EXHIBIT 10.4


 


MAY SECURITY AGREEMENT


 


 


	
  DATE:

  	
   

  	
  July 1, 2003

  
	
   

  	
   

  	
   

  
	
  PARTIES:

  	
   

  	
  PKM
  Properties, LLC

  
	
   

  	
   

  	
  c/o Gracon Contracting, Inc.

  
	
   

  	
   

  	
  606 24th Avenue South, Suite B12

  
	
   

  	
   

  	
  Minneapolis, MN 55454

  
	
   

  	
   

  	
  Attention:  Paul K. Miller

  	
  (“PKM Properties”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Peter L.
  Hauser

  
	
   

  	
   

  	
  16913 Kings
  Court

  
	
   

  	
   

  	
  Lakeville,
  MN  55044

  	
  (“Hauser”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Hauser and
  PKM Properties, individually and collectively, and their respective
  successors and assigns, will be referred to in this May Security Agreement as
  the “Secured Party”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MedicalCV,
  Inc.

  
	
   

  	
   

  	
  9725 South Robert Trail

  
	
   

  	
   

  	
  Inver Grove
  Heights, MN  55077

  
	
   

  	
   

  	
  Organizational
  Identification Number:  7J-436

  	
  (“Debtor”)

  
					



 


AGREEMENTS:


 


IN
CONSIDERATION of one dollar and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:


 


1.             Grant
of Security Interest and Collateral.  In order to secure payment and performance
of each and every debt, liability and obligation of every type and description
which Debtor may now or at any time hereafter owe to Secured Party whether such
debt, liability or obligation now exists or is hereafter created or incurred,
whether it arises under or is evidenced by this May Security Agreement or any
other present or future instrument or agreement or by operation of law, and
whether it is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole, joint,
several or joint and several (all such debts, liabilities and obligations and
any amendments, extensions, renewals or replacements thereof are herein
collectively referred to as the “Obligations”), Debtor hereby grants
Secured Party a security interest (the “Security Interest”) in all of
Debtor’s property (the “Collateral”), including without limitation the
following:


 


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(a)           Inventory and
Goods:  All inventory of Debtor,
whether now owned or hereafter acquired and wherever located and other tangible
personal property held for sale or lease or furnished or to be furnished under
contracts of service or consumed in Debtor’s business, and all goods of Debtor,
whether now owned or hereafter acquired and wherever located, including without
limitation all computer programs embedded in goods;


 


(b)           Equipment:  All equipment of Debtor, whether now owned
or hereafter acquired and wherever located, including but not limited to all
present and future equipment, machinery, tools, motor vehicles, trade fixtures,
furniture, furnishings, office and recordkeeping equipment and all goods for
use in Debtor’s business, together with all parts, equipment and attachments
relating to any of the foregoing;


 


(c)           Accounts,
Contract Rights and Other Rights to Payment:  Each and every right of Debtor to the payment of money, whether
such right to payment now exists or hereafter arises, whether such right to
payment arises out of a sale, lease, license, assignment or other disposition
of goods or other property by Debtor, out of a rendering of services by Debtor,
out of a loan by Debtor, out of the overpayment of taxes or other liabilities
of Debtor, or otherwise arises under any contract or agreement, whether such
right to payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and interests
(including all liens and security interests) which Debtor may at any time have
by law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor or
other obligor; all including but not limited to all present and future debt
instruments, chattel papers, accounts, license fees, contract rights, loans and
obligations receivable and tax refunds;


 


(d)           Instruments:  All instruments, chattel paper, letters of
credit or other documents of Debtor, whether now owned or hereafter acquired,
including but not limited to promissory notes, drafts, bills of exchange and
trade acceptances; all rights and interests of Debtor, whether now existing or
hereafter created or arising, under leases, licenses or other contracts;


 


(e)           Deposit Accounts
and Investment Property:  All right,
title and interest of Debtor in all deposit and investment accounts maintained
with any bank, savings and loan association, broker, brokerage, or any other
financial institution, together with all monies and other property deposited or
held therein, including, without limitation, any checking account, savings
account, escrow account, savings certificate and margin account, and all
securities, whether certificated or uncertificated, security entitlements,
securities accounts, commodity contracts, and commodity accounts; and


 


(f)            General
Intangibles:  All general
intangibles of Debtor, whether now owned or hereafter acquired, including, but
not limited to, applications for patents, patents, copyrights, trademarks,
trade secrets, good will, tradenames, customer lists, permits and franchises,
software, and the right to use Debtor’s name, and any and all


 


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membership
interests, governance rights, and financial rights in each and every limited
liability company, and all payment intangibles;


 


together with all substitutions and replacements for and products of
any of the foregoing property and proceeds of any and all of the foregoing
property and, in the case of all tangible Collateral, together with
(i) all accessories, attachments, parts, equipment, accessions and repairs
now or hereafter attached or affixed to or used in connection with any such
goods, (ii) all warehouse receipts, bills of lading and other documents of
title now or hereafter covering such goods, and (iii) all books and
records of Debtor.


 


2.             Representations,
Warranties and Agreements. 
Debtor represents, warrants and agrees that:


 


(a)           Debtor is a
corporation duly organized, validly existing and in good standing under the
laws of the state of Minnesota.  This
May Security Agreement has been duly and validly authorized by all necessary
corporate action.  Debtor has full power
and authority to execute this Agreement, to perform Debtor’s obligations
hereunder and to subject the Collateral to the Security Interest.  Debtor’s organizational identification
number is the number shown at the beginning of this Agreement.


 


(b)           The Collateral will
be used primarily for business purposes.


 


(c)           Debtor’s chief place
of business is located at the address shown at the beginning of this
Agreement.  Debtor’s records concerning
its accounts and contract rights are kept at such address.  The Collateral is located at the address
shown at the beginning of this Agreement. 
Debtor will give at least 30 days’ advance written notice to Secured
Party of any change in Debtor’s jurisdiction of organization or chief place of
business and any change in or addition of any Collateral location.


 


(d)           Except as otherwise
provided in that certain May Discretionary Credit Agreement, dated as of the
date hereof, as amended from time to time, between the Debtor and the Secured
Party (the “Credit Agreement”), Debtor has (or will have at the time
Debtor acquires rights in Collateral hereafter arising) and will maintain
absolute title to each item of Collateral free and clear of all security
interests, liens and encumbrances, except the Security Interest, and will
defend the Collateral against all claims or demands of all persons other than
Secured Party.


 


(e)           Except as otherwise
provided in the Credit Agreement, Debtor will not sell or otherwise transfer or
dispose of the Collateral or any interest therein.


 


(f)            Debtor will not
permit any tangible Collateral to be located in any state (and, if a county
filing is required, in any county) in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed.


 


(g)           All rights to
payment and all instruments, documents, chattel papers and other agreements
constituting or evidencing Collateral are (or will be when arising or


 


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issued) the
valid, genuine and legally enforceable obligation, subject to no defense,
set-off or counterclaim (other than those arising in the ordinary course of
business) of each account debtor or other obligor named therein or in Debtor’s
records pertaining thereto as being obligated to pay such obligation.  Debtor will not agree to any modification,
amendment or cancellation of any such obligation without Secured Party’s prior
written consent except discounts provided by Debtor in the ordinary course of
business, and will not subordinate any such right to payment to claims of other
creditors of such account debtor or other obligor.


 


(h)           Debtor will keep all
tangible Collateral in good repair, working order and condition, normal
depreciation excepted, and will, from time to time, replace any worn, broken or
defective parts thereof.


 


(i)            Except as otherwise
provided in the Credit Agreement, Debtor will promptly pay all taxes and other
governmental charges levied or assessed upon or against any Collateral or upon
or against the creation, perfection or continuance of the Security Interest.


 


(j)            Debtor will
promptly notify Secured Party of any material loss of or damage to any
Collateral or of any adverse change in the prospect of payment of any material
sums due on or under any instrument, chattel paper, account or contract right
constituting Collateral.


 


(k)           Debtor will if
Secured Party at any time so requests (whether the request is made before or
after the occurrence of an Event of Default), promptly deliver to Secured Party
any instrument, document or chattel paper constituting Collateral, duly
endorsed or assigned by Debtor to Secured Party.


 


(l)            Debtor will at all
times keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, and such other risks and in such amounts
as Secured Party may reasonably request, with any loss payable to Secured Party
to the extent of its interest.


 


(m)          If any Collateral is
covered by a certificate of title, Debtor will from time to time execute such
documents as may be required to have the Security Interest properly noted on a
certificate of title.  Debtor authorizes
Secured Party to file from time to time such financing statements against the
Collateral described as “all assets” or the like as Secured Party deems
necessary or useful to perfect the Security Interest.


 


(n)           Debtor will pay when
due or reimburse Secured Party on demand for all costs of collection of any of
the Obligations and all other out-of-pocket expenses (including in each case
all reasonable attorneys’ fees) incurred by Secured Party in connection with
the creation, perfection, satisfaction or enforcement of the Security Interest
or the execution or creation, continuance or enforcement of this May Security
Agreement or any or all of the Obligations.


 


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(o)           Debtor will execute,
deliver or endorse any and all instruments, documents, assignments, security
agreements and other agreements and writings which Secured Party may at any
time reasonably request in order to secure, protect, perfect or enforce the
Security Interest and Secured Party’s rights under this May Security Agreement.


 


(p)           Debtor will not use
or keep any Collateral, or permit it to be used or kept, for any unlawful
purpose or in violation of any federal, state or local law, statute or
ordinance.


 


If Debtor at any time fails to
perform or observe any agreement contained in Sections 2(h) through 2(o),
immediately upon the occurrence of such failure, without notice or lapse of
time, Secured Party may (but need not) perform or observe such agreement on
behalf and in the name, place and stead of Debtor (or, at Secured Party’s
option, in Secured Party’s own name) and may (but need not) take any and all
other actions which Secured Party may reasonably deem necessary to cure or
correct such failure (including, without limitation, the payment of taxes, the
satisfaction of security interests, liens, or encumbrances, the performance of
obligations under contracts or agreements with account debtors or other obligors,
the procurement and maintenance of insurance, the execution of financing
statements, the endorsement of instruments, and the procurement of repairs,
transportation or insurance); and, except to the extent that the effect of such
payment would be to render any loan or forbearance of money usurious or
otherwise illegal under any applicable law, Debtor shall thereupon pay Secured
Party on demand the amount of all moneys expended and all costs and expenses
(including reasonable attorneys’ fees) incurred by Secured Party in connection
with or as a result of Secured Party’s performing or observing such agreements
or taking such actions, together with interest thereon from the date expended
or incurred by Secured Party at the highest rate then applicable to any of the
Obligations.  To facilitate the
performance or observance by Secured Party of such agreements of Debtor, Debtor
hereby irrevocably appoints (which appointment is coupled with an interest)
Secured Party, or its delegate, as the attorney-in-fact of Debtor with the
right (but not the duty) from time to time to create, prepare, complete,
execute, deliver, endorse or file, in the name and on behalf of Debtor, any and
all instruments, documents, financing statements, applications for insurance
and other agreements and writings required to be obtained, executed, delivered
or endorsed by Debtor under this Section 2.


 


3.             Lock
Box; Collateral Account.  If Secured Party so requests at any time after the occurrence of
an Event of Default (as defined in Section 7 of this Agreement), Debtor will
direct each of its account debtors to make payments due under the relevant
account or chattel paper directly to a special lock box to be under the control
of Secured Party (the “Lock Box”). 
Debtor hereby authorizes and directs Secured Party to deposit into a
special collateral account to be established and maintained with Secured Party
(the “Collateral Account”) all checks, drafts, and cash payments
received in the Lock Box.  All deposits
in the Collateral Account shall constitute proceeds of Collateral and shall not
constitute payment of any Obligation. 
At its option, Secured Party shall, at any time, apply finally collected
funds on deposit in the Collateral Account to the payment of the Obligations in
such order of application as Secured Party may determine, or permit Debtor to
withdraw all or any part of the balance. 
If a Lock Box is so established, Debtor agrees that it will promptly
deliver to Secured Party, for deposit into the Lock Box, all payments


 


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on accounts and chattel paper
received by it.  All such payments shall
be delivered to Secured Party in the form received (except for Debtor’s
endorsement where necessary).  Until so
deposited, all such payments on accounts and chattel paper received by Debtor
shall be held in trust by Debtor for and as the property of Secured Party and
shall not be commingled with any funds or property of Debtor.


 


4.             Account
Verification and Collection Rights of Secured Party.  Secured Party shall have the right to verify
any accounts in the name of Debtor or in Secured Party’s own name; and Debtor,
whenever requested, shall furnish Secured Party with duplicate statements of
the accounts, which statements may be mailed or delivered by Secured Party for
that purpose.  Whether or not Secured
Party exercises its rights under Section 3 of this Agreement, Secured Party may
at any time (whether before or after the occurrence of an Event of Default)
notify any account debtor or any other person obligated to pay any amount due,
that such chattel paper, account or other right to payment has been assigned or
transferred to Secured Party for security and shall be paid directly to Secured
Party.  If Secured Party so requests at
any time (whether before or after the occurrence of an Event of Default),
Debtor will so notify such account debtors and other obligors in writing and
will indicate on all invoices to such account debtors or other obligors that
the amount due is payable directly to Secured Party.  At any time after Secured Party or Debtor gives such notice to an
account debtor or other obligor, Secured Party may (but need not), in Secured
Party’s own name or in Debtor’s name, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such chattel paper, account or other right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor.


 


5.             Assignment
of Insurance. 
Debtor hereby assigns to Secured Party, as additional security for the
payment of the Obligations, any and all moneys (including but not limited to
proceeds of insurance and refunds of unearned premiums) due or to become due
under, and all other rights of Debtor under or with respect to, any and all
policies of insurance covering the Collateral, and Debtor hereby directs the
issuer of any such policy to pay any such moneys directly to Secured
Party.  Both before and after the
occurrence of an Event of Default, Secured Party may (but need not), in Secured
Party’s own name or in Debtor’s name, execute and deliver proofs of claim,
receive all such moneys, endorse checks and other instruments representing
payment of such moneys, and adjust, litigate, compromise or release any claim
against the issuer of any such policy.


 


6.             Right
to Offset. 
Nothing in this Agreement shall be deemed a waiver or prohibition of
Secured Party’s right of banker’s lien, offset, or counterclaim, which right
Debtor hereby grants to Secured Party.


 


7.             Events
of Default. 
The occurrence of any Event of Default, as defined in Section 10.1
of the Credit Agreement, shall constitute an Event of Default hereunder.


 


8.             Remedies
Upon Event of Default.  Upon the occurrence of an Event of Default and at any time
thereafter until such Event of Default is cured to the written satisfaction of
Secured Party, Secured Party may exercise any one or more of the rights or
remedies set forth in


 


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Section 10.2 of the Credit
Agreement.  All rights and remedies of
Secured Party shall be cumulative and may be exercised singularly or
concurrently, at Secured Party’s option, and the exercise or enforcement of any
one such right or remedy shall neither be a condition to nor bar the exercise
or enforcement of any other.


 


9.             Other
Personal Property.  If at the time Secured Party takes possession of any tangible
Collateral, any goods, papers or other properties of Debtor, not affixed to or
constituting a part of such Collateral, are located or to be found upon or
within such Collateral, Debtor agrees to notify Secured Party in writing of
that fact, describing the property so located or to be found, within 7 calendar
days after the date on which Secured Party took possession. Unless and until
Secured Party receives such notice from Debtor, Secured Party shall not be
responsible or liable to Debtor for any action taken or omitted by or on behalf
of Secured Party with respect to such property without actual knowledge of the
existence of any such property or without actual knowledge of the fact that it
was located or to be found upon such Collateral.


 


10.          Amendment;
Waivers. 
This Agreement can be waived, modified, amended, terminated or
discharged, and the Security Interest can be released, only explicitly in a
writing signed by Secured Party and Debtor. 
A waiver shall be effective only in the specific instance and for the
specific purpose given.  Mere delay or
failure to act shall not preclude the exercise or enforcement of any of Secured
Party’s rights or remedies.


 


11.          Notices.  All notices to be given to Debtor shall be
deemed sufficiently given if mailed by registered or certified mail, postage
prepaid, or delivered to Debtor at Debtor’s address set forth above or at the
most recent address shown on Secured Party’s records.


 


12.          Miscellaneous.  Secured Party’s duty of care with respect to
Collateral in its possession (as imposed by law) shall be deemed fulfilled if
Secured Party exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and Secured Party need not otherwise preserve,
protect, insure or care for any Collateral. 
Secured Party shall not be obligated to preserve any rights Debtor may
have against prior parties, to realize on the Collateral at all or in any
particular manner or order, or to apply any cash proceeds of Collateral in any
particular order of application.  This
Agreement shall be binding upon and inure to the benefit of Debtor and Secured Party
and their respective representatives, successors and assigns and shall take
effect when signed by Debtor and delivered to Secured Party, and Debtor waives
notice of Secured Party’s acceptance hereof. 
Secured Party may execute this Agreement if appropriate for the purpose
of filing, but the failure of Secured Party to execute this Agreement shall not
affect or impair the validity or effectiveness of this Agreement.


 


(The
signature page follows.)


 


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THE PARTIES
have executed this May Security Agreement the day and year first above written.


 


 


	
  Secured Party:

  	
  PKM PROPERTIES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Paul K. Miller

  	
   

  
	
   

  	
  Paul K.
  Miller,

  
	
   

  	
  its Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Peter L.
  Hauser

  	
   

  
	
   

  	
  Peter L.
  Hauser, an individual

  
	
   

  	
   

  
	
   

  	
   

  
	
  Debtor:

  	
  MEDICALCV, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Jules L. Fisher

  	
   

  
	
   

  	
  Jules L.
  Fisher

  
	
   

  	
  its Chief
  Financial Officer

  
						



 


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