**Exhibit 10.2**

**APRIL2004 DISCRETIONARY**

**CREDITAGREEMENT**

 

 

                THIS DISCRETIONARYCREDIT AGREEMENT, dated as of April 16, 2004, is by and between MEDICALCV,INC., a Minnesota corporation (the “Borrower”), and PKM PROPERTIES, LLC,a Minnesota limited liability company (the “Lender”).

 

**RECITALS:**

 

                1.             Paul K. Miller (“Miller”) isa director and shareholder of the Borrower and is a member and manager of, andhas a material financial interest in, the Lender.

 

                2.             The Lender has previously madeavailable to the Borrower a $943,666 discretionary credit facility under aDiscretionary Credit Agreement dated January 17, 2003 as it may have been ormay be amended, modified, supplemented, restated or replaced from time to time(the “January Discretionary Credit Agreement”); a $1,000,000discretionary credit facility under a May Discretionary Credit Agreement datedJuly 1, 2003 as it may have been or may be amended, modified, supplemented,restated or replaced from time to time (the “May Discretionary CreditAgreement”); and a $500,000 discretionary credit facility under a NovemberDiscretionary Credit Agreement dated November 11, 2003 as it may have been ormay be amended, modified, supplemented, restated or replaced from time to time(the “November Discretionary Credit Agreement”).

 

                3.             The Borrower and the Lender areparties to that certain Building Lease dated April 4, 2003 between Lender aslandlord and Borrower as tenant as it may be amended, modified, supplemented,restated or replaced from time to time (the “Lease”).

 

                4.             The Borrower has requested that theLender make available to the Borrower an additional $250,000 discretionarycredit facility under this Agreement.

 

                5.             The Borrower will use the proceedsof advances, if any, under the Discretionary Facility (defined below) tosatisfy all currently due and payable obligations to the Lender under theJanuary Discretionary Credit Agreement, the May Discretionary Credit Agreement,the November Discretionary Credit Agreement, this Agreement and the Lease andas working capital to continue operating as a going concern.

 

**AGREEMENTS:**

 

                IN CONSIDERATIONof the foregoing premises, and the mutual covenants set forth herein, theparties agree as follows:

 

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**ARTICLE 1**** DEFINITIONS AND ACCOUNTING TERMS**

 

                **Section 1.1            DefinedTerms.**  Any capitalizedterm not defined in this Agreement shall have the meaning given such term inthe November Discretionary Credit Agreement. In addition to the terms defined elsewhere in this Agreement, thefollowing terms shall have the meanings set out respectively after each (andsuch meanings shall be equally applicable to both the singular and plural formof the terms defined, as the context may require):

 

                Agreement:  This April 2004 Discretionary CreditAgreement, as it may be amended, modified, supplemented, restated or replacedfrom time to time.

 

                Collateral:  The collateral as defined in Section 5.1.

 

                DiscretionaryCredit Expiration Date:   The datethat first occurs: (i) May 26, 2004, or (ii) the date on which theDiscretionary Facility is terminated pursuant to Section 9.2.

 

                DiscretionaryFacility:  The discretionary creditfacility under which the Lender may make loans, in the Lender’s sole andabsolute discretion, to the Borrower in accordance with Article 2 andthe Discretionary Note up to an aggregate principal amount at any one timeoutstanding not to exceed $250,000.

 

                DiscretionaryLoans:  Any loans made by the Lenderto the Borrower, in the Lender’s sole and absolute discretion, under theDiscretionary Facility.

 

                DiscretionaryNote:  That certain April 2004Discretionary Credit Demand Note dated the date hereof executed by the Borrowerand made payable to the order of the Lender in the original principal amount of$250,000, as it may be amended, modified, supplemented, restated or replacedfrom time to time.

 

                Event ofDefault:  Any event described in Section9.1.

 

                FinancingStatements:  UCC Financing Statementsnaming the Borrower as debtor and the Lender as secured party and describingthe Collateral as the property covered thereby.

 

                Interest Rate:  The rate of interest equal to 10.0%; provided,however, that from and after the occurrence of any Default andcontinuing thereafter until such Default shall be remedied to the writtensatisfaction of the Lender, the Interest Rate shall, at the election of theLender, be that rate of interest equal to Interest Rate otherwise applicable plus2.0%.

 

                Loan Documents:  This Agreement, the Discretionary Note, theMay Security Agreement, the November Discretionary Credit Agreement, theFinancing Statements, and each other instrument, document, guaranty, securityagreement, or other agreement executed and delivered by the Borrower or anyguarantor or party granting security interests in connection with thisAgreement, or any collateral for the Discretionary Loans.

 

                Obligations:  The obligation of the Borrower: (a) to paythe principal of and interest on the Discretionary Note in accordance with theterms hereof and thereof, and to satisfy all of the Borrower’s otherobligations to the Lender, whether hereunder, under any Loan Document, or 

 

 

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otherwise, whether now existing or hereafter incurred, matured orunmatured including without limitation the obligations pursuant to the JanuaryDiscretionary Credit Agreement, the May Discretionary Credit Agreement, theNovember Discretionary Credit Agreement, the Lease, letters of credit, director contingent, joint or several, and including without limitation obligationsto or credit from others in which the Lender has a direct or indirect interest(including without limitation participations), including any extensions,modifications, renewals thereof and substitutions therefor; (b) to repay to theLender all amounts advanced by the Lender hereunder or otherwise on behalf ofthe Borrower, including, but without limitation, advances for principal orinterest payments to prior secured parties, mortgagees or lienors, or fortaxes, levies, insurance, rent, repairs to or maintenance or storage of any ofthe Collateral; and (c) to pay all of the Lender’s expenses and costs, togetherwith the reasonable fees and expenses of its counsel in connection with thepreparation and negotiation of this Agreement and other Loan Documents, and anyamendments thereto and the documents required hereunder or thereunder, or anyproceedings brought or threatened to enforce payment of any of the Obligationsdescribed in clauses (a) or (b) above.

 

                **Section 1.2            AccountingTerms and Calculations.** Except as may be expressly provided to the contrary herein, allaccounting terms used herein shall be interpreted and all accountingdeterminations hereunder shall be made in accordance with GAAP consistentlyapplied.

 

                **Section 1.3            OtherDefinitional Terms.**  Thewords “hereof,” “herein” and “hereunder” and words of similar import when usedin this Agreement shall refer to this Agreement as a whole and not to anyparticular provision of this Agreement. References to Sections, Exhibits, Schedules and like references are tothis Agreement unless otherwise expressly provided.

 

**ARTICLE 2**** TERMS OF LENDING**

 

                **Section 2.1            Discretionary Facility.**  The Borrower has requested that the Lendermake loans to the Borrower from time to time under the DiscretionaryFacility.  **THE LENDERHAS NOT COMMITTED TO PROVIDE ANY SUCH LOANS AND MAY, IN ITS SOLE AND ABSOLUTEDISCRETION, DECIDE NOT TO MAKE ANY SUCH LOANS.**  If the Lender, in its discretion, agrees tomake any such loans, such loans shall (a) not exceed an aggregateprincipal amount of the Discretionary Facility, (b) be made in accordancewith the terms of this Agreement, and (c) be made on or before theDiscretionary Credit Expiration Date.  **THE BORROWER ACKNOWLEDGES AND AGREES THAT THE LENDER IS NOT OBLIGATEDTO MAKE ANY ADVANCES HEREUNDER, WHETHER OR NOT A DEFAULT OR AN EVENT OF DEFAULTHAS OCCURRED.**

 

                **Section 2.2            BorrowingProcedures.**  Each time theBorrower desires to obtain a loan under the Discretionary Facility pursuant to Section2.1, such request shall be in writing (which may be by telecopy) or bytelephone, and must be given so as to be received by the Lender not later than11:00 a.m., Minneapolis time, on the date of the requested advance.  Each request for a Discretionary Loan shallspecify (i) the borrowing date (which shall be a Business Day), and (ii) theamount of such Loan.  Any request for aDiscretionary Loan shall be deemed to be a 

 

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representation that no event has occurred and is continuing, or willresult from such Discretionary Loan, which constitutes a Default or an Event ofDefault, and that the Borrower’s representations and warranties contained inthis Agreement are true and correct as of the date of the Discretionary Loan asthough made on and as of such date.  Ifthe Lender approves a requested Discretionary Loan in its sole discretion, theLender shall make the amount of the requested advance available to the Borrowerat the Lender’s principal office in Minneapolis, Minnesota, in immediatelyavailable funds not later than 5:00 p.m., Minneapolis time, within 3 BusinessDays of the date requested.  The Borrowershall be obligated to repay all advances the Lender reasonably determines wererequested on behalf of the Borrower notwithstanding the fact that the personrequesting the same was not in fact authorized to do so.

 

                **Section 2.3            TheDiscretionary Note.**  Theobligation of the Borrower to repay any and all loans made under Section 2.1shall be evidenced by the Discretionary Note of the Borrower, in form andsubstance acceptable to the Lender.  TheLender shall enter in its records the amount of each advance under, and thepayments made on, the Discretionary Facility, and such records shall be deemedconclusive evidence of the subject matter thereof, absent manifest error.

 

**ARTICLE 3**** INTEREST AND COSTS**

 

                **Section 3.1            Interest on Discretionary Loan.**  The unpaid principal amount of theDiscretionary Facility shall bear interest at the Interest Rate.

 

                **Section 3.2            Computation.**  Interest on the Discretionary Note shall becomputed on the basis of actual days elapsed and a year of 360 days.

 

                **Section 3.3            PaymentDates.**  Interest accruingon the Discretionary Note shall be **DUE AND PAYABLEIMMEDIATELY UPON DEMAND**, or if no demand is made, due and payable asspecified in such Discretionary Note.

 

                **Section 3.4**            **Loan Fee.**  As further consideration for the financingprovided by Lender hereunder, upon the Lender making Discretionary Loans, theBorrower will pay to the Lender a fee in an amount equal to 6.5% of anyDiscretionary Loan.  If and when aDiscretionary Loan is made under this Agreement, loan proceeds will be advancedby the Lender to the Borrower net of the fee required under this Section, andsuch fee will be deemed to be a Discretionary Loan.

 

**ARTICLE 4**** PAYMENTS AND PREPAYMENTS**

 

                **Section 4.1            Repayment.**   Principal of the Discretionary Facility is **DUE AND PAYABLE IMMEDIATELY UPON DEMAND**.  Until a demand is made, principal of theDiscretionary Note is due and payable as specified in the Discretionary Note.

 

                **Section 4.2            ConditionalOptional Prepayments.**  TheBorrower may prepay the Discretionary Loan, in whole or in part, at any timewithout premium or penalty; provided, however, that the Borrowermay not prepay all or any part of the Discretionary Loan until the Borrowerfirst indefeasibly satisfies in full (a) all of the Borrower’s Obligations dueand payable 

 

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at such time under the Lease, and (b) all of the Borrower’s otherObligations to the Lender (excluding the Borrower’s Obligations under the Lease)regardless of whether such other Obligations are then due and payable,including, without limitation all of the Borrower’s obligations under theJanuary Discretionary Credit Agreement and the May Discretionary CreditAgreement.  Any such prepayment must beaccompanied by accrued and unpaid interest on the amount prepaid.

 

                **Section 4.3            AcceleratedPayments.**  Upon theoccurrence of an Event of Default and the acceleration of the DiscretionaryNote, pursuant to and as permitted by Section 9.2, the DiscretionaryNote and all other Obligations, shall be immediately due and payable asprovided in Section 9.2 and in the Discretionary Note.  **THE BORROWER ACKNOWLEDGESTHAT THE LENDER MAY DEMAND PAYMENT OF THE DISCRETIONARY NOTE AT ANY TIMEWHETHER OR NOT A DEFAULT OF EVENT OF DEFAULT HAS OCCURRED.**

 

                **Section 4.4            Payments.**  Payments and prepayments of principal of, andinterest on, the Discretionary Note and all fees, expenses and otherobligations under the Loan Documents shall be made without set-off or counterclaimin immediately available funds not later than 2:00 p.m., Minneapolis time, onthe dates due at the main office of the Lender in Minneapolis, Minnesota.  Funds received on any day after such timeshall be deemed to have been received on the next Business Day.  Whenever any payment to be made hereunder oron the Discretionary Note shall be stated to be due on a day which is not aBusiness Day, such payment shall be made on the next succeeding Business Dayand such extension of time shall be included in the computation of any interestor fees.

 

                **Section 4.5            MandatoryPrepayments**.  The Borrowershall prepay the Obligations as provided in the Subordination and IntercreditorAgreement.

 

**ARTICLE 5**** COLLATERAL SECURITY**

 

                **Section 5.1            Compositionof the Collateral.**  Theproperty in which a security interest is, or is intended to be, grantedpursuant to this Agreement, the May Security Agreement, or any other LoanDocument and the provisions of Section 5.2 is herein collectively calledthe “Collateral.”  The Collateral,together with all the Borrower’s other property of any kind held by the Lender,shall stand as one general, continuing collateral security for all of theObligations, and may be retained by the Lender until all Obligations have beensatisfied in full, and the Discretionary Facility has terminated.

 

                **Section 5.2            Rightsin Property Held by the Lender.** As security for the prompt satisfaction of all Obligations, the Borrowerhereby assigns, transfers and sets over to the Lender all of its right, title andinterest in and to, and grants to the Lender a lien on and a security interestin, any amounts which may be owing from time to time by the Lender to theBorrower in any capacity, including, but without limitation, any balance orshare belonging to the Borrower of any deposit or other account with theLender, which lien and security interest shall be independent of any right ofsetoff which the Lender may have.

 

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                **Section 5.3            Priorityof Liens.**  The liens asprovided for under this Agreement, the May Security Agreement and the otherLoan Documents shall be first and prior liens subject only to Permitted Liens.

 

                **Section 5.4            FinancingStatements.**  The Borrowerwill authorize, execute and deliver such security agreements, assignments, andUCC financing statements (including amendments thereto and continuationstatements thereof) in form satisfactory to the Lender as the Lender mayspecify and will pay or reimburse the Lender for all costs of filing or recordingthe same in such public offices as the Lender may designate, and take suchother steps as the Lender shall direct, including the noting of the Lender’slien on the chattel paper or any vehicle certificates of title, in order toperfect the Lender’s interest in the Collateral.

 

**ARTICLE 6**** CONDITIONS PRECEDENT**

 

                **Section 6.1            Conditionsof Initial Loan.**  If theLender decides to make any Loans under the Discretionary Facility in the Lender’sdiscretion, the Borrower shall deliver to the Lender (prior to the Lendermaking any other Discretionary Loan) all of the following, in form andsubstance satisfactory to the Lender, each duly executed and certified or datedthe date hereof or such other date as is satisfactory to the Lender.

 

                (a)           The Discretionary Note, duly executedby the Borrower.

 

                (b)           A Secretary’s Certificate certifying:(1) a copy of the Articles of Incorporation of the Borrower with all amendmentsthereto, (2) a copy of the Bylaws of the Borrower with all amendments thereto,(3) a copy of the corporate resolutions of the Borrower authorizing theexecution, delivery and performance of the Loan Documents, and (4) the names,titles, and signatures of the officers of the Borrower authorized to executethe Loan Documents and to request advances hereunder.

 

(c)           Satisfaction in full of allObligations or other obligations due and payable from Borrower to Lender orMiller as of the date of such loan, including, without limitation, all amountsdue and payable with respect to the Lease, the January Discretionary CreditAgreement, the May Discretionary Credit Agreement, and the NovemberDiscretionary Credit Agreement.

 

                (d)           Second Amendment to the Subordinationand Intercreditor Agreement duly executed by Hauser and Draft Co.

 

(e)           Such other documents or instrumentsas the Lender may request to consummate the transaction contemplated hereby.

 

                **Section 6.2            ConditionsPrecedent to all Loans.** The obligation of the Lender to make any loan under the DiscretionaryFacility in the Lender’s discretion, each such loan shall be subject to thesatisfaction of the following conditions precedent (and any request for aDiscretionary Loan shall be deemed a written certification that such conditionsprecedent have been satisfied):

 

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                (a)           Before and after giving effect tosuch Discretionary Loan, the representations and warranties contained in Article7 shall be true and correct, as though made on the date of suchDiscretionary Loan; and

 

                (b)           Before and after giving effect to suchDiscretionary Loan, no Default or Event of Default shall have occurred and becontinuing.

 

**ARTICLE 7**** REPRESENTATIONS AND WARRANTIES**

 

                To induce theLender to enter into this Agreement, and to consider making Discretionary Loanshereunder, the Borrower represents and warrants to the Lender:

 

                **Section 7.1            Organization,Standing, Etc.**  TheBorrower is a corporation duly incorporated and validly existing and in goodstanding under the laws of the State of Minnesota, and has all requisitecorporate power and authority to carry on its businesses as now conducted, toenter into the Loan Documents and to perform its obligations under the LoanDocuments.

 

                **Section 7.2            Authorizationand Validity.**  Theexecution, delivery and performance by the Borrower of the Loan Documents havebeen duly authorized by all necessary corporate action by the Borrower, and theLoan Documents constitute the legal, valid and binding obligations of theBorrower, enforceable against the Borrower in accordance with their respectiveterms, subject to limitations as to enforceability which might result frombankruptcy, insolvency, moratorium and other similar laws affecting creditors’rights generally and subject to limitations on the availability of equitableremedies.

 

                **Section 7.3            NoConflict; No Default.**  Theexecution, delivery and performance by the Borrower of the Loan Documents willnot (a) violate any provision of any law, statute, rule or regulation(including, without limitation, Minnesota Statute Section 302A.673) or anyorder, writ, judgment, injunction, decree, determination or award of any court,governmental agency or arbitrator presently in effect having applicability tothe Borrower, (b) violate or contravene any provisions of the Articles ofIncorporation or Bylaws of the Borrower, or (c) result in a breach of orconstitute a default under any indenture, loan or credit agreement or any otheragreement, lease or instrument to which the Borrower is a party or by which itor any of its properties may be bound or result in the creation of any Lien onany asset of the Borrower, other than Liens in favor of the Lender andPermitted Liens.  The Borrower is not indefault under or in violation of any such law, statute, rule or regulation,order, writ, judgment, injunction, decree, determination or award or any suchindenture, loan or credit agreement or other agreement, lease or instrument inany case in which the consequences of such default or violation couldconstitute an Adverse Event.

 

                **Section 7.4            NovemberCredit Agreement. **The representationsand warranties contained in the November Discretionary Credit Agreement and theother Loan Documents (as defined therein) are true and correct as of the datehereof as though made on the date hereof except to the extent that suchrepresentations and warranties relate solely to an earlier date.

 

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                **Section 7.5**            **No Event of Default. **There does not exist any Event of Default(as defined in this Agreement) or any event which with the giving of notice orthe passage of time could result in an Event of Default.

 

                **Section 7.6            Survivalof Representations.**  Allof the representations and warranties set forth in the immediately precedingsubsections shall survive until all the Obligations shall have been satisfiedin full, and the Discretionary Facility has been terminated.

 

Each of the foregoing warranties and representations shall be deemed tobe repeated and reaffirmed on and as of the date any Discretionary Loan is madehereunder by the Lender to the Borrower pursuant to Article 2.

 

**ARTICLE 8****          COVENANTS**

 

**                Section8.1            Survival of covenantsunder November Discretionary Credit Agreement. ** Until all of its Obligations shall have beenindefeasibly satisfied in full, the Borrower shall continue to comply with allits affirmative and negative covenants under the November Discretionary CreditAgreement, regardless of whether it repays all of the Indebtedness owing underthe November Discretionary Credit Agreement.

 

**ARTICLE 9**** EVENTS OF DEFAULT AND REMEDIES**

 

                **Section 9.1            Events of Default.**  The occurrence of any one or more of thefollowing events shall constitute an Event of Default:

 

                (a)           The Borrower shall fail to make whendue, whether by acceleration or otherwise, any payment of the Obligations; or

 

                (b)           An Act of Bankruptcy shall occur withrespect to the Borrower; or

 

                (c)           Any representation or warranty madeby the Borrower in the Loan Documents or in any certificate, statement, reportor other writing furnished by the Borrower to the Lender pursuant to the LoanDocuments or any other instrument, document or agreement shall prove to havebeen false or misleading in any material respect on the date as of which thefacts set forth are stated or certified or deemed to have been stated orcertified; or

 

                (d)           The Borrower shall fail to complywith any agreement, covenant, condition, provision or term contained in theLoan Documents or any other document, instrument or agreement between Borrowerand either Lender or Miller; or

 

                (e)           An Event of Default or the like shalloccur under any Loan Document.

 

                **Section 9.2            Remedies.**  If (a) any Event of Default described in Section9.1(b) shall occur, the Discretionary Facility shall automaticallyterminate and the outstanding unpaid principal balance of the Discretionary Note,the accrued interest thereon and all other Obligations 

 

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shall automatically become immediately due and payable; or (b) anyother Event of Default shall occur and be continuing, then the Lender may takeany or all of the following actions: (i) declare the Discretionary Facility tobe terminated, whereupon the Discretionary Facility shall terminate, and (ii)declare the outstanding unpaid principal balance of the Discretionary Note, theaccrued and unpaid interest thereon and all other Obligations to be forthwithdue and payable, whereupon the Discretionary Note, all accrued and unpaidinterest thereon and all such other Obligations shall immediately become dueand payable, in each case without further demand or notice of any kind, all ofwhich are hereby expressly waived, anything in this Agreement or in theDiscretionary Note to the contrary notwithstanding.  In addition, upon any Event of Default, theLender may exercise all rights and remedies under any other instrument,document or agreement between the Borrower and the Lender, and enforce allrights and remedies under any applicable law, including without limitation therights and remedies available upon default to a secured party under the UniformCommercial Code as adopted in the State of Minnesota, including, withoutlimitation, the right to take possession of the Collateral, or any evidencethereof, proceeding without judicial process or by judicial process (without aprior hearing or notice thereof, which the Borrower hereby expressly waives)and the right to sell, lease or otherwise dispose of any or all of theCollateral, and, in connection therewith, the Borrower will on demand assemblethe Collateral and make it available to the Lender at a place to be designatedby the Lender which is reasonably convenient to both parties.

 

                **Section 9.3            Offset.**  In addition to the remedies set forth in Section9.2, the Lender or any other holder of the Discretionary Note may offsetany and all obligations of the Lender or such other holder of the DiscretionaryNote, against the Indebtedness then owed by the Borrower to the Lender.  Nothing in this Agreement shall be deemed awaiver or prohibition of the Lender’s rights offset or counterclaim, whichright the Borrower hereby grants to the Lender.

 

**ARTICLE10****  MISCELLANEOUS**

 

                **Section 10.1         Waiver andAmendment.**  No failure onthe part of the Lender or the holder of the Discretionary Note to exercise andno delay in exercising any power or right hereunder or under any other LoanDocument shall operate as a waiver thereof; nor shall any single or partialexercise of any power or right preclude any other or further exercise thereofor the exercise of any other power or right. The remedies herein and in any other instrument, document or agreementdelivered or to be delivered to the Lender hereunder or in connection herewithare cumulative and not exclusive of any remedies provided by law.  No notice to or demand on the Borrower not requiredhereunder or under the Discretionary Note shall in any event entitle theBorrower to any other or further notice or demand in similar or othercircumstances or constitute a waiver of the right of the Lender or the holderof the Discretionary Note to any other or further action in any circumstanceswithout notice or demand.  No amendment,modification or waiver of any provision of this Agreement or consent to anydeparture by the Borrower therefrom shall be effective unless the same shall bein writing and signed by the Lender, and then such amendment, modifications,waiver or consent shall be effective only in the specific instances and for thespecific purpose for which given.  Miller’sapproval of any Borrower corporate action, in his capacity as a director ofBorrower, whether by written action or otherwise, is not a sufficient waiver orconsent to satisfy any waiver or consent requirement with respect to anyObligations.

 

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                **Section 10.2         Expensesand Indemnities.**  Whetheror not any Discretionary Loan is made hereunder, the Borrower agrees toreimburse the Lender upon demand for all reasonable expenses paid or incurredby either the Lender or Miller (including filing and recording costs and feesand expenses of legal counsel of each of Lender and Miller) in connection withthe preparation, review, execution, delivery, amendment, modification,interpretation, collection and enforcement of the Loan Documents.  Without the consent or any additional directionfrom the Borrower, the Borrower agrees that the Lender may advance to itselfamounts payable by the Borrower under this Section, and any such advance willbe deemed to be a Discretionary Loan. The Borrower agrees to pay, and save the Lender harmless from allliability for, any stamp or other taxes which may be payable with respect tothe execution or delivery of the Loan Documents.  The Borrower agrees to indemnify and hold theLender harmless from any loss or expense which may arise or be created by theacceptance of instructions for making Loans or disbursing the proceeds thereof.The Borrower agrees to indemnify and hold the Lender and Miller harmless fromany obligation to pay any fees or commissions to any broker or finder inconnection with the transactions contemplated in the Loan Documents.  The Borrower shall indemnify and holdharmless the Lender and its respective Affiliates, and each such Person’srespective officers, directors, employees, attorneys, agents andrepresentatives (each, an “Indemnified Person”), from and against anyand all suits, actions, proceedings, claims, damages, losses, liabilities andexpenses (including reasonable attorneys’ fees and disbursements and othercosts of investigation or defense, including those incurred upon any appeal)that may be instituted or asserted against or incurred by any such IndemnifiedPerson as the result of any representation or warranty made by the Borrower inthe Loan Documents or in any certificate, statement, report or other writingfurnished by the Borrower to the Lender or Miller pursuant to the LoanDocuments or any other instrument, document or agreement shall prove to havebeen false or misleading.  Theobligations of the Borrower under this Section 10.2 shall survive anytermination or expiration of the Discretionary Facility and payment in full ofthe Obligations.

 

                **Section 10.3         Notices.**  Except when telephonic notice is expresslyauthorized by this Agreement, any notice or other communication to any party inconnection with this Agreement shall be in writing and shall be sent by manualdelivery, telegram, telex, facsimile transmission, overnight courier or UnitedStates mail (postage prepaid) addressed to such party at the address specifiedon the signature page hereof, or at such other address as such party shall havespecified to the other party hereto in writing. All periods of notice shall be measured from the date of deliverythereof if manually delivered, from the date of sending thereof if sent bytelegram, telex or facsimile transmission, from a first Business Day after thedate of sending if sent by overnight courier, or from four days after the dateof mailing if mailed; provided, however, that any notice to theLender under Article 2 hereof shall be deemed to have been given onlywhen received by the Lender.  If noticeto the Borrower of any intended disposition of the Collateral or any otherintended action is required by law in a particular instance, such notice shallbe deemed commercially reasonable if given at least ten calendar days prior tothe date of intended disposition or other action.

 

                **Section 10.4         Successors.**  This Agreement shall be binding on theBorrower and the Lender and their respective successors and assigns, and shallinure to the benefit of the Borrower 

 

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and the Lender, and the successors and assigns of the Lender.  The Borrower shall not assign its rights orduties hereunder without the written consent of the Lender.

 

                **Section 10.5         Participationsand Information.**  TheLender may sell participation interests in any or all of the DiscretionaryLoans and in all or any portion of the Discretionary Facility to anyPerson.  The Lender may furnish anyinformation concerning the Borrower in the possession the Lender from time totime to participants and prospective participants and may furnish informationin response to credit inquiries.

 

                **Section 10.6         Severability.**  Any provision of the Agreement which isprohibited or unenforceable in any jurisdiction shall, in such jurisdiction, beineffective to the extent of such prohibition or unenforceability withoutinvalidating the remaining provisions hereof or affecting the validity orenforceability of such provision in any other jurisdiction.

 

                **Section 10.7         Captions.**  The captions or headings herein are forconvenience only and in no way define, limit or describe the scope or intent ofany provision of this Agreement.

 

                **Section 10.8         EntireAgreement.**  This Agreementand the Discretionary Note, and the other Loan Documents, embody the entireagreement and understanding between the Borrower and the Lender with respect tothe subject matter hereof and thereof. This Agreement supersedes all prior agreements and understandingsrelating to the subject matter hereof.

 

                **Section 10.9         Counterparts.**  This Agreement may be executed in any numberof counterparts, all of which taken together shall constitute one and the sameinstrument, and either of the parties hereto may execute this Agreement bysigning any such counterpart.

 

                **Section 10.10       GoverningLaw.**  The validity,construction and enforceability of this Agreement and the Discretionary Noteshall be governed by the internal laws of the State of Minnesota, withoutgiving effect to conflict of laws principles thereof.

 

                **Section 10.11**       **Financing With MorePreferable Terms**.  To theextent any financing obtained by Borrower has more favorable terms than termsprovided to Lender with respect to any Obligations, all as reasonablydetermined by Lender, then in the Lender’s discretion, such terms shallautomatically be adopted into agreements evidencing the Obligations.  Borrower will provide written notice to theLender of any financing obtained by Borrower, describing the nature thereof andwhat terms may be more preferable than those existing with respect to theObligations.  Contemporaneously with suchfinancing, Borrower will provide copies of all documents evidencing suchfinancing to Lender.  Borrower willexecute, deliver or endorse any and all instruments, documents, assignments,security agreements, warrants, notes and other agreements and writings whichLender may at any time reasonably request in order to secure, protect, perfector enforce the rights under this Section. Nothing in this Section shall be deemed to waive the provisions of thisAgreement or any other agreement requiring the Lender’s prior written consentto obtaining any such financing.

 

 

**(Thesignature page follows.)**

 

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                THE PARTIES HERETO have caused this April 2004Discretionary Credit Agreement to be executed as of the date first abovewritten.

 
|   |            |   | MEDICALCV, INC.                                                                                                                                       |
|--------|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |            |   |                                                                                                                                                  |
|   |            |   |                                                                                                                                                  |
|   |            |   | By:                                                                                                                                                   | /s/ Blair P. Mowery |
|   |            |   | Name:                                                                                                                                                 | Blair P. Mowery |
|   |            |   | Title:                                                                                                                                                | Chief Executive Officer |
|   |            |   |                                                                                                                                                  |
|   |            |   | 9725 South Robert Trail  Inver Grove Heights, MN 55077  Attention: Chief Executive Officer  Telephone: (651) 452-3000  Fax: (651) 234-6669            |
|   |            |   |                                                                                                                                                  |
|   | with a copy to: |   | Avron L. Gordon, Esq.  Briggs and Morgan, P.A.  2400 IDS Center  80 South Eighth Street  Minneapolis, MN 55402  Fax (612) 334-8650                    |
|   |            |   |                                                                                                                                                  |
|   |            |   |                                                                                                                                                  |
|   |            |   | PKM PROPERTIES, LLC                                                                                                                                   |
|   |            |   |                                                                                                                                                  |
|   |            |   |                                                                                                                                                  |
|   |            |   | By:                                                                                                                                                   | /s/ Paul K. Miller |
|   |            |   | Name:                                                                                                                                                 | Paul K. Miller |
|   |            |   | Title:                                                                                                                                                | Chief Executive Officer |
|   |            |   |                                                                                                                                                  |
|   |            |   | c/o Gracon Contracting, Inc.  606 24th Avenue South, Suite B12  Minneapolis, MN 55454  Attention: Paul K. Miller  Fax: (612) 305-4813                 |
|   |            |   |                                                                                                                                                  |
|   | with a copy to: |   | Charles F. Diessner Esq.  Fredrikson & Byron, P.A.  4000 Pillsbury Center  200 South Sixth Street  Minneapolis, MN 55402-1425  Fax (612) 492-7077 |

 

 

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