Document:

Exhibit 10.2

 

RETIREMENT AGREEMENT AND
GENERAL RELEASE

 

Cascade
Natural Gas Corporation (“Cascade”) and W. Brian Matsuyama, his heirs,
executors, administrators, successors, and assigns (collectively referred to
throughout this Retirement Agreement and General Release as “Matsuyama”),
agree:

 

1.                                      Last Day of Employment.  Matsuyama’s
last day of employment with Cascade will
be March 31, 2005.

 

2.                                      Consideration.  In consideration for signing this fully
executed original Retirement Agreement and General Release and in compliance
with the promises made herein, Cascade
agrees to provide the following payments and other benefits to Matsuyama after receiving the original of this
fully executed Retirement Agreement and General Release and the original letter
from Matsuyama in the form attached
hereto as Exhibit ”A.”  Matsuyama acknowledges that he would not otherwise
receive this consideration but for signing this Retirement Agreement and
General Release.

 

Cascade shall pay Matsuyama the sum of Fifty Thousand
Dollars ($50,000) on or about April 30, 2005, and Two Hundred Fifty
Thousand Dollars ($250,000) on or about April 30, 2006, less lawful
deductions.  Matsuyama agrees that said
payments are in lieu of eligibility to retire early without actuarial reduction
of benefits pursuant to Article 3.2(g) of Cascade’s Executive
Supplemental Retirement Income Plan.

 

3.                                      General Release of Claims.  Matsuyama knowingly and voluntarily releases and forever discharges, to the full extent permitted by law, Cascade, its parent corporation, affiliates,
subsidiaries, divisions, successors, predecessors and assigns and the current
and former employees, attorneys, insurers, partners, owners, officers,
directors, shareholders, agents thereof, the employee benefit plan for Cascade, plan fiduciaries and plan
administrators (whether internal or external), (collectively referred to as “Releasees”),
of and from any and all claims, known and unknown, asserted and unasserted, Matsuyama has
or may have against Releasees as of the date of execution of this Retirement
Agreement and General Release, including, but not limited to, any alleged
violation of:

 

•                  Title VII of the
Civil Rights Act of 1964, as amended;

•                  The Civil Rights
Act of 1991;

•                  Sections 1981
through 1988 of Title 42 of the United States Code, as amended;

•                  The Employee
Retirement Income Security Act of 1974, as amended;

•                  The Immigration
Reform and Control Act, as amended;

•                  The Americans
with Disabilities Act of 1990, as amended;

•                  The Workers
Adjustment and Retraining Notification Act, as amended;

•                  The Occupational
Safety and Health Act, as amended;

•                  The
Sarbanes-Oxley Act of 2002;

•                  The Family
Medical Leave Act, as amended to the extent permitted by law;

•                  The Equal Pay
Act, as amended;

•                  Washington Law
Against Discrimination, as amended, RCW 49.60 et seq.;

 

	
  Matsuyama’s
  initials 

  	
   

  

 

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•                  The National
Labor Relations Act;

•                  The Age
Discrimination in Employment Act of 1967, as amended;

•                  The Older
Workers Benefit Protection Act;

•                  The Consolidated
Omnibus Budget Reconciliation Act (“COBRA”), to the extent permitted by law;

•                  Any provision of
Title 49 of the Revised Code of Washington;

•                  The Washington
Minimum Wage Law, as amended, to the extent permitted by law;

•                  Any provision of
Title 296 of the Washington Administrative Code;

•                  Any claim for
failure to pay wages, bonuses, or commissions, including any claim for
liquidated or double damages, to the extent permitted by law;

•                  The Industrial
Insurance Act of Washington, as amended, to the extent permitted by law;

•                  The Washington
Consumer Protection Act, RCW 19.86 et seq.;

•                  Any claim under
a Collective Bargaining Agreement;

•                  Any claim for
negligent misrepresentation, intentional misrepresentation or fraud;

•                  Any claim for
intentional injury, intentional infliction of emotional distress, negligence,
negligent infliction of emotional distress, negligent hiring, supervision or
retention, or defamation;

•                  Any claim for
disparate impact on any basis;

•                  Any claim for
discrimination, harassment, failure to accommodate or retaliation;

•                  Any public
policy, contract, tort, or common law, including but not limited to claim(s)
for wrongful termination in violation of public policy, wrongful termination
for any reason, or constructive discharge;

•                  Any claim for
breach of any term or condition of an employee handbook or policy manual,
including any claim for breach of any promise of specific treatment in specific
circumstances;

•                  Any claim for
breach of contract, including but not limited to an employment contract;

•                  Any claim for
violation of any legal or equitable duty of good faith and fair dealing;

•                  Any other
federal, state or local civil or human rights law or any other local, state or
federal law, regulation or ordinance; or

•                  Any claim for
costs, fees, or other expenses including attorneys’ fees incurred in these
matters.

 

Notwithstanding the foregoing, the release set forth
in this section shall not apply to any vested benefits accrued by Matsuyama prior to the effective date of this
Agreement under any compensation or benefit plan maintained by Cascade for the benefit of its employees and
subject to ERISA.

 

4.                                      Indemnity.  In the event of any claims against
Matsuyama that may arise out of his employment, Cascade will in good faith,
defend, indemnify and hold harmless Matsuyama in the same manner and to the
same extent that it would any officer then in the employ of Cascade and only to
that extent.

 

5.                                      Non-Disparagement Obligation.  Matsuyamashall not defame, disparage or demean Cascade or any director, officer, employee or
agent of the same in any manner whatsoever; and directors and officers of
Cascade shall not defame, disparage or
demean

 

2

 

Matsuyama in
any manner whatsoever.  This paragraph shall not preclude either
party from responding truthfully to inquiries made in connection with any legal
or governmental proceeding pursuant to subpoena or other legal process.  As a material portion of this Retirement Agreement
and General Release, Matsuyama agrees that he will not appear as a witness in
any matter adverse to Cascade except under subpoena and for a period of one
year following Matsuyama’s last date of employment not provide any consultative
services that are adverse to Cascade in any way.  Matsuyama also agrees that if he is at any
time requested to provide information, whether by subpoena or otherwise, in any
matter involving or affecting Cascade in which Matsuyama was involved during
his tenure as an employee, Matsuyama will (1) notify Cascade as soon as
practicable, but in any event before providing the requested information; and
(2) provide Cascade the opportunity to participate in any meeting or proceeding
to provide such information.

 

6.                                      Affirmations.

 

6(a).                        Matsuyama affirms
that he has not filed, caused to be
filed, or presently is a party to any
claim, complaint, or action against Cascade
in any forum or form.

 

6(b).                        Matsuyama further affirms that he has been paid and/or has
received all compensation, wages, bonuses, commissions, and/or benefits to
which he may currently be
entitled and that no other compensation, wages, bonuses, commissions and/or
benefits are currently due to him, except (1) for benefits to which he is
entitled under the Retirement Plan for Employees of Cascade Natural Gas
Corporation and the Cascade Natural Gas Corporation Executive Supplemental
Retirement Income Plan, (2) for previously accrued paid time off, (3) for
post-retirement medical benefits for which he qualifies, and (4) as
provided in this Retirement Agreement and General Release.

 

6(c).        Matsuyama
furthermore affirms that he has no known workplace injuries or occupational
diseases and has been provided and/or has not been denied any leave requested under
the Family and Medical Leave Act.

 

6(e).                        Matsuyama further affirms that the amounts in
Paragraph “2” above are not subject to
any liens for attorneys’ fees or costs and that he is responsible to pay all his own attorneys’
fees and costs incurred in this matter.

 

7.                                      Taxation.  If
any taxing authority determines that any portion of the amounts in Paragraph “2” is taxable, Matsuyamaagrees to pay all taxes, penalties, and interest assessed and to hold
harmless and indemnify Cascade for all
amounts assessed.  Releasees make no
representation as to the taxability of the amounts paid to Matsuyama. 
Cascade will issue an IRS W-

2 Form to Matsuyama for both
payments.

 

8.                                      Governing Law and
Interpretation.  This Retirement Agreement and General Release
shall be governed and conformed in accordance with the laws of Washington State
without regard to its conflict of laws provision.  In the event Matsuyama
or Cascade breaches any provision of this
Retirement Agreement and General Release, Matsuyama
and Cascade affirm that either may
institute an action to specifically enforce any term or terms of this
Retirement Agreement and General Release. 
Should any provision of this Retirement Agreement and General Release be
declared illegal or unenforceable by any court of competent

 

3

 

jurisdiction and cannot be modified to be enforceable, excluding the
general release language, such provision shall immediately become null and
void, leaving the remainder of this Retirement Agreement and General Release in
full force and effect.

 

9.                                      Amendment.  This
Retirement Agreement and General Release may not be modified, altered or
changed except upon express written consent of all parties wherein specific
reference is made to this Retirement Agreement and General Release.

 

10.                               Revocation.  Matsuyama may revoke this Retirement Agreement
and General Release for a period of seven calendar days following the day he executes this Retirement Agreement and General
Release.  Any revocation within this
period must be submitted, in writing, to LarryRosok and state, “I hereby revoke my
acceptance of our Retirement Agreement and General Release.”  The revocation must be personally delivered
to Larry Rosok
or the designee of Rosok, or mailed and
postmarked within seven calendar days of execution of this Retirement Agreement
and General Release to:

 

Mr. Larry Rosok

Cascade
Natural Gas Corporation

222
Fairview Avenue

Seattle,
WA  98109

 

This Retirement
Agreement and General Release shall not become effective or enforceable until
the revocation period has expired and a letter in the form attached as Exhibit ”A,”
dated and signed no sooner than eight days after W. Brian Matsuyama dates and signs this Retirement Agreement and
General Release, is received by Larry Rosok. 
If the last day of the revocation period is a Saturday, Sunday or legal
holiday in Washington State, then the revocation period shall not expire until
the next following day which is not a Saturday, Sunday or legal holiday.

 

11.                               Entire Agreement.  This
Retirement Agreement and General Release sets forth
the entire agreement between the parties hereto, and fully supersedes any prior
obligations of Releasees to Matsuyama.  However, the Cascade Non-Competition
Agreement dated June 2, 1997, previously signed by Matsuyama shall survive this Retirement Agreement and General
Release and continue in full force and effect. 
Matsuyama acknowledges he has not
relied on any representations, promises, or agreements of any kind made to him
in connection with his decision to accept this Retirement Agreement and General
Release, except for those set forth in this Retirement Agreement and General
Release.

 

12.                               Counterparts and Facsimile
Signatures.  This Retirement Agreement and General Release
may be executed in counterparts, and, as executed, shall constitute one
agreement.  A facsimile signature shall
be considered the same as the original, provided that the original signature page is
delivered within ten days.

 

MATSUYAMA HAS BEEN ADVISED THAT HE HAS AT
LEAST SEVEN CALENDAR DAYS TO CONSIDER THIS RETIREMENT AGREEMENT AND GENERAL
RELEASE AND HEREBY IS ADVISED IN WRITING TO CONSULT WITH AN

 

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ATTORNEY
PRIOR TO EXECUTION OF THIS RETIREMENT AGREEMENT AND GENERAL RELEASE.

 

MATSUYAMA
AGREES THAT ANY MODIFICATIONS, MATERIAL OR OTHERWISE, MADE TO THIS RETIREMENT
AGREEMENT AND GENERAL RELEASE DO NOT RESTART OR AFFECT IN ANY MANNER THE
ORIGINAL SEVEN CALENDAR DAY CONSIDERATION PERIOD.

 

HAVING HAD
THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY, AND HAVING ELECTED TO EXECUTE THIS
RETIREMENT AGREEMENT AND GENERAL RELEASE, TO FULFILL THE PROMISES AND TO
RECEIVE THE SUMS AND BENEFITS IN PARAGRAPH “2” ABOVE, MATSUYAMA FREELY AND
KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS DOCUMENT INTENDING TO
WAIVE, SETTLE AND RELEASE ALL CLAIMS HE HAS OR MIGHT HAVE AGAINST CASCADE
AND/OR RELEASEES.

 

IN WITNESS WHEREOF, Matsuyama
hereto knowingly and voluntarily executes this Retirement Agreement and General
Release as of the date set forth below:

 

 

	
  /s/ W. Brian
  Matsuyama

  	
   

  	
  Dated:

  	
  March 3, 2005

  	
   

  
	
  W. Brian Matsuyama

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Larry L. Pinnt

  	
   

  	
  Dated:

  	
  March 3, 2005

  	
   

  
	
  Larry
  L. Pinnt, Chairman of the Board

  For Cascade Natural Gas Corporation

  	
   

  

 

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EXHIBIT A

 

Mr. Larry Rosok

Cascade Natural Gas Corporation

222 Fairview Avenue

Seattle, WA 
98109

 

Re:                               Retirement
Agreement and General Release

 

Dear Mr. Rosok:

 

On                 
(date), I executed a Retirement Agreement
and General Release between myself and Cascade Natural Gas Corporation.  I was advised by Cascade in writing, to consult with an
attorney of my choosing, prior to
executing this Retirement Agreement and General Release.

 

More than seven calendar days have elapsed
since I executed the above-mentioned
Retirement Agreement and General Release. 
I have at no time revoked my acceptance or execution of that Retirement
Agreement and General Release and hereby reaffirm my acceptance of that Retirement Agreement and General
Release.  Therefore, in accordance with
the terms of the Retirement Agreement and General Release, I hereby request payment of the monies
described in Paragraph “2” of that
Agreement.

 

Dated this       
day of       , 2005.

 

Very truly yours,

 

 

W. Brian Matsuyama

 

 

NOTICE:  Per paragraph 10 of the Release, DO NOT SIGN
THIS LETTER, until eight days after you have signed the Retirement Agreement
and General ReleaseEXHIBIT 10.1

 

FEBRUARY 2005 CREDIT AGREEMENT

 

THIS CREDIT AGREEMENT, dated as of February
16, 2005, 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, a
$1,000,000 discretionary credit facility under a May Discretionary Credit
Agreement dated July 1, 2003, a $500,000 discretionary credit facility under a
November 11, 2003 Discretionary Credit Agreement (the “November
Discretionary Credit Agreement”), a $250,000 discretionary credit facility
under an April 2004 Discretionary Credit Agreement dated April 16, 2004, and a
$500,000 credit facility under an October 2004 Credit Agreement dated October
29, 2004.

 

3.                                       The Borrower has
requested that the Lender make available to the Borrower an additional $500,000
discretionary credit facility under this Agreement.

 

4.                                       The Borrower
will use the proceeds of advances, if any, under the Discretionary Facility
(defined below) 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.  Except as otherwise
defined herein, capitalized terms shall have the meanings set forth in the
November Discretionary Credit 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 February 2005 Credit Agreement, as it
may be amended, modified, supplemented, restated or replaced from time to time.

 

Credit Expiration Date:  The date that first occurs: (i) March 31,
2005, or (ii) the date on which the Discretionary Facility is terminated
pursuant to Section 9.2.

 

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Discretionary Facility:  This Discretionary 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 Note up to an aggregate
principal amount at any one time outstanding not to exceed $500,000.

 

Event of Default:  Any event described in Section 9.1.

 

Intellectual Property Agreement:  That certain Intellectual Property Security
Agreement dated October 29, 2004 granting Lender a security interest in the
collateral described therein.

 

Loan Documents:  This Agreement, the Note, the Intellectual
Property 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
Loans, or any other loans or other obligations owing from the Borrower to the
Lender or Miller.

 

Loans:  Any loans made by the Lender to the Borrower
under the Discretionary Facility.

 

Note:  That certain February 2005 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 $500,000, 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 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, direct or contingent,
joint or several, including any extensions, modifications, renewals thereof and
substitutions therefore; (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.

 

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 shall
be made in accordance with GAAP consistently applied.

 

2

 

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.  Subject to and upon
the terms and conditions hereof and in reliance upon the representations and
warranties of the Borrower herein, the Lender may make loans to the Borrower
under this Section 2.1 from time to time from the date hereof until the
Credit Expiration Date, provided, that the aggregate unpaid principal amount of
all outstanding loans under this Section 2.1 shall not exceed the amount
of the Discretionary Facility at any time. 
If, at any time, or for any reason, the amount outstanding under the
Loans exceeds the Discretionary Facility, the Borrower shall immediately pay to
the Lender, in cash, the amount of such excess. 
This is not a revolving facility, and the Borrower may not repay and
reborrow.  THE LENDER HAS NOT COMMITTED TO PROVIDE ANY LOANS AND MAY, IN ITS SOLE
AND ABSOLUTE DISCRETION, DECIDE NOT TO MAKE ANY SUCH LOANS.  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 Loan shall specify (i) the
borrowing date (which shall be a Business Day), and (ii) the amount of such
Loan.  Any request for a Loan shall be
deemed to be a representation that no event has occurred and is continuing, or
will result from such 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 Loan as though made on and
as of such date.  If the Lender approves
a requested Loan in its sole discretion, the Lender shall use reasonable
efforts to 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
Note.  The obligation of the
Borrower to repay any and all loans made under Section 2.1 shall be
evidenced by the 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.

 

3

 

ARTICLE 3  INTEREST AND COSTS

 

Section 3.1                                   Interest
on Loan.  The unpaid principal
amount of the Discretionary Facility shall bear interest at the Interest Rate.

 

Section 3.2                                   Computation.  Interest on the 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
Note shall be due and payable as specified in such Note.

 

Section 3.4                                   Warrant.  As further consideration for the financing
provided by Lender hereunder, the Borrower will issue warrants in form and
substance satisfactory to the Lender for (i) the purchase of common stock of
the Borrower equal to the terms of warrants issued to SF Capital Partners
and/or other investors in the Company’s next equity financing or, if such
financing does not occur on or before March 31, 2005, or no warrants are issued
by the Borrower therein, then (ii) the purchase of 750,000 shares of common
stock of the Borrower, expiring on February 16, 2015, at an exercise price of
$.50 per share.

 

ARTICLE 4  PAYMENTS AND PREPAYMENTS

 

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

 

Section 4.2                                   Conditional
Optional Prepayments.  The
Borrower may prepay the Loan, in whole or in part, at any time without premium
or penalty.

 

Section 4.3                                   Accelerated
Payments.  Upon the occurrence of
an Event of Default and the acceleration of the Note, pursuant to and as
permitted by Section 9.2, the Note and all other Obligations, shall be
immediately due and payable as provided in Section 9.2 and in the Note.

 

Section 4.4                                   Payments.  Payments and prepayments of principal of, and
interest on, the 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 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 or any other Loan Document or other agreement 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

 

4

 

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.

 

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 Loans.  The Lender may make
any Loan hereunder subject to the satisfaction of the conditions precedent, in
addition to the applicable conditions precedent set forth in Section 6.2
below, that the Lender shall have received all of the following, in form and
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
Note, duly executed by the Borrower.

 

(b)                                 The
Warrants.

 

(c)                                  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.

 

(d)                                 Amendment
No. 4 to First Amended and Restated Subordination and Intercreditor Agreement
duly executed by Borrower, Lender and Hauser.

 

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

 

5

 

Section 6.2                                   Conditions
Precedent to all Loans.  The
obligation of the Lender to make any Loan shall be subject to the satisfaction
of the following conditions precedent (and any request for a Loan shall be
deemed a written certification that such conditions precedent have been
satisfied):

 

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

 

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

 

                                                (c)                                  At
the time of requesting such Loan, the Borrower does not possess any proceeds
received on or after the date of this Agreement from the issuance and/or sale
of securities or the sale of assets (other than the sale of its inventory in
the ordinary course of business).

 

ARTICLE 7  REPRESENTATIONS AND WARRANTIES

 

To induce the
Lender to enter into this Agreement, and to consider making 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 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,

 

6

 

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.

 

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.

 

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 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,

 

7

 

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 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 to be terminated, whereupon the
Discretionary Facility shall terminate, and (ii) declare the outstanding unpaid
principal balance of the Note, the accrued and unpaid interest thereon and all
other Obligations to be forthwith due and payable, whereupon the 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 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 Note may offset any and all
obligations of the Lender or such other holder of the 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 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

 

8

 

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 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 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 10.2                            Expenses
and Indemnities.  Whether or not
any the 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 and financial advisor of each of Lender and Miller) in connection with
the preparation, review, execution, delivery, amendment, modification,
interpretation, collection and enforcement of the Loan Documents and other work
on possible financing activities related to the Borrower.  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

 

9

 

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 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 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 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 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

 

10

 

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 February
2005 Credit Agreement to be executed as of the date first above written.

 

	
   

  	
   

  	
  MEDICALCV, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John H. Jungbauer, CFO

  	
   

  
	
   

  	
   

  	
  Name: John H. Jungbauer

  
	
   

  	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  9725 South Robert Trail

  
	
   

  	
   

  	
  Inver Grove Heights, MN 55077

  
	
   

  	
   

  	
  Attention: Chief Executive Officer

  
	
   

  	
   

  	
  Telephone: (651) 452-3000

  
	
   

  	
   

  	
  Fax: (651) 234-6699

  
	
   

  	
   

  	
   

  
	
   

  	
  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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