Document:

Exhibit
4.1

 

[LETTERHEAD]

 

December 14, 2004

 

VIA FACSIMILE (617-603-6683) AND CERTIFIED
MAIL

 

Corporate Trust Office of the Trustee

U.S. Bank National Association

One Federal Street, 3rd Floor

Boston, MA 02110

Attn: George Davison

 

Re:                             Charles
River Associates Incorporated

 

Dear Mr. Davison:

 

Pursuant to Section 15.02(i) of that
certain Indenture between Charles River Associates Incorporated (the “Company”)
and U.S. Bank National Association (“U.S. Bank”) dated June 21, 2004, the
Company hereby irrevocably elects to satisfy in cash 100% of the principal
amount of the Debentures to be converted on or after the date hereof.  The Company maintains the right to satisfy a
Conversion Obligation to the extent it exceeds the principal amount of the
Debentures in shares of Common Stock (or cash in lieu of any fractional shares)
pursuant to Section 15.02(i) of the Indenture.

 

The Company hereby instructs U.S. Bank, as
Debenture Registrar, to notify the Debentureholders of this election pursuant
to Section 15.02(i) of the Indenture.

 

Capitalized terms used herein and not defined
shall have the meaning ascribed to such terms in the Indenture.

 

 

	
   

  	
  Best regards,

  
	
   

  	
   

  
	
   

  	
  /s/ J. Phillip Cooper

  	
   

  
	
   

  	
   

  
	
   

  	
  J. Phillip Cooper

  
	
   

  	
  Executive Vice President, Chief Financial

  Officer, and TreasurerExhibit
10.1

 

AMENDMENT NO. 2 TO

FIRST AMENDED AND RESTATED

SUBORDINATION AND INTERCREDITOR AGREEMENT

 

 

 

THIS AMENDMENT NO. 2 TO
SUBORDINATION AND INTERCREDITOR AGREEMENT, dated as of April 16, 2004, is by
and between PETER L. HAUSER, a resident of the State of Minnesota, and his
successors heirs and permitted assigns (“Hauser”), PKM PROPERTIES, LLC,
a Minnesota limited liability company, and its endorsees, successors and
assigns (“PKM”), and DRAFT CO., a Minnesota limited liability
partnership, and its endorsees, successors and assigns (“Draft”).

 

RECITALS:

 

A.            Hauser, PKM and Draft are parties to that certain First
Amended and Restated Subordination and Intercreditor Agreement dated as of
November 24, 2003, as amended by that certain Amendment No. 1 to First Amended
and Restated Subordination and Intercreditor Agreement dated as of January 29,
2004 (the “Amended Agreement”); and

 

B.  Medical CV, Inc., a Minnesota corporation
(the “Borrower”) is, or may hereafter become, indebted to PKM as a
result of the advance of monies and other extensions of credit by PKM to the
Borrower under a Discretionary Credit Agreement dated as of April 16, 2004 (as
the same may have been or may be amended, restated or otherwise modified from
time to time hereafter, the “April 2004 Discretionary Credit Agreement”).

 

C.            Hauser, PKM and Draft desire to amend the Amended
Agreement as provided herein, and on the terms and conditions of this
Agreement; and

 

AGREEMENTS:

 

NOW, THEREFORE, for good and
valuable consideration, receipt of which is acknowledged by the parties, the
parties agree as follows:

 

Section 1.  Definitions, Rules of Construction.

 

Except as otherwise defined
in this Agreement, all capitalized terms used herein shall have the definitions
and be subject to the rules of construction provided in the Amended Agreement.

 

Section
2.  The following definition
contained in Section 1(a) of the Amended Agreement is hereby amended in its
entirety to read as follows:

 

“Senior Debt” shall mean all liabilities and obligations of the
Borrower to PKM howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising or incurred, including, without limitation, all of the
Borrower’s obligations to PKM under the January Credit Agreement, the May
Credit Agreement, the November Credit Agreement, the Lease, the April 2004
Discretionary Credit Agreement, and any note or notes executed by the Borrower
thereunder, and all other obligations under any other agreement between the
Borrower and PKM now or hereafter in effect, and also including, without
limitation, any and all interest accruing on any of the Senior Debt after the
commencement of any 

 

 

proceedings referred to in Section 5
below, notwithstanding any provision or rule of law which might restrict the
rights of PKM, as against the Borrower or anyone else, to collect such
interest; provided, however, that (1) Senior Debt shall not include any
obligations arising solely under the May Discretionary Credit Note, the
November Discretionary Credit Note, or any other instrument given by the
Borrower in favor of PKM after the date hereof to the extent it is not an
amendment, modification, supplement, restatement or replacement of another
instrument evidencing then currently existing Senior Debt, (2) for purposes
hereof, Senior Debt shall include no more than $943,666 of principal under the
January Discretionary Credit Agreement and no more than $250,000 of principal
under the April 2004 Discretionary Credit Agreement, and (3) in order to be
considered Senior Debt hereunder as of any particular time, obligations with
respect to the Lease must be due and payable at such time (without
acceleration).

 

Section 3.  Effect of
Amendment.

 

 

Except as provided in this Agreement, the Amended Agreement shall
remain in full force and effect.

 

 

(The signature page follows.)

 

 

2

 

IN WITNESS WHEREOF, this Amendment No. 2 to First Amended and Restated
Subordination and Intercreditor Agreement has been signed as of the date first
set forth above.

 

 

 

 

 

	
   

  	
  /s/
  Peter L. Hauser

  
	
   

  	
  PETER
  L. HAUSER

  
	
   

  	
   

  
	
   

  	
  Address
  for Notice:

  
	
   

  	
  16913
  Kings Court

  
	
   

  	
  Lakeville,
  MN 55044

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PKM
  PROPERTIES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/
  Paul K. Miller

  
	
   

  	
  Name:
  

  	
  Paul
  K. Miller

  
	
   

  	
  Its:

  	
  Chief
  Manager

  
	
   

  	
   

  
	
   

  	
  Address
  for Notice:

  
	
   

  	
  PKM
  Properties, LLC

  
	
   

  	
  c/o
  Gracon Contracting, Inc.

  
	
   

  	
  606
  24th Avenue South, Suite B12

  
	
   

  	
  Minneapolis,
  MN 55454

  
	
   

  	
  Attention:
  Paul K. Miller

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DRAFT
  CO.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/
  Ford J. Nicholson

  
	
   

  	
  Name:
  

  	
  Ford
  J. Nicholson

  
	
   

  	
  Its:

  	
  President

  
	
   

  	
   

  
	
   

  	
  Address
  for Notice:

  
	
   

  	
  Draft
  Co.

  
	
   

  	
  336
  Robert Street North, Suite 1220

  
	
   

  	
  St.
  Paul, MN 55101

  
					

 

 

3

 

ACCEPTANCE AND ACKNOWLEDGMENT

 

 

Borrower hereby accepts and
acknowledges receipt of a copy of, the foregoing Amendment No. 2 to First
Amended and Restated Subordination and Intercreditor Agreement and agrees to be
bound by and comply with the provisions thereof, and reaffirms its Acceptance
and Acknowledgement of the terms and conditions of the First Amended and
Restated Subordination and Intercreditor Agreement.

 

 

 

	
   

  	
  MEDICALCV,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/
  Blair P. Mowery

  
	
   

  	
  Name:

  	
  Blair
  P. Mowery

  
	
   

  	
  Title:

  	
  President

  
					

 

 

4Exhibit 10.2

APRIL
2004 DISCRETIONARY

CREDIT
AGREEMENT

 

 

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

 

RECITALS:

 

                1.             Paul K. Miller (“Miller”) 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”); a $1,000,000
discretionary credit facility under a May Discretionary Credit Agreement dated
July 1, 2003 as it may have been or may be amended, modified, supplemented,
restated or replaced from time to time (the “May Discretionary Credit
Agreement”); and a $500,000 discretionary credit facility under a November
Discretionary Credit Agreement dated November 11, 2003 as it may have been or
may be amended, modified, supplemented, restated or replaced from time to time
(the “November 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 $250,000 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, the May Discretionary Credit Agreement,
the November Discretionary Credit Agreement, this 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.  Any capitalized
term not defined in this Agreement shall have the meaning given such term in
the November Discretionary Credit Agreement. 
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):

 

                Agreement:  This April 2004 Discretionary Credit
Agreement, as it may be amended, modified, supplemented, restated or replaced
from time to time.

 

                Collateral:  The collateral as defined in Section 5.1.

 

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

 

                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 $250,000.

 

                Discretionary
Loans:  Any loans made by the Lender
to the Borrower, in the Lender’s sole and absolute discretion, under the
Discretionary Facility.

 

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

 

                Event of
Default:  Any event described in Section
9.1.

 

                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.

 

                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 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%.

 

                Loan Documents:  This Agreement, the Discretionary Note, the
May Security Agreement, the November Discretionary Credit Agreement, the
Financing Statements, 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.

 

                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 

 

 

2

 

otherwise, whether now existing or hereafter incurred, matured or
unmatured including without limitation the obligations pursuant to the January
Discretionary Credit Agreement, the May Discretionary Credit Agreement, the
November 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.

 

                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 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 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 

 

3

 

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
this Agreement 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 Minneapolis, 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
IMMEDIATELY UPON DEMAND, or if no demand is made, due and payable as
specified in such Discretionary Note.

 

                Section 3.4            Loan Fee.  As further consideration for the financing
provided by Lender hereunder, upon the Lender making Discretionary Loans, the
Borrower will pay to the Lender a fee in an amount equal to 6.5% of any
Discretionary Loan.  If and when a
Discretionary Loan is made under this Agreement, loan proceeds will be advanced
by the Lender to the Borrower net of the fee required under this Section, and
such fee will be deemed to be a Discretionary Loan.

 

ARTICLE 4 
PAYMENTS AND PREPAYMENTS

 

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

 

                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 

 

4

 

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 and the May 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 9.2, the Discretionary
Note and all other Obligations, shall be immediately due and payable as
provided in Section 9.2 and in the Discretionary Note.  THE BORROWER ACKNOWLEDGES
THAT THE LENDER MAY DEMAND PAYMENT OF THE DISCRETIONARY NOTE AT ANY TIME
WHETHER OR NOT A DEFAULT OF EVENT OF DEFAULT HAS OCCURRED.

 

                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.

 

5

 

                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 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)           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.

 

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

 

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

 

(e)           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 any 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):

 

6

 

                (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.

 

                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 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.

 

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

 

7

 

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

 

                Section 7.6            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          
COVENANTS

 

                Section
8.1            Survival of covenants
under November Discretionary Credit Agreement.   Until all of its Obligations shall have been
indefeasibly satisfied in full, the Borrower shall continue to comply with all
its affirmative and negative covenants under the November Discretionary Credit
Agreement, regardless of whether it repays all of the Indebtedness owing under
the November Discretionary Credit Agreement.

 

ARTICLE 9 
EVENTS OF DEFAULT AND REMEDIES

 

                Section 9.1            Events of Default.  The occurrence of any one or more of 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)           An Act of Bankruptcy shall occur with
respect to the Borrower; or

 

                (c)           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

 

                (d)           The Borrower shall fail to comply
with any 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; or

 

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

 

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

 

8

 

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 to
be terminated, whereupon the Discretionary Facility 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 9.3            Offset.  In addition to the remedies set forth in Section
9.2, 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.

 

ARTICLE
10  MISCELLANEOUS

 

                Section 10.1         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.

 

9

 

                Section 10.2         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.  Without the consent or any additional direction
from the Borrower, the Borrower agrees that the Lender may advance to itself
amounts payable by the Borrower under this Section, and any such advance will
be deemed to be a Discretionary Loan. 
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.  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 10.2 shall survive any
termination or expiration of the Discretionary Facility and payment in full of
the Obligations.

 

                Section 10.3         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 10.4         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 

 

10

 

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 10.5         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 10.6         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 10.7         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 10.8         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 10.9         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 10.10       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.

 

                Section 10.11       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.)

 

11

 

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

 

	
   

  	
   

  	
   

  	
  MEDICALCV, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By: 

  	
  /s/ Blair P. Mowery

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Blair P. Mowery

  
	
   

  	
   

  	
   

  	
  Title: 

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  9725 South Robert Trail

  Inver Grove Heights, MN 55077

  Attention: Chief Executive Officer

  Telephone: (651) 452-3000

  Fax: (651) 234-6669

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
   

  	
  Avron L. Gordon, Esq.

  Briggs and Morgan, P.A.

  2400 IDS Center

  80 South Eighth Street

  Minneapolis, MN 55402

  Fax (612) 334-8650

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  PKM PROPERTIES, LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Paul K. Miller

  
	
   

  	
   

  	
   

  	
  Name: 

  	
  Paul K. Miller

  
	
   

  	
   

  	
   

  	
  Title: 

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  c/o Gracon Contracting, Inc.

  606 24th Avenue South, Suite B12

  Minneapolis, MN 55454

  Attention: Paul K. Miller

  Fax: (612) 305-4813

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
   

  	
  Charles F. Diessner Esq.

  Fredrikson & Byron, P.A.

  4000 Pillsbury Center

  200 South Sixth Street

  Minneapolis, MN 55402-1425

  Fax (612) 492-7077

  

 

 

12

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