Document:

Exhibit
10.44

 

FIRST AMENDED AND RESTATED

SUBORDINATION
AND INTERCREDITOR AGREEMENT

 

THIS
SUBORDINATION AND INTERCREDITOR AGREEMENT, dated as of November 24, 2003,
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 and PKM are parties to that certain
Subordination and Intercreditor Agreement dated as of July 1, 2003, as
amended by that certain First Amendment to Subordination and Intercreditor
Agreement dated as of November 11, 2003 (the “Original Agreement”);
and

 

B.  Hauser, PKM and Draft desire to amend and
restate the Original Agreement as provided herein, and upon the terms and
conditions of this Agreement; and

 

C.  Medical CV, Inc., a Minnesota corporation
(the “Borrower”) is or may hereafter become indebted to Hauser pursuant
to that certain Subordinated Note, dated as of July 1, 2003, given by
Borrower in favor of Hauser in the original principal amount of $1,000,000 (the
“Hauser Subordinated Note”); and

 

D.  The Borrower is or may hereafter become
indebted to Draft pursuant to that certain Subordinated Note, dated as of
November 24, 2003, given by Borrower in favor of Draft in the original
principal amount of $500,000 (the “Draft Subordinated Note”); and

 

E.  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: (i) a Discretionary Credit Agreement dated
as of January 17, 2003 (as the same may have been or may be amended, restated
or otherwise modified from time to time hereafter, the “January Credit
Agreement”), (ii) a Building Lease dated April 4, 2003 (as the same
may be amended, restated or otherwise modified from time to time hereafter, the
“Lease”), (iii) a Discretionary Credit Agreement dated as of
July 1, 2003 (as the same may be amended, restated or otherwise modified
from time to time hereafter, the “May Credit Agreement”), and (iv) a
November Discretionary Credit Agreement dated as of November 11, 2003
(as the same may have been or may be amended, restated or otherwise modified
from time to time hereafter, the “November Credit Agreement”).

 

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.

 

(a)  For purpose of this
Agreement, the following terms shall have the following meanings:

 

 

“Bankruptcy Code” shall mean 11 U.S.C. § 101 et seq., as
amended from time to time.

 

“Borrower” shall have the meaning given to that term in Recital
A above, and shall include and any successor (including a
debtor-in-possession under the Bankruptcy Code), assignee, receiver, trustee or
estate thereof.

 

“Default” shall mean any event which with the giving of notice
or lapse of time, or both, would become an Event of Default.

 

“Draft Security Agreement” means that certain Security Agreement
dated as of November 24, 2003, between Borrower, as debtor, and Draft, as
secured party, as it may be amended, modified, supplemented, restated or
replaced from time to time.

 

“Draft Subordinated Debt Documents” shall mean the Draft
Subordinated Note and all security agreements, guaranties and other
arrangements and agreements with or in favor of Draft executed and/or delivered
in connection with the Subordinated Debt owing to Draft, including, without
limitation, the Draft Subordinated Note.

 

“Draft Subordinated Note” shall have the meaning given to that
term in Recital D above, and shall include any amendments,
modifications or restatements thereto or thereof (but nothing in this
definition shall be deemed to waive the provisions of Section 10
below requiring PKM’s prior written consent to any change in the Draft
Subordinated Note).

 

“Event of Default” shall mean (i) any Event of Default (as
therein defined) or breach under the January Credit Agreement, the May
Credit Agreement or the November Credit Agreement, (ii) any failure of the
Borrower to pay when due (whether at the date scheduled therefor or earlier upon
acceleration), or when demanded (with respect to any obligation payable on
demand), any item constituting Senior Debt, or (iii) any event shall occur or
condition shall exist and shall continue for more than the period of grace, if
any, applicable thereto and shall have the effect of causing, or permitting PKM
or any subsequent holder of Senior Debt to cause, any item of Senior Debt to
become due prior to its stated maturity, to realize upon any collateral given
as security therefor; provided, however that Event of Default shall not in any
event include any default occurring solely as a result of a payment default
under the May Discretionary Credit Note or the November Discretionary
Credit Note.

 

“Hauser Subordinated Debt Documents” shall mean the Hauser
Subordinated Note and all security agreements, guaranties and other
arrangements and agreements with or in favor of Hauser executed and/or
delivered in connection with the Subordinated Debt owing to Hauser, including,
without limitation, the Hauser Subordinated Note.

 

“Hauser Subordinated Note” shall have the meaning given to that
term in Recital C above, and shall include any amendments,
modifications or restatements thereto or thereof (but nothing in this
definition shall be deemed to waive the provisions of Section 10
below requiring PKM’s prior written consent to any change in Hauser
Subordinated Note).

 

“May Discretionary Credit Note” means that certain May
Discretionary Credit Note dated as of July 1, 2003, given by Borrower to
PKM in the original principal amount of $1,000,000, as it may be amended,
modified, supplemented, restated or replaced from time to time.

 

 

“May Security Agreement” means that certain May Security
Agreement dated as of July 1, 2003, between Borrower, as debtor, and
Hauser and PKM, individually and collectively, and their successors and assigns
as secured party, as it may be amended, modified, supplemented, restated or
replaced from time to time.

 

“November Discretionary Credit Note” means that
November Discretionary Credit Note dated as of November 11, 2003,
given by Borrower to PKM in the original principal amount of $500,000, as it
may be amended, modified, supplemented, restated or replaced from time to time.

 

“Permitted
Payments” shall have the meaning given in Section 3 below.

 

“Person” shall mean an individual, corporation, association,
partnership, limited partnership, trust, organization, individual or government
or any governmental agency or any political subdivision thereof.

 

“Security Interest” means any lien, pledge, mortgage, encumbrance,
charge or security interest of any kind whatsoever, whether arising under a
security instrument or as a matter of law, judicial process or otherwise, or
any agreement to grant any lien, or security interest in, or to pledge,
mortgage or encumber, any assets.

 

“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, 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 not more than $943,666 of principal under the
January 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).

 

“Subordinated Debt” shall mean (a) with respect to Hauser, all
obligations, liabilities and indebtedness of the Borrower to Hauser, howsoever
arising or evidenced, whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising or incurred, under any
written or unwritten agreement, including, without limitation, Hauser
Subordinated Debt Documents; (b) with respect to Draft, all obligations,
liabilities and indebtedness of the Borrower to Draft, howsoever arising or
evidenced, whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising or incurred, under any written or
unwritten agreement, including, without limitation, the Draft Subordinated Debt
Documents; and (c) with respect to PKM, all obligations, liabilities and
indebtedness of the Borrower to PKM that are not Senior Debt, howsoever arising
or evidenced, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising or incurred, under any written or
unwritten agreement.

 

 

“Subordinated Debt Collections” means any value, property,
payment, distribution, security, instrument or proceeds thereof solely upon or
solely with respect to the Subordinated Debt, including, without limitation,
Permitted Payments.

 

(b)  In this Agreement, in the
computation of a period of time from a specified date to a later specified
date, unless otherwise stated the word “from” means “from and including” and
the word “to” or “until” each means “to but excluding.”

 

(c)  Other terms may be defined
in other parts of this Agreement.  All
references to agreements and other contractual instruments shall be deemed to
include all subsequent amendments thereto or changes therein entered into in
accordance with their respective terms, and all references to Persons shall be
deemed to include their permitted successors and assigns.  Unless the context in which used herein
otherwise clearly requires, “or” has the inclusive meaning represented by the
phrase “and/or.”  All incorporations by
reference of covenants, terms, definitions or other provisions from other
agreements are incorporated into this Agreement as if such provisions were
fully set forth herein, and include all necessary information and related
provisions from such other agreements, and all such covenants, terms,
definitions or other provisions from other agreements incorporated into this
Agreement by reference shall survive any termination of such other agreements
until the Senior Debt has been indefeasibly paid in full and all financing
arrangements between the Borrower and PKM shall have been terminated.

 

Section 2.  Standby;
Subordination.  The payment and performance of the
Subordinated Debt is hereby subordinated to the payment and performance in full
of the Senior Debt, and, except as set forth in Section 3 below,
neither Hauser, Draft nor PKM will ask, demand, sue for, take or receive from
the Borrower or any other Person liable for all or any part of the Senior Debt,
by setoff or in any other manner, the whole or any part of the Subordinated
Debt, or any monies which may now or hereafter be owing in respect of the Subordinated
Debt (whether such amounts represent principal or interest, or obligations
which are due or not due, direct or indirect, absolute or contingent),
including, without limitation, taking any additional security for any of the
foregoing, or the taking of any negotiable instrument therefor, unless and
until all of the Senior Debt shall have been indefeasibly paid and satisfied in
full and all financing arrangements with respect to Senior Debt between the
Borrower and PKM have been terminated. 
Hauser warrants and represents that his Subordinated Debt is secured
solely pursuant to the May Security Agreement. 
Draft warrants and represents that its Subordinated Debt is secured
solely pursuant to the Draft Security Agreement.  Each of Hauser and Draft agrees that hereafter they will not
accept any additional security for Subordinated Debt owed to them from the
Borrower or from any third Person for the benefit of the Borrower.  Each of Hauser, Draft and PKM agrees that (i)
all Security Interests of Hauser, Draft and PKM (in PKM’s case, to the extent
such Security Interest secures only Subordinated Debt) in any assets of the
Borrower or any assets securing the Senior Debt shall and hereby are
subordinated to the rights and interests of PKM, if any, in those assets to
secure Senior Debt, (ii) neither Hauser or Draft shall have any right to
possession of any such assets or to foreclose upon any such assets, whether by
judicial action or otherwise, unless and until all the Senior Debt shall have
been indefeasibly paid and satisfied in full and all financing arrangements
between the Borrower and PKM with respect to Senior Debt have been terminated,
and (iii) at the request of PKM, each of Hauser and Draft shall authorize,
execute or deliver to PKM such termination statements and releases as PKM shall
reasonably request to release Hauser’s and Draft’s Security Interest in or
against such property.  Neither Hauser,
Draft or PKM, prior to the indefeasible payment in full and discharge of the
Senior Debt and the termination of all financing arrangements between the
Borrower and PKM with respect to Senior Debt, shall have any right to enforce
any claim with respect to the Subordinated Debt, or to take any action against
the Borrower or the property of the Borrower or of any other Person liable for
all or any part of the Senior Debt for the benefit of the Borrower to collect
any Subordinated Debt.  Each of Hauser
and

 

 

Draft
acknowledges and agrees that, to the extent the terms and provisions of this
Agreement are inconsistent with any agreement or understanding between either
Hauser and the Borrower or Draft and the Borrower, such agreement or
understanding shall be subject to this Agreement.

 

Section 3.  Permitted
Payments.  Notwithstanding the provisions of Section 2
above, until PKM gives Hauser and Draft written notice (in the manner set forth
below) of the occurrence of an Event of Default or a Default, and provided
that:

 

(i)                                     there shall not then exist any breach of this
Agreement by Hauser or Draft which has not been waived, in writing, by PKM,

 

(ii)                                  at the time of the payment described below no
Event of Default exists and is continuing,

 

(iii)                               the payment described below, if made, would not give rise to the
occurrence of any Event of Default,

 

(iv)                              none of the events described in Section 5 has occurred, and

 

(v)                                 all obligations then due and payable under
the Lease (without acceleration) shall have been paid to PKM in full,

 

Borrower
may pay to Hauser, Draft and PKM, and Hauser, Draft and PKM may accept from
Borrower, interest and principal payments, when due (without acceleration) and
prepayments as provided in Section 20(a) of this Agreement (x) with
respect to Hauser, the Hauser Subordinated Note, (y) with respect to Draft, the
Draft Subordinated Note and (z) with respect to PKM, the May Discretionary
Credit Note, the November Discretionary Note, and any obligations under
the Lease that do not constitute Senior Debt (“Permitted Payments”).

 

Section 4.  Subordinated
Debt Owed Only to Hauser.  Except as provided below with
respect to Draft, each of Hauser or Draft, as the case may be, warrants and
represents that neither has previously assigned any interest in their
respective Subordinated Debt, that no other Person owns an interest in the
Subordinated Debt (whether as joint holders of Subordinated Debt, participants
or otherwise) and that the entire Subordinated Debt is owing only to Hauser or
Draft, as the case may be.  Except as
provided below with respect to Draft, each of Hauser and Draft further
covenants that the entire Subordinated Debt owed to each shall continue to be
owing only to Hauser or Draft, as the case may be, unless it is assigned with
the prior written consent of PKM to a Person who agrees with PKM to be bound by
the subordination provisions set forth herein. 
Notwithstanding the foregoing PKM acknowledges that Draft has assigned
participation interests in the Subordinated Debt owed to it to affiliates of
Draft, and that PKM has consented to such assignments so long as such
assignments are totally transparent to the Company, PKM and Hauser in that the
Company, PKM and Hauser will not owe any obligation to such participants, such
participants will have no rights hereunder, and Draft will exercise all rights
and satisfy all of its obligations hereunder by itself in its own name.

 

Section 5.  Priority.  In
the event of (a) any distribution, division, or application, partial or
complete, voluntary or involuntary, by operation of law or otherwise, of all or
any part of the assets of the Borrower or the proceeds thereof to the creditors
of the Borrower or to their claims against the Borrower, or (b) any
readjustment of the debt or obligations of the Borrower, whether by reason of
liquidation, bankruptcy, arrangement, receivership, assignment for the benefit
of creditors or any other action or proceeding involving the readjustment of
all or any part of the Senior Debt or Subordinated Debt, or the application of
the assets of the Borrower to the payment or liquidation thereof, or (c) the
dissolution or

 

 

other
winding up of the business of the Borrower, or (d) the sale of all or
substantially all of the assets of the Borrower, then, and in any such
event, PKM shall be entitled to receive indefeasible payment in full of all of
the Senior Debt prior to the payment of all or any part of the Subordinated
Debt.

 

Section 6.  Grant
of Authority to PKM.  In order to enable PKM to enforce its rights
hereunder in any of the actions or proceedings described in Section 5,
PKM is hereby irrevocably authorized and empowered, in its discretion, to file
and present for and on behalf of Hauser, Draft, or either of them such proofs
of claims or other motions or pleadings as PKM may deem expedient or proper to
establish PKM’s entitlement of payment from, or on behalf of, Hauser, Draft, or
either of them, with respect to the Subordinated Debt and to vote such proofs
of claims in any such proceeding and to demand, sue for, receive and collect
any and all dividends or other payments or disbursements made thereon in
whatever form the same may be paid or issued and to apply the same on account
of any of the Senior Debt.  Each of
Hauser and Draft irrevocably authorizes and empowers PKM to demand, sue for,
collect and receive each of the payments and distributions described in Section 5
above and give acquittance therefor and to file claims and take such other
actions, in PKM’s own name or in the name of Hauser, Draft or either of them,
or otherwise, as PKM may deem necessary or advisable for the enforcement of
this Agreement.  To the extent that payments
of distributions are made in property other than cash, each of Hauser and Draft
authorizes PKM to sell such property to such buyers and on such terms as PKM,
in its sole discretion, shall determine. 
Each of Hauser and Draft will execute and deliver to PKM such powers of
attorney, assignments and other instruments or documents (together with such
assignments or endorsements as PKM shall deem necessary), as may be reasonably
requested by PKM in order to enable PKM to enforce any and all claims upon or
with respect to any or all of the Subordinated Debt and to collect and receive
any and all payments and distributions which may be payable or deliverable at
any time upon or with respect to the Subordinated Debt, all for PKM’s own
benefit.

 

Section 7.  Payments
Received by Hauser or Draft.   Except for Permitted
Payments, if Hauser or Draft receives any value, property, payment,
distribution, security, instrument or proceeds thereof upon or with respect to
the Subordinated Debt prior to the indefeasible payment in full of the Senior
Debt and termination of all financing arrangements between the Borrower and
PKM, each of Hauser and Draft shall receive and hold the same in trust, as
trustee, for the benefit of PKM and shall forthwith deliver the same to PKM in
precisely the form received (except for the endorsement or assignment where
necessary), for application on any of the Senior Debt, due or not due and,
until so delivered, the same shall be held in trust by Hauser or Draft, as the
case may be, as the property of PKM.  In
the event of the failure of Hauser or Draft to make any such endorsement or
assignment to PKM, PKM, or any of its officers or employees, is hereby
irrevocably authorized to make the same.

 

Section 8.  Continuing
Nature of Subordination.  This Agreement shall be
effective and may not be terminated or otherwise revoked by Hauser or Draft
until the Senior Debt shall have been fully paid and discharged and all
financing arrangements between the Borrower and PKM have been terminated.  This is a continuing agreement of
subordination and PKM may continue, at any time and without notice to Hauser or
Draft, to extend credit or other financial accommodations and loan monies to or
for the benefit of the Borrower in reliance hereon.  No obligation of Hauser or Draft hereunder shall be affected by
the dissolution, liquidation, death or incapacity of, or written revocation by,
Hauser or Draft or any other subordinated party, pledgor, endorser, or
guarantor, if any.

 

Section 9.  Bankruptcy
Issues.  If the Borrower becomes the subject of
proceedings under the Bankruptcy Code and if PKM desires to permit the use of
cash collateral or to provide financing to the Borrower under either
Section 363 or Section 364 of the Bankruptcy Code, each of Hauser and
Draft agrees that adequate notice of such financing to either of them, if
required under applicable law, shall have been provided if each receives notice
two (2) business days prior to entry of any order approving such cash
collateral usage or financing.  Notice
of a proposed financing or use of cash collateral shall be

 

 

deemed
given upon the sending of such notice to Hauser and Draft in the manner
specified in Section 14, below. 
All allocations of payments between PKM and Hauser and Draft shall
continue to be made after the filing of a petition under the Bankruptcy Code on
the basis provided in this Agreement. 
In the event that Hauser or Draft at any time acquires any security for
the Subordinated Debt, each of Hauser and Draft agrees not to assert any right
Hauser or Draft, as the case may be, may have to “adequate protection” of their
respective interest in such security in any Bankruptcy proceeding or to seek
relief from automatic stay, without the prior written consent of PKM.  Each of Hauser and Draft shall promptly
deliver any form of adequate projection it receives or the value thereof to
PKM.  Each of Hauser and Draft waives
any claim either may now or hereafter have against PKM arising out of PKM’s
election, in any proceeding instituted under Chapter 11 of the Bankruptcy Code,
of the application of Section 1111(b)(2) of the Bankruptcy Code, and/or
any borrowing or grant of a security interest under Section 364 of the
Bankruptcy Code by the Borrower, as debtor in possession, or by a trustee.  To the extent that PKM receives payments on,
or proceeds of any collateral for, the Senior Debt which are subsequently
avoided, invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under
any Bankruptcy law, state or federal law, common law or equitable cause, then,
to the extent of such payment or proceeds received, the Senior Debt, or part
thereof, intended to be satisfied shall be revived and continue in full force
and effect as if such payments or proceeds had not been received by PKM.

 

Section 10.  Instrument
Legend; No Amendments to Subordinated Instruments. 
Besides the Hauser Subordinated Note, Hauser will not agree to create
any additional Indebtedness (as defined in the January Credit Agreement)
owing from the Borrower to Hauser, without sending a true and correct copy of
all Hauser Subordinated Debt Documents evidencing such Indebtedness to PKM
contemporaneously with the creation of such Indebtedness.  Every instrument evidencing Subordinated
Debt (including, without limitation, the Hauser Subordinated Note) shall be
inscribed with a legend conspicuously indicating that payment thereof is
subordinated to the claims of PKM pursuant to the terms of this Agreement.  Upon request after the occurrence of an
Event of Default, the original of every instrument evidencing Subordinated Debt
owing to Hauser (including, without limitation, the Hauser Subordinated Note)
shall be promptly delivered to PKM. 
Hauser will not agree to any amendment, restatement or other
modification of any instrument evidencing Subordinated Debt owing to Hauser
(including, without limitation, the Hauser Subordinated Note), without the
prior written consent of PKM.

 

Besides
the Draft Subordinated Note, Draft will not agree to create any additional
Indebtedness (as defined in the January Credit Agreement) owing from the
Borrower to Draft, without sending a true and correct copy of all Draft
Subordinated Debt Documents evidencing such Indebtedness to PKM contemporaneously
with the creation of such Indebtedness. 
Every instrument evidencing Subordinated Debt (including, without
limitation, the Draft Subordinated Note) shall be inscribed with a legend
conspicuously indicating that payment thereof is subordinated to the claims of
PKM pursuant to the terms of this Agreement. 
Upon request after the occurrence of an Event of Default, the original
of every instrument evidencing Subordinated Debt owing to Draft (including,
without limitation, the Draft Subordinated Note) shall be promptly delivered to
PKM.  Draft will not agree to any
amendment, restatement or other modification of any instrument evidencing
Subordinated Debt owing to Draft (including, without limitation, the Draft Subordinated
Note), without the prior written consent of PKM.

 

Section 11.  Waivers.  The
Senior Debt shall be deemed to have been made or incurred in reliance upon this
Agreement.  Each of Hauser and Draft
expressly waives all notice of the acceptance by PKM of the subordination and
other provisions of this Agreement and all other notices not specifically
required pursuant to the terms of this Agreement whatsoever, and each of Hauser
and Draft expressly waives reliance by PKM upon the subordination and other
agreements as herein provided.  Each of
Hauser and Draft agrees that PKM has made no warranties or representations with
respect to the due execution, legality, validity, completeness or
enforceability of the agreements evidencing the Senior Debt,

 

 

or
the collectability of the Senior Debt, and that PKM shall be entitled to manage
and supervise its loans and other financial accommodations to the Borrower
without regard to the existence of any rights that either Hauser or Draft may
now or hereafter have in or to any of the assets of the Borrower.  Each of Hauser and Draft agrees that PKM
shall have no liability to either of them for, and waives any claim which
either may now or hereafter have against PKM arising out of, any and all
actions which PKM in good faith takes or omits to take (including, without
limitation, actions with respect to any security for the Senior Debt, actions
with respect to the occurrence of an Event of Default, actions with respect to
the foreclosure upon, sale, release, or depreciation of, or failure to realize
upon, any security for the Senior Debt and actions with respect to the
collection of any claim for all or any part of the Senior Debt from any
guarantor or other party) with respect to any agreement related to any Senior
Debt or to the collection of the Senior Debt or the valuation, use, protection
or release of any security for the Senior Debt.

 

Section 12.  PKM’s
Waivers.  No waiver shall be deemed to be made by PKM
of any of its rights hereunder unless the same shall be in writing signed on
behalf of PKM, and each waiver, if any, shall be a waiver only with respect to
the specific instance involved and shall in no way impair the rights of PKM or
the obligations of Hauser or Draft to PKM in any other respect at any other
time.

 

Section 13.  Financial
Condition of Borrower; Other Actions by PKM.  Each
of Hauser and Draft hereby assumes responsibility for keeping informed of the
financial condition of the Borrower, any and all endorsers and any and all
guarantors of the Subordinated Debt and of all other circumstances bearing upon
the risk of nonpayment of the Senior Debt and/or the Subordinated Debt that
diligent inquiry would reveal.  Each of
Hauser and Draft hereby agrees that PKM shall have no duty to advise either
Hauser or Draft of information known to PKM regarding such condition or any
such circumstances.  In the event PKM,
in its sole discretion, undertakes, at any time or from time to time, to
provide any such information to either Hauser or Draft, PKM shall be under no
obligation (i) to provide any such information to either of them on any
subsequent occasion, (ii) to undertake any investigation not a part of its
regular business routine, or (iii) to disclose any information which, pursuant
to its usual practices, PKM wishes to maintain confidential.  Each of Hauser and Draft hereby agrees that
all payments received by PKM may be applied, in whole or in part, to any of the
Senior Debt, as PKM, in its sole discretion, deems appropriate and assents to
any extension or postponement of the time of payment of the Senior Debt or to
any other indulgence with respect thereto, to any substitution, exchange or
release of collateral which may at any time secure the Senior Debt and to the
addition or release of any other Person primarily or secondarily liable
therefor.

 

Section 14.  Notices.  All
communications and notices provided under this Agreement to any party shall be
given in writing by manual delivery, facsimile transmission, overnight courier
or United States first class mail to such party’s address shown on the signature
page hereof, or to any party at such other address as may be designated by such
party in a notice to the other parties. 
All periods of notice shall be measured from the date of delivery
thereof if manually delivered, from the date of sending if sent by facsimile
transmission, from the first business day after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed.

 

Section 15.  Governing Law and Construction.  THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
LAWS PRINCIPLES THEREOF.

 

Section 16.  Consent to Jurisdiction.  AT THE
OPTION OF PKM, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA
STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND EACH OF HAUSER AND DRAFT
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY

 

 

ARGUMENT THAT VENUE IN SUCH FORUMS
IS NOT CONVENIENT.  IN THE EVENT EITHER
HAUSER OR DRAFT COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY
TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP
CREATED BY THIS AGREEMENT, PKM AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.

 

Section 17.  Waiver of Jury Trial.  HAUSER,
DRAFT AND PKM BY ACCEPTANCE HEREOF, IRREVOCABLY WAIVE ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER
THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR
WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY
CREDIT RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT
ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.

 

Section 18.  Severability. 
Wherever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.

 

Section 19.  Miscellaneous.

 

(a) This Agreement and the terms, covenants and conditions hereof shall
inure to the benefit of PKM and its successors and assigns.  Nothing contained in this Agreement,
expressed or implied, is intended to confer upon any Person other than the
parties hereto and thereto any rights, remedies, obligations or liabilities
hereunder or thereunder.

 

(b) This Agreement sets forth the entire understanding of the parties
hereto relating to the subject matter hereof, and all prior understandings and
negotiations, written or oral, are merged into and superseded by this
Agreement.  Any modification, amendment
or waiver of this Agreement or any provision herein shall be binding upon PKM
only if contained in a writing signed by or on behalf of PKM.  No failure on the part of PKM to exercise
and no delay in exercising any power or right hereunder, 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
provided are cumulative and not exclusive of any remedies provided by law.

 

(c) Hauser hereby acknowledges that (i) he has been advised by counsel
to the extent he believes necessary in the negotiation, execution and delivery
of this Agreement, (ii) PKM has no fiduciary relationship to him, and (iii) no
joint venture exists between Hauser and PKM. 
Draft hereby acknowledges that (i) it has been advised by counsel to the
extent it believes necessary in the negotiation, execution and delivery of this
Agreement, (ii) PKM has no fiduciary relationship to it, and (iii) no joint
venture exists between Draft and PKM.

 

(d) All covenants, agreements, representations and warranties made in
this Agreement and in any certificates or other papers delivered by or on
behalf of Hauser or Draft pursuant hereto shall be deemed to have been relied
upon by PKM and shall survive the execution and

 

 

delivery
of this Agreement, and shall continue in full force and effect so long as any
Senior Debt remains outstanding and unpaid or any financing arrangement between
the Borrower and PKM remains in effect. 
All statements of fact relating to Hauser or Draft contained in any
certificate or other paper delivered to PKM at any time after the date hereof
by or on behalf of Hauser or Draft, as the case may be, pursuant hereto or in
connection with the transactions contemplated hereby shall constitute
representations and warranties by the undersigned hereunder.

 

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

 

Section 20.  Intercreditor
Agreements.

 

(a) If the Borrower raises proceeds through the issuance of any capital
stock or other equity interest of the Borrower or other interest convertible
into an equity interest in the Borrower, then the Borrower shall pay to PKM,
Draft and Hauser, when and as received by the Borrower and as a mandatory pro
tanto prepayment of all obligations owing to PKM and all obligations owing to
Hauser and all obligations owing to Draft, a sum equal to one hundred percent
(100%) of the net proceeds to the Borrower of the issuance of such equity,
payable: (i) until the Senior Debt is satisfied in full, one hundred percent
(100%) to PKM and zero percent (0%) to Hauser and Draft; and (ii) after the
Senior Debt is satisfied in full, pro rata to PKM, Draft and Hauser, based on
the principal amount of Subordinated Debt owed to each, for so long as any of
them is owed any obligations by the Borrower, provided, however, that this
mandatory prepayment obligation shall not apply with respect to the first
$50,000 in net proceeds received by the Borrower from the exercise of any
options or warrants which have been issued and are effective as of July 1,
2003.

 

(b) All Subordinated Debt Collections received by
PKM, Draft or Hauser (whether before or after the satisfaction in full of the
Senior Debt) shall be held by PKM, Draft and Hauser in trust, as trustee, for
the benefit of the other and shall be divided and applied to the Subordinated
Debt as follows: (i) first, to the payment of all collection expenses,
including reasonable attorneys fees; and (ii) second, pro rata to PKM, Draft
and Hauser, based on the principal amount of Subordinated Debt owed to each,
for so long as any of them is owed any obligations by the Borrower.

 

(c) In the event any Subordinated Debt
Collections amount is subsequently recovered from PKM, Draft or Hauser by the
Borrower or the Borrower as a debtor-in-possession, or by any trustee or
receiver under any applicable bankruptcy or insolvency law, such amount shall
be reimbursed by Hauser, Draft and PKM according to the provisions of
subsection (b) immediately above.

 

(d) After the satisfaction in full of the Senior
Debt, all decisions with respect to any and all action and with respect to the
pursuit of any and all rights and remedies available to PKM, Draft and Hauser
under the May Security Agreement, the Draft Security Agreement or applicable
law shall be made jointly by PKM, Draft and Hauser.

 

(e) PKM, Draft and Hauser shall keep and maintain at
all times, all proper books of account, files and records, reflecting the
Subordinated Debt, which records shall be available for review by the other
party upon reasonable written notice.

 

 

Section 21.  Draft’s
Intercreditor Treatment Conditional. 
Section 20 is intended to make each of PKM, Draft and Hauser pari passu with respect to the collection
of the Subordinated Debt.  Draft has
become a party to this Agreement subsequent to Hauser and PKM creating the
Original Agreement.  Accordingly, PKM
and Hauser have required, and Draft has agreed, that notwithstanding anything
else herein apparently to the contrary, all of Draft’s rights under this
Agreement to have pari passu
treatment with respect to the Subordinated Debt owing to it are expressly
conditioned upon Draft having and maintaining a perfected security interest in
all assets of Borrower that can be perfected by filing a UCC-1 financing
statement in the appropriate jurisdiction under the Minnesota Uniform
Commercial Code that has priority immediately junior to Hauser’s Security
Interest created under the May Security Agreement.  If Draft fails to have and maintain such a security interest with
such priority, then solely for purposes of determining the relative priorities
of the parties’ rights with respect to Subordinated Debt owed to them, all
Subordinated Debt owing to PKM and Hauser will be treated as Senior Debt, and
all Subordinated Debt owing to Draft will be treated as Subordinated Debt.

 

(The signature page follows.)

 

 

IN
WITNESS WHEREOF, this 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 Miller

  	
   

  
	
   

  	
  Name:  Paul 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

  
							

 

 

ACCEPTANCE AND ACKNOWLEDGMENT

 

The
Borrower named above hereby accepts, and acknowledges receipt of a copy of, the
foregoing First Amended and Restated Subordination and Intercreditor Agreement
and agrees that (a) it will not pay any of the “Subordinated Debt” (as defined
in the foregoing Agreement) or grant any security therefor, except as the
foregoing Agreement provides, and (b) it is bound by and will comply with the
mandatory prepayment provisions with respect to the Senior Debt and the
Subordinated Debt as provided in Section 20(a) of the foregoing Agreement.

 

	
   

  	
  MEDICAL
  CV, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jules L. Fisher

  	
   

  
	
   

  	
  Name:

  	
  Jules
  L. Fisher

  
	
   

  	
  Its:

  	
  Chief
  Financial OfficerExhibit
10.45

 

AMENDMENT
NO. 1 TO

FIRST
AMENDED AND RESTATED

SUBORDINATION
AND INTERCREDITOR AGREEMENT

 

THIS AMENDMENT NO. 1 TO SUBORDINATION AND
INTERCREDITOR AGREEMENT, dated as of January 29, 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 (the “Amended Agreement”); and

 

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

 

C.                                     Borrower agrees to accept and acknowledge the
terms and conditions of this Agreement and agrees to be bound by and comply
with the provisions hereof.

 

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.  Amendment of Intercreditor Agreements.

 

Section 20(a) is hereby deleted in its
entirety.

 

Section 3.  Extension
of Non-default maturity Date of Borrower’s Indebtedness to Hauser and PKM.

 

Hauser and PKM agree as follows:

 

(a)                                  The non-default maturity date of indebtedness
of Borrower to Hauser pursuant to the terms of the Hauser Subordinated Note is
hereby extended to June 30, 2005. 
The Borrower agrees to execute and deliver such documents and
instruments as may be necessary or desirable, if any, in the judgment of
Hauser, to provide for such new non-default maturity date.

 

(b)                                 The non-default maturity date of indebtedness
of Borrower to PKM under the terms of the January Credit Agreement, the
May Credit Agreement and the November Credit Agreement is hereby extended
to June 30, 2005.  Borrower agrees
to execute and deliver such

 

 

documents and instruments as
may be necessary or desirable, if any, in the judgment of PKM, to provide for
such new non-default maturity date.

 

The indebtedness of Borrower to Draft, except as amended by this
Agreement, shall remain unchanged and the non-default maturity date of the
Draft Subordinated Note shall continue to be June 30, 2004.

 

Section 4.  Issuance
of Additional Borrower Warrants.

 

In consideration of the agreement of Hauser
to extend the non-default maturity date of the Hauser Subordinated Note, and
the agreement of PKM to extend the non-default maturity date of the
January Credit Agreement, the May Credit Agreement and the
November Credit Agreement, to June 30, 2005, Borrower agrees to issue
to Hauser and PKM additional warrants to purchase common stock of Borrower, as
follows:

 

(a)                                  Borrower will issue warrants to purchase
136,000 shares of common stock to Hauser (the “Additional Hauser Warrants”).

 

(b)                                 Borrower agrees to issue warrants to purchase
330,933 shares of common stock to PKM (the “Additional PKM Warrants”).

 

(c)                                  The Additional Hauser Warrants and Additional
PKM Warrants shall have a warrant exercise price of Two Dollars ($2.00) per
share.  Except for the number of shares,
exercise price and exercise period, such warrants shall be in the form of
warrants issued to Hauser and PKM for 380,357 shares and 320,178 shares,
respectively, on July 1, 2003. 
Each of such warrants shall have a duration of 10 years.

 

Section 5.  Effect
of Amendment.

 

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

 

Section 6.  Conditions Precedent

 

This parties’ obligations under this
agreement shall only be effective if: (1) the Company receives at least
$485,000 in new equity proceeds on or before February 6, 2004, (2) this
Agreement is duly executed and delivered on behalf of each of PKM, Hauser and
Draft, and (3) the Borrower’s obligations under this Agreement are approved by
the Borrower’s board of directors in compliance with Minn. Stat. § 302A.255,
Subd. 1(c).

 

IN WITNESS WHEREOF, this Amendment No. 1 to
First Amended and Restated Subordination and Intercreditor Agreement has been
signed as of the date first set forth above.

 

(The
signature page follows.)

 

2

 

	
   

  	
  /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. 1 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/ Jules L. Fisher

  
	
   

  	
  Name:

  	
  Jules L. Fisher

  
	
   

  	
  Its:

  	
  Chief Financial Officer

  
				

 

4

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