much thereof as has been advanced by
the Bank to or for the benefit of the Borrower pursuant to that certain Credit
Agreement, dated as of the date hereof, as amended from time to time, among the
Borrower and the Bank (the “Credit Agreement”) and remains unpaid,
together with interest (as provided in the Credit Agreement) on the unpaid
principal balance hereof from the date hereof until this Note is fully paid.

          This
Note is payable as provided in the Credit Agreement. The Borrower may prepay at
any time and from time to time, all or any portion of the balance from time to
time remaining on this Note as provided in the Credit Agreement. 

          This
Note is the “Revolving Note” referred to in the Credit Agreement, is issued
pursuant to and is subject to the Credit Agreement which, among other things,
provides for acceleration of the maturity hereof upon the occurrence of an
Event of Default, as defined in the Credit Agreement, and is secured by the
Security Agreements and other Loan Documents referred to in the Credit
Agreement.

          The
Borrower, jointly and severally, agrees to pay all costs of collection,
including reasonable attorneys’ fees, in the event this Note is not paid when
due. This Note is being delivered in, and shall be governed by, the laws of the
State of Minnesota. Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.

	
  

 	
  

 	
  

 
	
  

 	
 MGC DIAGNOSTICS CORPORATION

 
	
  

 	
  

 	
  

 
	
  

 	
 By

 	
 /s/ Wesley
 W. Winnekins 

 
	
  

 	
 Its

 	
 Chief
 Financial Officer, Chief

 
	
  

 	
  

 	
 Operating
 Officer and Secretary

 
	
  

 	
  

 	
  

 
	
  

 	
 MEDICAL GRAPHICS CORPORATION

 
	
  

 	
  

 	
  

 
	
  

 	
 By

 	
 /s/ Wesley
 W. Winnekins

 
	
  

 	
 Its

 	
 Chief
 Financial Officer, Chief

 
	
  

 	
  

 	
 Operating
 Officer and Secretary

 

53Exhibit
10.4

SECURITY
AGREEMENT

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

RECITALS:

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

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

AGREEMENTS:

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

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

	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 

54

	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 

55

	
  

 	
  

 
	
  

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

 

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

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

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

	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 

56

	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 

57

	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 
	
  

 	
  

 
	
  

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

 

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

58

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

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

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

59

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

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

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

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

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

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

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

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

60

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

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

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

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

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

 [The
signature page follows.]

61

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

	
  

 	
  

 	
  

 
	
 Secured
 Party:

 	
 BMO HARRIS BANK N.A.

 
	
  

 	
  

 
	
  

 	
 By: 

 	
 /s/ Sean T.
 Ball

 
	
  

 	
 Name: Sean
 T. Ball

 
	
  

 	
 Its: 

 	
 Vice
 President

 
	
  

 	
  

 
	
 Debtor:

 	
 MGC DIAGNOSTICS CORPORATION

 
	
  

 	
  

 
	
  

 	
 By: 

 	
 /s/ Wesley
 W. Winnekins

 
	
  

 	
 Name: Wesley
 W. Winnekins

 
	
  

 	
 Its: Chief
 Financial Officer, Chief Operating

 
	
  

 	
  

 	
 Officer and
 Secretary

 

62

EXHIBIT
A

	
  

 	
  

 
	
 Debtor’s
 entity type: corporation

 
	
  

 	
  

 
	
 Debtor’s
 jurisdiction of organization: Minnesota

 
	
  

 	
  

 
	
 Debtor’s
 chief place of business:

 
	
  

 	
  

 
	
  

 	
 350 Oak
 Grove Parkway

 
	
  

 	
 St. Paul, MN
 55127-8599

 
	
  

 	
  

 
	
 Addresses
 where Collateral is kept:

 
	
  

 
	
  

 	
 350 Oak
 Grove Parkway

 
	
  

 	
 St. Paul, MN
 55127-8599

 

63

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