**EXHIBIT10.1**

 

**DISCRETIONARY CREDIT AGREEMENT**

 

 

THIS DISCRETIONARY CREDIT AGREEMENT, dated asof January 17, 2003, is by and between MEDICALCV, INC., a Minnesota corporation(the “Borrower”), and PKM PROPERTIES, LLC, a Minnesota limited liabilitycompany (the “Lender”).

 

**RECITALS:**

 

1.     PaulK. Miller (“Miller”) is a director and shareholder of the Borrower andis the sole member of the Lender.

 

2.     Millerhas previously advanced $443,666 (the “Initial Advances”) to theBorrower which the Borrower has used as working capital to continue operatingas a going concern.

 

3.     Millerhas assigned his lender’s interest in the Initial Advances to the Lender.

 

4.     TheInitial Advances are payable on demand and Lender has demanded that the InitialAdvances be repaid in full immediately.

 

5.     TheBorrower cannot immediately repay the Initial Advances and has requested thatthe Lender extend repayment of the Initial Advances.

 

6.     TheLender has agreed to extend the repayment of the Initial Advances under theterms and conditions of this Agreement.

 

7.     Inaddition to the Initial Advances, the Borrower has requested that the Lendermake an additional $500,000 available to the Borrower to comprise a $943,666discretionary credit facility under this Agreement.

 

8.     TheBorrower will use the proceeds of additional advances, if any, under theDiscretionary Facility (defined below) as working capital to continue operatingas a going concern.

 

9.     Milleris negotiating with TCF National Bank and other banks for a loan of up to$3,000,000 the express purpose of which would be to finance loans he may maketo the Company hereunder or under other credit facilities (the “TCF Loan”).

 

10.   Ifand when Miller obtains the TCF Loan, the Discretionary Facility willautomatically convert to a committed facility, all upon the terms andconditions of this Agreement.

 

11.   OnNovember 23, 1999 Associated Bank Minnesota, National association (successorvia merger to Associated Bank Minnesota, a Minnesota banking corporation, f/k/aRiverside Bank, “Associated Bank”) made a loan to the Borrower in theoriginal principal amount of $2,500,000 evidenced by that certain Business LoanAgreement between Borrower and Associated Bank dated November 23, 1999 (as itmay have been or may be amended, modified, supplemented, restated or replacedfrom time to time, the “Associated Loan Agreement”).

 

 

 

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12.   TheLender is negotiating with Associated Bank to purchase (the “Associated LoanPurchase”) the Associated Loan Agreement and each note, security agreement,mortgage, guaranty, pledge agreement or other instrument, document, oragreement related to the Associated Loan Agreement (as any of the foregoing mayhave been or may be amended, modified, supplemented, restated or replaced fromtime to time, including without limitation in connection with the AssociatedLoan Purchase, collectively, the “Associated Loan Documents”).

 

**AGREEMENTS:**

 

IN CONSIDERATION of the foregoing premises,and the mutual covenants set forth herein, the parties agree as follows:

 

**ARTICLE 1****  DEFINITIONS ANDACCOUNTING TERMS**

 

**Section 1.1            DefinedTerms.**  In additionto the terms defined elsewhere in this Agreement, the following terms shallhave the meanings set out respectively after each (and such meanings shall beequally applicable to both the singular and plural form of the terms defined,as the context may require):

 

Act of Bankruptcy:  With respect to any Person, if (i) thePerson shall (1) be or become insolvent, or (2) apply for or consent to theappointment of, or the taking of possession by, a receiver, custodian, trustee,liquidator or the like of the Person or of all or a substantial part of thePerson’s property, or (3) commence a voluntary case under any bankruptcy,insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidationor similar proceeding under the laws of any jurisdiction, or (4) file apetition seeking to take advantage of any other law relating to bankruptcy,insolvency, reorganization, winding up or composition or adjustment of debts,or (5) admit in writing its inability to pay its debts as they mature, or (6)make an assignment for the benefit of its creditors; or (ii) a proceeding orcase shall be commenced, without the application or consent of the Person, inany court of competent jurisdiction, seeking (1) the liquidation,reorganization, dissolution, winding up or the composition or adjustment ofdebts of the Person, (2) the appointment of a trustee, receiver, custodian orliquidator or the like of the Person or of all or any substantial part of the Person’sproperty, or (3) similar relief in respect of the Person under any law relatingto bankruptcy, insolvency, reorganization, winding up or composition oradjustment of debts.

 

Adverse Event:  The occurrence of any event that could havea material adverse effect on the business, operations, property, assets orcondition (financial or otherwise) of the Borrower or on the ability of theBorrower or any other party obligated thereunder to perform its obligationsunder the Loan Documents.

 

Affiliate:  Any Person (i) which directly or indirectlythrough one or more intermediaries controls, or is controlled by, or is undercommon control with, the Borrower or any of its Subsidiaries, or (ii) fivepercent (5%) or more of the equity interest of which is held beneficially or ofrecord by the Borrower or any of its Subsidiaries.  Control for purposes of this definition means the possession,directly or indirectly, of the power to cause the direction of management andpolicies of a Person, whether through the ownership of voting securities orotherwise.

 

Agreement:  This Discretionary Credit Agreement, as itmay be amended, modified, supplemented, restated or replaced from time to time.

 

Business Day:  Any day (other than a Saturday, Sunday orlegal holiday in the State of Minnesota) on which state banks are permitted tobe open in Minneapolis, Minnesota.

 

 

 

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Capitalized Lease:  Any lease which is or should be capitalizedon the books of the lessee in accordance with GAAP.

 

Code:  The Internal Revenue Code of 1986, asamended, or any successor statute, together with regulations thereunder.

 

Collateral:  The collateral as defined in Section 5.1.

 

Default:  Any event which, with the giving of noticeto the Borrower or lapse of time, or both, would constitute an Event ofDefault.

 

Discretionary CreditExpiration Date:   The datethat first occurs: (i) April 17, 2003, or (ii) the date on which theDiscretionary Facility is terminated pursuant to Section 10.2.

 

Discretionary Facility:  The discretionary credit facility underwhich the Lender may make loans, in the Lender’s sole and absolute discretion,to the Borrower in accordance with Article 2 and the Discretionary Noteup to an aggregate principal amount at any one time outstanding not to exceed$943,666.

 

Discretionary Loans:  Any loans made by the Lender to theBorrower, in the Lender’s sole and absolute discretion, under the DiscretionaryFacility, including, without limitation, the Initial Advances.

 

Discretionary Note:  That certain Discretionary Credit DiscretionaryNote dated the date hereof executed by the Borrower and made payable to theorder of the Lender in the original principal amount of $943,666, as it may beamended, modified, supplemented, restated or replaced from time to time.

 

Environmental IndemnityAgreement:  Thatcertain Environmental Indemnity Agreement dated the date hereof given by theBorrower in favor of the Lender as it may be amended, modified, supplemented,restated or replaced from time to time.

 

Event of Default:  Any event described in Section 10.1.

 

Federal Reserve Board:  The Board of Governors of the FederalReserve System or any successor thereto.

 

Financing Statements:  UCC Financing Statements naming the Borroweras debtor and the Lender as secured party and describing the Collateral as theproperty covered thereby.

 

Floating Interest Rate:  The rate of interest equal to the greater of(i) 7% or (ii) the applicable interest rate under the TCF Loan from time totime plus 1.0%; provided, however, that from and after theoccurrence of any Default and continuing thereafter until such Default shall beremedied to the written satisfaction of the Lender, the Floating Interest Rateshall, at the election of the Lender, be that rate of interest equal toFloating Interest Rate otherwise applicable plus 2.0%.  The Floating Interest Rate shall change onthe effective date of any change in the applicable interest rate under the TCFLoan.

 

GAAP:  Generally accepted accounting principles,consistently applied.

 

Indebtedness:  Without duplication, all obligations,contingent or otherwise, which in accordance with GAAP should be classifiedupon the obligor’s balance sheet as liabilities, but in any event including thefollowing (whether or not they should be classified as liabilities upon suchbalance sheet): (a) obligations secured by any mortgage, pledge, securityinterest, lien, charge or other encumbrance existing 

 

 

 

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on property owned oracquired subject thereto, whether or not the obligation secured thereby shallhave been assumed and whether or not the obligation secured is the obligationof the owner or another party; (b) any obligation on account of deposits oradvances; (c) any obligation for the deferred purchase price of any property orservices; (d) any obligation as lessee under any Capitalized Lease; (e) allguaranties, endorsements and other contingent obligations respectingIndebtedness of others; and (f) undertakings or agreements to reimburse orindemnify issuers of letters of credit. For all purposes of this Agreement (i) the Indebtedness of any Personshall include the Indebtedness of any partnership in which such Person is ageneral partner, and (ii) the Indebtedness of any Person shall include theIndebtedness of any joint venture in which such Person is a joint venturer.  The term “Indebtedness” shall in no eventinclude Trade Accounts Payable.

 

Investment:  The acquisition, purchase, making or holdingof any stock or other security, any loan, advance, contribution to capital,extension of credit (except for trade and customer accounts receivable forinventory sold or services rendered in the ordinary course of business andpayable in accordance with customary trade terms), any acquisitions of real orpersonal property (other than real and personal property acquired in the ordinarycourse of business) and any purchase or commitment to purchase stock or otherdebt or equity securities of or any interest in another Person or any integralpart of any business or the assets comprising such business or part thereof.

 

Lien:  Any security interest, mortgage, pledge,lien, hypothecation, judgment lien or similar legal process, charge,encumbrance, title retention agreement or analogous instrument or device(including, without limitation, the interest of the lessors under CapitalizedLeases and the interest of a vendor under any conditional sale or other titleretention agreement).

 

Loan Documents:  This Agreement, the Discretionary Note, theSecurity Agreement, the Financing Statements, the Mortgage, the EnvironmentalIndemnity Agreement, the Warrant, the Associated Loan Documents and each otherinstrument, document, guaranty, security agreement, or other agreement executedand delivered by the Borrower or any guarantor or party granting securityinterests in connection with this Agreement, the Associated Loan Documents, theDiscretionary Loans, or any collateral for the Discretionary Loans.

 

Mortgage:  That certain Subordinated Mortgage, SecurityAgreement and Fixture Financing Statement dated the date hereof executed by theBorrower and delivered to the Bank, as it may be amended, modified,supplemented, restated or replaced from time to time.

 

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, orotherwise, whether now existing or hereafter incurred, matured or unmaturedincluding without limitation the obligations pursuant to letters of credit,direct or contingent, joint or several, and including without limitationobligations to or credit from others in which the Lender has a direct orindirect interest (including without limitation participations), including anyextensions, modifications, renewals thereof and substitutions therefor; (b) torepay to the Lender all amounts advanced by the Lender hereunder or otherwiseon behalf of the Borrower, including, but without limitation, advances forprincipal or interest payments to prior secured parties, mortgagees or lienors,or for taxes, levies, insurance, rent, repairs to or maintenance or storage ofany of the Collateral; and (c) to pay all of the Lender’s expenses and costs,together with the reasonable fees and expenses of its counsel in connectionwith the preparation and negotiation of this Agreement and other LoanDocuments, and any amendments thereto and the documents required hereunder orthereunder, or any proceedings brought or threatened to enforce payment of anyof the Obligations described in clauses (a) or (b) above.

 

 

 

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Permitted Lien:  Any Lien of a kind specified in paragraphs(a)-(e) of Section 9.7.

 

Person:  Any natural person, corporation,partnership, joint venture, firm, association, trust, unincorporatedorganization, government or governmental agency or political subdivision or anyother entity, whether acting in an individual, fiduciary or other capacity.

 

Security Agreement:  That certain Security Agreement dated thedate hereof executed by the Borrower and delivered to the Lender, as it may beamended, modified, supplemented, restated or replaced from time to time.

 

Subordinated Debt:  Any Indebtedness of the Borrower, nowexisting or hereafter created, incurred or arising, which is subordinated in rightof payment to the payment of the Obligations in a manner and to an extent thatthe Lender has approved in writing prior to the date hereof or prior to thecreation of such Indebtedness.

 

Subsidiary:  Any Person of which or in which the Borrowerand its other Subsidiaries own directly or indirectly 50% or more of:  (a) the combined voting power of all classesof stock having general voting power under ordinary circumstances to elect amajority of the board of directors of such Person, if it is a corporation, (b)the capital interest or profit interest of such Person, if it is a partnership,joint venture or similar entity, or (c) the beneficial interest of such Person,if it is a trust, association or other unincorporated organization.

 

Trade Accounts Payable:  The trade accounts payable of any Personwith a maturity of not greater than 90 days incurred in the ordinary course ofsuch Person’s business.

 

Warrant:  A Warrant to purchase 350,000 shares of thecommon stock of the Borrower in form and substance acceptable to Lender.

 

**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 (including, without limitation, determination ofcompliance with financial ratios and restrictions in Articles 8 and 9hereof) shall be made in accordance with GAAP consistently applied.

 

**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**

 

(a)   **Discretionary Facility****.**  The Borrower has requested that the Lender make loans to theBorrower from time to time under the Discretionary Facility.  **EXCEPT ASPROVIDED, IN SECTION 2.1(b) BELOW,****THE LENDER HAS NOT COMMITTED TO PROVIDEANY SUCH LOANS AND MAY, IN ITS SOLE AND ABSOLUTE DISCRETION, DECIDE NOT TO MAKEANY SUCH LOANS.**  If theLender, in its discretion, agrees to make any such loans, such loans shall(a) not exceed an aggregate principal amount of the DiscretionaryFacility, (b) be made in accordance with the terms of this Agreement, and(c) be made on or before the Discretionary Credit Expiration Date.  **EXCEPT ASPROVIDED, IN SECTION 2.1(b) BELOW,****THE BORROWER ACKNOWLEDGES AND AGREESTHAT THE LENDER IS NOT OBLIGATED TO MAKE ANY ADVANCES**

 

 

 

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**HEREUNDER, WHETHER OR NOT A DEFAULT OR AN EVENT OFDEFAULT HAS OCCURRED.**

 

(b)   **Commitment.**  Notwithstanding anything in this Agreementthat provides that Discretionary Loans will only be made in the Lender’sdiscretion, if and when Miller receives all of the proceeds underthe TCF Loan, the Lender will make one final loan to the Borrower under theDiscretionary Facility so long as such loan shall (a) together with allother Discretionary Loans, not exceed an aggregate principal amount of theDiscretionary Facility, (b) be made in accordance with the terms of thisAgreement, and (c) be made on or before the Discretionary CreditExpiration Date.

 

**Section 2.2            BorrowingProcedures.**  Each timethe Borrower desires to obtain a loan under the Discretionary Facility pursuantto Section 2.1, such request shall be in writing (which may be bytelecopy) or by telephone, and must be given so as to be received by the Lendernot later than 11:00 a.m., Minneapolis time, on the date of the requestedadvance.  Each request for aDiscretionary Loan shall specify (i) the borrowing date (which shall be aBusiness Day), and (ii) the amount of such Loan.  Any request for a Discretionary Loan shall be deemed to be arepresentation that no event has occurred and is continuing, or will resultfrom such Discretionary Loan, which constitutes a Default or an Event ofDefault, and that the Borrower’s representations and warranties contained in Article 7are true and correct as of the date of the Discretionary Loan as though made onand as of such date.  If the Lenderapproves a requested Discretionary Loan in its sole discretion, the Lendershall make the amount of the requested advance available to the Borrower at theLender’s principal office in Edina, Minnesota, in immediately available fundsnot later than 5:00 p.m., Minneapolis time, within 3 Business Days of the daterequested.  The Borrower shall beobligated to repay all advances the Lender reasonably determines were requestedon behalf of the Borrower notwithstanding the fact that the person requestingthe 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 Floating 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.**  Interestaccruing on the Discretionary Note shall be due and payable as specified in suchDiscretionary Note.

 

**Section 3.4**            **Warrant.**  As further consideration for the financingprovided by Lender hereunder, the Borrower will issue the Warrant to Lender.

 

**ARTICLE 4****  PAYMENTS ANDPREPAYMENTS**

 

**Section 4.1            Repayment.**  Principal of the Discretionary Facilityshall be due and payable as specified in the Discretionary Note.

 

 

 

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**Section 4.2            OptionalPrepayments.**  TheBorrower may prepay the Discretionary Loan, in whole or in part, at any timewithout premium or penalty.  Any suchprepayment must be accompanied by accrued and unpaid interest on the amountprepaid.

 

**Section 4.3            AcceleratedPayments.**  Upon theoccurrence of an Event of Default and the acceleration of the DiscretionaryNote, pursuant to and as permitted by Section 10.2, the DiscretionaryNote and all other Obligations, shall be immediately due and payable asprovided in Section 10.2 and in the Discretionary Note.

 

**Section 4.4            Payments.**  Payments and prepayments of principal of,and interest on, the Discretionary Note and all fees, expenses and otherobligations under the Loan Documents shall be made without set-off orcounterclaim in immediately available funds not later than 2:00 p.m.,Minneapolis time, on the dates due at the main office of the Lender inMinneapolis, Minnesota.  Funds receivedon any day after such time shall be deemed to have been received on the nextBusiness Day.  Whenever any payment tobe made hereunder or on the Discretionary Note shall be stated to be due on aday which is not a Business Day, such payment shall be made on the nextsucceeding Business Day and such extension of time shall be included in thecomputation of any interest or fees.

 

**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 Security Agreement, the Mortgage or any otherLoan Document and the provisions of Section 5.2 is herein collectivelycalled the “Collateral.”  TheCollateral, together with all the Borrower’s other property of any kind held bythe Lender, shall stand as one general, continuing collateral security for allof the Obligations, and may be retained by the Lender until all Obligationshave been satisfied 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, theBorrower hereby assigns, transfers and sets over to the Lender all of itsright, title and interest in and to, and grants to the Lender a lien on and asecurity interest in, any amounts which may be owing from time to time by theLender to the Borrower in any capacity, including, but without limitation, anybalance or share belonging to the Borrower of any deposit or other account withthe Lender, which lien and security interest shall be independent of any rightof setoff which the Lender may have.

 

**Section 5.3            Priorityof Liens.**  The liensas provided for under this Agreement, the Security Agreement and the other LoanDocuments shall be first and prior liens subject only to Permitted Liens.  The lien as provide for under the Mortgageshall have the priority specified in the Mortgage.

 

**Section 5.4            FinancingStatements.**  TheBorrower will authorize, execute and deliver such security agreements,assignments, and UCC financing statements (including amendments thereto andcontinuation statements thereof) in form satisfactory to the Lender as theLender may specify and will pay or reimburse the Lender for all costs of filingor recording the same in such public offices as the Lender may designate, andtake such other steps as the Lender shall direct, including the noting of theLender’s lien on the chattel paper or any vehicle certificates of title, inorder to perfect the Lender’s interest in the Collateral.

 

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

 

**Section 6.1            Conditionsof Initial Loan.**  Theobligation of the Lender to make the Discretionary Loan described in Section2.1(b) hereunder shall be subject to the satisfaction of the 

 

 

 

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conditions precedent, inaddition to the applicable conditions precedent set forth in Section 6.2 below,that the Lender shall have received all of the following, in form and substancesatisfactory to the Lender, each duly executed and certified or dated the datehereof or such other date as is satisfactory to the Lender.  If the Lender decides to make any other loanunder the Discretionary Facility in the Lender’s discretion, the Borrower shalldeliver to the Lender (prior to the Lender making any Discretionary Loan in additionto the Initial Advances) all of the following, in form and substancesatisfactory to the Lender, each duly executed and certified or dated the datehereof or such other date as is satisfactory to the Lender.

 

(a)           The Discretionary Note, duly executed by the Borrower.

 

(b)           The Security Agreement, duly executed by the Borrower.

 

(c)           The Financing Statements, duly authorized by the Borrower.

 

(d)           The Mortgage, duly executed by the Borrower.

 

(e)           The Environmental Indemnity Agreement, duly executed by theBorrower.

 

(f)            A Secretary’s Certificate certifying: (1) a copy of theArticles of Incorporation of the Borrower with all amendments thereto,           (2) a copy of the Bylaws of theBorrower with all amendments thereto, (3) a copy of the corporate resolutions ofthe Borrower authorizing the execution, delivery and performance of the LoanDocuments, and (4) the names, titles, and signatures of the officers of theBorrower authorized to execute the Loan Documents and to request advanceshereunder.

 

(g)           Copies of the policies of insurance or other evidenceacceptable to the Lender in its absolute discretion showing that the insurancerequired by the Security Agreement, the Mortgage and the other Loan Documentsis in full force and effect.

 

(h)           Such collateral audits, equipment appraisals and liensearches as the Lender may request, each in form and substance, and conductedby auditors/appraisers/search services acceptable to the Lender in its solediscretion.

 

(i)            Such other documents or instruments as the Lender mayrequest to consummate the transaction contemplated hereby.

 

**Section 6.2            ConditionsPrecedent to all Loans.**  The obligation of the Lender to make the Discretionary Loandescribed in Section 2.1(b) hereunder, and if the Lender decides to make anyother loan under the Discretionary Facility in the Lender’s discretion, eachsuch loan shall be subject to the satisfaction of the following conditionsprecedent (and any request for a Discretionary Loan shall be deemed a writtencertification that such conditions precedent have been satisfied):

 

(a)           Before and after giving effect to such Discretionary Loan,the representations and warranties contained in Article 7 shall be trueand correct, as though made on the date of such Discretionary Loan; and

 

(b)           Before and after giving effect to such Discretionary Loan,no Default or Event of Default shall have occurred and be continuing.

 

 

 

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**ARTICLE 7****  REPRESENTATIONS ANDWARRANTIES**

 

To induce the Lender to enter into thisAgreement, and to consider making Discretionary Loans hereunder, the Borrowerrepresents 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.  The Borrower is dulyqualified and in good standing as a foreign corporation in each jurisdiction inwhich the character of the properties owned, leased or operated by it or thebusiness conducted by it makes such qualification necessary, and where thefailure to so qualify could result in an Adverse Event.

 

**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 the Borrower,enforceable against the Borrower in accordance with their respective terms,subject to limitations as to enforceability which might result from bankruptcy,insolvency, moratorium and other similar laws affecting creditors’ rightsgenerally and subject to limitations on the availability of equitable remedies.

 

**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 any order, writ,judgment, injunction, decree, determination or award of any court, governmentalagency or arbitrator presently in effect having applicability to the Borrower,(b) violate or contravene any provisions of the Articles of Incorporation orBylaws of the Borrower, or (c) result in a breach of or constitute a defaultunder any indenture, loan or credit agreement or any other agreement, lease orinstrument to which the Borrower is a party or by which it or any of itsproperties may be bound or result in the creation of any Lien on any asset ofthe Borrower, other than Liens in favor of the Lender and Permitted Liens. TheBorrower is not in default under or in violation of any such law, statute, ruleor regulation, order, writ, judgment, injunction, decree, determination oraward or any such indenture, loan or credit agreement or other agreement, leaseor instrument in any case in which the consequences of such default orviolation could constitute an Adverse Event.

 

**Section 7.4            GovernmentConsent.**  No order,consent, approval, license, authorization or validation of, or filing,recording or registration with, or exemption by, any governmental or publicbody or authority is required on the part of the Borrower to authorize, or isrequired in connection with the execution, delivery and performance of, or thelegality, validity, binding effect or enforceability of, the Loan Documents.

 

**Section 7.5            FinancialStatements and Condition.**  The Borrower’s financial statements, as heretofore furnished tothe Lender, have been prepared in accordance with GAAP on a consistent basisand fairly present the financial condition of the Borrower as at such datesspecified therein and the results of its operations and changes in financialposition for the respective periods then ended.  As of the dates of such financial statements, the Borrower hasnot had any material obligation, contingent liability, liability for taxes orlong-term lease obligation which is not reflected in such financial statementsor in the notes thereto.

 

**Section 7.6            Litigation.**  There are no actions, suits or proceedingspending or, to the knowledge of the Borrower, threatened against or affectingthe Borrower or any of its properties before

 

 

 

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any court or arbitrator, orany governmental department, board, agency or other instrumentality which, ifdetermined adversely to the Borrower, could constitute an Adverse Event.

 

**Section 7.7            ContingentPayments or Liabilities.**  Except as disclosed in the financial statements described in Section7.5, the Borrower does not have any contingent payments or liabilitieswhich are material to the Borrower.

 

**Section 7.8            Compliance.**  The Borrower is in material compliance withall statutes and governmental rules and regulations applicable to it.

 

**Section 7.9            Environmental,Health and Safety Laws.**  There does not exist any violation by the Borrower of anyapplicable federal, state or local law, rule or regulation or order of anygovernment, governmental department, board, agency or other instrumentalityrelating to environmental, pollution, health or safety matters which will orthreatens to impose a material liability on the Borrower or which would requirea material expenditure by the Borrower to cure.  The Borrower has not received any notice to the effect that anypart of its operations or properties is not in material compliance with anysuch law, rule, regulation or order or notice that it or its property is thesubject of any governmental investigation evaluating whether any remedialaction is needed to respond to any release of any toxic or hazardous waste orsubstance into the environment, the consequences of which non-compliance orremedial action could constitute an Adverse Event.

 

**Section 7.10         Ownershipof Property: Liens.**  TheBorrower has good and marketable title to its real properties and good andsufficient title to its other properties, including all properties and assetsreferred to as owned by the Borrower in the financial statements of theBorrower referred to in Section 7.5 (other than property disposed ofsince the date of such financial statement in the ordinary course ofbusiness).  None of the properties,revenues or assets of the Borrower is subject to a Lien, except for PermittedLiens.

 

**Section 7.11         Taxes.**  The Borrower has filed all federal, stateand local tax returns required to be filed and has paid or made provision forthe payment of all taxes due and payable pursuant to such returns and pursuantto any assessments made against it or any of its property and all other taxes,fees and other charges imposed on it or any of its property by any governmentalauthority (other than taxes, fees or charges the amount or validity of which iscurrently being contested in good faith by appropriate proceedings and withrespect to which reserves in accordance with GAAP have been provided on thebooks of the Borrower).  No tax Lienshave been filed and no material claims are being asserted with respect to anysuch taxes, fees or charges.  Thecharges, accruals and reserves on the books of the Borrower in respect of taxesand other governmental charges are adequate.

 

**Section 7.12         Licensesand Infringement.**  TheBorrower possesses adequate licenses, permits, franchises, patents, copyrights,trademarks and trade names, or rights thereto, to conduct its businesssubstantially as now conducted and as presently proposed to be conducted.  There does not exist and there is no reasonto anticipate that there may exist, any liability to the Borrower with respectto any claim of infringement regarding any franchise, patent, copyright,trademark or trade name possessed or used by the Borrower.

 

**Section 7.13         Subsidiaries.**  The Borrower does not have any Subsidiaries.

 

**Section 7.14         Partnershipsand Joint Ventures.**  TheBorrower is not a partner (limited or general) in any partnerships and theBorrower is not a joint venturer in any joint ventures.

 

 

 

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**Section7.15         Minnesota BusinessCorporation Act**.  If and tothe extent that Minnesota Statute § 302A.673 (the “Minnesota BusinessCorporation Act”) applies to the execution, delivery and performance by theBorrower of the Loan Documents, such execution, delivery and performance by theBorrower of the Loan Documents would be permitted under the Minnesota BusinessCorporation Act because the date of the execution of this Agreement issubsequent to the expiration of the period of four years following Miller’s“share acquisition date” (as that term is defined in the Minnesota BusinessCorporations Act under Minnesota Statute §302A.011, Subd. 51.).

 

**Section 7.16         Completenessof Disclosures.**  Norepresentation or warranty by the Borrower contained herein or in any otherLoan Document, or in any certificate or other document furnished heretofore orconcurrently with the signing of this Agreement or any other Loan Document bythe Borrower to the Lender in connection with the transactions contemplatedhereunder or under any other Loan Document, contains any untrue statement of amaterial fact or omits to state a material fact which would prevent ormaterially inhibit the Borrower from performing this Agreement or any otherLoan Document according to its terms.

 

**Section 7.17         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 foregoingwarranties and representations shall be deemed to be repeated and reaffirmed onand as of the date any Discretionary Loan is made hereunder by the Lender tothe Borrower pursuant to Article 2.

 

**ARTICLE 8**** AFFIRMATIVE COVENANTS**

 

From the date of this Agreement andthereafter until the Discretionary Facility is terminated or expires and theObligations have been paid in full, unless the Lender shall otherwise expresslyconsent in writing, the Borrower will do all of the following:

 

**Section 8.1            FinancialStatements and Reports.**  Furnish to the Lender:

 

(a)           As soon as available and in any event within 120 daysafter the end of each fiscal year of the Borrower, the audited financialstatements of the Borrower prepared in conformity with GAAP, consisting of atleast statements of income, cash flow and stockholders’ equity for such year,and a balance sheet as at the end of such year, all in reasonable detail andcertified without qualification by independent certified public accountants ofrecognized standing selected by the Borrower and acceptable to the Lender.

 

(b)           As soon as available and in any event within 30 days afterthe end of each month, a copy of the company-prepared financial statements ofthe Borrower prepared in the same manner as the financial statements referredto in Section 8.1(a), signed by the Chief Financial Officer of the Borrower,consisting of at least a statement of income for such month, and a balancesheet of the Borrower as at the end of such month.

 

(c)            promptly after the sending or filing thereof, copies ofall regular and periodic financial reports which the Borrower shall file withthe Securities and Exchange Commission or any national securities exchange.

 

(d)           From time to time, such other information regarding thebusiness, operation and financial condition of the Borrower as the Lender mayreasonably request.

 

 

 

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**Section 8.2            CorporateExistence.**  Maintainits corporate existence in good standing under the laws of its jurisdiction ofincorporation and its qualification to transact business in each jurisdictionin which the character of the properties owned, leased or operated by it or thebusiness conducted by it makes such qualification necessary.

 

**Section 8.3            Insurance.**  Maintain with financially sound andreputable insurance companies such insurance in such amounts and against suchrisks as is reasonably requested by the Lender or as may be required by law oras may be customary in the case of reputable corporations engaged in the sameor similar business and similarly situated, including, without limitation,property, hazard, fire, wind, hail, theft, collapse, comprehensive generalpublic liability, and business interruption insurance, and worker’scompensation or similar insurance.  TheBorrower shall furnish to the Lender full information and written evidence asto the insurance maintained by the Borrower. All policies shall contain the insurer’s promise not to cancel thepolicy without 30 days prior written notice to the Lender at its address setforth below.  All policies shall namethe Lender as an additional insured or loss payee, as appropriate, as its interestsmay appear.

 

**Section 8.4            Paymentof Taxes and Claims.**  Fileall tax returns and reports which are required by law to be filed by it and paybefore they become delinquent all taxes, assessments and governmental chargesand levies imposed upon it or its property and all claims or demands of anykind (including, without limitation, those of suppliers, mechanics, carriers,warehouses, landlords and other like Persons) which, if unpaid, might result inthe creation of a Lien upon its property; provided that the foregoingitems need not be paid if they are being contested in good faith by appropriateproceedings, and as long as the Borrower’s title to its property is notmaterially adversely affected, its use of such property in the ordinary courseof its business is not materially interfered with and adequate reserves withrespect thereto have been set aside on the Borrower’s books in accordance withGAAP.

 

**Section 8.5            Inspection;Collateral Audits.** Permit any Person designated by the Lender to visit and inspect any ofits properties, corporate books and financial records, to examine and to makecopies of its books of accounts and other financial records, to discuss theaffairs, finances and accounts of the Borrower with, and to be advised as tothe same by, its officers, and to conduct such collateral audits andappraisals, at such times and intervals as the Lender may designate.  The expenses of the Lender for such visits,inspections, examinations and audits shall be at the expense of the Borrower.

 

**Section 8.6            Booksand Records.**  Keepadequate and proper records and books of account in which full and correctentries will be made of its dealings, business and affairs.

 

**Section 8.7            Compliance.**  Comply with the requirements of allapplicable state and federal laws, and of all rules, regulations, orders,writs, judgments, injunctions, decrees or awards to which it may be subject.

 

**Section 8.8            EnvironmentalMatters.**  Observe andcomply with all laws, rules, regulations and orders of any government orgovernment agency relating to health, safety, pollution, hazardous materials orother environmental matters to the extent non-compliance could result in amaterial liability or otherwise constitute an Adverse Event.

 

**Section 8.9            Noticeof Litigation.**  Promptly providewritten notice to the Lender of all litigation, arbitration or mediationproceedings, and of all proceedings by or before any court or governmental orregulatory agency affecting the Borrower, describing the nature thereof and thesteps being taken with respect to such proceeding.

 

 

 

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**Section 8.10         Noticeof Default.**  Promptlyprovide written notice to the Lender of any Default or Event of Default,describing the nature thereof and what action the Borrower proposes to takewith respect thereto.

 

**ARTICLE 9****  NEGATIVE COVENANTS**

 

From the date of this Agreement andthereafter until the Discretionary Facility is terminated or expires and theObligations have been paid in full, unless the Lender shall otherwise expresslyconsent in writing, the Borrower will not do any of the following:

 

**Section 9.1            Merger.**  Merge or consolidate or enter into anyanalogous reorganization or transaction with any Person.

 

**Section 9.2            Saleof Assets.**  Sell,transfer, assign, lease or otherwise convey all or any substantial part of itsassets (whether in one transaction or in a series of transactions) to anyPerson other than in the ordinary course of business.

 

**Section 9.3            Subsidiaries,Partnerships, Joint Ventures.**  Do any of the following: (a) form or acquire any corporation orlimited liability company which would thereby become a Subsidiary; or (b) formor enter into any partnership as a limited or general partner or into any jointventure.

 

**Section 9.4            RestrictedPayments.**  Either: (a)purchase or redeem or otherwise acquire for value any shares of the Borrower’sstock, declare or pay any dividends or distributions thereon, make anydistribution on, or payment on account of the purchase, redemption, defeasanceor other acquisition or retirement for value of, any shares of the Borrower’sstock or set aside any funds for any such purpose; or (b) directly orindirectly make any payment on, or redeem, repurchase, defease, or make anysinking fund payment on account of, or any other provision for, or otherwisepay, acquire or retire for value, any Indebtedness of the Borrower that issubordinated in right of payment to the Discretionary Loans (whether pursuantto its terms or by operation of law).

 

**Section 9.5            Investments.**  Acquire for value, make, have or hold any Investments, except:

(a)           Investmentsoutstanding on the date hereof and listed on Schedule 9.5;

 

(b)           direct obligations of the United States of America;

 

(c)           extensions of credit in the nature of accounts receivableor notes receivable arising from the sale of goods and services in the ordinarycourse of business; and

(d)           commercial paper issued by U.S. corporations rated “A-1”by Standard & Poor Corporation or “P-1” by Moody’s Investors Service orcertificates of deposit or bankers’ acceptances having a maturity of one yearor less issued by members of the Federal Reserve System having deposits inexcess of $100,000,000 (which certificates of deposit or bankers’ acceptancesare fully insured by the Federal Deposit Insurance Corporation).

 

**Section 9.6            Indebtedness.**  Create, incur, issue, assume or suffer toexist any Indebtedness, except:

 

(a)           the Obligations;

 

(b)           Indebtedness outstanding on the date hereof secured byPermitted Liens, together with any extension, renewal or replacement thereof(so long as such Indebtedness is not increased

 

 

 

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abovethe amount outstanding immediately prior to giving effect to any suchextension, renewal or replacement); and

 

(c)           any Subordinated Debt.

 

**Section 9.7            Liens.**  Create, incur, assume or suffer to exist anyLien with respect to any property, revenues or assets now owned or hereafterarising or acquired, except:

 

(a)           Liens existing on the date of this Agreement and disclosedon Schedule 9.7;

 

(b)           Deposits or pledges to secure payment of workers’compensation, unemployment insurance, old age pensions or other social securityobligations, in the ordinary course of the Borrower’s business;

 

(c)           Liens for taxes, fees, assessments and governmentalcharges not delinquent or to the extent that payments therefor shall not at thetime be required to be made in accordance with the provisions of Section 8.4;

 

(d)           Liens of carriers, warehousemen, mechanics andmaterialmen, and other like Liens arising in the ordinary course of business,for sums not due or to the extent that payment therefor shall not at the timebe required to be made in accordance with the provisions of Section 8.4;and

 

(e)           Purchase money liens or security interests or CapitalizedLeases upon or in property acquired after the date hereof by Borrower, providedthat: (i) no such lien or security interest extends or shall extend toor cover any property of Borrower other than the property then being acquired;and (ii) the aggregate principal amount of the Indebtedness secured by any suchlien or security interest shall not exceed the cost of such property soacquired in connection therewith.

 

**Section 9.8            Transactionswith Affiliates.**  Enter intoor be a party to any transaction or arrangement, including, without limitation,the purchase, sale, lease or exchange of property or the rendering of anyservice, with any Affiliate, except in the ordinary course of and pursuant tothe reasonable requirements of the Borrower’s business and upon fair andreasonable terms no less favorable to the Borrower than would be obtained in acomparable arm’s-length transaction with a Person not an Affiliate.

 

**ARTICLE 10****  EVENTS OF DEFAULTAND REMEDIES**

 

**Section 10.1         Events of Default.**  The occurrence of any one or more of the following events shallconstitute an Event of Default:

 

(a)           The Borrower shall fail to make when due, whether byacceleration or otherwise, any payment of the Obligations; or

 

(b)           Any representation or warranty made by the Borrower in theLoan Documents or in any certificate, statement, report or other writingfurnished by the Borrower to the Lender pursuant to the Loan Documents or anyother instrument, document or agreement shall prove to have been false ormisleading in any material respect on the date as of which the facts set forthare stated or certified or deemed to have been stated or certified; or

 

 

 

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(c)           The Borrower shall fail to comply with any otheragreement, covenant, condition, provision or term contained in the LoanDocuments or any other document, instrument or agreement between Borrower andLender; or

 

(d)           An Act of Bankruptcy shall occur with respect to theBorrower; or

 

(e)           The maturity of any Indebtedness (other than Indebtednessunder this Agreement and whether owed to the Lender or to others) shall beaccelerated, or the Borrower shall fail to pay any such Indebtedness when dueor, in the case of such Indebtedness payable on demand, when demanded, or anyevent shall occur or condition shall exist and shall continue for more than theperiod of grace, if any, applicable thereto and shall have the effect of causingor permitting (any required notice having been given and grace period havingexpired) the holder of any such Indebtedness or any trustee or other Personacting on behalf of such holder to cause, such Indebtedness to become due priorto its stated maturity or to realize upon any collateral given as securitytherefor.

 

**Section 10.2         Remedies.**  If (a) any Event of Default described in Section10.1(d) shall occur, the Discretionary Facility (including, withoutlimitation, any obligation of the Lender to make any Discretionary Loan underSection 2.1(b)) shall automatically terminate and the outstanding unpaidprincipal balance of the Discretionary Note, the accrued interest thereon andall other Obligations shall automatically become immediately due and payable;or (b) any other Event of Default shall occur and be continuing, then theLender may take any or all of the following actions: (i) declare theDiscretionary Facility (including, without limitation, any obligation of theLender to make any Discretionary Loan under Section 2.1(b)) to be terminated,whereupon the Discretionary Facility (including, without limitation, anyobligation of the Lender to make any Discretionary Loan under Section 2.1(b))shall terminate, and (ii) declare the outstanding unpaid principal balance ofthe Discretionary Note, the accrued and unpaid interest thereon and all otherObligations to be forthwith due and payable, whereupon the Discretionary Note,all accrued and unpaid interest thereon and all such other Obligations shallimmediately become due and payable, in each case without further demand ornotice of any kind, all of which are hereby expressly waived, anything in thisAgreement or in the Discretionary 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 10.3         Offset.**  In addition to the remedies set forth in Section10.2, 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.

 

**ARTICLE 11****  MISCELLANEOUS**

 

**Section 11.1         Waiverand Amendment.**  No failureon the part of the Lender or the holder of the Discretionary Note to exerciseand no delay in exercising any power or right hereunder or under any 

 

 

 

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other Loan Document shalloperate as a waiver thereof; nor shall any single or partial exercise of anypower or right preclude any other or further exercise thereof or the exerciseof any other power or right.  Theremedies herein and in any other instrument, document or agreement delivered orto be delivered to the Lender hereunder or in connection herewith arecumulative and not exclusive of any remedies provided by law.  No notice to or demand on the Borrower notrequired hereunder or under the Discretionary Note shall in any event entitlethe Borrower 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.

 

**Section 11.2         Expensesand Indemnities.**  Whether ornot any Discretionary Loan is made hereunder, the Borrower agrees to reimbursethe Lender upon demand for: (a) all reasonable expenses paid or incurred byeither the Lender or Miller (including filing and recording costs and fees andexpenses of legal counsel of each of Lender, Miller and Associated Bank) inconnection with the preparation, review, execution, delivery, amendment,modification, interpretation, collection and enforcement of the Loan Documents;and (b) all reasonable expenses paid or incurred by either the Lender or Miller(including filing and recording costs and fees and expenses of legal counsel ofeach of Lender, Miller and TCF National Bank) in connection with thepreparation, review, execution, delivery, amendment, modification,interpretation, collection and enforcement of any document, instrument oragreement evidencing the TCF Loan.  TheBorrower agrees to pay, and save the Lender harmless from all liability for,any stamp or other taxes which may be payable with respect to the execution ordelivery of the Loan Documents.  TheBorrower agrees to indemnify and hold the Lender harmless from any loss orexpense which may arise or be created by the acceptance of instructions formaking Loans or disbursing the proceeds thereof.  The Borrower agrees to indemnify and hold the Lender and Millerharmless from any obligation to pay any fees or commissions to any broker orfinder in connection with the TCF Loan or the transactions contemplated in theLoan Documents, including, without limitation, to NDX Trading, Inc.  The Borrower shall indemnify and holdharmless the Lender and its respective Affiliates, and each such Person’srespective officers, directors, employees, attorneys, agents and representatives(each, an “Indemnified Person”), from and against any and all suits,actions, proceedings, claims, damages, losses, liabilities and expenses(including reasonable attorneys’ fees and disbursements and other costs ofinvestigation or defense, including those incurred upon any appeal) that may beinstituted or asserted against or incurred by any such Indemnified Person asthe result of any representation or warranty made by the Borrower in the LoanDocuments or in any certificate, statement, report or other writing furnishedby the Borrower to the Lender or Miller pursuant to the Loan Documents or anyother instrument, document or agreement shall prove to have been false ormisleading. The obligations of the Borrower under this Section 11.2shall survive any termination or expiration of the Discretionary Facility andpayment in full of the Obligations.

 

**Section 11.3         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

 

 

 

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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 11.4         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 and the Lender, and the successors andassigns of the Lender.  The Borrowershall not assign its rights or duties hereunder without the written consent ofthe Lender.

 

**Section 11.5         Participationsand Information.**  The Lendermay sell participation interests in any or all of the Discretionary Loans andin all or any portion of the Discretionary Facility to any Person.  The Lender may furnish any informationconcerning the Borrower in the possession the Lender from time to time to participantsand prospective participants and may furnish information in response to creditinquiries.

 

**Section 11.6         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 11.7         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 11.8         EntireAgreement.**  ThisAgreement and the Discretionary Note, and the other Loan Documents, embody theentire agreement and understanding between the Borrower and the Lender withrespect to the subject matter hereof and thereof.  This Agreement supersedes all prior agreements and understandingsrelating to the subject matter hereof.

 

**Section 11.9         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 11.10  GoverningLaw.**  Thevalidity, construction and enforceability of this Agreement and theDiscretionary Note shall be governed by the internal laws of the State ofMinnesota, without giving effect to conflict of laws principles thereof.

 

**(The signature page follows.)**

** **

 

 

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THEPARTIES HERETO have caused this Discretionary Credit Agreement to be executedas of the date first above written.

 
|            | MEDICALCV, INC.                                                                                                                                             |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |                                                                                                                                                        |   |
|            |                                                                                                                                                        |   |
|            | By:                                                                                                                                                         | /s/ Blair P. Mowery |
|            | Name:                                                                                                                                                       | Blair P. Mowery |
|            | Title:                                                                                                                                                      | Chief Executive Officer |
|            |                                                                                                                                                        |   |
|            | 9725 South Robert TrailInver Grove Heights, MN  55077Attention:  Chief Executive  OfficerTelephone:  (651) 452-3000Fax:  (651) 234-6669 |
|            |                                                                                                                                                        |
| with a copy to: | Avron L. Gordon, Esq.Briggs and Morgan, P.A.2400 IDS Center80 South Eighth StreetMinneapolis, MN 55402Fax (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 B12Minneapolis, MN 55454Attention:  Paul K. MillerFax:  (612) 305-4813                   |
|            |                                                                                                                                                        |
| with a copy to: | Charles F. Diessner Esq.Fredrikson & Byron, P.A.4000 Pillsbury Center200 South Sixth StreetMinneapolis, MN 55402-1425Fax (612) 492-7077                 |

 

 

 

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                        Schedules

 

9.5   ExistingInvestments

 

None.

 

9.7   ExistingLiens

 
| **Minnesota Secretary of State** |
|----------------------------------|
| File No.                         |   | Debtor |   | Date |   | Creditor |   | Collateral |
| 2015773                          |   | CV Dynamics, Inc. |   | 2/27/98 |   | LCA A Division Of   Associates |   | Specific Leased   Equipment |
| 2030166                          |   | CV Dynamics, Inc.   d/b/a Medical, Inc. |   | 4/20/98 |   | Dexxon Capital   Corporation |   | Specific Equipment |
| 2128365                          |   | C V Dynamics, Inc. |   | 5/4/99 |   | Dexxon Capital   Corporation |   | Specific Equipment |
| 2184558                          |   | CV Dynamics, Inc. |   | 12/13/99 |   | Riverside Bank |   | Blanket Lien |
| 2197986                          |   | CV Dynamics, Inc.   d/b/a Medical   Incorporated |   | 2/1/00 |   | Dakota Electric   Association |   | Specific Equipment |
| 20024930253                      |   | MedicalCV |   | 8/19/02 |   | Segmed, Inc. |   | Security Interest in   Specific Intellectual   Property |

 

 

 

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