EXHIBIT
10.6


 


MAY DISCRETIONARY


CREDIT AGREEMENT


 


THIS DISCRETIONARY CREDIT AGREEMENT, dated as of July 1, 2003, is
by and between MEDICALCV, INC., a Minnesota corporation (the “Borrower”),
and PKM PROPERTIES, LLC, a Minnesota limited liability company (the “Lender”).


 


RECITALS:


 


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


 


2.             The Lender has
previously made available to the Borrower a $943,666 discretionary credit
facility under a Discretionary Credit Agreement dated January 17, 2003 as
it may have been or may be amended, modified, supplemented, restated or
replaced from time to time (the “January Discretionary Credit Agreement”).


 


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


 


4.             The Borrower has requested
that the Lender make available to the Borrower an additional $1,000,000
discretionary credit facility under this Agreement.


 


5.             The Borrower will
use the proceeds of advances, if any, under the Discretionary Facility (defined
below) to satisfy all currently due and payable obligations to the Lender under
the January Discretionary Credit Agreement and the Lease and as working
capital to continue operating as a going concern.


 


AGREEMENTS:


 


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


 


ARTICLE
1           DEFINITIONS
AND ACCOUNTING TERMS


 


Section
1.1            Defined Terms.  In addition to the terms defined elsewhere
in this Agreement, the following terms shall have the meanings set out
respectively after each (and such meanings shall be equally 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) the
Person shall (1) be or become insolvent, or (2) apply for or consent to the
appointment 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


 


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the Person’s property, or (3) commence a voluntary case under any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding under the laws of any
jurisdiction, or (4) file a petition 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 or case shall be commenced, without the application or
consent of the Person, in any court of competent jurisdiction, seeking (1) the
liquidation, reorganization, dissolution, winding up or the composition or
adjustment of debts of the Person, (2) the appointment of a trustee, receiver,
custodian or liquidator or the like of the Person or of all or any substantial
part of the Person’s property, or (3) similar relief in respect of the Person
under any law relating to bankruptcy, insolvency, reorganization, winding up or
composition or adjustment of debts.


 


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


 


Affiliate:  Any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, the Borrower or any of its Subsidiaries, or (ii) five
percent (5%) or more of the equity interest of which is held beneficially or of
record 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 and
policies of a Person, whether through the ownership of voting securities or
otherwise.


 


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


 


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


 


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


 


Code:  The Internal Revenue Code of 1986, as
amended, 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 notice
to the Borrower or lapse of time, or both, would constitute an Event of
Default.


 


Discretionary Credit Expiration Date:   The date that first occurs: (i)
May 27, 2004, or (ii) the date on which the Discretionary Facility is
terminated pursuant to Section 10.2.


 


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Discretionary Facility:  The discretionary credit facility under
which the Lender may make loans, in the Lender’s sole and absolute discretion,
to the Borrower in accordance with Article 2 and the Discretionary Note
up to an aggregate principal amount at any one time outstanding not to exceed
$1,000,000.


 


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


 


Discretionary Note:  That certain May Discretionary Credit
Note dated the date hereof executed by the Borrower and made payable to the order
of the Lender in the original principal amount of $1,000,000, 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 Federal
Reserve System or any successor thereto.


 


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


 


GAAP:  Generally accepted accounting principles,
consistently applied.


 


Hauser:  Peter L. Hauser, his successors heirs and
assigns.


 


Hauser Note:  That certain Subordinated Promissory Note
given by the Borrower in favor of Hauser in the original principal amount of
$1,000,000 as it exists on the date hereof.


 


Indebtedness:  Without duplication, all obligations,
contingent or otherwise, which in accordance with GAAP should be classified
upon the obligor’s balance sheet as liabilities, but in any event including the
following (whether or not they should be classified as liabilities upon such
balance sheet): (a) obligations secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on property owned or
acquired subject thereto, whether or not the obligation secured thereby shall
have been assumed and whether or not the obligation secured is the obligation
of the owner or another party; (b) any obligation on account of deposits or
advances; (c) any obligation for the deferred purchase price of any property or
services; (d) any obligation as lessee under any Capitalized Lease; (e) all
guaranties, endorsements and other contingent obligations respecting
Indebtedness of others; and (f) undertakings or agreements to reimburse or
indemnify issuers of letters of credit. 
For all purposes of this Agreement (i) the Indebtedness of any Person
shall include the Indebtedness of any partnership in which such Person is a
general partner, and (ii) the Indebtedness of any Person shall include the
Indebtedness of any joint venture in which such Person is a joint
venturer.  The term “Indebtedness” shall
in no event include Trade Accounts Payable.


 


Interest Rate:  The rate of interest equal to 10.0%; provided,
however, that from and after the occurrence of any Default and continuing
thereafter until such Default shall be remedied to


 


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the written satisfaction of the Lender, the Interest Rate shall, at the
election of the Lender, be that rate of interest equal to Interest Rate
otherwise applicable plus 2.0%.


 


Investment:  The acquisition, purchase, making or holding
of any stock or other security, any loan, advance, contribution to capital,
extension of credit (except for trade and customer accounts receivable for
inventory sold or services rendered in the ordinary course of business and
payable in accordance with customary trade terms), any acquisitions of real or
personal property (other than real and personal property acquired in the
ordinary course of business) and any purchase or commitment to purchase stock
or other debt or equity securities of or any interest in another Person or any
integral part 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 Capitalized
Leases and the interest of a vendor under any conditional sale or other title
retention agreement).


 


Loan Documents:  This Agreement, the Discretionary Note, the
May Security Agreement, the Financing Statements, the Warrants, and each
other instrument, document, guaranty, security agreement, or other agreement
executed and delivered by the Borrower or any guarantor or party granting
security interests in connection with this Agreement, or any collateral for the
Discretionary Loans.


 


May Security Agreement:  That certain May Security Agreement dated
the date hereof executed by the Borrower and delivered to the Lender and
Hauser, as it may be amended, modified, supplemented, restated or replaced from
time to time.


 


Obligations:  The obligation of the Borrower: (a) to pay
the principal of and interest on the Discretionary Note in accordance with the
terms hereof and thereof, and to satisfy all of the Borrower’s other
obligations to the Lender, whether hereunder, under any Loan Document, or
otherwise, whether now existing or hereafter incurred, matured or unmatured
including without limitation the obligations pursuant to the
January Discretionary Credit Agreement, the Lease, letters of credit,
direct or contingent, joint or several, and including without limitation
obligations to or credit from others in which the Lender has a direct or
indirect interest (including without limitation participations), including any
extensions, modifications, renewals thereof and substitutions therefor; (b) to
repay to the Lender all amounts advanced by the Lender hereunder or otherwise
on behalf of the Borrower, including, but without limitation, advances for
principal or interest payments to prior secured parties, mortgagees or lienors,
or for taxes, levies, insurance, rent, repairs to or maintenance or storage of
any 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 connection
with the preparation and negotiation of this Agreement and other Loan
Documents, and any amendments thereto and the documents required hereunder or
thereunder, or any proceedings brought or threatened to enforce payment of any
of the Obligations described in clauses (a) or (b) above.


 


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


 


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


 


Subordinated Debt:  Any Indebtedness of the Borrower, now
existing or hereafter created, incurred or arising, which is subordinated in
right of payment to the payment of the Obligations in a manner and to an extent
that the Lender has approved in writing prior to the date hereof or prior to
the creation of such Indebtedness.


 


Subordination and Intercreditor Agreement:  That certain Subordination and Intercreditor
Agreement between Lender and Hauser dated the date hereof as it may be amended,
modified, supplemented, restated or replaced from time to time.


 


Subsidiary:  Any Person of which or in which the Borrower
and its other Subsidiaries own directly or indirectly 50% or more of:  (a) the combined voting power of all classes
of stock having general voting power under ordinary circumstances to elect a
majority 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 Person
with a maturity of not greater than 90 days incurred in the ordinary course of
such Person’s business.


 


Warrants:  Warrants to purchase shares of the common
stock of the Borrower in form and substance acceptable to Lender to be issued
by the Borrower to the Lender as required under Section 3.4.


 


Section
1.2            Accounting Terms and
Calculations. 
Except as may be expressly provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder (including, without limitation, determination of
compliance with financial ratios and restrictions in Articles 8 and 9
hereof) shall be made in accordance with GAAP consistently applied.


 


Section
1.3            Other Definitional Terms.  The words “hereof,” “herein” and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement.  References to Sections,
Exhibits, Schedules and like references are to this Agreement unless otherwise
expressly provided.


 


ARTICLE
2           TERMS
OF LENDING


 


Section
2.1            Discretionary Facility.  The Borrower has requested that the Lender
make loans to the Borrower from time to time under the Discretionary
Facility.  THE LENDER HAS NOT COMMITTED TO PROVIDE
ANY SUCH LOANS AND MAY, IN ITS SOLE AND ABSOLUTE DISCRETION, DECIDE NOT TO MAKE
ANY SUCH LOANS.  If the
Lender, in its discretion, agrees to make any such loans, such loans shall
(a) not exceed an


 


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aggregate principal amount of the Discretionary Facility, (b) be
made in accordance with the terms of this Agreement, and (c) be made on or
before the Discretionary Credit Expiration Date.  THE BORROWER ACKNOWLEDGES AND AGREES THAT THE LENDER IS NOT OBLIGATED TO
MAKE ANY ADVANCES HEREUNDER, WHETHER OR NOT A DEFAULT OR AN EVENT OF DEFAULT
HAS OCCURRED.


 


Section
2.2            Borrowing Procedures.  Each time the Borrower desires to obtain a
loan under the Discretionary Facility pursuant to Section 2.1, such
request shall be in writing (which may be by telecopy) or by telephone, and
must be given so as to be received by the Lender not later than 11:00 a.m.,
Minneapolis time, on the date of the requested advance.  Each request for a Discretionary Loan shall
specify (i) the borrowing date (which shall be a Business Day), and (ii) the
amount of such Loan.  Any request for a
Discretionary Loan shall be deemed to be a representation that no event has
occurred and is continuing, or will result from such Discretionary Loan, which
constitutes a Default or an Event of Default, and that the Borrower’s
representations and warranties contained in Article 7 are true and
correct as of the date of the Discretionary Loan as though made on and as of
such date.  If the Lender approves a
requested Discretionary Loan in its sole discretion, the Lender shall make the
amount of the requested advance available to the Borrower at the Lender’s
principal office in Edina, Minnesota, in immediately available funds not later
than 5:00 p.m., Minneapolis time, within 3 Business Days of the date
requested.  The Borrower shall be
obligated to repay all advances the Lender reasonably determines were requested
on behalf of the Borrower notwithstanding the fact that the person requesting
the same was not in fact authorized to do so.


 


Section
2.3            The Discretionary Note.  The obligation of the Borrower to repay any
and all loans made under Section 2.1 shall be evidenced by the
Discretionary Note of the Borrower, in form and substance acceptable to the
Lender.  The Lender shall enter in its records
the amount of each advance under, and the payments made on, the Discretionary
Facility, and such records shall be deemed conclusive 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 the Discretionary Facility shall
bear interest at the Interest Rate.


 


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


 


Section
3.3            Payment Dates.  Interest accruing on the Discretionary Note
shall be due and payable as specified in such Discretionary Note.


 


Section 3.4            Warrant.  As further consideration for the financing
provided by Lender hereunder, upon the Lender making Discretionary Loans in the
amounts set forth below, the Borrower will issue warrants in form and substance
satisfactory to the Lender to purchase the number of shares of common stock of
the Borrower for $0.70 per share set forth opposite the advance amounts below:


 


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  Advance Amounts under the

  Discretionary Facility

  	
   

  	
  Shares

  	
   

  
	
  $260,000
  (advanced May, 28, 2003)

  	
   

  	
  200,000

  	
   

  
	
  $225,000
  (advanced June 11, 2003)

  	
   

  	
  60,000

  	
   

  
	
  $225,000

  	
   

  	
  60,178

  	
   

  
	
  $225,000

  	
   

  	
  60,179

  	
   

  



 


 


The Borrower acknowledges that the Lender advanced $260,000 to the
Borrower on May 28, 2003 and an additional $225,000 on June 11, 2003,
in each case under this Agreement upon the mutual agreement that this Agreement
and the related Loan Documents would be drafted, executed and delivered as soon
as practicable.  Accordingly, on the
date hereof, the Borrower will issue to the Lender a warrant to purchase
260,000 shares of the common stock of the Borrower for $0.70 per share.


 


Section 3.5            Loan
Fee.  As further
consideration for the financing provided by Lender hereunder, upon the Lender
making Discretionary Loans in the amounts set forth below, the Borrower will
pay to the Lender a fee in the amount set forth opposite the advance amounts
below:


 


	
  Advance Amounts under the

  Discretionary Facility

  	
   

  	
  Fee

  	
   

  
	
  $260,000
  (advanced May, 28, 2003)

  	
   

  	
  $

  	
  34,210.53

  	
   

  
	
  $225,000
  (advanced June 11, 2003)

  	
   

  	
  $

  	
  10,263.16

  	
   

  
	
  $225,000

  	
   

  	
  $

  	
  10,263.16

  	
   

  
	
  $225,000

  	
   

  	
  $

  	
  10,263.16

  	
   

  



 


The Borrower acknowledges that the Lender advanced $260,000 to the
Borrower on May 28, 2003 and an additional $225,000 on June 11, 2003,
in each case under this Agreement upon the mutual agreement that this Agreement
and the related Loan Documents would be drafted, executed and delivered as soon
as practicable.  Accordingly, on the
date of each such advance, the Lender is deemed to have made an additional
Discretionary Loan in the amounts of $34,210.53 and $10,263.16 respectively,
and the Borrower is deemed to have immediately paid such amounts to Lender as
payment of the required fee.  If and
when additional Discretionary Loans are made under this Agreement, loan
proceeds will be advanced by the Lender to the Borrower net of the fee required
under this Section, and that such fee will be deemed to be a Discretionary
Loan.


 


ARTICLE
4           PAYMENTS
AND PREPAYMENTS


 


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


 


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Section
4.2            Conditional Optional
Prepayments. 
The Borrower may prepay the Discretionary Loan, in whole or in part, at
any time without premium or penalty; provided, however, that the
Borrower may not prepay all or any part of the Discretionary Loan until the
Borrower first indefeasibly satisfies in full (a) all of the Borrower’s
Obligations due and payable at such time under the Lease, and (b) all of the
Borrower’s other Obligations to the Lender (excluding the Borrower’s
Obligations under the Lease) regardless of whether such other Obligations are
then due and payable, including, without limitation all of the Borrower’s
obligations under the January Discretionary Credit Agreement.  Any such prepayment must be accompanied by
accrued and unpaid interest on the amount prepaid.


 


Section
4.3            Accelerated Payments.  Upon the occurrence of an Event of Default
and the acceleration of the Discretionary Note, pursuant to and as permitted by
Section 10.2, the Discretionary Note and all other Obligations, shall be
immediately due and payable as provided 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 other
obligations under the Loan Documents shall be made without set-off or
counterclaim in immediately available funds not later than 2:00 p.m.,
Minneapolis time, on the dates due at the main office of the Lender in
Minneapolis, Minnesota.  Funds received
on any day after such time shall be deemed to have been received on the next
Business Day.  Whenever any payment to
be made hereunder or on the Discretionary Note shall be stated to be due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of any interest or fees.


 


Section 4.5            Mandatory
Prepayments. 
The Borrower shall prepay the Obligations as provided in the
Subordination and Intercreditor Agreement.


 


ARTICLE
5           COLLATERAL
SECURITY


 


Section
5.1            Composition of the
Collateral. 
The property in which a security interest is, or is intended to be,
granted pursuant to this Agreement, the May Security Agreement, or any
other Loan Document and the provisions of Section 5.2 is herein
collectively called the “Collateral.” 
The Collateral, together with all the Borrower’s other property of any
kind held by the Lender, shall stand as one general, continuing collateral
security for all of the Obligations, and may be retained by the Lender until
all Obligations have been satisfied in full, and the Discretionary Facility has
terminated.


 


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


 


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Section
5.3            Priority of Liens. The liens as provided for under this
Agreement, the May Security Agreement and the other Loan Documents shall
be first and prior liens subject only to Permitted Liens.


 


Section
5.4            Financing Statements.  The Borrower will authorize, execute and
deliver such security agreements, assignments, and UCC financing statements
(including amendments thereto and continuation statements thereof) in form
satisfactory to the Lender as the Lender may specify and will pay or reimburse
the Lender for all costs of filing or recording the same in such public offices
as the Lender may designate, and take such other steps as the Lender shall
direct, including the noting of the Lender’s lien on the chattel paper or any
vehicle certificates of title, in order to perfect the Lender’s interest in the
Collateral.


 


ARTICLE
6           CONDITIONS
PRECEDENT


 


Section
6.1            Conditions of Initial
Loan.  If
the Lender decides to make any additional Loans under the Discretionary
Facility in the Lender’s discretion, the Borrower shall deliver to the Lender
(prior to the Lender making any other Discretionary Loan) all of the following,
in form and substance satisfactory to the Lender, each duly executed and
certified or dated the date hereof or such other date as is satisfactory to the
Lender.


 


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


 


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


 


(c)            The
Warrants.


 


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


 


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


 


(f)             Copies
of the policies of insurance or other evidence acceptable to the Lender in its
absolute discretion showing that the insurance required by the
May Security Agreement and the other Loan Documents is in full force and
effect.


 


(g)            Such
collateral audits, equipment appraisals and lien searches as the Lender may
request, each in form and substance, and conducted by
auditors/appraisers/search services acceptable to the Lender in its sole
discretion.


 


(h)            Satisfaction
in full of all Obligations or other obligations due and payable from Borrower
to Lender or Miller as of the date of such additional loan, including,


 


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without limitation, all amounts due and payable with respect to the
Lease and the January Discretionary Credit Agreement.


 


(i)            The
Subordination and Intercreditor Agreement duly executed by Hauser.


 


(j)            That
certain Representation Acknowledgement duly executed by Hauser.


 


(k)           That
certain Amendment to Warrants duly executed by the Borrower.


 


(l)            True,
correct, fully-executed and complete copies of the Hauser Note and all documents
related thereto.


 


(m)          Such
other documents or instruments as the Lender may request to consummate the
transaction contemplated hereby.


 


Section
6.2            Conditions Precedent to
all Loans. 
The obligation of the Lender to make the Discretionary Loan described in
Section 2.1(b) hereunder, and if the Lender decides to make any other loan
under the Discretionary Facility in the Lender’s discretion, each such loan
shall be subject to the satisfaction of the following conditions precedent (and
any request for a Discretionary Loan shall be deemed a written certification
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 true and 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.


 


ARTICLE
7           REPRESENTATIONS
AND WARRANTIES


 


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


 


Section
7.1            Organization, Standing,
Etc.  The
Borrower is a corporation duly incorporated and validly existing and in good
standing under the laws of the State of Minnesota, and has all requisite
corporate power and authority to carry on its businesses as now conducted, to
enter into the Loan Documents and to perform its obligations under the Loan
Documents.  The Borrower is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which the character of the properties owned, leased or operated by it or the
business conducted by it makes such qualification necessary, and where the
failure to so qualify could result in an Adverse Event.


 


Section
7.2            Authorization and
Validity. 
The execution, delivery and performance by the Borrower of the Loan
Documents have been duly authorized by all necessary corporate action by the
Borrower, and the Loan Documents constitute the legal, valid and binding


 


10

















 


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’ rights generally and subject to
limitations on the availability of equitable remedies.


 


Section
7.3            No Conflict; No Default.  The execution, delivery and performance by
the Borrower of the Loan Documents will not (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, governmental agency or arbitrator
presently in effect having applicability to the Borrower, (b) violate or
contravene any provisions of the Articles of Incorporation or Bylaws of the
Borrower, or (c) result in a breach of or constitute a default under any
indenture, loan or credit agreement or any other agreement, lease or instrument
to which the Borrower is a party or by which it or any of its properties may be
bound or result in the creation of any Lien on any asset of the Borrower, other
than Liens in favor of the Lender and Permitted Liens. The Borrower is not in
default under or in violation of any such law, statute, rule or regulation,
order, writ, judgment, injunction, decree, determination or award or any such
indenture, loan or credit agreement or other agreement, lease or instrument in
any case in which the consequences of such default or violation could
constitute an Adverse Event.  The
Borrower is not in default under the Lease or any Loan Document (as such term
is defined in the January Discretionary Credit Agreement).


 


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


 


Section
7.5            Financial Statements and
Condition. 
The Borrower’s financial statements, as heretofore furnished to the
Lender, have been prepared in accordance with GAAP on a consistent basis and
fairly present the financial condition of the Borrower as at such dates
specified therein and the results of its operations and changes in financial
position for the respective periods then ended.  As of the dates of such financial statements, the Borrower has
not had any material obligation, contingent liability, liability for taxes or
long-term lease obligation which is not reflected in such financial statements
or in the notes thereto.


 


Section
7.6            Litigation.  There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of its properties before any court or arbitrator, or any
governmental department, board, agency or other instrumentality which, if
determined adversely to the Borrower, could constitute an Adverse Event.


 


Section
7.7            Contingent Payments or
Liabilities. 
Except as disclosed in the financial statements described in Section
7.5, the Borrower does not have any contingent payments or liabilities
which are material to the Borrower.


 


11

















 


Section
7.8            Compliance.  The Borrower is in material compliance with
all 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 any applicable
federal, state or local law, rule or regulation or order of any government,
governmental department, board, agency or other instrumentality relating to
environmental, pollution, health or safety matters which will or threatens to
impose a material liability on the Borrower or which would require a material
expenditure by the Borrower to cure. 
The Borrower has not received any notice to the effect that any part of
its operations or properties is not in material compliance with any such law,
rule, regulation or order or notice that it or its property is the subject of
any governmental investigation evaluating whether any remedial action is needed
to respond to any release of any toxic or hazardous waste or substance into the
environment, the consequences of which non-compliance or remedial action could
constitute an Adverse Event.


 


Section
7.10         Ownership of Property:
Liens.  The
Borrower has good and marketable title to its real properties and good and
sufficient title to its other properties, including all properties and assets
referred to as owned by the Borrower in the financial statements of the
Borrower referred to in Section 7.5 (other than property disposed of
since the date of such financial statement in the ordinary course of
business).  None of the properties,
revenues or assets of the Borrower is subject to a Lien, except for Permitted
Liens.


 


Section
7.11         Taxes.  The Borrower has filed all federal, state
and local tax returns required to be filed and has paid or made provision for
the payment of all taxes due and payable pursuant to such returns and pursuant
to 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 governmental
authority (other than taxes, fees or charges the amount or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in accordance with GAAP have been provided on the
books of the Borrower).  No tax Liens
have been filed and no material claims are being asserted with respect to any
such taxes, fees or charges.  The
charges, accruals and reserves on the books of the Borrower in respect of taxes
and other governmental charges are adequate.


 


Section
7.12         Licenses and Infringement.  The Borrower possesses adequate licenses,
permits, franchises, patents, copyrights, trademarks and trade names, or rights
thereto, to conduct its business substantially as now conducted and as
presently proposed to be conducted. 
There does not exist and there is no reason to anticipate that there may
exist, any liability to the Borrower with respect to 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         Partnerships and Joint
Ventures. 
The Borrower is not a partner (limited or general) in any partnerships
and the Borrower is not a joint venturer in any joint ventures.


 


12

















 


Section 7.15         Minnesota
Business Corporation Act.  If and to the extent that Minnesota Statute
§ 302A.673 (the “Minnesota Business Combination Act”) applies to the
execution, delivery and performance by the Borrower of the Loan Documents, such
execution, delivery and performance by the Borrower of the Loan Documents would
be permitted under the Minnesota Business Combination Act because the date of
the execution of this Agreement is subsequent to the expiration of the period
of four years following Miller’s “share acquisition date” (as that term is
defined in the Minnesota Business Corporation Act under Minnesota Statute
§302A.011, Subd. 51.).


 


Section 7.16         TCF
Line of Credit.  The
Borrower was in negotiations with TCF for financing.  Neither Miller nor Lender has any obligation to provide any
guaranty or other credit enhancement or has any other obligation with respect
to any such financing.  Borrower will
indemnify and hold Miller and Lender harmless from any claims, fees, costs or
expenses related to such financing.


 


Section
7.17         Completeness of
Disclosures. 
No representation or warranty by the Borrower contained herein or in any
other Loan Document, or in any certificate or other document furnished
heretofore or concurrently with the signing of this Agreement or any other Loan
Document by the Borrower to the Lender in connection with the transactions
contemplated hereunder or under any other Loan Document, contains any untrue
statement of a material fact or omits to state a material fact which would
prevent or materially inhibit the Borrower from performing this Agreement or
any other Loan Document according to its terms.


 


Section
7.18         Survival of
Representations. 
All of the representations and warranties set forth in the immediately
preceding subsections shall survive until all the Obligations shall have been
satisfied in full, and the Discretionary Facility has been terminated.


 


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


 


ARTICLE
8           AFFIRMATIVE
COVENANTS


 


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


 


Section
8.1            Financial Statements and
Reports. 
Furnish to the Lender:


 


(a)            As
soon as available and in any event within 120 days after the end of each fiscal
year of the Borrower, the audited financial statements of the Borrower prepared
in conformity with GAAP, consisting of at least 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 and certified without qualification by
independent certified public accountants of recognized standing selected by the
Borrower and acceptable to the Lender.


 


13

















 


(b)            As
soon as available and in any event within 30 days after the end of each month,
a copy of the company-prepared financial statements of the Borrower prepared in
the same manner as the financial statements referred to 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 balance sheet of the Borrower as at
the end of such month.


 


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


 


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


 


Section
8.2            Corporate Existence.  Maintain its corporate existence in good
standing under the laws of its jurisdiction of incorporation and its
qualification to transact business in each jurisdiction in which the character
of the properties owned, leased or operated by it or the business conducted by
it makes such qualification necessary.


 


Section
8.3            Insurance.  Maintain with financially sound and
reputable insurance companies such insurance in such amounts and against such
risks as is reasonably requested by the Lender or as may be required by law or
as may be customary in the case of reputable corporations engaged in the same
or similar business and similarly situated, including, without limitation,
property, hazard, fire, wind, hail, theft, collapse, comprehensive general
public liability, and business interruption insurance, and worker’s
compensation or similar insurance.  The
Borrower shall furnish to the Lender full information and written evidence as
to the insurance maintained by the Borrower. 
All policies shall contain the insurer’s promise not to cancel the
policy without 30 days prior written notice to the Lender at its address set
forth below.  All policies shall name
the Lender as an additional insured or loss payee, as appropriate, as its
interests may appear.


 


Section
8.4            Payment of Taxes and
Claims. 
File all tax returns and reports which are required by law to be filed
by it and pay before they become delinquent all taxes, assessments and
governmental charges and levies imposed upon it or its property and all claims
or demands of any kind (including, without limitation, those of suppliers,
mechanics, carriers, warehouses, landlords and other like Persons) which, if
unpaid, might result in the creation of a Lien upon its property; provided
that the foregoing items need not be paid if they are being contested in good
faith by appropriate proceedings, and as long as the Borrower’s title to its
property is not materially adversely affected, its use of such property in the
ordinary course of its business is not materially interfered with and adequate
reserves with respect thereto have been set aside on the Borrower’s books in
accordance with GAAP.


 


Section
8.5            Inspection; Collateral
Audits. 
Permit any Person designated by the Lender to visit and inspect any of
its properties, corporate books and financial records, to examine and to make
copies of its books of accounts and other financial records, to discuss the
affairs, finances and accounts of the Borrower with, and to be advised as to
the same by, its


 


14

















 


officers, and to conduct such collateral audits and appraisals, 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            Books and Records.  Keep adequate and proper records and books
of account in which full and correct entries will be made of its dealings,
business and affairs.


 


Section
8.7            Compliance.  Comply with the requirements of all
applicable 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            Environmental Matters.  Observe and comply with all laws, rules,
regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters
to the extent non-compliance could result in a material liability or otherwise
constitute an Adverse Event.


 


Section
8.9            Notice of Litigation.  Promptly provide written notice to the
Lender of all litigation, arbitration or mediation proceedings, and of all
proceedings by or before any court or governmental or regulatory agency
affecting the Borrower, describing the nature thereof and the steps being taken
with respect to such proceeding.


 


Section
8.10         Notice of Default.  Promptly provide written notice to the
Lender of any Default or Event of Default, describing the nature thereof and
what action the Borrower proposes to take with respect thereto.


 


ARTICLE
9           NEGATIVE
COVENANTS


 


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


 


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


 


Section
9.2            Sale of Assets.  Sell, transfer, assign, lease or otherwise
convey all or any substantial part of its assets (whether in one transaction or
in a series of transactions) to any Person 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 or limited liability company which would thereby become a
Subsidiary; or (b) form or enter into any partnership as a limited or general
partner or into any joint venture.


 


Section
9.4            Restricted Payments.  Either: (a) purchase or redeem or otherwise
acquire for value any shares of the Borrower’s stock, declare or pay any
dividends or distributions thereon, make any distribution on, or payment on
account of the purchase,


 


15

















 


redemption, defeasance or other acquisition or retirement for value of,
any shares of the Borrower’s stock or set aside any funds for any such purpose;
or (b) directly or indirectly make any payment on, or redeem, repurchase, defease,
or make any sinking fund payment on account of, or any other provision for, or
otherwise pay, acquire or retire for value, any Indebtedness of the Borrower
that is subordinated in right of payment to any of the Obligations (whether
pursuant to its terms or by operation of law) except for payments expressly
permitted by a written subordination agreement to which Lender is a party.


 


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


 


(a)            Investments
outstanding 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 receivable or notes receivable arising from
the sale of goods and services in the ordinary course 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 or certificates of deposit or
bankers’ acceptances having a maturity of one year or less issued by members of
the Federal Reserve System having deposits in excess of $100,000,000 (which
certificates of deposit or bankers’ acceptances are fully insured by the
Federal Deposit Insurance Corporation).


 


Section
9.6            Indebtedness.  Create, incur, issue, assume or suffer to
exist any Indebtedness, except:


 


(a)            the
Obligations;


 


(b)            Indebtedness
outstanding on the date hereof secured by Permitted Liens, together with any
extension, renewal or replacement thereof (so long as such Indebtedness is not
increased above the amount outstanding immediately prior to giving effect to
any such extension, renewal or replacement);


 


(c)            the
Hauser Note; and


 


(d)            any
Subordinated Debt.


 


Section
9.7            Liens.  Create, incur, assume or suffer to exist any
Lien with respect to any property, revenues or assets now owned or hereafter
arising or acquired, except:


 


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


 


16

















 


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


 


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


 


(d)            Liens
of carriers, warehousemen, mechanics and materialmen, 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 time be required to be made in
accordance with the provisions of Section 8.4; and


 


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


 


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


 


ARTICLE
10        EVENTS
OF DEFAULT AND REMEDIES


 


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


 


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


 


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


 


(c)            The
Borrower shall fail to comply with any other agreement, covenant, condition,
provision or term contained in the Loan Documents or any other document,
instrument or agreement between Borrower and either Lender or Miller,
including, without limitation, the Lease and the January Discretionary
Credit Agreement; or


 


17

















 


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


 


(e)            The
maturity of any Indebtedness (other than Indebtedness under this Agreement and
whether owed to the Lender or to others) shall be accelerated, or the Borrower
shall fail to pay any such Indebtedness when due or, in the case of such
Indebtedness payable on demand, when demanded, or any event shall occur or
condition shall exist and shall continue for more than the period of grace, if
any, applicable thereto and shall have the effect of causing or permitting (any
required notice having been given and grace period having expired) the holder
of any such Indebtedness or any trustee or other Person acting on behalf of
such holder to cause, such Indebtedness to become due prior to its stated
maturity or to realize upon any collateral given as security therefor.


 


Section
10.2         Remedies.  If (a) any Event of Default described in Section
10.1(d) shall occur, the Discretionary Facility (including, without
limitation, any obligation of the Lender to make any Discretionary Loan under
Section 2.1(b)) shall automatically terminate and the outstanding unpaid
principal balance of the Discretionary Note, the accrued interest thereon and
all other Obligations shall automatically become immediately due and payable;
or (b) any other Event of Default shall occur and be continuing, then the
Lender may take any or all of the following actions: (i) declare the
Discretionary Facility (including, without limitation, any obligation of the
Lender to make any Discretionary Loan under Section 2.1(b)) to be terminated,
whereupon the Discretionary Facility (including, without limitation, any
obligation of the Lender to make any Discretionary Loan under Section 2.1(b))
shall terminate, and (ii) declare the outstanding unpaid principal balance of
the Discretionary Note, the accrued and unpaid interest thereon and all other
Obligations to be forthwith due and payable, whereupon the Discretionary Note,
all accrued and unpaid interest thereon and all such other Obligations shall
immediately become due and payable, in each case without further demand or notice
of any kind, all of which are hereby expressly waived, anything in this
Agreement or in the Discretionary Note to the contrary notwithstanding.  In addition, upon any Event of Default, the
Lender may exercise all rights and remedies under any other instrument,
document or agreement between the Borrower and the Lender, and enforce all
rights and remedies under any applicable law, including without limitation the
rights and remedies available upon default to a secured party under the Uniform
Commercial Code as adopted in the State of Minnesota, including, without
limitation, the right to take possession of the Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby expressly waives)
and the right to sell, lease or otherwise dispose of any or all of the
Collateral, and, in connection therewith, the Borrower will on demand assemble
the Collateral and make it available to the Lender at a place to be designated
by the Lender which is reasonably convenient to both parties.


 


Section
10.3         Offset.  In addition to the remedies set forth in Section
10.2, the Lender or any other holder of the Discretionary Note may offset
any and all obligations of the Lender or such other holder of the Discretionary
Note, against the Indebtedness then owed by the Borrower to the Lender.  Nothing in this Agreement shall be deemed a
waiver or prohibition of the Lender’s rights offset or counterclaim, which
right the Borrower hereby grants to the Lender.


 


18

















 


ARTICLE
11        MISCELLANEOUS


 


Section
11.1         Waiver and Amendment.  No failure on the part of the Lender or the
holder of the Discretionary Note to exercise and no delay in exercising any
power or right hereunder or under any other Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any power or right
preclude any other or further exercise thereof or the exercise of any other
power or right.  The remedies herein and
in any other instrument, document or agreement delivered or to be delivered to
the Lender hereunder or in connection herewith are cumulative and not exclusive
of any remedies provided by law.  No
notice to or demand on the Borrower not required hereunder or under the
Discretionary Note shall in any event entitle the Borrower to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of the Lender or the holder of the Discretionary Note to
any other or further action in any circumstances without notice or demand.  No amendment, modification or waiver of any
provision of this Agreement or consent to any departure by the Borrower
therefrom shall be effective unless the same shall be in writing and signed by
the Lender, and then such amendment, modifications, waiver or consent shall be
effective only in the specific instances and for the specific purpose for which
given.  Miller’s approval of any Borrower
corporate action, in his capacity as a director of Borrower, whether by written
action or otherwise, is not a sufficient waiver or consent to satisfy any
waiver or consent requirement with respect to any Obligations.


 


Section
11.2         Expenses and Indemnities.  Whether or not any Discretionary Loan is
made hereunder, the Borrower agrees to reimburse the Lender upon demand for all
reasonable expenses paid or incurred by either the Lender or Miller (including
filing and recording costs and fees and expenses of legal counsel of each of
Lender and Miller) in connection with the preparation, review, execution,
delivery, amendment, modification, interpretation, collection and enforcement
of the Loan Documents.  The Borrower
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 or delivery
of the Loan Documents.  The Borrower
agrees to indemnify and hold the Lender harmless from any loss or expense which
may arise or be created by the acceptance of instructions for making Loans or
disbursing the proceeds thereof. The Borrower agrees to indemnify and hold the
Lender and Miller harmless from any obligation to pay any fees or commissions
to any broker or finder in connection with the transactions contemplated in the
Loan Documents, including, without limitation, to NDX Trading, Inc.  The Borrower shall indemnify and hold
harmless the Lender and its respective Affiliates, and each such Person’s
respective 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 of
investigation or defense, including those incurred upon any appeal) that may be
instituted or asserted against or incurred by any such Indemnified Person as
the result of any representation or warranty made by the Borrower in the Loan
Documents or in any certificate, statement, report or other writing furnished
by the Borrower to the Lender or Miller pursuant to the Loan Documents or any
other instrument, document or agreement shall prove to have been false or
misleading. The obligations of the Borrower under this Section 11.2
shall survive any termination or expiration of the Discretionary Facility and
payment in full of the Obligations.


 


19

















 


Section
11.3         Notices.  Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing.  All periods of notice shall be measured from the date of delivery
thereof if manually delivered, from the date of sending thereof if sent by
telegram, telex or facsimile transmission, from a first Business Day after the
date of sending if sent by overnight courier, or from four days after the date
of mailing if mailed; provided, however, that any notice to the
Lender under Article 2 hereof shall be deemed to have been given only
when received by the Lender.  If notice
to the Borrower of any intended disposition of the Collateral or any other
intended action is required by law in a particular instance, such notice shall
be deemed commercially reasonable if given at least ten calendar days prior to
the date of intended disposition or other action.


 


Section
11.4         Successors.  This Agreement shall be binding on the
Borrower and the Lender and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Lender, and the successors and
assigns of the Lender.  The Borrower
shall not assign its rights or duties hereunder without the written consent of
the Lender.


 


Section
11.5         Participations and
Information. 
The Lender may sell participation interests in any or all of the
Discretionary Loans and in all or any portion of the Discretionary Facility to
any Person.  The Lender may furnish any
information concerning the Borrower in the possession the Lender from time to
time to participants and prospective participants and may furnish information
in response to credit inquiries.


 


Section
11.6         Severability.  Any provision of the Agreement which is
prohibited or unenforceable in any jurisdiction shall, in such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.


 


Section
11.7         Captions.  The captions or headings herein are for
convenience only and in no way define, limit or describe the scope or intent of
any provision of this Agreement.


 


Section
11.8         Entire Agreement.  This Agreement and the Discretionary Note,
and the other Loan Documents, embody the entire agreement and understanding
between the Borrower and the Lender with respect to the subject matter hereof
and thereof.  This Agreement supersedes
all prior agreements and understandings relating to the subject matter hereof.


 


Section
11.9         Counterparts.  This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.


 


Section
11.10       Governing Law.  The validity, construction and
enforceability of this Agreement and the Discretionary Note shall be governed
by the internal laws of the State of Minnesota, without giving effect to
conflict of laws principles thereof.


 


20

















 


Section 11.11       Financing
With More Preferable Terms. 
To the extent any financing obtained by Borrower has more favorable
terms than terms provided to Lender with respect to any Obligations, all as
reasonably determined by Lender, then in the Lender’s discretion, such terms
shall automatically be adopted into agreements evidencing the Obligations.  Borrower will provide written notice to the
Lender of any financing obtained by Borrower, describing the nature thereof and
what terms may be more preferable than those existing with respect to the
Obligations.  Contemporaneously with
such financing, Borrower will provide copies of all documents evidencing such
financing to Lender.  Borrower will
execute, deliver or endorse any and all instruments, documents, assignments,
security agreements, warrants, notes and other agreements and writings which
Lender may at any time reasonably request in order to secure, protect, perfect
or enforce the rights under this Section. 
Nothing in this Section shall be deemed to waive the provisions of this
Agreement or any other agreement requiring the Lender’s prior written consent
to obtaining any such financing.


 


(The signature page follows.)


 


21

















 


THE PARTIES HERETO have caused this Discretionary Credit Agreement to
be executed as of the date first above written.


 


	
   

  	
   

  	
  MEDICALCV, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jules L. Fisher

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jules L. Fisher

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  9725 South Robert Trail

  
	
   

  	
   

  	
  Inver Grove Heights, MN  55077

  
	
   

  	
   

  	
  Attention:  Chief Executive
  Officer

  
	
   

  	
   

  	
  Telephone:  (651) 452-3000

  
	
   

  	
   

  	
  Fax:  (651) 234-6669

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Avron L. Gordon, Esq.

  
	
   

  	
   

  	
  Briggs and Morgan, P.A.

  
	
   

  	
   

  	
  2400 IDS Center

  
	
   

  	
   

  	
  80 South Eighth Street

  
	
   

  	
   

  	
  Minneapolis, MN 55402

  
	
   

  	
   

  	
  Fax (612) 334-8650

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PKM PROPERTIES, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Paul K. Miller

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Paul K. Miller

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c/o Gracon Contracting, Inc.

  
	
   

  	
   

  	
  606 24th Avenue South, Suite B12

  
	
   

  	
   

  	
  Minneapolis, MN 55454

  
	
   

  	
   

  	
  Attention:  Paul K. Miller

  
	
   

  	
   

  	
  Fax:  (612) 305-4813

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Charles F. Diessner Esq.

  
	
   

  	
   

  	
  Fredrikson & Byron, P.A.

  
	
   

  	
   

  	
  4000 Pillsbury Center

  
	
   

  	
   

  	
  200 South Sixth Street

  
	
   

  	
   

  	
  Minneapolis, MN 55402-1425

  
	
   

  	
   

  	
  Fax (612) 492-7077

  



 


22

















 


Schedules


 


9.5           Existing Investments


 


None.


 


9.7           Existing Liens


 


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

  	
   

  
	
  2128365

  	
   

  	
  C V Dynamics, Inc.

  	
   

  	
  5/4/99

  	
   

  	
  Dexxon Capital Corporation

  	
   

  	
  Specific Equipment

  	
   

  
	
  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

  	
   

  
	
  20036276297

  	
   

  	
  MedicalCV

  	
   

  	
  1/17/03

  	
   

  	
  PKM Properties, LLC

  	
   

  	
  Blanket Lien

  	
   

  



 


The security interest created in favor of Hauser under the
May Security Agreement to secure the Hauser Note.


 


23