**Exhibit10.44**

 

**FIRST AMENDED AND RESTATED**

**SUBORDINATIONAND INTERCREDITOR AGREEMENT**

 

THISSUBORDINATION AND INTERCREDITOR AGREEMENT, dated as of November 24, 2003,is by and between PETER L. HAUSER, a resident of the State of Minnesota, andhis successors heirs and permitted assigns (“Hauser”), PKM PROPERTIES,LLC, a Minnesota limited liability company, and its endorsees, successors andassigns (“PKM”), and DRAFT CO., a Minnesota limited liabilitypartnership, and its endorsees, successors and assigns (“Draft”).

 

**RECITALS:**

 

A.    Hauser and PKM are parties to that certainSubordination and Intercreditor Agreement dated as of July 1, 2003, asamended by that certain First Amendment to Subordination and IntercreditorAgreement dated as of November 11, 2003 (the “Original Agreement”);and

 

B.  Hauser, PKM and Draft desire to amend andrestate the Original Agreement as provided herein, and upon the terms andconditions of this Agreement; and

 

C.  Medical CV, Inc., a Minnesota corporation(the “Borrower”) is or may hereafter become indebted to Hauser pursuantto that certain Subordinated Note, dated as of July 1, 2003, given byBorrower in favor of Hauser in the original principal amount of $1,000,000 (the“Hauser Subordinated Note”); and

 

D.  The Borrower is or may hereafter becomeindebted to Draft pursuant to that certain Subordinated Note, dated as ofNovember 24, 2003, given by Borrower in favor of Draft in the originalprincipal amount of $500,000 (the “Draft Subordinated Note”); and

 

E.  The Borrower is, or may hereafter become,indebted to PKM as a result of the advance of monies and other extensions ofcredit by PKM to the Borrower under: (i) a Discretionary Credit Agreement datedas of January 17, 2003 (as the same may have been or may be amended, restatedor otherwise modified from time to time hereafter, the “January CreditAgreement”), (ii) a Building Lease dated April 4, 2003 (as the samemay be amended, restated or otherwise modified from time to time hereafter, the“Lease”), (iii) a Discretionary Credit Agreement dated as ofJuly 1, 2003 (as the same may be amended, restated or otherwise modifiedfrom time to time hereafter, the “May Credit Agreement”), and (iv) aNovember Discretionary Credit Agreement dated as of November 11, 2003(as the same may have been or may be amended, restated or otherwise modifiedfrom time to time hereafter, the “November Credit Agreement”).

 

**AGREEMENTS:**

 

NOW,THEREFORE, for good and valuable consideration, receipt of which isacknowledged by the parties, the parties agree as follows:

 

**Section 1.  Definitions,Rules of Construction**.

 

(a)  For purpose of thisAgreement, the following terms shall have the following meanings:

 

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“Bankruptcy Code” shall mean 11 U.S.C. § 101 et seq., asamended from time to time.

 

“Borrower” shall have the meaning given to that term in RecitalA above, and shall include and any successor (including adebtor-in-possession under the Bankruptcy Code), assignee, receiver, trustee orestate thereof.

 

“Default” shall mean any event which with the giving of noticeor lapse of time, or both, would become an Event of Default.

 

“Draft Security Agreement” means that certain Security Agreementdated as of November 24, 2003, between Borrower, as debtor, and Draft, assecured party, as it may be amended, modified, supplemented, restated orreplaced from time to time.

 

“Draft Subordinated Debt Documents” shall mean the DraftSubordinated Note and all security agreements, guaranties and otherarrangements and agreements with or in favor of Draft executed and/or deliveredin connection with the Subordinated Debt owing to Draft, including, withoutlimitation, the Draft Subordinated Note.

 

“Draft Subordinated Note” shall have the meaning given to thatterm in Recital D above, and shall include any amendments,modifications or restatements thereto or thereof (but nothing in thisdefinition shall be deemed to waive the provisions of Section 10below requiring PKM’s prior written consent to any change in the DraftSubordinated Note).

 

“Event of Default” shall mean (i) any Event of Default (astherein defined) or breach under the January Credit Agreement, the MayCredit Agreement or the November Credit Agreement, (ii) any failure of theBorrower to pay when due (whether at the date scheduled therefor or earlier uponacceleration), or when demanded (with respect to any obligation payable ondemand), any item constituting Senior Debt, or (iii) any event shall occur orcondition shall exist and shall continue for more than the period of grace, ifany, applicable thereto and shall have the effect of causing, or permitting PKMor any subsequent holder of Senior Debt to cause, any item of Senior Debt tobecome due prior to its stated maturity, to realize upon any collateral givenas security therefor; provided, however that Event of Default shall not in anyevent include any default occurring solely as a result of a payment defaultunder the May Discretionary Credit Note or the November DiscretionaryCredit Note.

 

“Hauser Subordinated Debt Documents” shall mean the HauserSubordinated Note and all security agreements, guaranties and otherarrangements and agreements with or in favor of Hauser executed and/ordelivered in connection with the Subordinated Debt owing to Hauser, including,without limitation, the Hauser Subordinated Note.

 

“Hauser Subordinated Note” shall have the meaning given to thatterm in Recital C above, and shall include any amendments,modifications or restatements thereto or thereof (but nothing in thisdefinition shall be deemed to waive the provisions of Section 10below requiring PKM’s prior written consent to any change in HauserSubordinated Note).

 

“May Discretionary Credit Note” means that certain MayDiscretionary Credit Note dated as of July 1, 2003, given by Borrower toPKM in the original principal amount of $1,000,000, as it may be amended,modified, supplemented, restated or replaced from time to time.

 

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“May Security Agreement” means that certain May SecurityAgreement dated as of July 1, 2003, between Borrower, as debtor, andHauser and PKM, individually and collectively, and their successors and assignsas secured party, as it may be amended, modified, supplemented, restated orreplaced from time to time.

 

“November Discretionary Credit Note” means thatNovember Discretionary Credit Note dated as of November 11, 2003,given by Borrower to PKM in the original principal amount of $500,000, as itmay be amended, modified, supplemented, restated or replaced from time to time.

 

“PermittedPayments” shall have the meaning given in Section 3 below.

 

“Person” shall mean an individual, corporation, association,partnership, limited partnership, trust, organization, individual or governmentor any governmental agency or any political subdivision thereof.

 

“Security Interest” means any lien, pledge, mortgage, encumbrance,charge or security interest of any kind whatsoever, whether arising under asecurity instrument or as a matter of law, judicial process or otherwise, orany agreement to grant any lien, or security interest in, or to pledge,mortgage or encumber, any assets.

 

“Senior Debt” shall mean all liabilities and obligations of theBorrower to PKM howsoever created, arising or evidenced, whether direct orindirect, absolute or contingent, due or to become due, now existing orhereafter arising or incurred, including, without limitation, all of theBorrower’s obligations to PKM under the January Credit Agreement, the MayCredit Agreement, the November Credit Agreement, the Lease, and any noteor notes executed by the Borrower thereunder, and all other obligations underany other agreement between the Borrower and PKM now or hereafter in effect,and also including, without limitation, any and all interest accruing on any ofthe Senior Debt after the commencement of any proceedings referred to in Section 5below, notwithstanding any provision or rule of law which might restrict therights of PKM, as against the Borrower or anyone else, to collect suchinterest; provided, however, that (1) Senior Debt shall not include anyobligations arising solely under the May Discretionary Credit Note, theNovember Discretionary Credit Note, or any other instrument given by theBorrower in favor of PKM after the date hereof to the extent it is not anamendment, modification, supplement, restatement or replacement of another instrumentevidencing then currently existing Senior Debt, (2) for purposes hereof, SeniorDebt shall include not more than $943,666 of principal under theJanuary Discretionary Credit Agreement, and (3) in order to be consideredSenior Debt hereunder as of any particular time, obligations with respect tothe Lease must be due and payable at such time (without acceleration).

 

“Subordinated Debt” shall mean (a) with respect to Hauser, allobligations, liabilities and indebtedness of the Borrower to Hauser, howsoeverarising or evidenced, whether direct or indirect, absolute or contingent, dueor to become due, now existing or hereafter arising or incurred, under anywritten or unwritten agreement, including, without limitation, HauserSubordinated Debt Documents; (b) with respect to Draft, all obligations,liabilities and indebtedness of the Borrower to Draft, howsoever arising orevidenced, whether direct or indirect, absolute or contingent, due or to becomedue, now existing or hereafter arising or incurred, under any written orunwritten agreement, including, without limitation, the Draft Subordinated DebtDocuments; and (c) with respect to PKM, all obligations, liabilities andindebtedness of the Borrower to PKM that are not Senior Debt, howsoever arisingor evidenced, whether direct or indirect, absolute or contingent, due or tobecome due, now existing or hereafter arising or incurred, under any written orunwritten agreement.

 

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“Subordinated Debt Collections” means any value, property,payment, distribution, security, instrument or proceeds thereof solely upon orsolely with respect to the Subordinated Debt, including, without limitation,Permitted Payments.

 

(b)  In this Agreement, in thecomputation of a period of time from a specified date to a later specifieddate, unless otherwise stated the word “from” means “from and including” andthe word “to” or “until” each means “to but excluding.”

 

(c)  Other terms may be definedin other parts of this Agreement.  Allreferences to agreements and other contractual instruments shall be deemed toinclude all subsequent amendments thereto or changes therein entered into inaccordance with their respective terms, and all references to Persons shall bedeemed to include their permitted successors and assigns.  Unless the context in which used hereinotherwise clearly requires, “or” has the inclusive meaning represented by thephrase “and/or.”  All incorporations byreference of covenants, terms, definitions or other provisions from otheragreements are incorporated into this Agreement as if such provisions werefully set forth herein, and include all necessary information and relatedprovisions from such other agreements, and all such covenants, terms,definitions or other provisions from other agreements incorporated into thisAgreement by reference shall survive any termination of such other agreementsuntil the Senior Debt has been indefeasibly paid in full and all financingarrangements between the Borrower and PKM shall have been terminated.

 

**Section 2.  Standby;Subordination.**  The payment and performance of theSubordinated Debt is hereby subordinated to the payment and performance in fullof the Senior Debt, and, except as set forth in Section 3 below,neither Hauser, Draft nor PKM will ask, demand, sue for, take or receive fromthe Borrower or any other Person liable for all or any part of the Senior Debt,by setoff or in any other manner, the whole or any part of the SubordinatedDebt, or any monies which may now or hereafter be owing in respect of the SubordinatedDebt (whether such amounts represent principal or interest, or obligationswhich are due or not due, direct or indirect, absolute or contingent),including, without limitation, taking any additional security for any of theforegoing, or the taking of any negotiable instrument therefor, unless anduntil all of the Senior Debt shall have been indefeasibly paid and satisfied infull and all financing arrangements with respect to Senior Debt between theBorrower and PKM have been terminated. Hauser warrants and represents that his Subordinated Debt is securedsolely pursuant to the May Security Agreement. Draft warrants and represents that its Subordinated Debt is securedsolely pursuant to the Draft Security Agreement.  Each of Hauser and Draft agrees that hereafter they will notaccept any additional security for Subordinated Debt owed to them from theBorrower or from any third Person for the benefit of the Borrower.  Each of Hauser, Draft and PKM agrees that (i)all Security Interests of Hauser, Draft and PKM (in PKM’s case, to the extentsuch Security Interest secures only Subordinated Debt) in any assets of theBorrower or any assets securing the Senior Debt shall and hereby aresubordinated to the rights and interests of PKM, if any, in those assets tosecure Senior Debt, (ii) neither Hauser or Draft shall have any right topossession of any such assets or to foreclose upon any such assets, whether byjudicial action or otherwise, unless and until all the Senior Debt shall havebeen indefeasibly paid and satisfied in full and all financing arrangementsbetween the Borrower and PKM with respect to Senior Debt have been terminated,and (iii) at the request of PKM, each of Hauser and Draft shall authorize,execute or deliver to PKM such termination statements and releases as PKM shallreasonably request to release Hauser’s and Draft’s Security Interest in oragainst such property.  Neither Hauser,Draft or PKM, prior to the indefeasible payment in full and discharge of theSenior Debt and the termination of all financing arrangements between theBorrower and PKM with respect to Senior Debt, shall have any right to enforceany claim with respect to the Subordinated Debt, or to take any action againstthe Borrower or the property of the Borrower or of any other Person liable forall or any part of the Senior Debt for the benefit of the Borrower to collectany Subordinated Debt.  Each of Hauserand

 

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Draftacknowledges and agrees that, to the extent the terms and provisions of thisAgreement are inconsistent with any agreement or understanding between eitherHauser and the Borrower or Draft and the Borrower, such agreement orunderstanding shall be subject to this Agreement.

 

**Section 3.  PermittedPayments.**  Notwithstanding the provisions of Section 2above, until PKM gives Hauser and Draft written notice (in the manner set forthbelow) of the occurrence of an Event of Default or a Default, and providedthat:

 

(i)                                     there shall not then exist any breach of thisAgreement by Hauser or Draft which has not been waived, in writing, by PKM,

 

(ii)                                  at the time of the payment described below noEvent of Default exists and is continuing,

 

(iii)                               the payment described below, if made, would not give rise to theoccurrence of any Event of Default,

 

(iv)                              none of the events described in Section 5 has occurred, and

 

(v)                                 all obligations then due and payable underthe Lease (without acceleration) shall have been paid to PKM in full,

 

Borrowermay pay to Hauser, Draft and PKM, and Hauser, Draft and PKM may accept fromBorrower, interest and principal payments, when due (without acceleration) andprepayments as provided in Section 20(a) of this Agreement (x) withrespect to Hauser, the Hauser Subordinated Note, (y) with respect to Draft, theDraft Subordinated Note and (z) with respect to PKM, the May DiscretionaryCredit Note, the November Discretionary Note, and any obligations underthe Lease that do not constitute Senior Debt (“Permitted Payments”).

 

**Section 4.  SubordinatedDebt Owed Only to Hauser.**  Except as provided below withrespect to Draft, each of Hauser or Draft, as the case may be, warrants andrepresents that neither has previously assigned any interest in theirrespective Subordinated Debt, that no other Person owns an interest in theSubordinated Debt (whether as joint holders of Subordinated Debt, participantsor otherwise) and that the entire Subordinated Debt is owing only to Hauser orDraft, as the case may be.  Except asprovided below with respect to Draft, each of Hauser and Draft furthercovenants that the entire Subordinated Debt owed to each shall continue to beowing only to Hauser or Draft, as the case may be, unless it is assigned withthe prior written consent of PKM to a Person who agrees with PKM to be bound bythe subordination provisions set forth herein. Notwithstanding the foregoing PKM acknowledges that Draft has assignedparticipation interests in the Subordinated Debt owed to it to affiliates ofDraft, and that PKM has consented to such assignments so long as suchassignments are totally transparent to the Company, PKM and Hauser in that theCompany, PKM and Hauser will not owe any obligation to such participants, suchparticipants will have no rights hereunder, and Draft will exercise all rightsand satisfy all of its obligations hereunder by itself in its own name.

 

**Section 5.  Priority.**  Inthe event of (a) any distribution, division, or application, partial orcomplete, voluntary or involuntary, by operation of law or otherwise, of all orany part of the assets of the Borrower or the proceeds thereof to the creditorsof the Borrower or to their claims against the Borrower, or (b) anyreadjustment of the debt or obligations of the Borrower, whether by reason ofliquidation, bankruptcy, arrangement, receivership, assignment for the benefitof creditors or any other action or proceeding involving the readjustment ofall or any part of the Senior Debt or Subordinated Debt, or the application ofthe assets of the Borrower to the payment or liquidation thereof, or (c) thedissolution or

 

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otherwinding up of the business of the Borrower, or (d) the sale of all orsubstantially all of the assets of the Borrower, then, and in any suchevent, PKM shall be entitled to receive indefeasible payment in full of all ofthe Senior Debt prior to the payment of all or any part of the SubordinatedDebt.

 

**Section 6.  Grantof Authority to PKM.**  In order to enable PKM to enforce its rightshereunder in any of the actions or proceedings described in Section 5,PKM is hereby irrevocably authorized and empowered, in its discretion, to fileand present for and on behalf of Hauser, Draft, or either of them such proofsof claims or other motions or pleadings as PKM may deem expedient or proper toestablish PKM’s entitlement of payment from, or on behalf of, Hauser, Draft, oreither of them, with respect to the Subordinated Debt and to vote such proofsof claims in any such proceeding and to demand, sue for, receive and collectany and all dividends or other payments or disbursements made thereon inwhatever form the same may be paid or issued and to apply the same on accountof any of the Senior Debt.  Each ofHauser and Draft irrevocably authorizes and empowers PKM to demand, sue for,collect and receive each of the payments and distributions described in Section 5above and give acquittance therefor and to file claims and take such otheractions, in PKM’s own name or in the name of Hauser, Draft or either of them,or otherwise, as PKM may deem necessary or advisable for the enforcement ofthis Agreement.  To the extent that paymentsof distributions are made in property other than cash, each of Hauser and Draftauthorizes PKM to sell such property to such buyers and on such terms as PKM,in its sole discretion, shall determine. Each of Hauser and Draft will execute and deliver to PKM such powers ofattorney, assignments and other instruments or documents (together with suchassignments or endorsements as PKM shall deem necessary), as may be reasonablyrequested by PKM in order to enable PKM to enforce any and all claims upon orwith respect to any or all of the Subordinated Debt and to collect and receiveany and all payments and distributions which may be payable or deliverable atany time upon or with respect to the Subordinated Debt, all for PKM’s ownbenefit.

 

**Section 7.  PaymentsReceived by Hauser or Draft.**   Except for PermittedPayments, if Hauser or Draft receives any value, property, payment,distribution, security, instrument or proceeds thereof upon or with respect tothe Subordinated Debt prior to the indefeasible payment in full of the SeniorDebt and termination of all financing arrangements between the Borrower andPKM, each of Hauser and Draft shall receive and hold the same in trust, astrustee, for the benefit of PKM and shall forthwith deliver the same to PKM inprecisely the form received (except for the endorsement or assignment wherenecessary), for application on any of the Senior Debt, due or not due and,until so delivered, the same shall be held in trust by Hauser or Draft, as thecase may be, as the property of PKM.  Inthe event of the failure of Hauser or Draft to make any such endorsement orassignment to PKM, PKM, or any of its officers or employees, is herebyirrevocably authorized to make the same.

 

**Section 8.  ContinuingNature of Subordination.**  This Agreement shall beeffective and may not be terminated or otherwise revoked by Hauser or Draftuntil the Senior Debt shall have been fully paid and discharged and allfinancing arrangements between the Borrower and PKM have been terminated.  This is a continuing agreement ofsubordination and PKM may continue, at any time and without notice to Hauser orDraft, to extend credit or other financial accommodations and loan monies to orfor the benefit of the Borrower in reliance hereon.  No obligation of Hauser or Draft hereunder shall be affected bythe dissolution, liquidation, death or incapacity of, or written revocation by,Hauser or Draft or any other subordinated party, pledgor, endorser, orguarantor, if any.

 

**Section 9.  BankruptcyIssues.**  If the Borrower becomes the subject ofproceedings under the Bankruptcy Code and if PKM desires to permit the use ofcash collateral or to provide financing to the Borrower under eitherSection 363 or Section 364 of the Bankruptcy Code, each of Hauser andDraft agrees that adequate notice of such financing to either of them, ifrequired under applicable law, shall have been provided if each receives noticetwo (2) business days prior to entry of any order approving such cashcollateral usage or financing.  Noticeof a proposed financing or use of cash collateral shall be

 

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deemedgiven upon the sending of such notice to Hauser and Draft in the mannerspecified in Section 14, below. All allocations of payments between PKM and Hauser and Draft shallcontinue to be made after the filing of a petition under the Bankruptcy Code onthe basis provided in this Agreement. In the event that Hauser or Draft at any time acquires any security forthe Subordinated Debt, each of Hauser and Draft agrees not to assert any rightHauser or Draft, as the case may be, may have to “adequate protection” of theirrespective interest in such security in any Bankruptcy proceeding or to seekrelief from automatic stay, without the prior written consent of PKM.  Each of Hauser and Draft shall promptlydeliver any form of adequate projection it receives or the value thereof toPKM.  Each of Hauser and Draft waivesany claim either may now or hereafter have against PKM arising out of PKM’selection, in any proceeding instituted under Chapter 11 of the Bankruptcy Code,of the application of Section 1111(b)(2) of the Bankruptcy Code, and/orany borrowing or grant of a security interest under Section 364 of theBankruptcy Code by the Borrower, as debtor in possession, or by a trustee.  To the extent that PKM receives payments on,or proceeds of any collateral for, the Senior Debt which are subsequentlyavoided, invalidated, declared to be fraudulent or preferential, set asideand/or required to be repaid to a trustee, receiver or any other party underany Bankruptcy law, state or federal law, common law or equitable cause, then,to the extent of such payment or proceeds received, the Senior Debt, or partthereof, intended to be satisfied shall be revived and continue in full forceand effect as if such payments or proceeds had not been received by PKM.

 

**Section 10.  InstrumentLegend; No Amendments to Subordinated Instruments.** Besides the Hauser Subordinated Note, Hauser will not agree to createany additional Indebtedness (as defined in the January Credit Agreement)owing from the Borrower to Hauser, without sending a true and correct copy ofall Hauser Subordinated Debt Documents evidencing such Indebtedness to PKMcontemporaneously with the creation of such Indebtedness.  Every instrument evidencing SubordinatedDebt (including, without limitation, the Hauser Subordinated Note) shall beinscribed with a legend conspicuously indicating that payment thereof issubordinated to the claims of PKM pursuant to the terms of this Agreement.  Upon request after the occurrence of anEvent of Default, the original of every instrument evidencing Subordinated Debtowing to Hauser (including, without limitation, the Hauser Subordinated Note)shall be promptly delivered to PKM. Hauser will not agree to any amendment, restatement or othermodification of any instrument evidencing Subordinated Debt owing to Hauser(including, without limitation, the Hauser Subordinated Note), without theprior written consent of PKM.

 

Besidesthe Draft Subordinated Note, Draft will not agree to create any additionalIndebtedness (as defined in the January Credit Agreement) owing from theBorrower to Draft, without sending a true and correct copy of all DraftSubordinated Debt Documents evidencing such Indebtedness to PKM contemporaneouslywith the creation of such Indebtedness. Every instrument evidencing Subordinated Debt (including, withoutlimitation, the Draft Subordinated Note) shall be inscribed with a legendconspicuously indicating that payment thereof is subordinated to the claims ofPKM pursuant to the terms of this Agreement. Upon request after the occurrence of an Event of Default, the originalof every instrument evidencing Subordinated Debt owing to Draft (including,without limitation, the Draft Subordinated Note) shall be promptly delivered toPKM.  Draft will not agree to anyamendment, restatement or other modification of any instrument evidencingSubordinated Debt owing to Draft (including, without limitation, the Draft SubordinatedNote), without the prior written consent of PKM.

 

**Section 11.  Waivers.**  TheSenior Debt shall be deemed to have been made or incurred in reliance upon thisAgreement.  Each of Hauser and Draftexpressly waives all notice of the acceptance by PKM of the subordination andother provisions of this Agreement and all other notices not specificallyrequired pursuant to the terms of this Agreement whatsoever, and each of Hauserand Draft expressly waives reliance by PKM upon the subordination and otheragreements as herein provided.  Each ofHauser and Draft agrees that PKM has made no warranties or representations withrespect to the due execution, legality, validity, completeness orenforceability of the agreements evidencing the Senior Debt,

 

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orthe collectability of the Senior Debt, and that PKM shall be entitled to manageand supervise its loans and other financial accommodations to the Borrowerwithout regard to the existence of any rights that either Hauser or Draft maynow or hereafter have in or to any of the assets of the Borrower.  Each of Hauser and Draft agrees that PKMshall have no liability to either of them for, and waives any claim whicheither may now or hereafter have against PKM arising out of, any and allactions which PKM in good faith takes or omits to take (including, withoutlimitation, actions with respect to any security for the Senior Debt, actionswith respect to the occurrence of an Event of Default, actions with respect tothe foreclosure upon, sale, release, or depreciation of, or failure to realizeupon, any security for the Senior Debt and actions with respect to thecollection of any claim for all or any part of the Senior Debt from anyguarantor or other party) with respect to any agreement related to any SeniorDebt or to the collection of the Senior Debt or the valuation, use, protectionor release of any security for the Senior Debt.

 

**Section 12.  PKM’sWaivers.**  No waiver shall be deemed to be made by PKMof any of its rights hereunder unless the same shall be in writing signed onbehalf of PKM, and each waiver, if any, shall be a waiver only with respect tothe specific instance involved and shall in no way impair the rights of PKM orthe obligations of Hauser or Draft to PKM in any other respect at any othertime.

 

**Section 13.  FinancialCondition of Borrower; Other Actions by PKM.**  Eachof Hauser and Draft hereby assumes responsibility for keeping informed of thefinancial condition of the Borrower, any and all endorsers and any and allguarantors of the Subordinated Debt and of all other circumstances bearing uponthe risk of nonpayment of the Senior Debt and/or the Subordinated Debt thatdiligent inquiry would reveal.  Each ofHauser and Draft hereby agrees that PKM shall have no duty to advise eitherHauser or Draft of information known to PKM regarding such condition or anysuch circumstances.  In the event PKM,in its sole discretion, undertakes, at any time or from time to time, toprovide any such information to either Hauser or Draft, PKM shall be under noobligation (i) to provide any such information to either of them on anysubsequent occasion, (ii) to undertake any investigation not a part of itsregular business routine, or (iii) to disclose any information which, pursuantto its usual practices, PKM wishes to maintain confidential.  Each of Hauser and Draft hereby agrees thatall payments received by PKM may be applied, in whole or in part, to any of theSenior Debt, as PKM, in its sole discretion, deems appropriate and assents toany extension or postponement of the time of payment of the Senior Debt or toany other indulgence with respect thereto, to any substitution, exchange orrelease of collateral which may at any time secure the Senior Debt and to theaddition or release of any other Person primarily or secondarily liabletherefor.

 

**Section 14.  Notices.**  Allcommunications and notices provided under this Agreement to any party shall begiven in writing by manual delivery, facsimile transmission, overnight courieror United States first class mail to such party’s address shown on the signaturepage hereof, or to any party at such other address as may be designated by suchparty in a notice to the other parties. All periods of notice shall be measured from the date of deliverythereof if manually delivered, from the date of sending if sent by facsimiletransmission, from the first business day after the date of sending if sent byovernight courier, or from four days after the date of mailing if mailed.

 

**Section 15.  Governing Law and Construction**. ** THE VALIDITY,CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THEINTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OFLAWS PRINCIPLES THEREOF.**

 

**Section 16.  Consent to Jurisdiction**.  **AT THEOPTION OF PKM, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTASTATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND EACH OF HAUSER AND DRAFTCONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY**

 

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**ARGUMENT THAT VENUE IN SUCH FORUMSIS NOT CONVENIENT.  IN THE EVENT EITHERHAUSER OR DRAFT COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANYTORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIPCREATED BY THIS AGREEMENT, PKM AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASETRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCHTRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASEDISMISSED WITHOUT PREJUDICE.**

 

**Section 17.  Waiver of Jury Trial**.  **HAUSER,DRAFT AND PKM BY ACCEPTANCE HEREOF, IRREVOCABLY WAIVE ANY AND ALL RIGHT TOTRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDERTHIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED ORWHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANYCREDIT RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THATANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE AJURY.**

 

**Section 18.  Severability.** Wherever possible, each provision of this Agreement shall be interpretedin such manner as to be effective and valid under applicable law, but if anyprovision of this Agreement shall be prohibited by or invalid under applicablelaw, such provision shall be ineffective to the extent of such prohibition orinvalidity, without invalidating the remainder of such provision or theremaining provisions of this Agreement.

 

**Section 19.  Miscellaneous.**

 

(a) This Agreement and the terms, covenants and conditions hereof shallinure to the benefit of PKM and its successors and assigns.  Nothing contained in this Agreement,expressed or implied, is intended to confer upon any Person other than theparties hereto and thereto any rights, remedies, obligations or liabilitieshereunder or thereunder.

 

(b) This Agreement sets forth the entire understanding of the partieshereto relating to the subject matter hereof, and all prior understandings andnegotiations, written or oral, are merged into and superseded by thisAgreement.  Any modification, amendmentor waiver of this Agreement or any provision herein shall be binding upon PKMonly if contained in a writing signed by or on behalf of PKM.  No failure on the part of PKM to exerciseand no delay in exercising any power or right hereunder, shall operate as awaiver thereof; nor shall any single or partial exercise of any power or rightpreclude any other or further exercise thereof or the exercise of any otherpower or right.  The remedies hereinprovided are cumulative and not exclusive of any remedies provided by law.

 

(c) Hauser hereby acknowledges that (i) he has been advised by counselto the extent he believes necessary in the negotiation, execution and deliveryof this Agreement, (ii) PKM has no fiduciary relationship to him, and (iii) nojoint venture exists between Hauser and PKM. Draft hereby acknowledges that (i) it has been advised by counsel to theextent it believes necessary in the negotiation, execution and delivery of thisAgreement, (ii) PKM has no fiduciary relationship to it, and (iii) no jointventure exists between Draft and PKM.

 

(d) All covenants, agreements, representations and warranties made inthis Agreement and in any certificates or other papers delivered by or onbehalf of Hauser or Draft pursuant hereto shall be deemed to have been reliedupon by PKM and shall survive the execution and

 

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deliveryof this Agreement, and shall continue in full force and effect so long as anySenior Debt remains outstanding and unpaid or any financing arrangement betweenthe Borrower and PKM remains in effect. All statements of fact relating to Hauser or Draft contained in anycertificate or other paper delivered to PKM at any time after the date hereofby or on behalf of Hauser or Draft, as the case may be, pursuant hereto or inconnection with the transactions contemplated hereby shall constituterepresentations and warranties by the undersigned hereunder.

 

(e) This Agreement may be executed in any number of counterparts, allof which taken together shall constitute one and the same instrument, and anyof the parties hereto may execute this Agreement by signing any suchcounterpart.

 

**Section 20.  IntercreditorAgreements**.

 

(a) If the Borrower raises proceeds through the issuance of any capitalstock or other equity interest of the Borrower or other interest convertibleinto an equity interest in the Borrower, then the Borrower shall pay to PKM,Draft and Hauser, when and as received by the Borrower and as a mandatory protanto prepayment of all obligations owing to PKM and all obligations owing toHauser and all obligations owing to Draft, a sum equal to one hundred percent(100%) of the net proceeds to the Borrower of the issuance of such equity,payable: (i) until the Senior Debt is satisfied in full, one hundred percent(100%) to PKM and zero percent (0%) to Hauser and Draft; and (ii) after theSenior Debt is satisfied in full, pro rata to PKM, Draft and Hauser, based onthe principal amount of Subordinated Debt owed to each, for so long as any ofthem is owed any obligations by the Borrower, provided, however, that thismandatory prepayment obligation shall not apply with respect to the first$50,000 in net proceeds received by the Borrower from the exercise of anyoptions or warrants which have been issued and are effective as of July 1,2003.

 

(b) All Subordinated Debt Collections received byPKM, Draft or Hauser (whether before or after the satisfaction in full of theSenior Debt) shall be held by PKM, Draft and Hauser in trust, as trustee, forthe benefit of the other and shall be divided and applied to the SubordinatedDebt as follows: (i) first, to the payment of all collection expenses,including reasonable attorneys fees; and (ii) second, pro rata to PKM, Draftand Hauser, based on the principal amount of Subordinated Debt owed to each,for so long as any of them is owed any obligations by the Borrower.

 

(c) In the event any Subordinated DebtCollections amount is subsequently recovered from PKM, Draft or Hauser by theBorrower or the Borrower as a debtor-in-possession, or by any trustee orreceiver under any applicable bankruptcy or insolvency law, such amount shallbe reimbursed by Hauser, Draft and PKM according to the provisions ofsubsection (b) immediately above.

 

(d) After the satisfaction in full of the SeniorDebt, all decisions with respect to any and all action and with respect to thepursuit of any and all rights and remedies available to PKM, Draft and Hauserunder the May Security Agreement, the Draft Security Agreement or applicablelaw shall be made jointly by PKM, Draft and Hauser.

 

(e) PKM, Draft and Hauser shall keep and maintain atall times, all proper books of account, files and records, reflecting theSubordinated Debt, which records shall be available for review by the otherparty upon reasonable written notice.

 

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**Section 21.  Draft’sIntercreditor Treatment Conditional**. Section 20 is intended to make each of PKM, Draft and Hauser *pari passu* with respect to the collectionof the Subordinated Debt.  Draft hasbecome a party to this Agreement subsequent to Hauser and PKM creating theOriginal Agreement.  Accordingly, PKMand Hauser have required, and Draft has agreed, that notwithstanding anythingelse herein apparently to the contrary, all of Draft’s rights under thisAgreement to have *pari passu*treatment with respect to the Subordinated Debt owing to it are expresslyconditioned upon Draft having and maintaining a perfected security interest inall assets of Borrower that can be perfected by filing a UCC-1 financingstatement in the appropriate jurisdiction under the Minnesota UniformCommercial Code that has priority immediately junior to Hauser’s SecurityInterest created under the May Security Agreement.  If Draft fails to have and maintain such a security interest withsuch priority, then solely for purposes of determining the relative prioritiesof the parties’ rights with respect to Subordinated Debt owed to them, allSubordinated Debt owing to PKM and Hauser will be treated as Senior Debt, andall Subordinated Debt owing to Draft will be treated as Subordinated Debt.

 

**(The signature page follows.)**

 

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INWITNESS WHEREOF, this First Amended and Restated Subordination andIntercreditor Agreement has been signed as of the date first set forth above.

 

 
|   | /s/  Peter L. Hauser                 |                   |
|--------|--------------------------------------|------------------------|
|   | PETER  L. HAUSER                     |
|   |                                 |
|   | Address  for Notice:                 |
|   | 16913  Kings Court                   |
|   | Lakeville,  MN  55044           |
|   |                                 |
|   |                                 |
|   | PKM  PROPERTIES, LLC                 |
|   |                                 |
|   |                                 |
|   | By:                                  | /s/  Paul Miller       |   |
|   | Name:  Paul Miller              |
|   | Its:  Chief Manager             |
|   |                                 |
|   | Address  for Notice:                 |
|   | PKM  Properties, LLC                 |
|   | c/o  Gracon Contracting, Inc.        |
|   | 606  24th Avenue South, Suite B12    |
|   | Minneapolis,  MN 55454               |
|   | Attention:  Paul K. Miller      |
|   |                                 |
|   |                                 |
|   | DRAFT  CO.                           |
|   |                                 |
|   |                                 |
|   | By:                                  | /s/  Ford J. Nicholson |   |
|   | Name:  Ford J. Nicholson        |
|   | Its:  President                 |
|   |                                 |
|   | Address  for Notice:                 |
|   | Draft  Co.                           |
|   | 336  Robert Street North, Suite 1220 |
|   | St.  Paul, MN 55101                  |
|        |                                      |                        |  |  |  |  |

 

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ACCEPTANCE AND ACKNOWLEDGMENT

 

TheBorrower named above hereby accepts, and acknowledges receipt of a copy of, theforegoing First Amended and Restated Subordination and Intercreditor Agreementand agrees that (a) it will not pay any of the “Subordinated Debt” (as definedin the foregoing Agreement) or grant any security therefor, except as theforegoing Agreement provides, and (b) it is bound by and will comply with themandatory prepayment provisions with respect to the Senior Debt and theSubordinated Debt as provided in Section 20(a) of the foregoing Agreement.

 
|   | MEDICAL  CV, INC. |
|--------|-------------------|
|   |              |
|   |              |
|   | By:               | /s/  Jules L. Fisher |   |
|   | Name:             | Jules  L. Fisher |
|   | Its:              | Chief  Financial Officer |
|        |                   |  |  |  |

 

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