Document:

EXHIBIT 10.2

 

OCTOBER 2004 

CREDIT NOTE

 

	
  $500,000

  	
  Minneapolis, Minnesota

  
	
   

  	
  October 29, 2004

  

 

FOR VALUE RECEIVED, MEDICALCV, INC., a Minnesota corporation (the “Borrower”)
promises to pay to the order of PKM PROPERTIES, LLC, a Minnesota limited
liability company (the “Lender”) at its office in Minneapolis, Minnesota
or at such other place as may be designated from time to time by the holder
hereof, in lawful money of the United States of America, the principal sum of
Five Hundred Thousand Dollars ($500,000) or so much thereof as has been
advanced by the Lender to or for the benefit of the Borrower pursuant to that
certain October 2004 Credit Agreement, dated as of the date hereof, as amended
from time to time, between the Borrower and the Lender (the “Agreement”)
and remains unpaid, together with interest on the unpaid principal balance
hereof from the date hereof until this Note is fully paid, at an annual rate of
interest, calculated on the basis of actual number of days elapsed in a 360 day
year, that shall at all times be equal to ten percent (10%) per Annum.  The principal balance and accrued interest
thereon shall be due February 28, 2005.

 

Payments hereunder shall be applied first to the payment of accrued
interest and then to the reduction of principal.  The Borrower may prepay at any time and from
time to time, all or any portion of the balance from time to time remaining on
this Note, only as provided in the Agreement.

 

This Note is secured by the Intellectual Property Security Agreement
referred to in the Agreement and is issued pursuant to and is subject to the
Agreement.

 

The Borrower agrees to pay all costs of collection, including
attorneys’ fees, in the event this Note is not paid when due.  This Note is being delivered in, and shall be
governed by, the laws of the State of Minnesota.  Presentment or other demand for payment,
notice of dishonor and protest are expressly waived.

 

	
   

  	
  MEDICALCV,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  John H. Jungbauer

  
	
   

  	
  John H. Jungbauer,

  
	
   

  	
  its Chief Financial OfficerEXHIBIT 10.3

 

INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

 

	
  DATE:

  	
  October 29, 2004

  	
   

  
	
   

  	
   

  	
   

  
	
  PARTIES:

  	
  PKM Properties, LLC

  	
   

  
	
   

  	
  c/o Gracon Contracting, Inc.

  	
   

  
	
   

  	
  606 24th Avenue South, Suite B12

  	
   

  
	
   

  	
  Minneapolis, MN 55454

  	
   

  
	
   

  	
  Attention: Paul K. Miller

  	
  (“Secured Party”)

  
	
   

  	
   

  	
   

  
	
   

  	
  MedicalCV, Inc.

  	
   

  
	
   

  	
  9725 South Robert Trail

  	
   

  
	
   

  	
  Inver Grove Heights, MN 55077

  	
   

  
	
   

  	
  Organizational Identification Number:
  7J-436

  	
  (“Debtor”)

  

 

AGREEMENTS:

 

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

 

1.             Grant
of Security Interest and Collateral. 
To secure the payment and performance of each and every other debt,
liability and obligation of every type and description which Debtor may now or
at any time hereafter owe to Secured Party whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it arises
under or is evidenced by this Intellectual Property Security Agreement, one or
more credit agreements evidencing loans made by Secured Party to Debtor
(collectively, the “Loan Agreement”), or any other present or future instrument
or agreement or by operation of law, and whether it is or may be direct or
indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several (all
such debts, liabilities and obligations are herein collectively referred to as
the “Obligations”), Debtor hereby grants Secured Party a security interest (the
“Security Interest”) in all of the intellectual property of Debtor (the
“Collateral”), including but not limited to the intellectual property described
in Exhibit A and the following:

 

(a)           Patents.  (i) All patents and patent applications on
Schedule 1 of Exhibit A hereto, (ii) all reissues, divisions, continuations,
renewals, extensions, continuations-in-part thereof, (iii) all income,
royalties, damages and payments now or hereafter due and/or payable with
respect thereto, including but not limited to under any licenses and any
damages for past, present or future infringement thereof, (iv) the right to sue
for past, present or future infringements thereof, and (v) all rights
corresponding thereto throughout the world (all such items described in this
subsection (a) referred to as “Patents”);

 

(b)           Trademarks.  (i) All tradenames, trademarks, service
marks and any registrations thereof and applications therefor listed on
Schedule 2 of Exhibit A hereto, (ii) any renewals thereof, (iii) all income,
royalties, damages and payments now or hereafter due and/or payable with
respect thereto, including but not limited to under any licenses and any
damages for past, present or future infringement thereof, (iv) the right to sue
for past, present or future infringements thereof, (v) all rights corresponding
thereto throughout the world, and (vi) all 

 

1

 

goodwill of
Debtor’s business connected with and symbolized by the foregoing (all such
items described in this subsection (b) referred to as “Trademarks”);

 

(c)           Copyrights.  (i) All copyrights and registrations
thereof listed on Schedule 3 of Exhibit A hereto, (ii) any renewals thereof,
(iii) all income, royalties, damages and payments now or hereafter due and/or
payable with respect thereto, including but not limited to under any licenses
and any damages for past, present or future infringement thereof, (iv) the
right to sue for past, present or future infringements thereof, and (v) all
rights corresponding thereto throughout the world (all such items described in
this subsection (c) referred to as “Copyrights”);

 

(d)           Miscellaneous.  All inventions, discoveries, ideas,
technology, know-how, trade secrets, processes, formulas, models, prototypes,
jigs, dies, molds or other tooling, drawings and designs, computer software
programs, and documents, computer disks, source codes, object codes, lab books
or other materials related thereto; and

 

(e)           Proceeds.  All proceeds of any of the foregoing.

 

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

 

(a)           Debtor
is a corporation.  Debtor’s chief
executive office and only place of business is located at the address specified
at the top of this Agreement.

 

(b)           The
Patents, Trademarks and Copyrights listed on Schedules 1, 2 and 3,
respectively, constitute all of the patents, trademarks, copyrights and
applications therefor now owned by Debtor. 
If, before the Obligations shall have been satisfied in full, Debtor
shall (i) obtain rights to any new patentable inventions, registrable
trademarks, trademark registrations, trade names or registered copyrights, or
(ii) become entitled to the benefit of any patent, trademark, copyright or
registration thereof, or patent for any reissue, division, continuation,
renewal, extension or continuation-in-part of any Patent or any improvement on
any Patent, then the provisions of Section 1 above shall automatically apply
thereto and Debtor shall give to Secured Party prompt written notice thereof.  Debtor hereby authorizes Secured Party to
modify this Agreement by amending Schedule 1, 2 and/or 3, as applicable, to
include any future patents, patent applications, trademarks, trademark
registrations, trademark applications, trade names and copyright registrations
which are Patents, Trademarks or Copyrights, as applicable, under Section 1
above.

 

(c)           Debtor
has (or will have at the time Debtor acquires rights in Collateral hereafter
arising) absolute title to each item of Collateral free and clear of all
security interests, liens and encumbrances. 
Debtor will keep all Collateral free and clear of all security
interests, liens and encumbrances and will defend the Collateral against all
claims or demands of all persons other than Secured Party and the security
interests set forth on Exhibit B.

 

(d)           Until
the Obligations shall have been satisfied in full, Debtor will not, without
Secured Party’s prior written consent, sell any of the Collateral or enter into
any agreement which is inconsistent with Debtor’s obligations or Secured
Party’s rights under this Agreement, provided that Debtor may enter into
license agreements with respect to the Collateral in the ordinary course of
business so long as such agreements are not inconsistent with Secured Party’s
rights or Debtor’s obligations under the Loan Agreement or this Agreement.  Debtor further agrees that it will not take
any action, or permit any action to be taken by others subject to its control,
including licensees, or fail to take any action, which would affect the validity
of the Collateral or enforcement of Secured Party’s rights in the Collateral.

 

2

 

(e)           This
Agreement has been duly and validly authorized by all necessary corporate
action by Debtor.

 

(f)            Debtor
will use commercially reasonable efforts to prosecute diligently any patent
application that is part of the Patents, any trademark application that is part
of the Trademarks, and any copyright registration that is part of the
Copyrights, pending as of the date hereof or thereafter until the Obligations
shall have been paid in full.  Debtor
will file and prosecute applications or registrations on unpatented but
patentable inventions, on trademarks and on copyrightable works, as recommended
by reputable legal counsel.  Debtor will
preserve and maintain all rights in patent applications and patents that are
part of the Patents, in trademark applications, trademarks, and trademark
registrations that are part of the Trademarks, and in copyrightable works and
copyright registrations that are part of the Copyrights.  Any expenses incurred in connection with such
registrations or applications shall be borne by Debtor.

 

(g)           Debtor
will at all reasonable times, permit Secured Party or its representatives to
examine or inspect any Collateral, wherever located, and to examine, inspect
and copy Debtor’s books and records pertaining to the Collateral and its
business and financial condition.

 

(h)           Debtor
will keep accurate and complete records pertaining to the Collateral and pertaining
to Debtor’s business and financial condition and submit to Secured Party such
periodic reports concerning the Collateral and Debtor’s business and financial
condition as Secured Party may from time to time reasonably request.

 

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

 

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

 

(k)           If
Debtor at any time fails to perform or observe any agreement contained in this
Section 2, Secured Party may (but need not) perform or observe such agreement
on behalf and in the name, place and stead of Debtor (or, at Secured Party’s
option, in Secured Party’s own name) and may (but need not) take any and all
other actions which Secured Party may reasonably deem necessary to cure or
correct such failure and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or otherwise
illegal under any applicable law; Debtor shall thereupon pay Secured Party on
demand the amount of all monies expended and all costs and expenses (including
reasonable attorneys’ fees) incurred by Secured Party in connection with or as
a result of Secured Party’s performing or observing such agreements or taking
such actions, together with interest thereon from the date expended or incurred
by Secured Party at the highest rate then applicable to the Obligations.  To facilitate the performance or observance
by Secured Party of such agreements of Debtor, Debtor hereby irrevocably
appoints (which appointment is coupled with an interest) Secured Party, or its
delegate, as the attorney-in-fact of Debtor with the right (but not the duty)
from time to time to create, prepare, complete, execute, deliver, endorse or
file, in the name and on behalf of Debtor, any and all instruments, documents,
financing statements, applications for insurance and other 

 

3

 

agreements and
writings required to be obtained, executed, delivered or endorsed by Debtor
under this Section 2.

 

3.             Royalties;
Terms.  Neither the Security
Interest granted herein, nor the exercise by Secured Party of any of its rights
under this Agreement, shall (a) impose on Secured Party any liability to Debtor
for royalties or other similar charges, or (b) be limited geographically.  The term of the Security Interest granted
herein shall extend until the earlier of (i) the expiration of each of the
respective Patents, Trademarks and Copyrights included within the Collateral,
or (ii) the date the Obligations have been paid in full or the Collateral
has been retained in satisfaction thereof.

 

4.             Events
of Default.  The occurrence of
any Event of Default as defined in the Loan Agreement, shall constitute an
Event of Default hereunder.

 

5.             Remedies
upon Event of Default.  Upon the
occurrence of an Event of Default and at any time thereafter, Secured Party may
exercise any one or more of the following rights and remedies:

 

(a)           declare
all Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or demand;

 

(b)           exercise
and enforce any or all rights and remedies available upon default to a secured
party under the Uniform Commercial Code, including but not limited to the right
to take possession of any Collateral, proceeding without judicial process or by
judicial process (without a prior hearing or notice thereof, which Debtor
hereby expressly waives), and the right to sell, lease, license or otherwise
dispose of any or all of the Collateral, and in connection therewith, Secured
Party may require Debtor to make the Collateral available to Secured Party at a
place to be designed by Secured Party which is reasonably convenient to both
parties, and if notice to Debtor of any intended disposition of Collateral or
any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner
specified in Section 7) at least ten (10) calendar days prior to the date of
intended disposition or other action; or

 

(c)           exercise
or enforce any or all other rights or remedies available to Secured Party by
law or agreement against the Collateral, against Debtor or against any other
person or property.

 

6.             Secured
Party’s Right to Sue.  From and
after the occurrence of any Event of Default and the provision by Secured Party
of written notice to Debtor of Secured Party’s intention to enforce its rights
and claims against any of the Patents, Trademarks or Copyrights, Secured Party
shall have the right, but shall in no way be obligated, to bring suit in its
own name to enforce the Patents, Trademarks and Copyrights, and any licenses
thereunder and, if Secured Party shall commence any such suit, Debtor shall, at
the request of Secured Party, do any and all lawful acts and execute any and
all proper documents required by Secured Party in aid of such enforcement and
Debtor shall indemnify and shall, upon demand, promptly reimburse Secured Party
for all reasonable costs and expenses incurred by Secured Party in the exercise
of its rights under this Section 6.

 

7.             Miscellaneous.  This Agreement can be waived, modified,
amended, terminated or discharged, and the Security Interest can be released,
only explicitly in a writing signed by Secured Party.  A waiver signed by Secured Party shall be
effective only in the specific instance and for the specific purpose
given.  Mere delay or failure to act
shall not preclude the exercise or enforcement of any of Secured Party’s rights
or remedies.  All rights and remedies of
Secured Party shall be cumulative and may be exercised singularly or
concurrently, at Secured Party’s option, and the exercise or enforcement of any
one such right or remedy shall neither be a condition to nor bar the exercise
or enforcement of any other.  

 

4

 

All notices to be given to
Debtor shall be deemed sufficiently given if delivered or mailed by registered
or certified mail, postage prepaid, to Debtor at its address set forth above or
at the most recent address shown on Secured Party’s records.  Secured Party’s duty of care with respect to
Collateral in its possession (as imposed by law) shall be deemed fulfilled if
Secured Party exercises reasonable care in physically safekeeping such Collateral
or, in the case of Collateral in the custody or possession of a bailee or other
third person, exercises reasonable care in the selection of the bailee or other
third person, and Secured Party need not otherwise preserve, protect, insure or
care for any Collateral.  Secured Party
shall not be obligated to preserve any rights Debtor may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order, or to apply any cash proceeds of Collateral in any particular order of
application.  This Agreement shall be
binding upon and inure to the benefit of Debtor and Secured Party and their
respective heirs, representatives, successors and assigns and shall take effect
when signed by Debtor and delivered to Secured Party, and Debtor waives notice
of Secured Party’s acceptance hereof. 
Secured Party may execute this Agreement if appropriate for the purpose
of filing, but the failure of Secured Party to execute this Agreement shall not
affect or impair the validity or effectiveness of this Agreement.  A carbon, photographic or other reproduction
of this Agreement or of any financing statement or other recording document
signed by the Debtor shall have the same force and effect as the original for
all purposes of a financing statement or other recording document.  This Agreement shall be governed by the
internal laws of the State of Minnesota. 
If any provision or application of this Agreement is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect and this
Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby.  All representations and warranties contained
in this Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.

 

THE PARTIES
have executed this Intellectual Property Security Agreement as of the day and
year first above written.

 

	
  Debtor:

  	
   

  	
  MEDICAL CV, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ John H. Jungbauer

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
  Vice President, Finance

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Secured Party:

  	
   

  	
  PKM PROPERTIES, LLC

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  By:

  	
    /s/ Paul K. Miller

  	
   

  	 

	
   

  	
   

  	
  Its:

  	
   

  	
  Chief Executive Officer

  	
   

  	 

									

 

5

 

EXHIBIT A – INTELLECTUAL PROPERTY

 

Schedule 1 – Patents

 

	
  5,593,424

  	
   

  	
  1997

  	
   

  	
  Apparatus and Method for Reducing and
  Stabilizing the Circumference of a Vascular Structure

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Two additional U.S. Patents for related
  subject matter; U.S. Patent Nos. 5,709,695 and 5,961,539

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  In addition, the Company has six foreign
  patents or patent applications corresponding to the ‘424 patent; Issued
  patents from the European Application registered in Germany (DE), Spain (ES),
  France (FR), Great Britain (GB) & Italy (IT), and an application pending
  in Japan (JP), for which the Company recently filed a response.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (US) 09/574,479

  	
   

  	
  2000

  	
   

  	
  Pyrolytic Carbon Coating Apparatus Having
  Feed Gas Actuator

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Application issued July 22, 2003 as U.S.
  Patent No. 6,596,084

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  •
  Request for Examination due May 19, 2005

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EU 00932640.6 

  CA 2,374,512

  	
   

  	
   

  	
   

  	
  Annuity (maintenance) payments for both of
  these applications are due on May 19, 2005, and as noted above a request for
  examination is also due on that date

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  60/516,242

  	
   

  	
  2003

  	
   

  	
  Epicardial Laser Surgical Wand (provisional
  application expiring on 10-30-04)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6,296,663

  	
   

  	
  2001

  	
   

  	
  Bileaflet Heart Valve Having Open Channel
  and Swivel Pivots

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Underlying patent, U.S. Patent No.
  6,183,511 and a prior patent for a different Bileaflet Valve, U.S. Patent No.
  5,824,062

  

 

Patent Applications

 

1.             U.S.
patent application Ser. No.
                     
filed October 28, 2004 (based on U.S. provisional patent application Ser. No.
60/516,242 filed October 30, 2003).

 

2.             PCT
international patent application Ser. No.
                     
filed October 28, 2004 (also based on U.S. provisional patent application Ser.
No. 60/516,242 filed October 30, 2003).

 

Schedule 2 – Trademarks

 

	
  ULTRAPURE

  	
   

  	
  ® 76/304,124

  	
   

  	
  September 21,
  2004

  
	
   

  	
   

  	
   

  	
   

  	
  • 
  Statement of Use needed

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Awaiting a
  Notice of Allowance

  

 

6

 

	
  OMNICARBON

  	
   

  	
  ® 76/304,229

  	
   

  	
  October 22, 2002 

  
	
   

  	
   

  	
   

  	
   

  	
  (Notice of Allowance)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Registered 12/03/02; U.S. Registration No.
  2,657,198

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MEDICALCV

  	
   

  	
  ® 76/304,121

  	
   

  	
  •
  Affidavit of Continued Use due 1/7/2009; then good to 1/7/2013 

  
	
   

  	
   

  	
   

  	
   

  	
  *NEED
  TO USE ® INSTEAD OF TM*

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  U.S. Registration No. 2,673,163

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  INTERFACE

  	
   

  	
  ® 76/304,258

  	
   

  	
  Will lapse 12/31/2008 

  
	
   

  	
   

  	
   

  	
   

  	
  U.S. Registration No. 2,670,175

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ATRILAZE

  	
   

  	
  TM 76/549,041

  	
   

  	
  May 11, 2004 

  
	
   

  	
   

  	
   

  	
   

  	
  (Notice of Allowance)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Statement of Use or a Request for an
  Extension of Time to file same is due 2/3/05

  

 

Schedule 3 – Copyrights  

 

No
registered copyrights      

 

7

 

EXHIBIT B

 

PERMITTED LIENS

 

The security interests evidenced by the following
financing statements:

 

Minnesota Secretary of State 

 

	
  File No.

  	
   

  	
  Debtor

  	
   

  	
  Date

  	
   

  	
  Creditor

  	
   

  
	
  20024930253

  	
   

  	
  MedicalCV

  	
   

  	
  8/19/02

  	
   

  	
  Segmed, Inc.

  	
   

  
	
  20036276297

  	
   

  	
  MedicalCV

  	
   

  	
  1/17/03

  	
   

  	
  PKM Properties, LLC

  	
   

  

 

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

 

8

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