**EXHIBIT 10.4**

 

 

 

 

 

 

 

 

 

011603

**SUBORDINATED MORTGAGE,SECURITY AGREEMENTAND FIXTURE FINANCING STATEMENT**

 

**THIS SECOND MORTGAGE**is made as of the 17th day of January, 2003, byMedicalCV, Inc., a Minnesota corporation (“**Mortgagor**”)for the benefit of PKM Properties, LLC, a Minnesota limited liability company (“**Mortgagee**”).

 

**RECITALS**

 

A.            Mortgagor is the owner of all the tracts or parcels of land located in Dakota County,Minnesota, and described in attached **ExhibitA**(hereinafter called the “**Land**”),together with:  (i) all of thebuildings, structures and other improvements now standing or at any timehereafter constructed or placed upon the Land; (ii) all lighting, heating,ventilating, air-conditioning, sprinkling and plumbing fixtures, water andpower systems, engines and machinery, boilers, furnaces, oil burners, elevatorsand motors, communication systems, dynamos, transformers, electrical equipmentand all other fixtures of every description located in or on, or used, orintended to be used in connection with the Land or any building or otherimprovements now or hereafter located thereon (excluding, however, fixturesowned by tenants occupying space in any building now or hereafter located onthe Land); (iii) all hereditaments, easements, appurtenances, riparian rights,rents, issues, profits, condemnation awards, mineral rights and water rightsnow or hereafter belonging or in any way pertaining to the Land or to anybuilding or other improvements now or hereafter located thereon and all theestates, rights and interests of Mortgagor in the Land; (iv) all furniture,furnishings, maintenance equipment and all other personal property now orhereafter located in, or on, or used, or intended to be used in connection withthe Land or any building or other improvement now or hereafter located thereonand all replacements and additions thereto (excluding personal property ownedby tenants occupying space in any building now or hereafter located on theLand); and (v) all additions, accessions, increases, parts, fittings,accessories, replacements, substitutions, betterments, repairs and proceeds toany and all of the foregoing (all of the foregoing, together with the Land, arehereinafter referred to as the “**MortgagedProperty**”).

 

B.            TheMortgaged Property is presently encumbered by a Mortgage, Security Agreement, Fixture Financing Statement, and Assignmentof Leases and Rents dated November 23, 1999, and recorded in the office of theDakota County Recorder on December 13, 1999, as Document No. 1659505 (the “**First Mortgage**”). The First Mortgage secures a promissory note, in the original principalamount of Two Million Five Hundred Thousand Dollars ($2,500,000), originallydated November 23, 1999, and amended by: (i) an instrument entitled Change of Terms Agreement, datedNovember 23, 2000; (ii) an amended and restated Promissory Note dated March 27,2002; (iii) an instrument entitled Change in Terms Agreement, datedNovember 23, 2002; (iv) that certain Allonge given by Associated BankMinnesota, a Minnesota banking corporation f/k/a Riverside Bank in favor ofMortgagee; and (v) an Amended and Restated Promissory Note of even dateherewith (collectively, the “**First MortgageNote**”).

 

 

 

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C.            Mortgagee has agreed to make adiscretionary loan to Mortgagor in an amount not to exceed Nine Hundred FortyThree Thousand Six Hundred Sixty Six Dollars ($943,666.00) pursuant to anagreement dated as of January 17, 2003 entitled Discretionary CreditAgreement (the “**Discretionary CreditAgreement**”).  Each advance tobe made in connection with the Discretionary Credit Agreement will be evidencedby a promissory note dated as of January 17, 2003 entitled Discretionary CreditNote (the “**Discretionary Credit Note**”).  The Discretionary Credit Note is secured bythis Subordinated Mortgage, Security Agreement and Fixture Financing Statement(the “**Second Mortgage**”), whichshall be considered subordinate to the First Mortgage.

 

**GRANT OF MORTGAGE ANDSECURITY INTEREST**

 

**IN CONSIDERATION**ofMortgagee’s agreement to make a discretionary loan to Mortgagor on the basisdescribed in the Discretionary Credit Agreement, the Discretionary Credit Note,and this Second Mortgage, and for the purpose of securing the repayment of:  (i) the indebtedness evidenced by the DiscretionaryCredit Note and all renewals, extensions and modifications thereof and any noteissued in substitution thereof; (ii) the payment of all other sums, together withinterest thereon, as may be advanced by Mortgagee in accordance with thisSecond Mortgage or the Discretionary Credit Note, and any other instrumentssecuring payment of the Discretionary Credit Note (the indebtedness evidencedby the Discretionary Credit Note and all such other sums are hereinaftercollectively referred to as the “**Indebtedness**”);and (iii) the performance of all of the covenants and agreements of Mortgagorcontained in the Discretionary Credit Agreement or any other document enteredinto or given by Mortgagor in connection with the Additional Loan, Mortgagordoes hereby mortgage, grant, bargain, sell, assign, transfer and convey toMortgagee forever the Mortgaged Property described above.

 

ToHave and To Hold the Mortgaged Property unto Mortgagee forever; provided,nevertheless, that this Second Mortgage is upon the express condition that ifMortgagor shall pay to Mortgagee as and when due and payable the principal ofand interest on the Discretionary Credit Note and all other Indebtedness, andshall also keep and perform each and every covenant and agreement hereincontained, then this Second Mortgage and the estate hereby granted shall ceaseand be and become void and shall be released of record at the expense ofMortgagor; otherwise this Second Mortgage shall be and remain in full force andeffect.

 

Mortgagorrepresents, warrants and covenants to and with Mortgagee that Mortgagor islawfully seized of the Land in fee simple; Mortgagor has good right and fullpower and authority under all applicable provisions of law to execute thisSecond Mortgage and to mortgage the Mortgaged Property; that the Mortgaged Propertyis free from all liens, security interests and encumbrances except the FirstMortgage and those interests listed on attached **Exhibit B**; that Mortgagor will warrant and defend thetitle to the Mortgaged Property and the lien and priority of this SecondMortgage against all claims and demands of all persons whomsoever, whether nowexisting or hereafter arising, other than the First Mortgage and the interests listedon attached **Exhibit B**; andthat all buildings and improvements now or hereafter located on the Land are,or will be located entirely within the boundaries of the Land.  The covenants and warranties of this Sectionshall survive foreclosure of this Second Mortgage and shall run with the Land.

 

 

 

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**PROVISIONS**

 

1.             **Payment of the Discretionary Credit Note and Other Indebtedness**.  Mortgagor will duly and timely pay theprincipal of and interest on the Discretionary Credit Note in accordance with itsterms, and all other Indebtedness, when and as due and payable.  The provisions of the Discretionary CreditNote are hereby incorporated by reference into this Second Mortgage as fully asif set forth at length herein.

 

2.             **Taxes and Assessments**. Mortgagor shall pay all real estate taxes and installments of specialassessments relating to the Mortgaged Property when due, prior to theattachment of any penalty for nonpayment thereof.  If any special assessment is imposed against the MortgagedProperty, Mortgagee may, at any time, require Mortgagor to pay off the entire balance of such assessments.  In addition, Mortgagee may, at any time,require Mortgagor to pay to Mortgagee on the day monthly installments ofinterest or principal and interest are payable under the Discretionary CreditNote, until the Discretionary Credit Note is paid in full and all otherobligations under this Second Mortgage are satisfied, a sum equal toone-twelfth (1/12) of the yearly taxes and assessments levied against theMortgaged Property as estimated initially and from time to time by Mortgagee,to be applied by Mortgagee to pay said taxes and assessments (such amountsbeing hereafter referred to as the “**Tax Funds**”).  Mortgagee shall apply the Tax Funds to paysaid taxes and assessments prior to the date that penalty attaches fornonpayment so long as the amount of Funds held by Mortgagee is sufficient atthat time to make such payments.  Noearnings or interest shall be payable to Mortgagor on the Tax Funds.  Such Funds shall not be, nor be deemed to be,trust funds, and Mortgagee shall have the right to hold the Tax Funds in any mannerMortgagee elects and may commingle the Tax Funds with other moneys held byMortgagee.

 

                If the amount of the Tax Fundsheld by Mortgagee shall exceed at any time the amount deemed necessary byMortgagee to provide for the payment of taxes and assessments, such excessshall, at the option of Mortgagee, either be promptly repaid to Mortgagor or becredited to Mortgagor on the next monthly installment of Funds due.  If at any time the amount of the Tax Fundsheld by Mortgagee shall be less than the amount deemed necessary by Mortgageeto pay taxes and assessments as they fall due, Mortgagor shall promptly pay toMortgagee any amount necessary to make up the deficiency upon notice fromMortgagee to Mortgagor requesting payment thereof.  The Tax Funds are pledged as additional security for theIndebtedness.

 

                If any Event of Default (asdefined in **Section 18**hereof) occurs, Mortgagee may apply, at its election, and in any orderMortgagee may, in its sole and absolute discretion, determine, any Tax Fundsheld by Mortgagee at the time of application to pay taxes and assessments whichare then or will thereafter become due, or as a credit against theIndebtedness.  Upon payment in full ofall Indebtedness, Mortgagee shall promptly refund to Mortgagors any Tax Fundsheld by Mortgagee.

 

3.             **Application of Payments**. All payments received by Mortgagee from Mortgagor under theDiscretionary Credit Note or this Second Mortgage shall be applied by Mortgageein the following order of priority:  (i)amounts payable to Mortgagee by Mortgagor under **Section 2** hereof; (ii) interest payable on advances madepursuant to **Section 13**hereof; (iii) principal of advances made pursuant to **Section 13** hereof; (iv) interestpayable on the Discretionary Credit Note, in such order as Mortgagee maydetermine; (v) principal of the Discretionary Credit Note, in such order asMortgagee may determine; and (vi) any other sums secured by this SecondMortgage, in such order of application as Mortgagee may determine.

 

 

 

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4.             **Payment of Taxes, Assessments and Other Charges**.  Subject to payments in the manner providedunder **Section 2** hereof andto **Section 9** relating tocontests, Mortgagor shall pay before a penalty may attach for nonpaymentthereof, all taxes and assessments and all other charges whatsoever levied uponor assessed or placed against the Mortgaged Property, except that assessmentsmay be paid in installments so long as no fine or penalty is added to anyinstallment for the nonpayment thereof. Mortgagor shall likewise pay any and all governmental levies orassessments such as maintenance charges, owner association dues or charges orfees, levies or charges resulting from covenants, conditions and restrictionsaffecting the Mortgaged Property, which are assessed or imposed upon the MortgagedProperty or any part thereof or become due and payable, and which create, maycreate or appear to create a lien upon the Mortgaged Property, or any partthereof.  Mortgagor shall likewise payall taxes, assessments and other charges, levied upon or assessed, placed ormade against, or measured by, this Second Mortgage, or the recording hereof, orthe Indebtedness secured hereby.  If anylegislative action or judicial decision occurs after the date of this SecondMortgage which imposes upon Mortgagee the obligation to pay any such taxes,assessments or other charges, or which deducts the amount secured by thisSecond Mortgage from the value of the Mortgaged Property for the purpose oftaxation, or which changes in any way the laws now in force for the taxation ofthe mortgages or debts secured thereby, or the manner of the operation of anysuch taxes so as to affect the interests of Mortgagee, then, and in such event,Mortgagor shall bear and pay the full amount of such taxes, assessments orother charges.  Notwithstanding theforegoing provisions of this **Section 4**,if for any reason payment by Mortgagor of any such taxes, assessments or othercharges would be unlawful, or if the payment thereof would render theindebtedness evidenced by the Discretionary Credit Note usurious, Mortgagee maydeclare the whole sum secured by the Mortgage, with interest thereon, to beimmediately due and payable.  Mortgagorshall promptly furnish to Mortgagee all notices received by Mortgagor ofamounts due under this Section and in the event Mortgagor shall make paymentdirectly, Mortgagor shall promptly furnish to Mortgagee receipts evidencingsuch payments.

 

5.             **Payment of Utility Charges**.  Subject to **Section 9**relating to contests, Mortgagor shall pay all charges made by utilitycompanies, whether public or private, for electricity, gas, heat, water, sewer,or other utility services furnished or used in connection with the MortgagedProperty or any part thereof, and will, upon written request of Mortgagee,furnish proper receipts evidencing such payment.

 

6.             **Liens**.  Subject to **Section 9** hereof relating to contests,Mortgagor shall not create, incur or suffer to exist any lien, encumbrance orcharge on the Mortgaged Property or any part thereof which might or could beheld to be equal or prior to the lien of this Second Mortgage, other than theFirst Mortgage and the interests set forth in **Exhibit B** hereto. Mortgagor shall pay, when due, amounts due pursuant to the Indebtedness andany other debt secured by any lien against the Mortgaged Property, including,without limitation, the First Mortgage and the interests set forth in **Exhibit B**.

 

7.             **Compliance with Laws**. Subject to **Section 9**relating to contests, Mortgagor shall comply with all present and futurestatutes, laws, rules, orders, regulations and ordinances affecting theMortgaged Property, any part thereof or the use thereof.

 

8.             **Hazardous Substances**. Mortgagor represents and warrants to Mortgagee that except as disclosedin the existing Phase I Environmental assessment dated September 27, 1999prepared by Pinnacle Engineering, Inc.: (i) there are not present in, on or under the Mortgaged Property anyHazardous Substances (as defined below); (ii) the Mortgaged Property is notpresently being used and, to the best of Mortgagor’s knowledge after dueinquiry, has not in the past been used, for the handling, storage,transportation, manufacture, release or disposal of any Hazardous Substances; (iii)there are no present and have not in the past been any claims, investigations,administrative proceedings, litigation, regulatory hearings or requests ordemands for remedial or response actions or for compensation, which 

 

 

 

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may beproposed, threatened or pending with respect to the Mortgaged Property,alleging noncompliance with or violation of any Environmental Law (as definedbelow), seeking relief under any Environmental Law or relating to any requiredenvironmental permits, licenses or authorizations; (iv) all reports and noticesrequired by any Environmental Law have been duly made with respect to theMortgaged Property, and all permits, licenses and authorizations required byany Environmental Law have been obtained and are in full force and effect withrespect to the Mortgaged Property; (v) to the best of Mortgagor’s knowledge,based upon its investigation and inquiry, there is not now present, nor hasthere ever been present, in, on or under the Mortgaged Property anyabove-ground or underground storage tanks used for the storage of petroleum,petroleum by-products or any other Hazardous Substances; (vi) the MortgagedProperty is not and never has been listed on the United States EnvironmentalProtection Agency’s National Priorities List of Hazardous Waste Sites or on anyother list, schedule, log, inventory or record of hazardous waste sitesmaintained by any federal, state, or local agency; and (vii) Mortgagor hasdisclosed and delivered to Mortgagee all environmental reports andinvestigations which Mortgagor has obtained or ordered with respect to theMortgaged Property.

 

                Mortgagor shall not use, orpermit the use of, the Mortgaged Property for the handling, storage,transportation, manufacture, release or disposal of any HazardousSubstances.  In addition, Mortgagorshall not install or maintain, or permit the installation or maintenance of,any above-ground or underground storage tanks for the storage of petroleum,petroleum by-products or other Hazardous Substances in, about or under theMortgaged Property unless:  (i)Mortgagor has obtained the prior written consent of Mortgagee for suchinstallation and maintenance; and (ii) Mortgagor installs and maintains suchabove-ground or underground storage tanks in compliance with all applicableEnvironmental Laws.  Notwithstanding theforegoing, Mortgagor and any occupant of the Mortgaged Property may use orstore immaterial amounts of commonly known and used materials which may bedeemed Hazardous Substances hereunder, provided that any such use or storage:  (A) does not constitute a remunerativeactivity of Mortgagor; (B) is incidental to Mortgagor’s primary use of theMortgaged Property and does not constitute a primary use thereof; and (C)complies at all times with all applicable Environmental Laws.

 

                Upon the occurrence of an Eventof Default hereunder or if Mortgagee, in its sole and absolute discretion,  believes that any Hazardous Substance ispresent on or is being handled, stored, transported, manufactured, released ordisposed of in, on or under the Mortgaged Property, Mortgagee or its authorizedagent may enter upon the Mortgaged Property for the purpose of performinginspections, taking soil borings, or conducting any other tests or procedures,and obtain such further environmental reports as Mortgagee deems necessary orappropriate, from a reputable environmental consultant of Mortgagee’s choice,all at Mortgagor’s expense.  If any suchenvironmental report indicates any presence, handling, storage, transportation,manufacture, release or disposal of Hazardous Substances in, on or under theMortgaged Property, Mortgagee may require Mortgagor, at Mortgagor’s expense, toremedy any such presence, handling, storage, transportation, manufacture,release or disposal to the satisfaction of Mortgagee.

 

                Mortgagor shall immediatelynotify Mortgagee in writing of any claim, investigation, administrativeproceeding, litigation, regulatory hearing or request or demand for remedial orresponse action or for compensation which may be proposed, threatened orpending, alleging the presence, handling, storage, transportation, manufacture,release or disposal of Hazardous Substances in, on or under the MortgagedProperty.  Mortgagee shall have theright, but not the obligation, to join and participate in any suchinvestigation, administrative proceeding, litigation, regulatory hearing orother action and to have its attorneys’ fees and expenses in connectiontherewith paid by Mortgagor.  Without 

 

 

 

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Mortgagee’sprior written consent, Mortgagor shall not take any remedial or response actionor enter into any settlement or other compromise with respect to any claim,investigation, administrative proceeding, litigation, regulatory hearing orrequest or demand for remedial or response action or for compensation which, inMortgagee’s reasonable judgment, may impair the value of Mortgagee’s securityunder this Second Mortgage.

 

                For purposes of this SecondMortgage:  (i) “**Environmental Law**” means the ComprehensiveEnvironmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 etseq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 etseq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1802 etseq.,  the Toxic Substances ControlAct, 15 U.S.C. § 2601 et seq., the Federal Water Pollution Control Act, 33U.S.C. §1251 et seq., the Clean Water Act, 33 U.S.C. § 1321 etseq., the Clean Air Act, 42 U.S.C. § 7401 etseq., the Minnesota Environmental Response and Liability Act, Minn. Stat.Chap. 115B, the Minnesota Petroleum Tank Release Cleanup Act, Minn. Stat. Chap.115C, and any other federal, state, county, municipal, local or other statute,law, ordinance or regulation which may relate to or deal with human health orthe environment, all as may be from time to time amended; and (ii)  “**HazardousSubstances**” means asbestos urea formaldehyde, polychlorinatedbiphenyls (“**PCBs**”), nuclear fuelor material, chemical waste, radioactive material, explosives, knowncarcinogens, petroleum products and by-products and other dangerous, toxic orhazardous pollutants, contaminants, chemicals, materials or substances listedor identified in, or regulated by, any Environmental Law.

 

9.             **Permitted Contests**.            Mortgagorshall not be required to:  (i) pay anytax, assessment or other charge referred to in **Sections 2 or 4** hereof; (ii) pay any charge referred to in**Section 5** hereof, (iii) dischargeor remove any lien, encumbrance or charge referred to in **Section 6** hereof, or (iv) comply withany statute, law, rule, regulation or ordinance referred to in **Section 7** hereof, so long as Mortgagorshall:  (a) contest, in good faith, theexistence, amount or the validity thereof, the amount of damages caused therebyor the extent of its liability therefor, by appropriate proceedings which shalloperate during the pendency thereof to prevent: (A) the collection of, or otherrealization upon the tax, assessment, charge or lien, encumbrance or charge socontested; (B) the sale, forfeiture or loss of the Mortgaged Property or anypart thereof; and (C) any interference with the use or occupancy of theMortgaged Property or any part thereof; and (b) shall give such security toMortgagee as may be demanded by Mortgagee to ensure compliance with theforegoing provisions of this **Section 9**.  Mortgagor shall give prompt written noticeto Mortgagee of the commencement of any contest referred to in this **Section 9**.

 

10.           **Insurance**.  Mortgagor, at its sole cost and expense,will maintain insurance of the following character:

 

a.                                       Insurance on the buildings and other improvements now existing orhereafter erected on the Land, and on the fixtures and personal property includedin the Mortgaged Property, against loss by fire and other hazards covered bythe so-called “all-risk” form of policy without a co-insurance clause, in anamount equal to the actual replacement cost thereof (exclusive of foundationsand excavations) without deduction for physical depreciation, which insuranceshall in no event be less than the sum of the unpaid principal balances securedby the First Mortgage and this Second Mortgage at any given time.

 

b.                                      During any period when alterations are made to the MortgagedProperty, Mortgagor shall provide builder’s risk insurance coverage in form,substance, and in an amount reasonably acceptable to Mortgagee.

 

 

 

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c.                                       If the Mortgaged Property includes steam boilers or otherequipment for the generation or transmission of steam, insurance against lossor damage by explosion, rupture or bursting of steam boilers, pipes, turbines,engines and other pressure vessels and equipment, in an amount satisfactory toMortgagee, without a co-insurance clause.

 

d.                                      If the Land or any part thereof is located in a designatedofficial flood-hazardous area, flood insurance insuring the buildings andimprovements now existing or hereafter erected on the Land in an amount equalto the lesser of the principal balance of the Discretionary Credit Note or themaximum limit of coverage made available with respect to such buildings andimprovements under the Federal Flood Disaster Protection Act of 1973, asamended, and the regulations issued thereunder.

 

e.                                       Comprehensive general liability insurance protecting againstclaims arising from any accident or occurrence in or upon the MortgagedProperty in an amount acceptable to Mortgagee.

 

f.                                         Such worker’s compensation insurance as is required by statute.

 

g.                                      Insurance against interruption of business in respect of theMortgaged Property in an amount sufficient to pay twelve (12) months’ debtservice on the sum of the First Mortgage Note and Discretionary Credit Note,and the First Mortgage and this Second Mortgage, including principal andinterest thereof and tax and assessment payments described in **Section 2**.

 

                All insurance policies andrenewals thereof maintained by Mortgagor shall be written by an insurancecarrier satisfactory to Mortgagee, in the case of the coverages described in **Subsections a through d and g,**containa standard mortgagee and lender loss payable clause in favor of and in formacceptable to Mortgagee, contain an agreement of the insurer that it will notcancel or modify the policy except after 30 days’ prior written notice toMortgagee, and be reasonably satisfactory to Mortgagee in all otherrespects.  The insurance maintainedpursuant to **Subsections e and f**shall name Mortgagee as an additional insured.

 

                Mortgagor will deliver toMortgagee certificates satisfactory to Mortgagee evidencing the insurance whichis required under **Section 10**,and Mortgagor shall promptly furnish to Mortgagee copies of all renewal noticesand all receipts of paid premiums received by it.  At least 30 days prior to the expiration date of a requiredpolicy, Mortgagor shall deliver to Mortgagee a certificate evidencing any renewalin form satisfactory to Mortgagee.  IfMortgagor has a blanket insurance policy in force providing coverage forseveral properties of Mortgagor, including the Mortgaged Property, Mortgageewill accept a certificate of such insurance together with a copy of suchblanket insurance policy; provided the certificate sets forth the amounts ofinsurance and coverage, and such amounts are at least equal to the amountsrequired hereinabove, the original policy of insurance is written by a carrieror carriers acceptable to Mortgagee, insures against the risks set forthhereinabove, cannot be amended, modified or canceled without thirty (30) days’prior written notice to any mortgagee of Mortgagor, is in an amount not lessthan the unpaid principal balance secured by the First Mortgage and this SecondMortgage, and has a full replacement cost endorsement meeting the requirementsof this **Section 10**.  Promptly following any demand by Mortgagee,Mortgagor shall deliver to Mortgagee copies of the policies required by this **Section 10**.

 

 

 

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                If the Mortgaged Property issold at a foreclosure sale or if Mortgagee shall acquire title to the MortgagedProperty, Mortgagee shall have all of the right, title and interest ofMortgagor in and to any insurance policies required under **Subsections a through d and g** and theunearned premiums thereon and in and to the proceeds resulting from any damageto the Mortgaged Property prior to such sale or acquisition.

 

                If the Mortgaged Property or anypart thereof shall be damaged or destroyed by fire or other casualty, Mortgagorwill promptly give written notice thereof to the insurance carrier andMortgagee, and will not adjust any damage or loss unless Mortgagee shall havejoined in such adjustment; but if there has been no adjustment of any suchdamage or loss within four (4) months from the date of occurrence thereof andif an Event of Default shall exist at the end of such four-month period or atany time thereafter, Mortgagee may alone make proof of loss, adjust andcompromise any claim under the policies and appear in and prosecute any actionarising from such policies.  Inconnection therewith, Mortgagor does hereby irrevocably authorize, empower andappoint Mortgagee as attorney-in-fact for Mortgagor (which appointment iscoupled with an interest) to do any and all of the foregoing in the name and onbehalf of Mortgagor.

 

                All sums paid under anyinsurance policy required in Subsections **10a through d and g** shall be paid to Mortgagee.  Mortgagee shall at its option apply thesame, whether or not its security is impaired (after first deducting therefromMortgagee’s expenses incurred in collecting the same including but not limitedto reasonable attorneys’ fees) to the reduction of the Indebtedness, whether ornot due, to the payment of the restoration, repair, replacement or rebuildingof the Mortgaged Property that is damaged or destroyed, in such manner asMortgagee may determine.  If this SecondMortgage is foreclosed, all right, title, and interest of Mortgagor in and toany insurance policies then in force and proceeds of insurance not yet paid forloss or damage shall pass to the purchaser at the foreclosure sale.  Any application of insurance proceeds shallnot extend or postpone the due dates of the monthly installments payable underthe Discretionary Credit Note or change the amount of such installments.

 

                Mortgagor shall promptlyreimburse Mortgagee upon demand for all of Mortgagee’s expenses incurred inconnection with the collection of the insurance proceeds, including but notlimited to reasonable attorneys’ fees, and all such expenses, together withinterest from the date of disbursement at the rate stated in the DiscretionaryCredit Note (unless collection of interest from Mortgagor at such rate would becontrary to applicable law, in which event such amounts shall bear interest atthe highest rate which may be collected from Mortgagor under applicable law)shall be additional amounts secured by this Second Mortgage.

 

11.           **Preservationand Maintenance of the Mortgaged Property**.  Mortgagor shall:  (i) keep the buildings and other improvements now or hereaftererected on the Land in safe and good repair and condition, ordinarydepreciation excepted; (ii) upon damage to or destruction of the MortgagedProperty or any part thereof by fire or other casualty, restore, repair,replace or rebuild the Mortgaged Property that is damaged or destroyed to thecondition it was in immediately prior to such damage or destruction, whether ornot any insurance proceeds are available or sufficient for such purpose, unlessMortgagee shall have elected to apply such proceeds to reduction of theIndebtedness; (iii) constantly maintain the parking and landscaped areas of theMortgaged Property; (iv) not commit waste or permit impairment or deteriorationof the Mortgaged Property; (v) not alter or permit the alteration of the designor structural character of any building now or hereafter erected on the Land orhereafter constructed, or construct, additions to existing buildings oradditional buildings on the Land without the prior written consent ofMortgagee; (vi) not remove from the Land any of the fixtures and personalproperty included in the Mortgaged Property unless the same is immediatelyreplaced with property of at least equal value and utility, and this SecondMortgage becomes a valid lien on such property subject only to the lien of theFirst Mortgage and the interests described on attached **Exhibit B**.

 

 

 

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12.           **Inspection**.  Mortgagee or its agents shall have the right,at all reasonable times, to enter upon the Mortgaged Property for the purposesof inspecting the Mortgaged Property or any part thereof.  Mortgagee shall, however, have no duty tomake such inspection.  If Mortgagorexercises its rights to enter into the Mortgaged Property for purposes ofconducting an inspection or performing work as provided anywhere in thisMortgage, then the Mortgagee shall:  (i)give reasonable prior notice to Mortgagor; (ii) use reasonable efforts toconduct the inspection or perform the work in a manner which will not interferewith regulatory requirements of the United States Food and Drug Administrationof which Mortgagor advises Mortgagee in writing, except to the extent necessaryto protect Mortgagee’s interest in the Mortgaged Property; and (iii) notunnecessarily enter into portions of the Mortgaged Property which containproprietary manufacturing processes and products.

 

13.           **Protectionof Mortgagee’s Security**. Subject to the rights of Mortgagor under **Section 9** hereof, if Mortgagor fails to perform any of thecovenants and agreements contained in this Second Mortgage, or if any action orproceeding is commenced which affects the Mortgaged Property or the interest ofMortgagee therein, or the title thereto, then Mortgagee, at Mortgagee’s option,may perform such covenants and agreements, defend against and/or investigatesuch action or proceeding, and take such other action as Mortgagee deemsnecessary to protect Mortgagee’s interest. Mortgagee shall be the sole judge of the legality, validity and priorityof any claim, lien, encumbrance, tax, assessment, charge and premium paid by itand of the amount necessary to be paid in satisfaction thereof.  Mortgagee is hereby given the irrevocablepower of attorney (which power is coupled with an interest and is irrevocable)to enter upon the Mortgaged Property as Mortgagor’s agent in Mortgagor’s nameto perform any and all covenants and agreements to be performed by Mortgagor asherein provided.  Any amounts orexpenses disbursed or incurred by Mortgagee pursuant to this **Section 13**, with interest thereon,shall become additional Indebtedness of Mortgagor secured by this SecondMortgage.  Unless Mortgagor andMortgagee agree in writing to other terms of repayment, such amounts shall beimmediately due and payable, and shall bear interest from the date ofdisbursement at the highest annual rate stated in the Discretionary CreditNote, unless collection from Mortgagor of interest at such rate would becontrary to applicable law, in which event such amounts shall bear interest atthe highest rate which may be collected from Mortgagor under applicablelaw.  Mortgagee shall, at its option, besubrogated to the lien of any mortgage or other lien discharged in whole or inpart by the Indebtedness or by Mortgagee under the provisions hereof, and anysuch subrogation rights shall be additional and cumulative security for thisSecond Mortgage.  Nothing contained inthis **Section 13** shall requireMortgagee to incur any expense or do any act hereunder, and Mortgagee shall notbe liable to Mortgagor for any damages or claims arising out of action taken byMortgagee pursuant to this **Section 13**.

 

14.  **Condemnation**.  Mortgagor hereby irrevocably assigns toMortgagee any award or payment which becomes payable by reason of any taking ofthe Mortgaged Property, or any part thereof, whether directly or indirectly ortemporarily or permanently, in or by condemnation or other eminent domainproceedings (hereinafter called a “**Taking**”).  Promptly upon receipt by Mortgagor of noticeof the institution of any proceeding or negotiations for a Taking, Mortgagorshall give notice thereof to Mortgagee. Mortgagee may appear in any such proceedings and participate in any suchnegotiations and may be represented by counsel.  Mortgagor, notwithstanding that Mortgagee may not be a party toany such proceeding, will promptly give to Mortgagee copies of all notices,pleadings, judgments, determinations and other papers received by Mortgagortherein.  Mortgagor will not enter intoany agreement permitting or consenting to 

 

 

 

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thetaking of the Mortgaged Property, or any part thereof, or providing for theconveyance thereof in lieu of condemnation, with anyone authorized to acquirethe same in condemnation or by eminent domain unless Mortgagee shall first haveconsented thereto in writing.  Allawards in connection with a Taking shall be adjusted jointly by Mortgagor andMortgagee.  All awards payable as aresult of a Taking shall be paid to Mortgagee, which may, at its option, applythem, after first deducting Mortgagee’s expenses incurred in the collectionthereof, to the payment of the Indebtedness, whether or not due and in suchorder of application as Mortgagee may determine, or to the repair orrestoration of the Mortgaged Property, in such manner as Mortgagee maydetermine.  Any application of Takingawards to principal of the Discretionary Credit Note shall not extend or postponethe due dates of the monthly installments payable under the DiscretionaryCredit Note or change the amount of such installments.

 

                If the Taking involves a takingof any building or other improvement now or hereafter located on the Land,Mortgagor shall proceed, with reasonable diligence, to demolish and remove anyruins and complete repair or restoration of the Mortgaged Property as nearly aspossible to its respective size, type and character immediately prior to theTaking, whether or not the condemnation awards are available or adequate tocomplete such repair or restoration unless Mortgagee has applied the entirecondemnation award to payment of the Indebtedness.  Mortgagor shall promptly reimburse Mortgagee upon demand for allof Mortgagee’s expenses (including reasonable attorney’s fees) incurred in thecollection of awards and their disbursement in accordance with this Section,and all such expenses, together with interest from the date of disbursement atthe rate stated in the Discretionary Credit Note (unless collection of interestfrom Mortgagor at such rate would be contrary to applicable law, in which eventsuch amounts shall bear interest at the highest rate which may be collectedfrom Mortgagor under applicable law) shall be additional amounts secured bythis Second Mortgage.

 

15.           **FinancialStatements**.  Mortgagorshall provide the following financial statements to Mortgagee, all prepared inaccordance with generally accepted accounting principles, consistently applied:  (i) as soon as practicable after the end ofeach calendar year, and in no event later than May 1st  of the following year, detailed financialstatements of Mortgagor, including a balance sheet and statements of income,retained earnings and cash flows, prepared in accordance with generally accepted accounting principles, all in suchdetail as Mortgagee may reasonably require; and (ii) any other information orbooks and records relating to Mortgagor or the Mortgaged Property thatMortgagee may reasonably require.

 

                Mortgagor shall keep andmaintain at all times at Mortgagor’s address stated below or at such otherplace as Mortgagee may approve in writing, complete and accurate books ofaccounts and records in sufficient detail to reflect correctly the results ofthe operation of the Mortgaged Property and copies of all written contracts,leases and other instruments which affect the Mortgaged Property.  Without limiting the foregoing, such booksand records shall show the name of each tenant occupying the MortgagedProperty, the rent paid by each such tenant, and the security deposits paid bysuch tenant, if any.  Such books,records, contracts, leases and other instruments shall be subject toexamination and inspection by Mortgagee or its representative during ordinarybusiness hours.

 

16.           **NoFurther Financing**. Mortgagor shall not create, permit to be created, or permit to remain,any subordinate lien on the Mortgaged Property or any part thereof to secureany indebtedness for borrowed money, without obtaining the prior writtenconsent of Mortgagee.

 

17.           **SecurityInterest**.  This SecondMortgage shall constitute a security agreement with respect to (and Mortgagorhereby grants Mortgagee a security interest in) all personal property andfixtures included in the Mortgaged Property as more specifically described in Grantof Mortgage and Security Interest 

 

 

 

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Sectionsof this Mortgage.  Mortgagor authorizesMortgagee to record any financing statements covering such personal propertyand fixtures (in a form satisfactory to Mortgagee) which Mortgagee mayreasonably consider necessary or appropriate to perfect its security interestin such items, with or without Mortgagor’s signature on such financingstatements.

 

18.           **Eventsof Default**.  Each of thefollowing occurrences shall constitute an event of default hereunder (herein calledan “**Event of Default**”):

 

a.                                       There occurs any default under the First Mortgage or the FirstMortgage Note which is not cured within any applicable cure period provided fortherein (and the terms and conditions of the First Mortgage Note and the FirstMortgage are incorporated herein by reference for this purpose).

 

b.                                      Mortgagor does not duly and timely pay any installment ofinterest or principal and interest payable under the Discretionary Credit Noteon the date such installment is due.

 

c.                                       Mortgagor shall subject the Mortgaged Property to the lien of anyfurther financing in default of Mortgagor’s agreement contained in **Section 16** hereof.

 

d.                                      Mortgagor shall fail to duly and timely pay when and as due anypayment for taxes and assessments required to be paid by **Section 2**.

 

e.                                       Mortgagor shall fail to duly and timely provide the insurancecoverage required under **Section 10**.

 

f.                                         Mortgagor shall fail duly to perform or observe any other of thecovenants or agreements contained in this Second Mortgage, the DiscretionaryCredit Agreement, or the Discretionary Credit Note and not specifically citedas an Event of Default elsewhere in this **Section18**.

 

g.                                      Mortgagor shall make an assignment for the benefit of itscreditors, or Mortgagor shall generally not be paying its debts as they becomedue, or a petition is be filed by or against Mortgagor under the United StatesBankruptcy Code, or Mortgagor shall seek or consent to or acquiesce in theappointment of any trustee, receiver or liquidator of a material part of itsproperties or of the Mortgaged Property or there is an appointment of atrustee, receiver or liquidator of any material part of its properties or ofthe Mortgaged Property.

 

h.                                      A judgment, writ or warrant of attachment or execution, orsimilar process is entered and becomes a lien on, or is issued or leviedagainst, the Mortgaged Property or any part thereof and shall not be released,vacated or fully bonded within fifteen (15) days after its entry, issue orlevy.

 

i.                                          The Mortgaged Property, or any part thereof, shall be sold,conveyed, transferred, encumbered or full possessory rights thereintransferred, or the controlling interest in Mortgagor shall be sold, conveyed,transferred or encumbered, whether voluntarily, involuntarily or by operationof law; this provision shall apply to each and every sale, transfer, conveyanceor encumbrance regardless of whether or not Mortgagee has consented or waivedits rights, whether by action or omission, in connection with any previoussale, transfer, conveyance or encumbrance.

 

 

 

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j.                                          An event of default, however defined, shall occur under theDiscretionary Credit Agreement or any other instrument or document given byMortgagor in connection with the First Mortgage or this Second Mortgage.

 

19.           **Acceleration**.  If an Event of Default occurs and iscontinuing, Mortgagee may, at its option, without notice to Mortgagor, declarethe entire Indebtedness evidenced by the Discretionary Credit Note, orotherwise secured hereby, immediately due and payable.

 

20.           **Remedies**.  If an Event of Default occurs and is continuing, Mortgagor, upondemand of Mortgagee, shall forthwith surrender to Mortgagee the actualpossession of the Mortgaged Property. If and to the extent permitted by law,Mortgagee, or such officers or agents as Mortgagee may appoint, may enter andtake possession of all or any part of the Mortgaged Property, and may excludeMortgagor and its agents and employees therefrom, and may have joint accesswith Mortgagor to the books, papers and accounts of Mortgagor.

 

                                IfMortgagor shall, for any reason, fail to surrender or deliver any suchMortgaged Property or any part thereof after such demand by Mortgagee,Mortgagee may obtain a judgment or decree conferring on Mortgagee the right toimmediate possession or requiring Mortgagor to deliver immediate possession ofall or part of such Mortgaged Property to Mortgagee, and Mortgagor herebyspecifically consents to the entry of that judgment or decree.  Mortgagor will pay to Mortgagee, upondemand, all expenses of obtaining such judgment or decree and reasonablecompensation to Mortgagee, its attorneys and agents; and all such expenses andcompensation shall, until paid, be considered a part of the Indebtednesssecured by the lien of this Second Mortgage.

 

                                Uponevery such entering upon or taking of possession, Mortgagee may hold, store,use, operate, manage and control the Mortgaged Property and conduct thebusiness thereof, and from time to time: (i) make all necessary and proper maintenance, repairs, renewals,replacements, additions, betterments and improvements thereto and thereon andpurchase or otherwise acquire additional fixtures, personal property and otherproperty; (ii) insure or keep the Mortgaged Property insured; (iii) lease,manage and operate the Mortgaged Property and exercise all rights and powers ofMortgagor to the same extent as Mortgagor could in its own name or otherwisewith respect to the same; (iv) enter into any and all agreements with respectto the exercise by others of any of the powers herein granted to Mortgagee, allas Mortgagee from time to time may determine to be in its own bestinterest.  Mortgagee may collect andreceive all the rents and other income payable in connection with the MortgagedProperty, including those past due as well as those accruing thereafter, and,after deducting:  (A) all expenses oftaking, holding, managing and operating the Mortgaged Property (includingcompensation for the services of all persons employed for such purposes); (B)the cost of all such maintenance, repairs, renewals, replacements, additions,betterments, improvements and purchases and acquisitions; (C) the cost of suchinsurance as Mortgagee may determine to be necessary, appropriate or desirable;(D) such taxes, assessments, and other similar charges as Mortgagee maydetermine to pay; (E) other proper charges upon the Mortgaged Property or anypart thereof; and (F) the reasonable compensation, expenses and disbursementsof the attorneys and agents of Mortgagee, shall apply the remainder of themonies and proceeds so received by Mortgagee to the Indebtedness evidenced bythe Discretionary Credit Note or otherwise secured hereby.  Mortgagee shall have no liability for anyloss, damage, injury, cost or expense resulting from any action or omission byit or its representatives which was taken or omitted in good faith.

 

 

 

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                Ifan Event of Default occurs and is continuing, Mortgagee, upon application to acourt of competent jurisdiction, shall be entitled, without notice and withoutregard to the occupancy of the Mortgaged Property, the insolvency of theMortgagor, any showing of waste of the Mortgaged Property, or inadequacy of theMortgaged Property as security for the Indebtedness, to the appointment of areceiver to take possession of and to operate the Mortgaged Property and tocollect and apply the rents and other income thereof.  The receiver shall have all of the rights and powers providedunder, and to the fullest extent permitted by, applicable law.  Mortgagor shall pay to Mortgagee upon demandall expenses, including receiver’s fees, costs and agent’s compensation,incurred pursuant to the provisions of this Section; and all such expensesshall be secured by this Second Mortgage.

 

If an Event of Default shallhave occurred and is continuing, Mortgagee may, either with or without entry ortaking possession as hereinabove provided or otherwise, proceed by suit orsuits at law or in equity or by any other appropriate proceeding orremedy:  (i) to enforce payment of theDiscretionary Credit Note or the performance of any term of the DiscretionaryCredit Note or this Second Mortgage; (ii) Mortgagee may (and is herebyauthorized and empowered to) foreclose this Mortgage by action oradvertisement, pursuant to Chapters 580 through 582 of the statutes of the Stateof Minnesota in such case made and provided, power being expressly granted tosell the Mortgaged Property (including, without limitation, and at the optionof the Mortgagee, any personal property or other rights constituting a partthereof) at public auction and convey the same to the purchaser in fee simpleand, out of the proceeds arising from such sale, to pay all or any part of theIndebtedness secured hereby with interest, and all legal costs and charges ofsuch foreclosure and the maximum attorneys’ fees permitted by law, which costs,charges and fees the Mortgagor agrees to pay; (iii) to collect the rents andother income payable under any or all leases of the Mortgaged Property directlyfrom the tenants thereunder upon notice to each such tenant that an Event ofDefault exists hereunder accompanied by a demand on such tenant for the paymentto Mortgagee of all rents and other charges due and to become due under thattenant’s lease, and Mortgagor **FOR THE BENEFITOF MORTGAGEE AND EACH SUCH TENANT**hereby covenants and agrees thatthe tenant shall be under no duty to question the accuracy of Mortgagee’sstatement regarding the occurrence of an Event of Default, and shallunequivocally be authorized to pay such rents and other amounts due pursuant tothe lease in question to Mortgagee without regard to the truth of Mortgagee’sstatement regarding the occurrence of an Event of Default and notwithstandingnotices from Mortgagor disputing the existence of an Event of Default such thatthe payment of rent and other charges by tenant to Mortgagee pursuant to such ademand shall constitute performance in full as to Mortgagor of the tenant’sobligation under the lease in question to the extent of the rents and/or othercharges so paid to Mortgagee; and (iv) to pursue any other right or remedyavailable to Mortgagee, all as the Mortgagee shall deem most effectual for suchpurposes.  Mortgagee shall take actioneither by such proceedings or by the exercise of its powers with respect toentry or taking possession, as Mortgagee may determine.

 

                                Mortgagee,at Mortgagee’s option, is authorized to foreclose this Second Mortgage, subjectto or free of the rights of any tenants of the Mortgaged Property.  The failure to make any tenants of theMortgaged Property parties defendant to any foreclosure proceedings and toforeclose their rights will not be, nor be asserted by Mortgagor to be, adefense to any proceedings instituted by the Mortgagee to collect theIndebtedness secured by this Second Mortgage, or any deficiency remainingunpaid after the foreclosure sale of the Mortgaged Property.

 

                                Nodelay or omission of Mortgagee or of any holder of the Discretionary CreditNote to exercise any right, power or remedy accruing upon any Event of Defaultshall exhaust or impair any such right, power or remedy or shall be construedto be a waiver of any such default, or acquiescence therein; and 

 

 

 

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every right, power and remedy given by this Mortgage to Mortgagee maybe exercised from time to time and as often as may be deemed expedient byMortgagee.  Accelerationof maturity of the Discretionary Credit Note, once claimed hereunder byMortgagee, may, at the option of Mortgagee, be rescinded by writtenacknowledgment to that effect by Mortgagee, but the tender and acceptance ofpartial payments alone shall not in any way affect or rescind such accelerationof maturity of the Discretionary Credit Note, provided that any suchacceleration shall be subject to Mortgagor’s right of reinstatement as providedin

Minnesota Statutes §580.30.

 

                                Nowaiver of any Event of Default shall be effective unless made in writing byMortgagee.  No waiver of any Event ofDefault hereunder shall extend to or shall affect any subsequent or any otherthen existing Event of Default or shall impair any rights, powers or remediesconsequent thereon.

 

                                Noright, power or remedy conferred upon or reserved to Mortgagee by this SecondMortgage is intended to be exclusive of any other right, power or remedy, buteach and every such right, power and remedy shall be cumulative and concurrentand shall be in addition to any other right, power and remedy given hereunderor now or hereafter existing at law or in equity or by statute.

 

                                Mortgageehereby is subrogated to the claims and liens of all parties whose claims orliens are discharged or paid with the proceeds of the Indebtedness secured bythis Mortgage.

 

21.  **Further Assurances**.  Mortgagor will do, execute, acknowledge anddeliver all further acts, deeds, conveyances, transfers, security interests,security agreements, financing statements, renewals, certificates, affidavits,continuation statements and other documents and assurances necessary or properto effectuate, complete, or perfect, or to continue and preserve, or topreserve and protect, the obligations of Mortgagor under the DiscretionaryCredit Agreement, the Discretionary Credit Note and other documents given inconnection with the Additional Loan, and the lien and security interestprovided for by this Second Mortgage in the Mortgaged Property or any partthereof, or to preserve and protect the Mortgaged Property, and  Mortgagor agrees that this shall be done atMortgagor’s sole expense, not later than fifteen (15) days after demand byMortgagee.  Upon any failure byMortgagor to do so, Mortgagee may make, execute, record, file, re-record and/orre-file any and all such acts, deeds, conveyances, transfers, securityinterests, security agreements, financing statements, renewals, certificates,affidavits, continuation statements and other documents and assurances for andin the name of Mortgagor, and Mortgagor hereby irrevocably appoints Mortgageethe agent and attorney-in-fact of Mortgagor to do so.

 

22.           **EstoppelCertificate**.  Mortgagoragrees at any time and from time to time, upon not less than fifteen (15) daysprior notice by Mortgagee, to execute, acknowledge and deliver, without charge,to Mortgagee or to any person designated by Mortgagee, a statement in writingcertifying:  (i) that the First Mortgageand this Second Mortgage are unmodified (or if there have been modifications,identifying the same by the date thereof and specifying the nature thereof); (ii)the principal amount then secured by the First Mortgage Note and theDiscretionary Credit Note; (iii) the unpaid balance of the First Mortgage Noteand Discretionary Credit Note; (iv) that Mortgagor has not received any noticeof an Event of Default or notice of acceleration or foreclosure of the FirstMortgage or this Second Mortgage (or if Mortgagor has received such a notice,that it has been revoked, if such be the case); (v) that to the knowledge ofMortgagor, no Event of Default exists under the First Mortgage, First MortgageNote, this Second Mortgage, or the Discretionary Credit Note (or if any suchEvent of Default does exist, specifying the same and stating that the same hasbeen cured, if that is the case); (vi) that Mortgagor, to its knowledge, has noclaims or offsets against Mortgagee (or if Mortgagor has any such claims,specifying the same); and (vii) the dates to which the principal, interest andother sums and charges payable by Mortgagor pursuant to the First Mortgage Noteand Discretionary Credit Note have been paid.

 

 

 

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23.           **Successorsand Assigns Bound; Number; Gender; Agents; Captions; Amendments**.  The covenants and agreements hereincontained shall bind, and the rights hereunder shall inure to, the respectiveheirs, legal representatives, successors and assigns of Mortgagee andMortgagor; provided, however, that this **Section23** shall not limit the effect of **Section 18**.  Whereverused, the singular number shall include the plural, and the plural thesingular, and the use of any gender shall apply to all genders.  The captions and headings of the Sections ofthis Second Mortgage are for convenience only and are not to be used tointerpret or define the provisions hereof. No amendment of this Second Mortgage shall be effective unless in awriting executed by Mortgagor and Mortgagee.

 

24.           **Notice**.  Any notice to a party this Second Mortgageshall be deemed to have been given and received by upon delivery by courier, orwhen mailed by certified mail, return receipt requested, at the followingaddress:

 
|   | If to Mortgagor: | MedicalCV, Inc.  9725 South Robert Trail  Inver Grove Heights, MN 55077  Attention:  Chief Executive Officer |
|--------|------------------|-------------------------------------------------------------------------------------------------------------------|

 

 

 

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|   | If to Mortgagee: | PKM Properties, LLC  c/o Gracon Contracting, Inc.  606 24th Avenue South, Suite B12  Minneapolis, MN 55454  Attention:  Paul K. Miller |
|--------|------------------|---------------------------------------------------------------------------------------------------------------------------------------------|

 

or atsuch other address as Mortgagor may designate in writing to Mortgagee.  Mortgagor shall give Mortgagee at leastthirty (30) days’ prior written notice of any change in Mortgagor’s name,jurisdiction of organization, or address of its chief executive office.

 

25.           **GoverningLaw; Severability**.  ThisSecond Mortgage shall be governed by the substantive laws of the State ofMinnesota.  In the event that anyprovision or clause of this Second Mortgage conflicts with applicable law, suchconflict shall not affect other provisions of this Second Mortgage which can begiven effect without the conflicting provisions and to this end the provisionsof the Mortgage are declared to be severable.

 

26.                                 **Counterparts**.  This Second Mortgage may be executed in anynumber of counterparts, each of which shall be an original, but  all of which together shall constitute one instrument.

 

27.           **Productionof Documents**.  Mortgagorshall, while this Second Mortgage is in full force and effect, furnishMortgagee with such documents, instruments and papers as Mortgagee mayreasonably request from time to time in order for Mortgagee to assign thisSecond Mortgage or effectuate a sale or a participation in the Additional Loanevidenced by the Discretionary Credit Note and this Second Mortgage.

 

28.           **Waiverof Marshalling**. Mortgagor, any party who consents to this Second Mortgage and any partywho now or hereafter acquires a lien on the Mortgaged Property and who hasactual or constructive notice of this Second Mortgage hereby waives any and allright to require the marshalling of assets in connection with the exercise ofany of the remedies permitted by applicable law or provided herein.

 

29.           **FixtureFiling**.  From the date ofits recording, this Second Mortgage shall be effective as a financing statementfiled as a fixture filing with respect to all goods constituting part of theMortgaged Property which are or which may become fixtures related to the Land describedherein.  For this purpose, the followinginformation is set forth:

 

a.             Name and Address of Debtors(Mortgagor):

 

MedicalCV,Inc.

9725South Robert Trail

InverGrove Heights, MN 55077

Attention:  Chief Executive Officer

 

b.             Name and Address of Secured Party(Mortgagee):

 

PKMProperties, LLC

c/oGracon Contracting, Inc.

60624th Avenue South, Suite B12

Minneapolis,MN 55454

Attention:  Paul K. Miller

 

 

 

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c.                                       This document covers goods which are or are to become fixtures.

 

d.                                      The name of the record owner of the Land is the Debtor describedabove.

 

e.                                       The Organizational Identification Number of the Debtor is 7J-436.

 

30.           **FutureAdvances**

 

a.                                       As of the date of this Second Mortgage, Four Hundred Forty ThreeThousand Six Hundred Sixty Six Dollars ($443,666) of the original principalamount of the Discretionary Credit Note have been disbursed to Mortgagor.  Mortgagee’s obligation to disburse the remainingFive Hundred Thousand Dollar ($500,000) balance of the Discretionary CreditNote shall be considered a discretionary facility, and Mortgagee may disburseor refrain from disbursing all or any portion of such balance in Mortgagee’ssole and absolute discretion.

 

b.                                      At such time as Mortgagor closes an anticipated Three MillionDollar ($3,000,000) loan to be made by TCF National Bank, the remaining balanceof the Discretionary Credit Note shall be considered a committed facility, andMortgagee’s obligation to disburse the balance of the Discretionary Credit Notein conformance and subject to the provisions of the Discretionary CreditAgreement shall be considered mandatory.

 

c.                                       Because this Second Mortgage secures future advances, the amountof such advances is not currently known. The acceptance of this Second Mortgage by Mortgagee, however,constitutes an acknowledgment that Mortgagee is aware of the provisions ofMinnesota Statutes § 287.05, subd. 5, and intends to comply with the requirementscontained therein.

 

d.                                      The maximum principal amount of indebtedness secured by thisSecond Mortgage at any one time, excluding advances made by Mortgagee inprotection of the Mortgaged Property or the lien of this Second Mortgage, shallbe Nine Hundred Forty Three Thousand Six Hundred Sixty Six Dollars ($943,666).

 

e.                                       The representations contained in Subsections b and c of this **Section 30** are made solely for thebenefit of county recording authorities in determining the mortgage registrytax payable as a prerequisite to the recording of this Second Mortgage.  Mortgagor acknowledges that suchrepresentations do not constitute or imply an agreement by Mortgagee to makeany future advances to Mortgagor other than in conformance with the provisionsof **Subsections a and b** ofthis **Section 30** or otherapplicable provisions of this Second Mortgage.

 

 

 

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**IN WITNESS WHEREOF**, Mortgagor has caused this Second Mortgage to be duly executedas of the day and year first-above written.

 

 

MEDICALCV,INC.

 

 
| By     | /s/ Blair P. Mowery |
|--------|---------------------|
|   |                |
| Its    | President and CEO   |

 

 

 
| STATE OF MINNESOTA | )      |   |
|--------------------|--------|--------|
|               | )      | ss.    |
| COUNTY OF HENNEPIN | )      |   |
|               |   |   |

Theforegoing instrument was acknowledged before me this 17th day ofJanuary, 2003, by Blair P. Mowery, the Chief Executive Officer of MedicalCV,Inc., a corporation under the laws of Minnesota, on behalf of the corporation.

 

 
| /s/ Sjur Midness |
|------------------|
| Notary Public    |

 

This instrument was drafted by:

 

FREDRIKSON & BYRON, P. A.

4000 Pillsbury Center

200 South Sixth Street

Minneapolis, Minnesota  55402

 

 

 

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**EXHIBIT A**

 

That part of the West Half (W 1⁄2) of theSouthwest Quarter (SW 1⁄4) of Section Nineteen (19), Township Twenty-seven (27),Range Twenty-two (22), Dakota County, Minnesota lying Northerly of theNortherly right-of-way line of Minnesota State Trunk Highway No. 3 and Westerlyof the Westerly right-of-way line of the Chicago, Milwaukee, St. Paul andPacific Railroad Company;

 

EXCEPT that part thereof included within theNorth 417.42 feet of the East 417.42 feet of the Northwest Quarter (NW 1⁄4) ofthe Southwest Quarter (SW 1⁄4) of Section Nineteen (19), Township Twenty-seven(27), Range Twenty-two (22), Dakota County, Minnesota, as measured along theNorth and East lines thereof; and

 

EXCEPT that part described as follows:  Commencing at the Northwest corner of saidWest Half (W 1⁄2) of the Southwest Quarter (SW 1⁄4); thence South 0 degrees 01minutes 18 seconds East (assumed bearing), a distance of 700 feet along theWest line of said West Half (W 1⁄2) of the Southwest Quarter (SW 1⁄4) to the pointof beginning of the parcel to be described; thence North 89 degrees 58 minutes42 seconds East a distance of 500 feet; thence South 0 degrees 01 minutes 18seconds East a distance of 343.44 feet; more or less, to the Northerlyright-of-way line of State Trunk Highway No. 3; thence Southwesterly along saidright-of-way line 604.14 feet, more or less, to its intersection with the Westline of said West Half (W 1⁄2) of the Southwest Quarter (SW 1⁄4); thence Northerlyalong said West line 666.87 feet, more or less, to the point of beginning,according to the Government Survey thereof; located in Dakota County, Minnesota(Abstract Property).

 

 

 

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**EXHIBIT B**

 

 

1.                                       Facts whichwould be disclosed by a comprehensive survey of the premises described herein.

 

2.                                       Real estatetaxes and installments of special assessments due and payable in 2003 andthereafter.

 

3.                                       Mortgage,Assignment of Rents, Security Agreement and Fixture Financing Statementexecuted by CV Dynamics, Inc. in favor of Riverside Bank, dated November 23,1999, filed December 13, 1999, as Document No. 1659505 in the original amountof $2,500,000.00.

 

4.                                       FinancingStatement by and between CV Dynamics, Inc. as debtor, and Riverside Bank assecured party, filed January 20, 2000, as Document No. 1667451.

 

5.                                       Conditional UsePermit issued by the City of Inver Grove Heights dated July 14, 1997, recordedJuly 24, 1997 as Document No. 1434761 indicating the approval of the InverGrove Heights City Council of a Conditional Use Permit to allow a PCS tower onthe property at 9605 Jefferson Trail (L-1, limited industrial zoning district).  City Council Resolution No. 6854 approvedMay 12, 1997.

 

6.                                       Subject to roadeasement in favor of the State of Minnesota as set forth in final certificaterecorded February 2, 1955 in Book 64, page 240.

 

7.                                       Easementbetween Soo Line Railroad Company, a Minnesota corporation, in favor ofCooperative Power Association, a Minnesota Corporation, dated November 15,1991, recorded January 10, 1992 for construction and maintenance of electrictransmission lines.

 

8.                                       Trunkwatermain, sanitary sewer extension and utility easement(s) over theSoutheasterly 20 feet lying south of the north 417.42 feet of the Northwest 1⁄4of the Southwest 1⁄4 in favor of the City of Inver Grove Heights, as created inDocument No. 1740919.

 

 

 

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