10-Q

United States
Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number 0-19467

Medamicus, Inc.

(Exact name of registrant as specified in its charter)

Minnesota	41-1533300
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
15301 Highway 55 West, Plymouth, MN 55447
(Address of principal executive office, including zip code)
(763) 559-2613
(Registrant’s telephone number, including area code)
N/A
Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

The number of shares of Registrant’s Common Stock outstanding on November 6, 2003 was 5,697,626.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)

Yes o No ý

Index

PART I.  FINANCIAL INFORMATION

EXHIBITS

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Medamicus, Inc.

Balance Sheets

	September 30, 2003			December 31, 2002
	Unaudited			Audited
ASSETS
Current assets:
Cash and cash equivalents	$	6,574,850		$	7,304,362
Accounts receivable, less allowances for doubtful accounts and returns of $130,000 and $60,000, respectively	1,861,327			2,087,666
Inventories, less obsolescence reserve of $61,000 and $59,000, respectively	2,140,022			2,118,671
Prepaid expenses and other assets	133,487			89,524
Deferred income taxes	100,000			100,000
Total current assets	10,809,686			11,700,223
Property and equipment:
Equipment	6,263,654			5,288,466
Office furniture, fixtures and computers	888,487			870,565
Leasehold improvements	990,078			982,022
	8,142,219			7,141,053
Less accumulated depreciation and amortization	(2,851,299		)	(2,193,699		)
Net property and equipment	5,290,920			4,947,354
Other assets:
Deferred acquisition costs	575,358			0
License agreement at cost, net of accumulated amortization of $480,530 and $292,446, respectively	1,567,364			1,755,448
Patent rights, net of accumulated amortization of $124,655 and $84,560, respectively	304,119			167,980
Total other assets	2,446,841			1,923,428
TOTAL ASSETS	$	18,547,447		$	18,571,005
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	476,266		$	622,765
Accrued expenses	592,141			906,934
Income taxes payable	184,552			1,247,982
Current installments of capital lease obligations	64,894			64,894
Total current liabilities	1,317,853			2,842,575
Long-term liabilities:
Capital lease obligations, less current installments	99,245			150,518
Deferred income taxes	150,000			150,000
Total long-term liabilities	249,245			300,518
Total liabilities	1,567,098			3,143,093
Commitments and contingencies
Shareholders’ equity:
Preferred stock-undesignated, authorized 1,000,000 shares	0			0
Common stock-$.01 par value, authorized 9,000,000 shares; issued and outstanding 4,745,293 and 4,726,593 shares, respectively	47,453			47,266
Additional paid-in capital	12,025,291			11,960,735
Retained earnings	4,907,605			3,419,911
Total shareholders’ equity	16,980,349			15,427,912
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	18,547,447		$	18,571,005

See accompanying condensed notes to financial statements

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Medamicus, Inc.

Statements of Operations (Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002
Net sales	$	4,041,977		$	4,541,518		$	13,047,641		$	13,222,243
Cost of sales	2,410,197			2,387,792			7,525,467			7,081,543
Gross profit	1,631,780			2,153,726			5,522,174			6,140,700
Operating expenses:
Research and development	459,965			383,312			1,201,212			1,237,824
Selling, general and administrative	570,535			555,142			1,981,152			1,736,350
Total operating expenses	1,030,500			938,454			3,182,364			2,974,174
Operating income	601,280			1,215,272			2,339,810			3,166,526
Other income (expense):
Interest expense	(3,877		)	(5,455		)	(12,747		)	(17,940		)
Interest income	9,425			19,300			36,404			58,753
Other	(1,913		)	(1,328		)	(2,315		)	(3,296		)
Total other income (expense)	3,635			12,517			21,342			37,517
Income before income taxes	604,915			1,227,789			2,361,152			3,204,043
Income tax expense	(223,650		)	(466,560		)	(873,458		)	(1,218,298		)
Net Income	$	381,265		$	761,229		$	1,487,694		$	1,985,745
Earnings per share
Basic	$	0.08		$	0.16		$	0.31		$	0.42
Diluted	$	0.08		$	0.15		$	0.30		$	0.40
Weighted average common and common equivalent shares outstanding
Basic	4,740,617			4,719,343			4,734,217			4,706,691
Diluted	5,007,723			4,947,539			4,971,259			4,973,385

See accompanying condensed notes to financial statements

Medamicus, Inc.

Statements of Shareholders’ Equity

				Additional Paid-In Capital		Retained Earnings		Total
	Common Stock
Nine Months Ended September 30, 2003	Shares	Amount
Balances at December 31, 2002 (Audited)	4,726,593	$	47,266	$	11,960,735	$	3,419,911	$	15,427,912
Options exercised	18,700	187		57,556		0		57,743
Options issued to consultant for services	0	0		7,000		0		7,000
Net income for the nine month period ended 9/30/03	0	0		0		1,487,694		1,487,694
Balances at September 30, 2003 (Unaudited)	4,745,293	$	47,453	$	12,025,291	$	4,907,605	$	16,980,349

See accompanying condensed notes to financial statements

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Medamicus, Inc.

Statements of Cash Flows (Unaudited)

	Nine Months Ended
	September 30, 2003			September 30, 2002
Cash flows from operating activities:
Net income	$	1,487,694		$	1,985,745
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	885,779			650,488
Options issued for compensation	7,000			1,139
Deferred income taxes	0			75,000
Loss on disposal of equipment	0			385
Changes in operating assets and liabilities:
Accounts receivable	226,339			(384,226		)
Inventories	(21,351		)	37,059
Prepaid expenses and other assets	(43,963		)	(159,657		)
Accounts payable	(146,499		)	(228,212		)
Accrued expenses	(314,793		)	(73,297		)
Income taxes payable	(1,063,430		)	989,886
Net cash provided by operating activities	1,016,776			2,894,310
Cash flows from investing activities:
Purchase of property and equipment, net of retirements	(1,001,166		)	(2,751,792		)
Deferred acquisition costs	(575,358		)	0
Additions to patent rights	(176,234		)	(70,651		)
Acquisition of license agreement	0			(416		)
Net cash used in investing activities	(1,752,758		)	(2,822,859		)
Cash flows from financing activities:
Principal payments on capital lease obligations	(51,273		)	(65,995		)
Proceeds from exercise of stock options and warrants	57,743			578,334
Net cash provided by financing activities	6,470			512,339
Net increase (decrease) in cash and cash equivalents	(729,512		)	583,790
Cash and cash equivalents, beginning of period	7,304,362			5,350,477
Cash and cash equivalents, end of period	$	6,574,850		$	5,934,267
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	12,747		$	5,455
Cash paid during the period for income taxes	$	1,754,017		$	153,412

See accompanying condensed notes to financial statements

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Medamicus, Inc.

Condensed Notes to Financial Statements

Nine Months Ended September 30, 2003

(Unaudited)

1.  Basis of presentation

The financial statements included in this Form 10-Q have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to these rules and regulations, although management believes the disclosures are adequate to make the information presented not misleading.  These statements should be read in conjunction with the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2002.

The financial statements presented herein as of September 30, 2003 and for the three and nine months ended September 30, 2003 and 2002 reflect, in the opinion of management, all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for these interim periods.

2.  Inventories

Inventories are stated at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market.  Inventories consist of the following:

	September 30, 2003		December 31, 2002
Purchased parts and subassemblies	$	1,502,289	$	1,609,747
Work in process	581,027		458,879
Finished goods	56,706		50,045
Total Inventory	$	2,140,022	$	2,118,671

3.  Deferred acquisition costs

The deferred acquisition costs of $575,358 at September 30, 2003 relate to the pending acquisition of the assets of BIOMEC Cardiovascular Inc. and will be included as part of the total consideration paid for the acquisition.

4.  Other Assets

Other assets include the following amortizable intangible assets:

	September 30, 2003						December 31, 2002
	Gross Carrying Amount		Accumulated Amortization		Net Value		Gross Carrying Amount		Accumulated Amortization		Net Value
License agreement	$	2,047,894	$	480,530	$	1,567,364	$	2,047,894	$	292,446	$	1,755,448
Patented technology	428,774		124,655		304,119		252,540		84,560		167,980
	$	2,476,668	$	605,185	$	1,871,483	$	2,300,434	$	377,006	$	1,923,428

Amortization expense is as follows:

Quarter ended September 30, 2003	$	79,576
Quarter ended September 30, 2002	69,525
Nine months ended September 30, 2003	228,179
Nine months ended September 30, 2002	204,745
Year ended December 31, 2002	275,357

Estimated amortization expense for the remainder of 2003 and for each of the next four years is approximately $80,000 and $320,000, respectively.

5.  Net income per share

Basic per-share amounts are computed, generally, by dividing net income by the weighted-average number of common shares outstanding.  Diluted per-share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is not dilutive.

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6.  Income Taxes

Income tax expense for the first nine months ended September 30, 2003, was computed using an estimated combined federal and state tax rate of 37%.  A combined rate of 38% was used for the first nine months ended September 30, 2002.

7.  Employee Stock-Based Compensation

At September 30, 2003, the Company had two stock-based employee compensation plans.  The Company accounts for those plans under APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.  No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

The Company also grants options and warrants to non-employees for goods and services and in conjunction with certain agreements.  These grants are accounted for under FASB Statement No. 123 based on the grant date fair values.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

	Three Months Ended						Nine Months Ended
	Sept 30, 2003			Sept 30, 2002			Sept 30, 2003			Sept 30, 2002
Net income – as reported	$	381,265		$	761,229		$	1,487,694		$	1,985,745
Deduct:  Total stock-based employee compensation (Expense determined under the fair value based method for all awards)	(90,820		)	(58,642		)	(293,779		)	(197,479		)
Pro forma net income	$	290,445		$	702,587		$	1,193,915		$	1,788,266
Earnings per share
Basic net income per share – as reported	$	.08		$	.16		$	.31		$	.42
Basic net income per share – pro forma	$	.06		$	.15		$	.25		$	.38
Diluted net income per share – as reported	$	.08		$	.15		$	.30		$	.40
Diluted net income per share – pro forma	$	.06		$	.14		$	.24		$	.36

The above pro forma effects on net income and net income per share are not likely to be representative of the effects on reported net income for future years because options vest over several years and additional awards generally are made each year.

8.  Subsequent Events

On July 21, 2003, we entered into a definitive agreement to acquire the operating assets of BIOMEC Cardiovascular Inc. (“BCI”), a Minneapolis-based developer and manufacturer of implantable stimulation leads, lead delivery systems and accessories for cardiac rhythm management and neuromodulation.  BCI is a subsidiary of BIOMEC Inc., a privately held medical technology company headquartered in Cleveland, Ohio.  BCI had sales of approximately $4.2 million during its latest fiscal year ended December 31, 2002 and sales of approximately $7.3 million for the nine months ended September 30, 2003.

On October 17, 2003, we entered into a contract with a financial institution for a credit facility consisting of a $5.0 million term loan, amortizing over five years, together with a $3.0 million working capital line of credit.  The credit facility is secured by substantially all of our assets, including the assets acquired in the BCI transaction.  Availability under the working capital line of credit will be dependent upon levels of accounts receivable and inventory and will require us to comply with certain financial and operational covenants.  We will pay interest on the term loan, on a monthly basis, in an amount equal to the monthly LIBOR rate, as adjusted from time to time, plus 2.5% and we will pay interest on the working capital line of credit, on a monthly basis, in an amount equal to the monthly LIBOR rate, as adjusted from time to time, plus 2.25%.  At October 23, 2003, the monthly LIBOR rate was 1.12%.  We used the $5.0 million under the term loan to fund a portion of the cash payment made at the October 23, 2003 closing of the BCI transaction.

Our shareholders as well as the shareholders of BIOMEC Inc. approved the acquisition at shareholder meetings held on October 21, 2003 and the transaction closed on October 23, 2003.  Under the agreement, we paid at closing a total of $18 million less assumed liabilities of approximately $1 million, consisting of approximately $10 million in cash and 933,333

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newly issued shares of Medamicus common stock valued at $7 million.  Both companies agreed to use BCI’s balance sheet as of September 30, 2003 to determine assumed liabilities in order to close the transaction in a timely manner.  BCI has 30 days from closing to provide us with a final balance sheet as of October 23, 2003, subject to a 20 day final review by us, to determine the final assumed liabilities, as well as the final working capital adjustment per the agreement.  We will pay any closing transaction amounts due sometime in mid-December.  We currently estimate that we will owe BIOMEC approximately $950,000 for the working capital adjustment.  The asset purchase agreement also requires us to make additional payments to BIOMEC and BCI in 2004 and 2005 if certain levels of sales of BCI products are achieved.

Additionally, as part of the acquisition, our shareholders approved increasing the number of authorized common shares from 9 million to 20 million.  Medamicus has also incurred deferred acquisition costs of $575,358 through September 30, 2003 that will be treated as part of the cost of the acquisition.  It is expected that total fees and expenses related to the transaction will be approximately $1,200,000.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that the Company’s management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition.  This discussion should be read in conjunction with the accompanying financial statements and footnotes.

Overview

Our revenues are primarily derived from the design, development, manufacture and marketing of medical devices consisting of percutaneous vessel introducers, safety needles and related vascular delivery products that we sell to other medical device companies.

We manufacture and market a family of percutaneous venous vessel introducers that include in part or in whole proprietary features and technologies.  Vessel introducers allow physicians to create a conduit through which they can insert other medical devices such as infusion catheters, implantable ports, and pacemaker leads into a blood vessel.

In addition to this core traditional introducer product line, we have developed and manufacture “advanced delivery” introducers that have “fixed curve” or articulating distal tip sections that can be manipulated to enable the health care professional to access parts of the patient’s anatomy  (such as the left ventricle of the heart) that cannot be reached by traditional introducers. These sophisticated advanced delivery introducers are designed and manufactured to meet the unique needs of each procedure being performed.

We also manufacture safety products, primarily a safety needle that can be retracted into a protective sheath while still in the patient, greatly reducing the possibility of a needle stick and infection to the health care professional after the needle has been in contact with a patient’s blood.

Finally, we perform contract manufacturing and engineering services under which we design and manufacture products at our facilities to third party customer specifications.

Results of Operations

Three and nine month periods ended September 30, 2003 and September 30, 2002

Net sales were $4,041,977 for the three months ended September 30, 2003 compared to $4,541,518 for the three months ended September 30, 2002, and $13,047,641 for the nine months ended September 30, 2003 compared to $13,222,243 for the nine months ended September 30, 2002, representing an 11.0% and a 1.3% decrease, respectively.

Sales of our core introducer products were $2,652,869 for the three months ended September 30, 2003, compared to $3,299,293 for the three months ended September 30, 2002, and $9,602,964 for the nine months ended September 30, 2003, compared to $8,328,822 for the nine months ended September 30, 2002, representing a 19.6% decrease and a 15.3% increase, respectively.  The increase for the nine month period of 2003 was primarily due to continued growth in sales to both new and existing customers.  However, we experienced a decrease during the third quarter of 2003 due to several factors.   First, we benefited from a one time shipment of specialty introducers to Medtronic in the third quarter of 2002 totaling $347,000 that was not present during the current third quarter.  Second, two of our large introducer customers significantly lowered orders for introducer products during the third quarter of 2003 due to some over-stocking issues at their facilities.  We expect these customers will be increasing their orders again in the middle of the fourth quarter to more normal levels.  Finally, our introducer sales were affected in the current third quarter by the suspension in production of our

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FlowGuard^TM valved introducer due to a design issue related to the handle resin.  Our engineers believe that they have the resin issues rectified and we are hopeful that we can resume shipments of this product early in 2004.  We expect sales of our core introducer products in the fourth quarter to be approximately the same as in the third quarter of 2003, but we expect introducer sales to grow rapidly in 2004 as we begin to ship our FlowGuard product to the marketplace again.

Sales of our advanced delivery products were $749,277 for the three months ended September 30, 2003, compared to $933,255 for the three months ended September 30, 2002, and $1,863,622 for the nine months ended September 30, 2003, compared to $3,987,088 for the nine months ended September 30, 2002, representing a 19.7% and 53.3% decrease, respectively.  The sales for the three months ended September 30, 2003 included $415,000 of inventory that we had been holding for Medtronic related to procedural kits that is now being transferred to its manufacturing facility.  The inventory billing carried a modest gross profit (approximately 25%) which also affected our overall gross profit for the quarter and the year.  The remaining sales in this category were either procedural kits or components sold to Medtronic in support of its marketing of the InSync™ pacing device to treat congestive heart failure.  As we previously reported, Medtronic has transitioned packaging of these procedural kits to its own facility.  We have provided Medtronic with several components for these kits over the past several quarters, but we saw a significant decline in orders for these components during the first nine months of 2003.  We anticipate that our advanced delivery product sales will be down significantly for the remainder of 2003 when compared to 2002, primarily due to the reduction in sales to Medtronic.  We are currently working on twelve development projects related to advanced delivery products with a variety of companies.  We are conducting the product development work and incorporating some portions of our own intellectual property in each of these projects.  Each relationship is typically accompanied by a supply agreement that would provide us an additional revenue stream if the final product is a commercial success.

Sales of our safety products were $177,046 for the three months ended September 30, 2003, compared to $14,094 for the three months ended September 30, 2002, and $386,257 for the nine months ended September 30, 2003, compared to $82,063 for the nine months ended September 30, 2002.  Most of these increased sales are the result of the incorporation of the safety needle into Medtronic kits for U.S. distribution starting in the second quarter.  We believe that the Medtronic safety needle launch should create increased market demand at the hospital level.  On April 24, 2003, we announced a supply agreement with Cook Incorporated under which we appointed Cook the exclusive distributor of our single pack Axia RSN™ safety needles in the United States.  We shipped a small initial order of safety needles to Cook during the third quarter and we expect to ramp up sales to Cook during the fourth quarter.  We also shipped small quantities of needles to a number of potential customers to begin their evaluation of the product.  We expect safety product sales to accelerate in the fourth quarter of 2003 as we begin to ship safety needles to Cook under the new supply agreement.

Other sales, consisting of contract manufacturing, engineering services and freight charges were $462,785 and $1,194,798 for the three and nine month periods ended September 30, 2003, compared to $294,876 and $824,270 for the three and nine month periods ended September 30, 2002.  This increase was primarily due to increased engineering service sales, off-set by decreases in contract manufacturing sales during the comparable periods.

Gross profit totaled $1,631,780 for the three months ended September 30, 2003, compared to $2,153,726 for the three months ended September 30, 2002, and $5,522,174 for the nine months ended September 30, 2003, compared to $6,140,700 for the nine months ended September 30, 2002, representing a 24.2% and 10.1% decrease, respectively.  Gross profit as a percent of sales dropped from 47.4% to 40.4% for the comparable three month period and from 46.4% to 42.3% for the comparable nine month period.  Our gross profits in 2003 are down as a percent of sales when compared to 2002 for several reasons.  A major reason for the decrease is due to the drastic reduction in our Medtronic advanced delivery product sales from 2002 which carried a high gross profit percentage.   We also made a conscious decision to retain all of our production staff while we resolved the FlowGuard resin issue and we used the time to conduct training and rearrange our production floor for greater efficiency.  As a result, we had higher manufacturing overhead costs than would be typical for the lower level of production we generated.  We also have relatively high fixed costs related to the amortization of our investment in obtaining the rights to the arterial safety needle market, as well as depreciation on the automated safety needle assembly equipment (beginning in April 2003), as compared to sales of safety needles.  We also incurred additional costs in the first quarter of 2003 when we manually assembled safety needles, as well as additional costs in the second quarter of 2003 when we wrote off inventory associated with the FlowGuard valved introducer.  Finally about seven percent of our sales were for engineering services which carry a margin rate substantially lower than our typical proprietary product sales.  We expect some improvement in our margins in the fourth quarter but would not expect to get back to our historical margins until the FlowGuard is fully launched and safety needle sales increase to higher levels than currently attained.

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Research and development expenses were $459,965 or 11.4% of sales for the three months ended September 30, 2003, compared to $383,312 or 8.4% of sales for the three months ended September 30, 2002, and $1,201,212 or 9.2% of sales for the nine months ended September 30, 2003, compared to $1,237,824 or 9.4% of sales for the nine months ended September 30, 2002.  The increase in the third quarter was primarily due to additional costs associated with resolving the resin issues with our FlowGuard product, as well as higher validation costs on several new development projects during the quarter.  For the full nine months of 2003, the decrease was primarily due to a greater portion of engineering time being billed to customers as engineering services when compared to last year.  Research and development continues to be an important part of our continuing efforts to grow our business and we plan to spend approximately 9-10% of sales on these activities on an on-going basis.

Selling expenses were $192,183 or 4.8% of sales for the three months ended September 30, 2003, compared to $115,159 or 2.5% of sales for the three months ended September 30, 2002, and $646,919 or 5.0% of sales for the nine months ended September 30, 2003, compared to $406,779 or 3.1% of sales for the nine months ended September 30, 2002.  This increase was primarily due to increased spending on salaries, trade shows and travel, partially off-set by a decrease in commission expense.  We have been developing a formal sales and marketing department over the past two years and have added a number of positions since January of 2002 to help drive the sales and marketing efforts for our new products.  With the addition of these positions, we have attended more trade shows to build awareness of our products and incurred higher travel costs than in past years.  Additionally, with these new positions, we have been able to reduce the commission expenses relating to our two independent sales representatives.

General and administrative expenses were $378,352 or 9.4% of sales for the three months ended September 30, 2003, compared to $439,983 or 9.7% of sales for the three months ended September 30, 2002, and $1,334,233 or 10.2% of sales for the nine months ended September 30, 2003, compared to $1,329,571 or 10.1% of sales for the nine months ended September 30, 2002.  The decrease in the third quarter of 2003 was primarily due to reduced consulting fees when compared to 2002.  Interest income decreased $9,875 and $22,349, respectively due to lower interest rates and lower amounts of cash during the comparable periods and interest expense decreased $1,578 and $5,193, respectively, due to reduced lease balances during the comparable periods.

As a result, we had net income after taxes of $381,265 or $.08 per diluted share for the three months ended September 30, 2003, compared to net income after taxes of $761,229 or $.15 per diluted share for the three months ended September 30, 2002 and $1,487,694 or $.30 per diluted share for the nine months ended September 30, 2003, compared to net income after taxes of $1,985,745 or $.40 per diluted share for the nine months ended September 30, 2002.

Finally, we regularly grant incentive stock options to our employees pursuant to our shareholder-approved Medamicus, Inc. 1999 Incentive Stock Option Plan.  During the nine month period ended September 30, 2003, we granted options from this plan to purchase a total of 108,400 shares of our common stock.  Of this total, James D. Hartman (President and Chief Executive Officer) and Mark C. Kraus (Executive Vice President and Chief Operating Officer) each received grants of 15,000 options on February 13, 2003 at a price of $7.33 per share, which was the last sale price of the stock on that date.

Liquidity and Capital Resources

Net cash provided by operating activities for the nine months ended September 30, 2003 was $1,016,776, consisting of net income of $1,487,694, adjusted for non-cash items of depreciation and amortization of $885,779 and options issued for compensation of $7,000, less a net change in operating assets and liabilities of $1,363,697 consisting primarily of a decrease in income taxes payable of $1,063,430 due to the payment of our 2002 income taxes and 2003 income tax estimates, a decrease in accounts payable and accrued expenses of $461,292 due to timing of payments, offset slightly by a decrease in accounts receivable of $226,339 due primarily to the timing of invoicing and collections.

Net cash used in investing activities for the nine months ended September 30, 2003 was $1,752,758.  We purchased equipment totaling $1,001,166, incurred $575,358 in deferred costs related to the pending acquisition and also had additions to patent rights totaling $176,234 during the period.

Net cash provided by financing activities for the nine months ended September 30, 2003 was $6,470.  We made capital lease payments of $51,273 and received cash upon the exercise of options of $57,743.

As a result, our cash and cash equivalents were $6,574,850 as of September 30, 2003 compared to $7,304,362 at December 31, 2002.  Working capital increased from $8,857,648 as of December 31, 2002 to $9,491,833 as of September 30, 2003.

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We currently have two major customers that account for more than 10% of our sales.  Information on those customers is as follows:

Customer	YTD % of Sales 9/30/03	YTD % of Sales 9/30/02	% of AR on 9/30/03	% of AR on 9/30/02
Medtronic	51%	66%	46%	61%
Bard	19%	13%	8%	10%

We have not experienced problems with timely payments from either of these customers and do not anticipate problems in the future.

At September 30, 2003, we had in place a line of credit with a financial institution with availability on the line of $3,000,000.  The line of credit agreement called for interest at the financial institution’s base rate with no minimum interest due and expired, if not renewed, on August 1, 2004.  The availability under the line was subject to borrowing base requirements, and advances were at the discretion of the lender. The line was secured by substantially all of our assets.  The line of credit agreement contained certain financial covenants, including minimum profitability and a liabilities to net worth ratio limitation.  We had no outstanding borrowings under the agreement at September 30, 2003.  This line of credit was closed on the acquisition close date and the Company will begin to use the new line of credit.

Other Commercial Commitment	Total Amount Committed		Outstanding at 9/30/03		Date of Expiration
Line of credit		$3,000,000		$0	August 1, 2004

A summary of our future contractual cash obligations at September 30, 2003 is set forth in the table below.  The amounts shown include the new credit facility discussed below under “Subsequent Business Acquisition.”

	Payments due by period
Contractual Obligations	Total		2003		2004		2005		2006		2007		2008
Long-term debt, including interest	$	180,956	$	21,340	$	85,359	$	69,500	$	4,757	$	0	$	0
Acquisition term loan	5,000,000		166,667		1,000,000		1,000,000		1,000,000		1,000,000		833,333
Operating leases	360,299		45,607		181,802		110,240		10,931		9,159		2,560
Total contractual cash obligations	$	5,541,255	$	233,614	$	1,267,161	$	1,179,740	$	1,015,688	$	1,009,159	$	835,893

We believe that our cash balance, availability under our line of credit, if needed, and anticipated cash flows from operations will be adequate to fund our working capital and capital resource needs for fiscal 2003.  In addition, we expect our working capital requirements to change as a result of the subsequent business acquisition described below.

Subsequent Business Acquisition

On July 21, 2003, we entered into a definitive agreement to acquire the operating assets of BIOMEC Cardiovascular Inc. (“BCI”), a Minneapolis-based developer and manufacturer of implantable stimulation leads, lead delivery systems and accessories for cardiac rhythm management and neuromodulation.  BCI is a subsidiary of BIOMEC Inc., a privately held medical technology company headquartered in Cleveland, Ohio.  BCI had sales of approximately $4.2 million during its latest fiscal year ended December 31, 2002 and sales of approximately $7.3 million for the nine months ended September 30, 2003.

On October 17, 2003, we entered into a contract with a financial institution for a credit facility consisting of a $5.0 million term loan, amortizing over five years, together with a $3.0 million working capital line of credit.  The credit facility is secured by substantially all of our assets, including the assets acquired in the BCI transaction.  Availability under the working capital line of credit will be dependent upon levels of accounts receivable and inventory and will require us to comply with certain financial and operational covenants.  We will pay interest on the term loan, on a monthly basis, in an amount equal to the monthly LIBOR rate, as adjusted from time to time, plus 2.5% and we will pay interest on the working capital line of credit, on a monthly basis, in an amount equal to the monthly LIBOR rate, as adjusted from time to time, plus 2.25%.  At October 23, 2003, the monthly LIBOR rate was 1.12%.  We used the $5.0 million under the term loan to fund a portion of the cash payment made at the October 23, 2003 closing of the BCI transaction.

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Our shareholders as well as the shareholders of BIOMEC Inc. approved the acquisition at shareholder meetings held on October 21, 2003 and the transaction closed on October 23, 2003.  Under the agreement, we paid at closing a total of $18 million less assumed liabilities of approximately $1 million, consisting of approximately $10 million in cash and 933,333 newly issued shares of Medamicus common stock valued at $7 million.  Both companies agreed to use BCI’s balance sheet as of September 30, 2003 to determine assumed liabilities in order to close the transaction in a timely manner.  BCI has 30 days from closing to provide us with a final balance sheet as of October 23, 2003, subject to a 20-day final review by us, to determine the final assumed liabilities, as well as the final working capital adjustment per the agreement.  We will pay any closing transaction amounts due sometime in mid December.  We currently estimate that we will owe BIOMEC approximately $950,000 for the working capital adjustment.  The asset purchase agreement also requires us to make additional payments to BIOMEC and BCI in 2004 and 2005 if certain levels of sales of BCI products are achieved.

Additionally, as part of the acquisition, our shareholders approved increasing the number of authorized common shares from 9 million to 20 million.  Medamicus has also incurred deferred acquisition costs of $575,358 through September 30, 2003 that will be treated as part of the cost of the acquisition.  It is expected that total fees and expenses related to the transaction will be approximately $1,200,000.

Critical Accounting Policies

Our significant accounting policies are summarized in the footnotes to our annual financial statements.  The most critical policies are also discussed below.

Revenue Recognition.  We recognize revenue in accordance with Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements.  Revenues are recognized when all of the following criteria are met: when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.

Allowances for Doubtful Accounts and Product Returns.  We establish estimates of the uncollectibility of accounts receivable.  Our management analyzes accounts receivable, historical write-offs as bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.  We maintain an allowance for doubtful accounts at an amount that we estimate to be sufficient to provide adequate protection against losses resulting from collecting less than full payment on receivables.  A considerable amount of judgment is required when assessing the realizability of receivables, including assessing the probability of collection and the current credit-worthiness of each customer.  If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts may be required.   We have not experienced significant bad debt expense to date and we believe our reserve for doubtful accounts of $50,000 should be adequate for any exposure to loss in our September 30, 2003 accounts receivable.  Additionally, we established an $80,000 reserve for product returns in June 2003 to cover the recalled FlowGuard product from one of our customers that had not been returned as of September 30, 2003.  Returns of this nature are rare and we typically do not establish product return reserves.

Allowance for Excess and Obsolete Inventory.Inventories, which are composed of purchased parts and subassemblies, work in process and finished goods, are valued at the lower of cost or market with cost being determined by the first-in, first-out method. On a periodic basis, we analyze the level of inventory on hand, its cost in relation to market value and estimated customer requirements to determine whether write-downs for excess or obsolete inventory are required. Actual customer requirements in any future periods are inherently uncertain and thus may differ from estimates. If actual or expected requirements were significantly greater or lower than the established reserves, a reduction or increase to the obsolescence allowance would be recorded in the period in which such a determination was made. We have established reserves for slow moving and obsolete inventories and believe our reserve of $61,000 at September 30, 2003 is adequate.

Valuation of Long-Lived and Intangible Assets.  As a matter of policy, we review our major assets for impairment at least annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Our major long-lived and intangible assets are our license agreement with Med-Design for the Axia RSN Safety Needle and property and equipment.  We depreciate our property and equipment and license agreement over their estimated useful lives and we have not identified any items that are impaired.

The realization of our investments in the license agreement and manufacturing equipment related to our net safety needle investment of approximately $3,428,000 at September 30, 2003 is dependent upon attaining a sustained level of sales of this product.  We currently are comfortable projecting a level of future sales that is sufficient to enable us to fully realize the

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investments we have made in the safety needle product.  However, if actual sales fail to reach these levels, our investments made in this product may not be fully realizable in the future. Please refer to the “Risk Factors” section of our Annual Report on Form 10-KSB for 2002, filed with the Securities and Exchange Commission on February 28, 2003 for a discussion of factors that will have an effect on our ability to attain a sustained level of safety needle sales.

If we determine that the carrying value of these operating assets may not be recoverable, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model or another valuation technique.

Recently Issued Accounting Pronouncement

The Financial Accounting Standards Board (FASB) has issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.  Statement No. 150 requires that certain freestanding financial instruments be reported as liabilities in the balance sheet.  Depending on the type of financial instrument, it will be accounted for at either fair value or the present value of future cash flows determined at each balance sheet date with the change in that value reported as interest expense in the income statement.  Prior to the application of Statement No. 150, either those financial instruments were not required to be recognized, or if recognized were reported in the balance sheet as equity and changes in the value of those instruments were normally not recognized in net income.  The Company is required to apply Statement No. 150 for the quarter beginning on July 1, 2003.  The Company does not expect the application of Statement No. 150 to have a material effect on its financial statements.

Forward Looking Statements

Statements included in this Quarterly Report on Form 10-Q, in our annual and quarterly reports, in filings by us with the Securities and Exchange Commission, in our press releases, and oral statements made with the approval of an authorized executive officer that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.   Certain important factors could cause results to differ materially from those anticipated by some of these statements.  Investors are cautioned that all forward-looking statements involve risks and uncertainties.  A number of factors that could cause results to differ materially are those discussed in our Annual Report on Form 10-KSB for the year ended December 31, 2002 entitled “Risk Factors,” as well as in our quarterly reports on Form 10-Q and in our Proxy Statement/Prospectus dated September 12, 2003 filed with the Securities and Exchange Commission.   All forward-looking statements made by us, whether written or oral, and whether made by or on behalf of us are expressly qualified by these cautionary statements.  Factors that could cause results to differ materially include:  Our ability to successfully integrate the acquired business; our dependence upon a limited number of key customers for our revenue; our dependence upon licensing agreements with third parties for the technology underlying some of our products, especially the safety needle; our ability to negotiate and enter into safety needle supply agreements with major medical device companies and the ability of the us and our customers to achieve market acceptance of the safety needle; our ability to effectively manufacture our safety needle using our automated safety needle assembly equipment in anticipated required quantities; our ability to successfully manufacture and re-introduce our FlowGuard valved peelable introducer; our ability to design and develop new advanced delivery products for our existing and new customers; our ability to develop or acquire new products to increase our revenues; our ability to attract and retain key personnel; introduction of competitive products; patent and government regulatory matters; economic conditions; and our ability to raise capital.  All forward-looking statements made by us, whether written or oral, and whether made by or on behalf of us are expressly qualified by these cautionary statements.  In addition, we disclaim any obligation to update forward-looking statements to reflect events or circumstances after the date hereof.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to changes in interest rates primarily as a result of our borrowing and investing activities used to maintain liquidity. Our earnings have not been materially affected by changes in interest rates on our floating interest rate debt because we have not maintained an outstanding balance on our line of credit agreement.  Based on our current borrowings, an increase of 100 basis points in prevailing interest rates would increase our annual interest expense by less than $50,000.  We have invested our excess funds in a money market fund, comprised of U.S. Government backed securities, and do not believe that a change in interest rates on such money market fund would have a material effect on our earnings.

Item 4.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer, James D. Hartman, reviewed the Company’s disclosure controls and procedures at the end of the period covered by this report.  Based upon his review, he believes that

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the Company’s disclosure controls and procedures are effective in ensuring that material information related to the Company that is required to be disclosed is made known to him by others within the Company.

(b) Changes in Internal Controls Over Financial Reporting.

There were no significant changes in the Company’s internal controls over financial reporting that occurred in the quarter ended September 30, 2003, that have materially affected, or are reasonably likely to affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings

None

Item 2 – Changes in Securities

During the quarter ended September 30, 2003, the Company did not issue any unregistered securities.  On October 23, 2003, the Company issued a five-year warrant to purchase 10,000 shares of common stock exercisable at a price of $8.36 to Franklin Capital Partners, Inc.  Franklin Capital acted as an advisor to the Company in connection with the Company’s acquisition of assets of BIOMEC Inc. and BIOMEC Cardiovascular Inc.  The Company believes the issuance of the warrant was exempt pursuant to Section 4(2) of the Securities Act of 1933.

Item 3 – Defaults Upon Senior Securities

None

Item 4 - Submission of Matters to a Vote of Security Holders

(a).  The Company held its special meeting of shareholders on October 21, 2003.

(b).  The Company solicited proxies from its shareholders to vote on the following items:

Proposal #1

To consider and vote upon a proposal to approve the issuance of shares of common stock in an amount equal to 20% or more of Medamicus’ outstanding common stock to BIOMEC Inc. and BIOMEC Cardiovascular Inc. (BCI) under the asset purchase agreement dated July 21, 2003 among Medamicus, Inc., Medacquisition, Inc., BIOMEC and BCI.

Proposal #2

To consider and vote upon a proposal to amend Medamicus’ Articles of Incorporation to increase the authorized common stock of Medamicus from 9,000,000 to 20,000,000 shares.

Proposal #3

To amend the Medamicus, Inc. Stock Option Incentive Plan to increase the number of shares of common stock authorized for issuance thereunder from 700,000 to 900,000 shares.

Proposal #4

To consider and vote upon any motion to adjourn the meeting to a later time to permit, among other things, further solicitation of proxies if necessary to establish a quorum or to obtain additional votes in favor of the foregoing items.

A total of 2,590,502 votes were cast by proxy at the special meeting and the vote counts were as follows:

	Yes	No	Abstain	Broker Non Vote
Proposal #1	2,439,715	98,287	52,500	0
Proposal #2	2,302,951	222,526	65,025	0
Proposal #3	2,144,441	392,886	53,175	0
Proposal #4	2,246,150	280,768	63,584	0

Accordingly, each proposal was approved.

Item 5 – Other Information

None

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Item 6 – Exhibits and Reports on Form 8-K

(a) – Exhibits

3.1	Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (File No. 333-108404)).
10.1	Employment Agreement dated August 22, 2003 between the Company and Vincent P. Owens.
10.2	Employment Agreement dated August 22, 2003 between the Company and James L. Mellor.
10.3	Medamicus, Inc. 1999 Incentive Stock Option Plan, as amended through October 23, 2003.
10.4	Revolving Credit and Term Loan Agreement dated October 17, 2003 between the Company and M&I Marshall & Ilsley Bank.
10.5	Term Promissory Note dated October 17, 2003 in favor of M&I Marshall & Ilsley Bank.
10.6	Revolving Promissory Note dated October 17, 2003 in favor of M&I Marshall & Ilsley Bank.
10.7	Security Agreement dated October 17, 2003 between the Company and M&I Marshall & Ilsley Bank.
10.8	Third Party Security Agreement dated October 17, 2003 between the Company’s wholly owned subsidiary, Medaquisition, Inc., and M&I Marshall & Ilsley Bank.
31	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14(a) and 15d-14(a) of the Exchange Act).
32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

(b) - Reports on Form 8-K

The following Current Reports on Form 8-K were filed or furnished during the third quarter or the period from the end of the third quarter through the date of this Form 10-Q:

•On July 22, 2003, the Company filed a Current Report on Form 8-K to: (1) report under Item 5 the execution of the Asset Purchase Agreement between the Company, BIOMEC, Inc. and BIOMEC Cardiovascular Inc. and file copies of the press releases issued by the Company and BIOMEC in connection therewith; (2) furnish under Item 9 a copy of the second quarter 2003 earnings press release; and (3) furnish under Items 9 and 12 the statement of the Company’s President and CEO issued in connection with the second quarter 2003 earnings conference call.

•On October 22, 2003, the Company filed a Current Report on Form 8-K to furnish under Item 12 a copy of the third quarter 2003 earnings press release.

•On October 23, 2003, the Company filed a Current Report on Form 8-K to report under Item 2 the acquisition of substantially all of the assets of BIOMEC Cardiovascular Inc. and certain of the assets of BIOMEC Inc. pursuant to the Asset Purchase Agreement dated July 21, 2003 and file a copy of the Company’s press release issued in connection therewith.  The Company also furnished under Item 9 a copy of a slide presentation to be used by the Company’s President at investor conferences and individual investor meetings beginning on October 23, 2003.

•On October 29, 2003, the Company filed a Current Report on Form 8-K to furnish under Item 12 a copy of the transcript for the Company’s third quarter 2003 earnings conference call held on October 22, 2003.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:

	Medamicus, Inc.
Date:  November 6, 2003	By:	/s/ James D. Hartman
	President, Chief Executive Officer and Chief Financial Officer

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EX-10.1

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT (“Agreement”) is entered into as of August 22, 2003 by and between MedAmicus, Inc., a Minnesota corporation (the “Company”), and Vincent P. Owens (“Employee”) and will become effective on the Effective Date, as defined in Section 1.

WHEREAS, Employee is currently employed as the President of BIOMEC Cardiovascular Inc. (“BCI”), and the Company has entered into an Asset Purchase Agreement among the Company, Medacquisition, Inc., BIOMEC Inc. and BCI dated as of July 21, 2003 (the “Asset Purchase Agreement”), under which the Company has agreed to purchase the operating assets of BCI if certain conditions are met; and

WHEREAS, the Company wishes Employee to render services for the Company beginning on the Effective Date and subject to the terms and conditions set forth in this Agreement, and Employee wishes to be retained and employed by the Company subject to these terms and conditions; and

WHEREAS, Employee understands that Company is offering him employment in a position of trust and confidence and that he will generate, have access to, and become familiar with confidential information; and

WHEREAS, Employee understands that the Company has expended significant time and money on the development of customer goodwill and a sound business reputation, and as part of Employee’s duties, he will develop and maintain close working relationships with the Company’s customers; and

WHEREAS, Employee understands that this Agreement prohibits the unauthorized use or disclosure of the Company’s confidential information and an obligation not to compete with the Company.

NOW, THEREFORE, in consideration of the promises and the respective undertakings of the Company and Employee set forth in this Agreement, the Company and Employee agree as follows:

1.Effective Date.  The “Effective Date” means the date immediately following the Closing Date, as defined in the Asset Purchase Agreement.  This Agreement will be null and void and of no force or effect if the Closing (as defined in the Asset Purchase Agreement) does not occur.

2.Employment.  The Company employs Employee as of the Effective Date, and Employee accepts such employment as President of Medacquisition, Inc. (to be renamed with input from Employee), subject to the terms and conditions set forth in this Agreement.

3.Term.  Subject to Employee’s full compliance with section 4 and subject to the provisions of section 9, Employee’s employment under this Agreement will continue for an initial term from the Effective Date until December 31, 2004 (the “Initial Term”).  After the Initial Term, Employee’s employment will continue on an at will basis, and either party may terminate this Agreement with or without Cause (as defined in Section 9) on 30 days prior written notice.  Termination of this Agreement by either party will automatically terminate Employee’s employment by the Company.

4.Position and Duties.

4.1.Service with Company.  Employee agrees to perform all reasonable employment duties for the Company as arise during the term of this Agreement.  Employee will devote his full time and attention and best efforts to the business and affairs of the Company, and faithfully and diligently perform in a competent and professional manner and to the best of his ability all of his duties and responsibilities described in this Agreement.

4.2.Conflict of Interest.  Employee represents and warrants to the Company that he has no contractual commitments inconsistent with his obligations set forth in this Agreement, and that during the term of this Agreement, he will not render or perform services for any other corporation, firm, entity, or person which are inconsistent with the provisions of this Agreement and which are not authorized by the Company.

5.Compensation.

5.1.Base Salary.  As compensation for all services to be rendered by Employee under this Agreement, the Company will pay to Employee a Base Salary (“Base Salary” means regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments) at an annual rate of $150,000.  The Company will pay the Base Salary in accordance with normal Company payroll practices for employees, subject to state and federal taxes, social security, and any other applicable withholdings.  The Base Salary will be reviewed not less often than annually, and increased or decreased as may be determined from time to time by the Company.

5.2.Stock Options.  Employee will be eligible after 90 days of employment with the Company to receive stock options to purchase 50,000 shares of the Company’s common stock under the Company’s Stock Option Incentive Plan, subject to approval by the Company’s Board of Directors.

5.3.Bonus and Incentive.  Employee will be eligible to participate in the Company’s “2004 Salaried Employee Bonus Plan”, if and when adopted by the Board of Directors.  The Company does not guarantee the adoption of any employee bonus program during the term of this Agreement, and Employee’s participation in the plan or program would be subject to the provisions, rules and regulations applicable to the plan, and the terms of this Agreement.  The amount and criteria for determination of Employee’s bonus and incentive compensation in the plan or program (if any) is solely within the discretion of the Board of Directors.

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5.4.Benefits.  In addition to the compensation payable to Employee as provided in this Section 5:

(a)Vacation and Holidays.  The Company will honor any accrued but unused paid vacation earned during the Employee’s employment with BIOMEC Cardiovascular Inc.  Such paid vacation must be used by Employee according to the Company’s existing policies regarding vacation time.  Employee is eligible for three (3) weeks of paid vacation to accrue annually beginning on the Effective Date of this Agreement.  Employee may rollover up to two hundred (200) hours of unused vacation into the next calendar year.  Employee shall also be entitled to eighty (80) hours of paid holidays each calendar year per the Company’s Holiday Schedule.

(b)Group Health Insurance and Pension Plan.  To the extent available or offered, Employee will be entitled to participate in all other benefit programs offered by the Company to its employees, subject to terms of the benefit plans as the Board of Directors may approve, including but not limited to, any medical, dental or other health plan, pension plan, profit-sharing plan and life insurance plan that the Company may adopt or maintain, any of which may be changed, terminated or eliminated by the Company at any time in the exclusive discretion of the Board of Directors.  The Company will attempt to give credit for prior service with BIOMEC Cardiovascular, Inc., to the extent permitted under the benefit plans.

5.5.Business Expenses.  The Company will pay or reimburse Employee for all reasonable and necessary out-of-pocket expenses incurred by Employee for the benefit of the Company in the performance of his duties under this Agreement, so long as Employee complies with the Company’s policies for expense reimbursement.

6.Confidential Information.

6.1.“Confidential Information” Defined.  “Confidential information” means any information not generally known in this profession by third parties, including the Company’s competitors or the general public.  It includes (but is not limited to) methods, procedures, trade secrets, client lists, marketing plans and techniques, new products and new product development, strategic plans, business plans, budgets, product prices, sales volume, information about clients and potential clients (including identities of the clients and the clients’ contact person(s), the clients’ buying history and tendencies and other details about the Company’s relationship with them), drawings, specifications, reports and information about employee compensation and finances.  All information which Employee acquires or becomes acquainted with during the period of his employment by the Company (including employment by an affiliated company), whether developed by Employee or by others, which he has a reasonable basis to believe to be Confidential Information, or which is treated by the Company as being Confidential Information, shall be presumed to be Confidential Information.

6.2.Obligations of Employee.  Except to the extent required during the course of Employee’s employment for the Company, Employee agrees that he will not, during or after

3

the term of his employment, disclose Confidential Information to any other person or entity, or use the Company Confidential Information for his own benefit or for the benefit of another, unless the Company expressly directs him to do so.  Employee acknowledges that the Confidential Information constitutes a unique and valuable asset of the Company and represents a substantial investment of time and expense by the Company and its predecessors, and that any disclosure or other use of such Confidential Information other than for the sole benefit of the Company would seriously harm the Company’s business and cause monetary loss that would be difficult, if not impossible, to measure.

7.Non-competition and Non-solicitation.  In consideration of employment, Employee agrees to the following:

7.1.Non-competition.  During Employee’s employment with the Company, Employee will devote his full time and energy to furthering Company business and will not become affiliated in any capacity with any individual or entities who are competing or planning to compete with the Company at that time.  For a period of one year after the termination of Employee’s employment (whether voluntary or involuntary), Employee will not directly or indirectly solicit, offer to provide, or provide any services on behalf of or to any entity with whom the Company competes, except with the Company’s written consent.

7.2.Non-solicitation.  Employee further agrees that he will not, during the term of his employment or for a period of one year following the termination of his employment, directly or indirectly solicit any of the Company’s employees or independent contractors for the purpose of hiring them to work for him or another person, entity or employer, or for the purpose of inducing them to leave their employment with the Company, without the Company’s written consent.

8.Inventions.  During Employee’s employment with the Company, Employee will promptly disclose to the Company in writing any ideas, inventions or discoveries (collectively known as “inventions”) related to the Company’s business.  Employee agrees that these inventions belong to the Company, and agree to assign or offer to assign to the Company all rights, title and interest in such inventions, and will cooperate in the Company’s efforts to protect the Company’s rights to them.  Employee understands that this Agreement does not apply to any invention for which none of the Company’s equipment, supplies, facility or trade secret information was used and which was developed entirely on Employee’s own time, and (1) which does not relate (a) directly to Company business, or (b) to the Company’s actual or demonstrably anticipated research or development, or (2) which does not result from any work that Employee performed for the Company.

9.Termination.

9.1.Grounds for Termination.  This Agreement may be terminated prior to the expiration of the Initial Term set forth in section 3, if:

(a)the Company elects to terminate this Agreement for “Cause” (as defined in Section 9.2) and notifies Employee in writing;

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(b)Employee becomes “disabled” (as defined in Section 9.3); or

(c)Employee dies.

Termination under events 9.1 (a) through (c) will be effective immediately and Employee shall be entitled to receive compensation due to the Employee through the last day of employment.  After the Initial Term, in addition to the reasons set forth in 9.1 (a), (b) and (c), this Agreement may be terminated if:

(d)Employee elects to terminate this Agreement and gives thirty (30) days notice, or

(e)the Company elects to terminate this Agreement without Cause and gives thirty (30) days notice.

If this Agreement is terminated by Employee under 9.1 (d), Employee shall receive compensation through the end of the 30-day notice period.  If the Company terminates this Agreement under 9.1 (e), the Company will pay Employee a severance equal to four months of Employee’s annual Base Salary in effect as of the date of termination.  The severance will be paid in equal semi-monthly payments in accordance with the Company’s general payroll practices for employees, subject to all appropriate withholdings for state, federal and local taxes, and such other deductions as are otherwise required by law or authorized by Employee.  The Company will not be obligated to pay Employee severance if Employee breaches those provisions that Employee remains bound by after the date of termination, specifically including Sections 6, 7 and 8 of this Agreement.

9.2.“Cause” Defined.  As used in this Agreement, “Cause” means Employee has:  (a) breached the provisions of sections 6, 7 or 8 of this Agreement in any respect or materially breached any other provision of this Agreement; (b) engaged in material misconduct, including material failure to perform Employee’s duties as an employee of the Company; (c) committed fraud, misappropriation or embezzlement in connection with the Company’s business; (d) convicted or has pleaded nolo contendere to criminal misconduct (except for parking violations, minor traffic violations, and other petty or insignificant misdemeanors); or (e) use of narcotics, liquor or illicit drugs has had a detrimental effect on the performance of his employment responsibilities, as determined by the Company.

9.3.“Disabled” Defined.  As used in this Agreement, “disabled” means any mental or physical condition which renders Employee unable to perform the essential functions of his position, with or without reasonable accommodation, as defined by various state and federal disability laws.  Employee will be presumed to be disabled if Employee qualifies because of illness or incapacity, to begin receiving disability income insurance payments under any long term disability income insurance policy that the Company maintains for the benefit of Employee.  If there is no policy in effect at the date of Employee’s illness or incapacity, Employee will be presumed to be disabled for purposes of this Agreement if Employee is substantially incapable of performing his duties for a period of more than twelve (12) consecutive weeks.

9.4.Bound by Provisions.  Despite any termination of this Agreement, Employee, in consideration of his employment to the date of termination will remain bound by

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the provisions of this Agreement that specifically relate to periods, activities or obligations upon or subsequent to the termination of Employee’s employment.

9.5.Surrender of Records and Property.  If either Employee or Company terminate Employee’s employment, Employee will deliver to the Company immediately all records, documents or information he generated or received in connection with his employment with the Company, including but not limited to:  all originals and all copies of any records, documents or information (whether in paper, computer or other form) including drawings, specifications, reports, client lists, financial information, or any confidential information as described in Section 6.  Employee will at the same time also deliver to the Company all other property he received in connection with his employment with the Company, including but not limited to, computer equipment, computer hard drives or diskettes, telephone equipment, and facsimile machines.

10.Settlement of Disputes.

10.1.Resolution of Certain Claims - Injunctive Relief.  Claims brought by the Company asserting a violation of Sections 6, 7 or 8, or seeking to enforce, by injunction or otherwise, the terms of either Sections 6, 7, or 8 may be maintained by the Company in a lawsuit subject to the terms of Section 10.2.  Employee agrees that, in addition to, but not to the exclusion of any other available remedy, the Company has the right to enforce the provisions of Sections 6, 7 or 8 by applying for and obtaining temporary and permanent restraining orders or injunctions from a court of competent jurisdiction without the necessity of filing a bond, and the Company will be entitled to recover from Employee its reasonable attorneys’ fees and costs in enforcing the provisions of Sections 6, 7 or 8 and will repay to the Company all profits, compensation, commissions or other benefits which Employee has realized as a result of his violation.

10.2.Venue.  Any action at law, suit in equity, or judicial proceeding arising directly, indirectly, or otherwise in connection with, out of, related to or from this Agreement will be litigated only in the courts of the state of Minnesota, County of Hennepin, or the Federal District Court, District of Minnesota, Fourth Division.  Employee waives any right Employee may have to transfer or change the venue of any litigation brought against Employee by the Company.  Employee also waives any claim of inconvenient forum.

10.3.Severability.  To the extent any provision of this Agreement is held to be invalid or unenforceable, it will be considered deleted therefrom and the remainder of the provision and of this Agreement will be unaffected and will continue in full force and effect.  If the duration or geographical extent of, or business activities covered by, any provision of this Agreement is in excess of that which is valid and enforceable under applicable law, then the provision will be construed to cover only that duration, geographical extent or business activities which may be valid and enforceable under applicable law.  Employee acknowledges the uncertainty of the law in this respect and expressly stipulates that this Agreement be given the construction which renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms possible under applicable law).

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11.Miscellaneous.

11.1.Governing Law.  This Agreement is made under and is governed by and construed in accordance with the laws of the state of Minnesota, other than its laws dealing with conflicts of law principles.

11.2.Prior Agreements.  This Agreement contains the entire agreement of the parties relating to the employment of Employee by the Company and the ancillary matters described in this Agreement and supersedes all prior agreements and understandings with respect to those matters.

11.3.Withholding Taxes.  The Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling.

11.4.Amendments.  No amendment or modification of this Agreement will be deemed effective unless made in writing and signed by both Employee and the Company.

11.5.No Waiver.  No term or condition of this Agreement will be deemed to have been waived, nor will there be any estoppel to enforce any provision of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought.  Any written waiver will not be deemed a continuing waiver unless specifically stated, will operate only as to the specific term or condition waived and will not constitute a waiver of the term or condition for the future or as to any act other than that specifically waived.

11.6.Assignment.  This Agreement may not be assigned, in whole or in part, by the Employee.

11.7.Counterparts.  This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

11.8.Captions and Headings.  The captions and paragraph headings used in this Agreement are for convenience of reference only, and do not affect the construction or interpretation of this Agreement.

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IN WITNESS WHEREOF, Employee and the Company have executed this Agreement as of the date set forth in the first paragraph.

MEDAMICUS, INC.
BY:	/s/ Deborah Schuneman
	Its:	HR Manager
EMPLOYEE
/s/ Vincent P. Owens
VINCENT P. OWENS

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EX-10.2

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

THIS AGREEMENT (“Agreement”) is entered into as of August 22, 2003 by and between MedAmicus, Inc., a Minnesota corporation (the “Company”), and James Mellor (“Employee”) and will become effective on the Effective Date, as defined in Section 1.

WHEREAS, Employee is currently employed as the Senior Vice President, Sales and Marketing, of BIOMEC Cardiovascular Inc. (“BCI”), and the Company has entered into an Asset Purchase Agreement among the Company, Medacquisition, Inc., BIOMEC Inc. and BCI dated as of July 21, 2003 (the “Asset Purchase Agreement”), under which the Company has agreed to purchase the operating assets of BCI if certain conditions are met; and

WHEREAS, the Company wishes Employee to render services for the Company beginning on the Effective Date and subject to the terms and conditions set forth in this Agreement, and Employee wishes to be retained and employed by the Company subject to these terms and conditions; and

WHEREAS, Employee understands that Company is offering him employment in a position of trust and confidence and that he will generate, have access to, and become familiar with confidential information; and

WHEREAS, Employee understands that the Company has expended significant time and money on the development of customer goodwill and a sound business reputation, and as part of Employee’s duties, he will develop and maintain close working relationships with the Company’s customers; and

WHEREAS, Employee understands that this Agreement prohibits the unauthorized use or disclosure of the Company’s confidential information and an obligation not to compete with the Company.

NOW, THEREFORE, in consideration of the promises and the respective undertakings of the Company and Employee set forth in this Agreement, the Company and Employee agree as follows:

1.Effective Date.  The “Effective Date” means the date immediately following the Closing Date, as defined in the Asset Purchase Agreement.  This Agreement will be null and void and of no force or effect if the Closing (as defined in the Asset Purchase Agreement) does not occur.

2.Employment.  The Company employs Employee as of the Effective Date, and Employee accepts such employment as Senior Vice President, Sales and Marketing, of Medacquisition, Inc. (to be renamed with input from Employee), subject to the terms and conditions set forth in this Agreement.

3.Term.  Subject to Employee’s full compliance with section 4 and subject to the provisions of section 9, Employee’s employment under this Agreement will continue for an initial term from the Effective Date until December 31, 2004 (the “Initial Term”).  After the Initial Term, Employee’s employment will continue on an at will basis, and either party may terminate this Agreement with or without Cause (as defined in Section 9) on 30 days prior written notice.  Termination of this Agreement by either party will automatically terminate Employee’s employment by the Company.

4.Position and Duties.

4.1.Service with Company.  Employee agrees to perform all reasonable employment duties for the Company as arise during the term of this Agreement.  Employee will devote his full time and attention and best efforts to the business and affairs of the Company, and faithfully and diligently perform in a competent and professional manner and to the best of his ability all of his duties and responsibilities described in this Agreement.

4.2.Conflict of Interest.  Employee represents and warrants to the Company that he has no contractual commitments inconsistent with his obligations set forth in this Agreement, and that during the term of this Agreement, he will not render or perform services for any other corporation, firm, entity, or person which are inconsistent with the provisions of this Agreement and which are not authorized by the Company.

5.Compensation.

5.1.Base Salary.  As compensation for all services to be rendered by Employee under this Agreement, the Company will pay to Employee a Base Salary (“Base Salary” means regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments) at an annual rate of $150,000.  The Company will pay the Base Salary in accordance with normal Company payroll practices for employees, subject to state and federal taxes, social security, and any other applicable withholdings.  The Base Salary will be reviewed not less often than annually, and increased or decreased as may be determined from time to time by the Company.

5.2.Stock Options.  Employee will be eligible after 90 days of employment with the Company to receive stock options to purchase 30,000 shares of the Company’s common stock under the Company’s Stock Option Incentive Plan, subject to approval by the Company’s Board of Directors.

5.3.Bonus and Incentive.  Employee will be eligible to participate in the Company’s “2004 Salaried Employee Bonus Plan”, if and when adopted by the Board of Directors.  The Company does not guarantee the adoption of any employee bonus program during the term of this Agreement, and Employee’s participation in the plan or program would be subject to the provisions, rules and regulations applicable in the plan, and the terms of this Agreement.  The amount and criteria for determination of Employee’s bonus and incentive compensation in the plan or program (if any) is solely within the discretion of the Board of Directors.

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5.4.Benefits.  In addition to the compensation payable to Employee as provided in this Section 5:

(a)Vacation and Holidays.  The Company will honor any accrued but unused paid vacation earned during the Employee’s employment with BIOMEC Cardiovascular Inc.  Such paid vacation must be used by Employee according to the Company’s existing policies regarding vacation time.  Employee is eligible for three (3) weeks of paid vacation to accrue annually beginning on the Effective Date of this Agreement.  Employee may rollover up to two hundred (200) hours of unused vacation into the next calendar year.  Employee shall also be entitled to eighty (80) hours of paid holidays each calendar year per the Company’s Holiday Schedule.

(b)Group Health Insurance and Pension Plan.  To the extent available or offered, Employee will be entitled to participate in all other benefit programs offered by the Company to its employees, subject to terms of the benefit plans as the Board of Directors may approve, including but not limited to, any medical, dental or other health plan, pension plan, profit-sharing plan and life insurance plan that the Company may adopt or maintain, any of which may be changed, terminated or eliminated by the Company at any time in the exclusive discretion of the Board of Directors.  The Company will attempt to give credit for prior service earned with BIOMEC Cardiovascular Inc. to the extent permitted under the benefit plans.

5.5.Business Expenses.  The Company will pay or reimburse Employee for all reasonable and necessary out-of-pocket expenses incurred by Employee for the benefit of the Company in the performance of his duties under this Agreement, so long as Employee complies with the Company’s policies for expense reimbursement.

6.Confidential Information.

6.1.“Confidential Information” Defined.  “Confidential information” means any information not generally known in this profession by third parties, including the Company’s competitors or the general public.  It includes (but is not limited to) methods, procedures, trade secrets, client lists, marketing plans and techniques, new products and new product development, strategic plans, business plans, budgets, product prices, sales volume, information about clients and potential clients (including identities of the clients and the clients’ contact person(s), the clients’ buying history and tendencies and other details about the Company’s relationship with them), drawings, specifications, reports and information about employee compensation and finances.  All information which Employee acquires or becomes acquainted with during the period of his employment by the Company (including employment by an affiliated company), whether developed by Employee or by others, which he has a reasonable basis to believe to be Confidential Information, or which is treated by the Company as being Confidential Information, shall be presumed to be Confidential Information.

6.2.Obligations of Employee.  Except to the extent required during the course of Employee’s employment for the Company, Employee agrees that he will not, during or after

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the term of his employment, disclose Confidential Information to any other person or entity, or use the Company Confidential Information for his own benefit or for the benefit of another, unless the Company expressly directs him to do so.  Employee acknowledges that the Confidential Information constitutes a unique and valuable asset of the Company and represents a substantial investment of time and expense by the Company and its predecessors, and that any disclosure or other use of such Confidential Information other than for the sole benefit of the Company would seriously harm the Company’s business and cause monetary loss that would be difficult, if not impossible, to measure.

7.Non-competition and Non-solicitation.  In consideration of employment, Employee agrees to the following:

7.1.Non-competition.  During Employee’s employment with the Company, Employee will devote his full time and energy to furthering Company business and will not become affiliated in any capacity with any individual or entities who are competing or planning to compete with the Company at that time.  For a period of one year after the termination of Employee’s employment (whether voluntary or involuntary), Employee will not directly or indirectly solicit, offer to provide, or provide any services on behalf of or to any of the entities listed on Appendix A or any other party engaged in the development, manufacturing, marketing or sale of epicardial leads, adapters, introducers or other lead delivery systems related to cardiac rhythm management, except with the Company’s written consent.

7.2.Non-solicitation.  Employee further agrees that he will not, during the term of his employment or for a period of one year following the termination of his employment, directly or indirectly solicit any of the Company’s employees or independent contractors for the purpose of hiring them to work for him or another person, entity or employer, or for the purpose of inducing them to leave their employment with the Company, without the Company’s written consent.

8.Inventions.  During Employee’s employment with the Company, Employee will promptly disclose to the Company in writing any ideas, inventions or discoveries (collectively known as “inventions”) related to the Company’s business.  Employee agrees that these inventions belong to the Company, and agree to assign or offer to assign to the Company all rights, title and interest in such inventions, and will cooperate in the Company’s efforts to protect the Company’s rights to them.  Employee understands that this Agreement does not apply to any invention for which none of the Company’s equipment, supplies, facility or trade secret information was used and which was developed entirely on Employee’s own time, and (1) which does not relate (a) directly to Company business, or (b) to the Company’s actual or demonstrably anticipated research or development, or (2) which does not result from any work that Employee performed for the Company.

9.Termination.

9.1.Grounds for Termination.  This Agreement may be terminated prior to the expiration of the Initial Term set forth in section 3, if:

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(a)the Company elects to terminate this Agreement for “Cause” (as defined in Section 9.2) and notifies Employee in writing;

(b)Employee becomes “disabled” (as defined in Section 9.3); or

(c)Employee dies.

Termination under events 9.1 (a) through (c) will be effective immediately and Employee shall be entitled to receive compensation due to the Employee through the last day of employment.  After the Initial Term, in addition to the reasons set forth in 9.1 (a), (b) and (c), this Agreement may be terminated if:

(d)Employee elects to terminate this Agreement and gives thirty (30) days notice, or

(e)the Company elects to terminate this Agreement without Cause and gives thirty (30) days notice.

If this Agreement is terminated by Employee under 9.1 (d), Employee shall receive compensation through the end of the 30-day notice period.  If the Company terminates this Agreement under 9.1 (e), the Company will pay Employee a severance equal to four months of Employee’s annual Base Salary in effect as of the date of termination.  The severance will be paid in equal semi-monthly payments in accordance with the Company’s general payroll practices for employees, subject to all appropriate withholdings for state, federal and local taxes, and such other deductions as are otherwise required by law or authorized by Employee.  The Company will not be obligated to pay Employee severance if Employee breaches those provisions that Employee remains bound by after the date of termination, specifically including Sections 6, 7 and 8 of this Agreement.

9.2.“Cause” Defined.  As used in this Agreement, “Cause” means Employee has: (a) breached the provisions of sections 6, 7 or 8 of this Agreement in any respect or materially breached any other provision of this Agreement; (b) engaged in material misconduct, including material failure to perform Employee’s duties as an employee of the Company; (c) committed fraud, misappropriation or embezzlement in connection with the Company’s business; (d) convicted or has pleaded nolo contendere to criminal misconduct (except for parking violations, minor traffic violations, and other petty or insignificant misdemeanors); or (e) use of narcotics, liquor or illicit drugs has a detrimental effect on the performance of his employment responsibilities, as determined by the Company.

9.3.“Disabled” Defined.  As used in this Agreement, “disabled” means any mental or physical condition which renders Employee unable to perform the essential functions of his position, with or without reasonable accommodation, as defined by various state and federal disability laws.  Employee will be presumed to be disabled if Employee qualifies because of illness or incapacity, to begin receiving disability income insurance payments under any long term disability income insurance policy that the Company maintains for the benefit of Employee.  If there is no policy in effect at the date of Employee’s illness or incapacity, Employee will be presumed to be disabled for purposes of this Agreement if Employee is substantially incapable of performing his duties for a period of more than twelve (12) consecutive weeks.

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9.4.Bound by Provisions.  Despite any termination of this Agreement, Employee, in consideration of his employment to the date of termination will remain bound by the provisions of this Agreement that specifically relate to periods, activities or obligations upon or subsequent to the termination of Employee’s employment.

9.5.Surrender of Records and Property.  If either Employee or Company terminate Employee’s employment, Employee will deliver to the Company immediately all records, documents or information he generated or received in connection with his employment with the Company, including but not limited to:  all originals and all copies of any records, documents or information (whether in paper, computer or other form) including drawings, specifications, reports, client lists, financial information, or any confidential information as described in Section 6.  Employee will at the same time also deliver to the Company all other property he received in connection with his employment with the Company, including but not limited to, computer equipment, computer hard drives or diskettes, telephone equipment, and facsimile machines.

10.Settlement of Disputes.

10.1.Resolution of Certain Claims - Injunctive Relief.  Claims brought by the Company asserting a violation of Sections 6, 7 or 8, or seeking to enforce, by injunction or otherwise, the terms of either Sections 6, 7 or 8 may be maintained by the Company in a lawsuit subject to the terms of Section 10.2.  Employee agrees that, in addition to, but not to the exclusion of any other available remedy, the Company has the right to enforce the provisions of Sections 6, 7 or 8 by applying for and obtaining temporary and permanent restraining orders or injunctions from a court of competent jurisdiction without the necessity of filing a bond, and the Company will be entitled to recover from Employee its reasonable attorneys’ fees and costs in enforcing the provisions of Sections 6, 7 or 8 and will repay to the Company all profits, compensation, commissions or other benefits which Employee has realized as a result of his violation.

10.2.Venue.  Any action at law, suit in equity, or judicial proceeding arising directly, indirectly, or otherwise in connection with, out of, related to or from this Agreement will be litigated only in the courts of the state of Minnesota, County of Hennepin, or the Federal District Court, District of Minnesota, Fourth Division.  Employee waives any right Employee may have to transfer or change the venue of any litigation brought against Employee by the Company.  Employee also waives any claim of inconvenient forum.

10.3.Severability.  To the extent any provision of this Agreement is held to be invalid or unenforceable, it will be considered deleted therefrom and the remainder of the provision and of this Agreement will be unaffected and will continue in full force and effect.  If the duration or geographical extent of, or business activities covered by, any provision of this Agreement is in excess of that which is valid and enforceable under applicable law, then the provision will be construed to cover only that duration, geographical extent or business activities that may be valid and enforceable under applicable law.  Employee acknowledges the uncertainty of the law in this respect and expressly stipulates that this Agreement be given the

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construction which renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms possible under applicable law).

11.Miscellaneous.

11.1.Governing Law.  This Agreement is made under and is governed by and construed in accordance with the laws of the state of Minnesota, other than its laws dealing with conflicts of law principles.

11.2.Prior Agreements.  This Agreement contains the entire agreement of the parties relating to the employment of Employee by the Company and the ancillary matters described in this Agreement and supersedes all prior agreements and understandings with respect to those matters.

11.3.Withholding Taxes.  The Company may withhold from any benefits payable under this Agreement all federal, state, city or other taxes as may be required pursuant to any law or governmental regulation or ruling.

11.4.Amendments.  No amendment or modification of this Agreement will be deemed effective unless made in writing and signed by both Employee and the Company.

11.5.No Waiver.  No term or condition of this Agreement will be deemed to have been waived, nor will there be any estoppel to enforce any provision of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought.  Any written waiver will not be deemed a continuing waiver unless specifically stated, will operate only as to the specific term or condition waived and will not constitute a waiver of the term or condition for the future or as to any act other than that specifically waived.

11.6.Assignment.  This Agreement may not be assigned, in whole or in part, by Employee.

11.7.Counterparts.  This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

11.8.Captions and Headings.  The captions and paragraph headings used in this Agreement are for convenience of reference only, and do not affect the construction or interpretation of this Agreement.

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IN WITNESS WHEREOF, Employee and the Company have executed this Agreement as of the date set forth in the first paragraph.

MEDAMICUS, INC.
BY:	/s/ Deborah Schuneman
	Its:	HR Manager
EMPLOYEE
/s/ James E. Mellor
JAMES MELLOR

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EX-10.3

EXHIBIT 10.3

MEDAMICUS, INC. 1999 INCENTIVE STOCK OPTION PLAN

(as amended through October 23, 2003)

1.Purpose.   The purpose of this Plan is to further the growth and general prosperity of Medamicus, Inc., the Company, by enabling the employees of the Company, who have been or will be given responsibility for the affairs of the Company, to acquire shares of its common stock under the terms and conditions and in the manner set forth by this Plan, increasing their personal involvement in the Company and to enable the Company to obtain and retain the services of those employees.

2.Administration.  This Plan shall be administered by a Committee of at least two (2) Directors who are disinterested administrators within the meaning of Section 16 of the Securities Exchange Act of 1934 and the rules, regulations and interpretations promulgated thereunder.

Each option granted will be evidenced by a written agreement (Stock Option Agreement) and a document containing the terms and conditions of the Plan.

3.Eligibility and Participation.  Employees eligible to receive options under the Plan shall be key personnel including officers of the Company and directors who are also employees of the Company. The Committee shall allot to such participant options to purchase shares as the Committee shall from time to time determine: provided, however, that no employee shall be allotted an option for any greater number of shares than would result in him owning directly or indirectly, more than 10% of the total combined voting power or value of the stock of the Company or any of its subsidiaries unless the option price is at least 85% of the market value of the stock on the date of grant, and the option is, by its terms, not exercisable after six (6) years from the date of grant.

4.Shares Subject to Plan.  Subject to adjustment as provided in Section 5, an aggregate of up to 900,000(1) shares of the Common Stock of the Company shall be subject to the Plan and the Committee is authorized to grant options hereunder with respect to such number of shares. Any unsold shares subject to an option under the Plan which for any reason expires or otherwise terminates may again be made subject to option under the Plan at the discretion of the Committee.

5.Adjustments Upon Changes in Capitalization.  In the event of a merger, consolidation, reorganization, stock dividend, stock split, or any other change in corporate structure or capitalization affecting the Company’s common shares, appropriate adjustment shall be made in the maximum number of shares available under the Plan or to any one individual and

(1)   The Plan originally authorized 400,000 shares of Common Shares for issuance.  An amendment to the Plan to increase the number of shares under the Plan by 300,000 was authorized by the Board on February 6, 2003 and approved by the shareholders on April 24, 2003.  An amendment to the Plan to increase the number of shares under the Plan by 200,000 was authorized by the Board of Directors on July 21, 2003 and approved by the shareholders on October 21, 2003.

in the number, kind, option, price, etc. of shares subject to options granted under the Plan.

6.Terms and Conditions of Options.  The Committee shall have power subject to the limitations contained in the Plan, to prescribe any terms and conditions in respect to the granting or exercise of any option under the Plan and in particular shall prescribe the following terms and conditions:

(a)Each option shall state the number of shares to which it pertains.

(b)Each option shall be granted within ten years of the date the Plan is adopted.

(c)Each option shall be exercisable only within six years of the date of grant.

(d)The purchase price, which shall be at least 85% of the fair market value of the shares at such time as the option is granted and shall not be less than the par value of the shares sold.

(e)An option may be exercised at any time after the date of grant, subject to the provisions of section 6(f) of the Plan and to such other terms and conditions specified in the Stock Option Agreement, with respect to all or part of the shares covered by the option. An option may not be exercised for fractional shares of stock.

In the event the Company or the stockholders of the Company enter into an agreement to dispose of all or substantially all of the assets or stock of the Company by means of a sale, merger, reorganization, liquidation or otherwise, an option shall become immediately exercisable with respect to the full number of shares.

(f)An option shall be exercised when written notice of such exercise has been given to the Company at its principle business office by the person entitled to exercise the option and full payment for the shares has been received by the Company. Until the stock certificates are issued, no right to vote, receive dividends, or any other rights as a shareholder shall exist with respect to optioned shares, notwithstanding the exercise of the option.

(g)An option may be exercised by the optionee only while he is, and has continually been, since the date of the grant of the option, an employee of the Company or within three months following termination of employment (for reasons other than death, disability or termination for cause).

If the continuous employment of an optionee terminates by reason of his death, options which the deceased employee would be entitled to exercise as of the date of death may be exercised within one year following the date of death by the person to whom his rights under such option shall have passed by will or by the laws of descent and distribution, but in no event later than the expiration of the

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option.If the continuous employment of an optionee terminates by reason of disability, options which the disabled employee would be entitled to exercise as of the date of termination of employment may be exercised within one year following the date of termination, but in no event later than the expiration of the option.

If the continuous employment of an optionee terminates for cause, any options which have not been exercised as of the date of termination shall be cancelled.

7.Options Not Transferable.  No option granted under the Plan will be transferrable by the optionee, either voluntarily or involuntarily, except by will or the laws of descent and distribution, and then only to the extent provided in Section 6 hereof, or pursuant to a qualified domestic relations order (as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act and the rules thereunder.)

8.Amendment or Termination of the Plan.  The Board of Directors may amend the Plan from time to time as it deems advisable. The Board of Directors may at any time terminate the Plan, provided that any termination of the Plan shall not affect options already granted. The options shall remain in full force and effect as if the Plan had not been terminated.

9.Agreement and Representation of Employee.  As a condition to the exercise of any option or portion thereof, the Company may require the person exercising the option to represent and warrant at the time of any exercise that the shares are being purchased only for investment and without any present intention to sell or distribute the shares if in the option of counsel for the Company such representation is required under the Securities Act of 1933, or any other applicable law, regulation or rule of any governmental agency.

In the event legal counsel to the Company renders an opinion to the Company that shares for options exercised pursuant to this Plan cannot be issued to the optionee because such act would violate the applicable Federal or State securities law, then and in that event, the optionee agrees that the Company shall not be required to issue the shares to the optionee tendered to the Company upon exercise of the option.

10.Effectiveness and Termination of the Plan.   The Plan shall become effective upon adoption by the Board of Directors and shall be subject to approval of the stockholders of Medamicus, Inc. within 12 months of adoption. The Plan shall terminate on the earliest of:

(a)the date when all the common shares available under the Plan shall have been acquired through exercising the options granted under the Plan,

(b)August 1, 2009,

(c)such other date as the Board may determine.

11.Form of Option.  Options may be issued by the execution of the Medamicus, Inc. form entitled “Stock Option Agreement.”

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EX-10.4

EXHIBIT 10.4

REVOLVING CREDIT AND TERM LOAN AGREEMENT

Dated as of October 17, 2003

MedAmicus, Inc., a Minnesota corporation (the “Borrower”), located at 15301 Highway 55 West, Plymouth, MN 55447 and M&I Marshall & Ilsley Bank, a Wisconsin state banking corporation (the “Bank”), located at 651 Nicollet Mall, Minneapolis, Minnesota 55402-1611, agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.1.Definitions.  As used in this Agreement the following terms shall have the following meanings (such meanings to be equally applicable to singular and plural forms of the terms defined):

(a)“Affiliate” means any of the following Persons:

(i)any director, officer or employee of the Borrower;

(ii)any person who, individually or with his immediate family, beneficially owns or holds 5% or more of voting equity interest in the Borrower; or

(iii)any Subsidiary and any company in which any Person described above owns a 5% or greater equity interest.

(b)“BIOMEC Purchase” means the purchase by Medacquisition, Inc. (“Medacquisition”), a wholly-owned subsidiary of the Borrower, of certain assets of BIOMEC Cardiovascular Inc. and BIOMEC, INC. pursuant to an Asset Purchase Agreement dated as of July 21, 2003, as amended.

(c)“Borrowing Base” means an amount equal to the sum of the following:

(i)80% of the Value of Eligible Accounts Receivable; and

(ii)50% of the Value of Eligible Inventory.

(d)“Borrowing Base Certificate” means a certificate signed by the controller of the Borrower that shows as of the date of determination the Value of Eligible Accounts Receivable and the Value of Eligible Inventory and is delivered to the Bank pursuant to Section 5.1(a).

(e)“Business Day” means any day other than a Saturday, Sunday or a public holiday or the equivalent under the laws of the State of Minnesota or the United States of America.

(f)“Debt” means (i) indebtedness for borrowed money or for the deferred purchase price of property or services, (ii) obligations as lessee under leases that have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (iii) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (i) or (ii) above, and (iv) liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA.

(g)“EBITDA” means in any period the sum of the Borrower’s and Medacquisition’s consolidated net income during that period plus interest, depreciation, amortization and income tax expense during that period.

(h)“Event of Default” means one of the events specified in Section 6.1.

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(i)“Excess Cash Flow” means, for any quarter, EBITDA during that quarter less (i) the total amount of principal and interest paid on Debt for borrowed money and capitalized leases during that quarter, less (ii) $500,000, less (iii) capital expenditures during that period to the extent such expenditures are not financed with a purchase money loan or lease, less (iv) any contingent earn-out payments made in 2004 or 2005 in connection with the BIOMEC Purchase; less (v) expenditures for the acquisition or licensing of intellectual property to the extent such expenditures are not financed with a purchase money loan, lease or license.

(j)“Fixed Charge Coverage Ratio” for any time period means a ratio the numerator of which is (i) EBITDA, less (ii) capital expenditures during that period to the extent such expenditures are not financed with a purchase money loan or lease, less (iii) dividends paid during that period, less (iv) expenditures for the acquisition or licensing of intellectual property to the extent such expenditures are not financed with a purchase money loan, lease or license, and the denominator of which is the sum of interest expense during that period plus that portion of the principal of the Borrower’s and Medacquisition’s Debt for borrowed money and capitalized leases coming due during that period.  (Contingent earn-out payments made in 2004 or 2005 in connection with the BIOMEC Purchase shall not be deducted from EBITDA in calculating the numerator of this ratio.)

(k)“Inventory” means the Borrower’s and Medacquisition’s raw materials, work in process and finished goods held for sale in the ordinary course of business but not including that portion of Medacquisition’s work in process attributable to accrued labor.

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(l)“LIBOR” means the annual rate equal to the rate at which one-month U.S. dollar deposits are offered on the first day of each calendar month on or about 9:00 a.m., Milwaukee, Wisconsin time (rounded upwards, if necessary, to the nearest 1/16 of 1%) as determined by the British Bankers Association (BBA LIBOR) and reported by a major news service selected by the Bank (such as Reuters, Bloomberg or Moneyline Telerate).  If BBA LIBOR for the one month period is not provided or reported on the first day of a month because, for example, it is a weekend or holiday or for another reason, the LIBOR shall be established as of the preceding day on which a BBA LIBOR rate is provided for a one month period and reported by the selected news service.

(m)“Loan Documents” means this Agreement, the Notes, the Security Agreements, and all other documents to be executed in connection with this Agreement.

(n)“Loan Party” means any Person obligated under any Loan Document.

(o)“Notes” means both the Revolving Note described in Section 2.2 and the Term Note described in Section 2.3.

(p)“Permitted Liens” means liens described in Section 5.2(a).

(q)“Person” means an individual, corporation, partnership, joint venture, trust or unincorporated organization or governmental agency or political subdivision thereof.

(r)“Senior Funded Debt Ratio” means for any time period means a ratio the numerator of which is the Borrower’s and Medacquisition’s Debt for borrowed money and capitalized leases at the end of that period and the denominator of which is EBITDA during that period.

(s)“Subsidiary” means any entity of which more than 50% of the outstanding equity interests having ordinary voting power to elect a majority of the Board of

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Directors, Board of Governors or comparable governing body of such entity (irrespective of whether or not at the time equity interests of such entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by the Borrower, by the Borrower and one or more other Subsidiaries, or by one or more other Subsidiaries.

(t)“Tangible Net Worth” means the aggregate of the consolidated capital stock, paid in surplus and retained earnings of the Borrower and Medacquisition (excluding stock of the Borrower held by the Borrower or Medacquisition), determined and computed in accordance with generally accepted accounting principles consistently applied from year to year, less the book value of all assets of the Borrower and Medacquisition that would be treated as intangibles under generally accepted accounting principles including without limitation, such items as goodwill, trademarks, tradenames, service marks, copyrights, patents, licenses, internet domain names, uniform resource locators, and website contracts and registration rights and less the book value of all obligations owed to the Borrower or Medacquisition by any of its Affiliates.

(u)“Value of Eligible Accounts Receivable” means the aggregate net unpaid amount then due and owing under all domestic accounts receivable of the Borrower and Medacquisition that: (i) arise from the sale of finished goods constituting part of Inventory in the ordinary course of business of the Borrower or Medacquisition; (ii) are equal to or less than 90 days old; (iii) are not owed by an Affiliate of the Borrower or Medacquisition; (iv) are subject to a perfected security interest in favor of only the Bank as required by this Agreement; (v) are not subject to dispute by the account debtor; (vi) are not owed by an account debtor as to which any bankruptcy, receivership or

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similar insolvency proceeding is pending; and (vii) are not owed by the United States government or an agency of the United States government; provided, however, that no obligations of any account debtor to the Borrower or Medacquisition shall be included in this computation if more than 10% of such account debtor’s total obligations to the Borrower and Medacquisition are more than 90 days old.  (Up to $500,000.00 of accounts receivable owed by Medtronic, Inc. that are not more than 90 days old may be included in the Value of Eligible Accounts Receivable notwithstanding the application of the 10% cross-aging rule stated above.  In the event that any other well-established and creditworthy customer of the Borrower or MedAcquisition becomes subject to the 10% cross-aging rule stated above, the Bank will negotiate in good faith for an adjustment to the cross-aging rule comparable to the adjustment stated above for Medtronic, Inc.)

(v)“Value of Eligible Inventory” means an amount equal to the lesser of cost or fair market value of the Borrower’s and Medacquisition’s Inventory that is subject to a perfected security interest in favor of only the Bank as required by this Agreement as determined and computed in accordance with generally accepted accounting principles.

Section 1.2.Accounting and Other Terms.  All accounting terms not specifically defined in this Agreement shall be construed in accordance with generally accepted accounting principles consistently applied as such principles may change from time to time.  Other terms defined herein shall have the meanings ascribed to them herein.

ARTICLE II.

THE LOANS

Section 2.1.Commitment for Revolving Loan.  The Bank agrees, in accordance with the terms of this Agreement, to make advances (the “Advances”) to the Borrower from time to

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time from the date hereof to and including April 30, 2004 (the “Termination Date”) or the earlier termination of the Commitment under the terms of this Agreement, in an aggregate amount not to exceed $3,000,000.00 (the “Commitment”); provided, however, that the aggregate amount of Advances outstanding shall not at any time exceed the lesser of (i) the Commitment or (ii) the Borrowing Base.  Each Advance shall be in an amount of not less than $10,000.00.  Within the limits of the Commitment the Borrower may borrow, prepay pursuant to Section 2.6 and reborrow under this Section 2.1.

Section 2.2.The Revolving Note.  The Advances made by the Bank shall be evidenced by a promissory note (the “Revolving Note”) that is in substantially the form of Exhibit A attached hereto and is delivered to the Bank pursuant to Article III.

Section 2.3.Commitment For Term Loan.  The Bank hereby agrees to lend to the Borrower on or about the date hereof the amount of $5,000,000.00 (the “Term Loan”).  The Term Loan shall be evidenced by a promissory note (the “Term Note”) that is in substantially the form of Exhibit B attached hereto and is delivered to the Bank pursuant to Article III.

Section 2.4.Making of Advances.  The Borrower may request Advances under this Agreement by giving notice to the Bank, specifying the date of the requested Advance and the amount thereof.  Any request for an Advance shall be deemed to be a representation that the Borrower’s representations and warranties contained in Section 4.1 are true and correct as of the date of the Advance as though made on and as of such date and that no event has occurred and is continuing, or will result from such Advance, that constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both.  The Bank may disburse each requested Advance and the Term Loan by crediting immediately

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available funds in the amount of the Advance and the Term Loan to the Borrower’s demand deposit account maintained with the Bank.

Section 2.5.Interest and Payments.  The Borrower shall repay, and shall pay interest on, the aggregate unpaid principal amount of the Advances and the Term Loan in accordance with the Notes, except that during the continuance of an Event of Default the Borrower shall pay interest on each Note at an annual rate equal to 2.0% in excess of the rate of interest otherwise provided under that Note.  All payments of principal, interest and fees under this Agreement shall be made when due to the Bank in immediately available funds.  All computations of interest shall be made by the Bank on the basis of the actual number of days elapsed in a year of 360 days.  Whenever any such payment shall be due on a non-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 interest.  The Bank is expressly authorized to charge any principal, interest or fee payment, when due, to the Borrower’s demand deposit account maintained at the Bank, or, if that account shall not contain sufficient funds, to any other account maintained by the Borrower at the Bank.

Section 2.6.Voluntary Prepayment.  The Borrower may prepay the Notes in whole or in part without premium or penalty.

Section 2.7.Mandatory Prepayment – Revolving Note.  In the event that the aggregate outstanding principal amount of the Revolving Note shall exceed the Borrowing Base as shown on the Borrowing Base Certificate most recently delivered to the Bank pursuant to Section 5.1(a), the Borrower shall pay to the Bank the amount of such excess together with the amount of accrued interest to the date of such prepayment on the amount prepaid.

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Section 2.8.Mandatory Prepayment – Term Note.  By December 31, 2004, the Borrower shall make a principal payment on the Term Note of not less than $150,000.00 in addition to the principal payments otherwise required by that date under the Term Note.  Commencing on April 30, 2005 and on the 30^th day after the end of each fiscal quarter thereafter, the Borrower shall make a principal payment on the Term Note equal to the lesser of (i) 40% of Excess Cash Flow for the preceding quarter and (ii) the then remaining principal balance of the Term Note.  Any mandatory prepayment of the Term Note otherwise required under this Section shall be reduced or eliminated to the extent that the Borrower would be required to fund that prepayment with an Advance.

Section 2.9.Use of Proceeds.  The proceeds of the Advances from the Bank shall be used for working capital purposes.  The proceeds of the Term Loan shall be used solely to fund a portion of the cost of completing the BIOMEC Purchase.

Section 2.10.Commitment Fee.  The Borrower agrees to pay to the Bank a commitment fee (the “Commitment Fee”) of $10,000.00 on the date hereof and of 0.002 times the then outstanding principal balance of the Term Note on October 31, 2004 and each October 31 thereafter while the Term Note is outstanding.

Section 2.11.Termination of Agreement.  If the BIOMEC Purchase has not been completed by November 30, 2003, this Agreement shall terminate and the Bank shall have no obligation to fund any Advance or the Term Loan.

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ARTICLE III.

CONDITIONS OF LENDING

Section 3.1.Conditions Precedent to Initial Advance and Term Loan.  The Bank shall have no obligation to make the initial Advance or the Term Loan hereunder unless the Bank shall have received on or before the date of such Advance and Term Loan the following documents:

(a)The Notes, properly executed and delivered on behalf of the Borrower.

(b)A security agreement (the “Borrower Security Agreement”), in a form acceptable to the Bank properly executed and delivered on behalf of the Borrower, granting to the Bank a security interest in all of the Borrower’s inventory, accounts, equipment, general intangibles and other property described therein as security for the performance of the Borrower’s obligations under this Agreement and the Notes, together with any UCC-1 Financing Statement or other document deemed necessary or desirable by the Bank to perfect the security interest granted by the Borrower Security Agreement.

(c)A security agreement (the “Medacquisition Security Agreement” and, together with the Borrower Security Agreement, the “Security Agreements”), in a form acceptable to the Bank properly executed and delivered on behalf of Medacquisition, granting to the Bank a security interest in all of Medacquisition ‘s inventory, accounts, equipment, general intangibles and other property described therein as security for the performance of the Borrower’s obligations under this Agreement and the Notes, together with any UCC-1 Financing Statement or other document deemed necessary or desirable by the Bank to perfect the security interest granted by the Medacquisition Security Agreement.

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(d)A certified copy of the resolutions of the Board of Directors of the Borrower and Medacquisition, approving the execution and delivery of the Loan Documents to which each is a party and approving all other matters contemplated by this Agreement.

(e)A certificate by the Secretary or any Assistant Secretary of the Borrower and Medacquisition certifying the names of the officer or officers of the Borrower and Medacquisition authorized to sign the Loan Documents to which each is a party, together with a sample of the true signature of such officer.

Section 3.2.Conditions Precedent to Each Advance and the Term Loan.  The obligation of the Bank to make each Advance (including the initial Advance) and the Term Loan shall be subject to the further conditions precedent, that on the date of such Advance and Term Loan:

(a)The representations and warranties contained in Section 4.1 of this Agreement are correct on and as of the date of such Advance and Term Loan as though made on such date; and

(b)No event has occurred and is continuing, or will result from such Advance or Term Loan, that constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES

Section 4.1.Representations and Warranties of the Borrower.  To induce the Bank to make Advances and the Term Loan, the Borrower represents and warrants as follows:

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(a)Existence of Borrower and Medacquisition.  Each of the Borrower and Medacquisition is a corporation duly incorporated, validly existing and in good standing under the laws of Minnesota.  The Borrower has not, in the past five years, operated under any name, including any trade name or assumed name, other than the name indicated at the beginning of this Agreement.

(b)Authority to Execute.  The execution, delivery and performance by the Borrower and Medacquisition of the Loan Documents to which each is a party are within its corporate powers, have been duly authorized by all necessary corporate action, do not and will not conflict with any provision of law or of the charter or bylaws of the Borrower or Medacquisition or of any agreement or contractual restriction binding upon or affecting the Borrower or Medacquisition or any of its property, and need no further shareholder or creditor consent.

(c)Binding Obligation.  This Agreement is, and the other Loan Documents when delivered hereunder will be, legal, valid and binding obligations of the Loan Parties enforceable against such Persons in accordance with their respective terms.

(d)Governmental Approval.  No consent of, or filing with, any governmental authority is required on the part of any Loan Party in connection with the execution, delivery or performance of any Loan Documents.

(e)Financial Statements.  The audited financial statements of the Borrower as of December 31, 2002 and the unaudited financial statements as of June 30, 2003, copies of which have been furnished to the Bank, have been prepared in conformity with generally accepted accounting principles consistently applied and present fairly the financial condition of the Borrower as of such dates, and the results of the operations of

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the Borrower for the financial periods then ended, and since such dates, there has been no materially adverse change in such financial condition.

(f)Litigation.  No litigation or governmental proceeding is pending or threatened against the Borrower or Medacquisition that may have a materially adverse effect on the financial condition or operations of the Borrower or Medacquisition.

(g)Title to Assets.  Each of the Borrower and Medacquisition has good and marketable title to all assets used in connection with its trades or businesses, and none of such assets is subject to any mortgage, pledge, lien, security interest or encumbrance of any kind, except for current taxes not delinquent, and except as has been disclosed in writing to the Bank contemporaneously with this Agreement.

(h)Taxes.  Each of the Borrower and Medacquisition has filed all federal and state income tax returns that are required to be filed, and has paid all taxes shown on such returns to be due and all other tax assessments received by it to the extent that such assessments have become due.

(i)ERISA.  No plan (as that term is defined in the Employee Retirement Income Security Act of 1974 (“ERISA”)) of the Borrower or Medacquisition (a “Plan”) that is subject to Part 3 of Subtitle B of Title 1 of ERISA had an accumulated funding deficiency (as such term is defined in ERISA) as of the last day of the most recent fiscal year of such Plan ended prior to the date hereof, or would have had such an accumulated funding deficiency on such date if such year were the first year of such Plan, and no material liability to the Pension Benefit Guaranty Corporation has been, or is expected by the Borrower or Medacquisition to be, incurred with respect to any such Plan.  No

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Reportable Event (as defined in ERISA) has occurred and is continuing in respect to any such Plan.

(j)Defaults.  Neither the Borrower nor Medacquisition is in default in the payment of principal or interest on any indebtedness for borrowed money and is not in default under any instrument or agreement under or subject to which any indebtedness for borrowed money has been issued, and no event has occurred and is continuing that, with or without the lapse of time or the giving of notice, or both, constitutes or would constitute an event of default under any such instrument or agreement or an Event of Default hereunder.

(k)Subsidiaries.  The Borrower has no Subsidiaries other than Medacquisition.

(l)Burdensome Contracts.  Neither the Borrower nor Medacquisition is subject to any contracts or agreements outside the ordinary course of business the terms of which, if enforced, would materially adversely affect the financial condition or operations of the Borrower or Medacquisition.

(m)Patents, Trademarks, Etc.  Each of the Borrower and Medacquisition has good and marketable title or valid licenses to all patents, trademarks, processes and copyrights that are necessary for the operation of the Borrower’s and Medacquisition’s businesses.

(n)Use of Proceeds For Securities Transactions.  No proceeds of any Advance or the Term Loan will be used to acquire any security in any transaction that is subject to Section 12 of the Securities Exchange Act of 1934.

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(o)Regulation U.  Neither the Borrower not Medacquisition is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance or the Term Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock.

(p)BIOMEC Purchase.  The BIOMEC Purchase has been completed, or will be completed contemporaneously with the first funding of an Advance or the Term Loan, substantially in accordance with terms of the Asset Purchase Agreement dated as of July 21, 2003, a copy of which the Borrower has provided to the Bank.  The Borrower has provided a copy of each amendment to such Asset Purchase Agreement to the Bank.

ARTICLE V.

COVENANTS OF THE BORROWER

Section 5.1.Affirmative Covenants.  So long as any Note shall remain unpaid or the Bank shall have a Commitment hereunder, the Borrower will, unless the Bank shall give its prior written consent:

(a)Financial Reporting.  Furnish to the Bank: (i) as soon as available and in any event within 30 days after the end of each month of each fiscal year (45 days in the case of the last month of each fiscal year) of the Borrower and Medacquisition, balance sheets of the Borrower and Medacquisition as of the end of such month and statements of income and retained earnings of the Borrower and Medacquisition for the period commencing at the end of the previous fiscal year and ending with the end of such month, certified by the controllers of the Borrower and Medacquisition; (ii) as soon as available

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and in any event within 90 days after the end of each fiscal year of the Borrower and Medacquisition, (A) a copy of the annual report for such year for the Borrower and Medacquisition, containing financial statements for such year certified in a manner acceptable to the Bank by McGladrey & Pullen, LLP or other independent public accountants acceptable to the Bank and (B) a budget and projections prepared by the Borrower and Medacquisition in a form acceptable to the Bank for the fiscal year that has just begun; (iii) promptly upon the sending or filing thereof copies of all public reports filed by the Borrower or Medacquisition with the Securities and Exchange Commission or to any national securities exchange; (iv) promptly upon the filing or receiving thereof, copies of all reports that the Borrower or Medacquisition files under ERISA or that the Borrower or Medacquisition receives from the Pension Benefit Guaranty Corporation if such report shows any material violation or potential violation by the Borrower of its obligations under ERISA; (v) such other information concerning the conditions or operations, financial or otherwise, of the Borrower and Medacquisition as the Bank from time to time may reasonably request; (vi) within 30 days after the end of each month, a Borrowing Base Certificate, together with an accounts receivable and accounts payable aging, for the month most recently ended.

(b)Visitation Rights.  At any reasonable time and from time to time, permit the Bank or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and Medacquisition, and to discuss the affairs, finances and accounts of the Borrower and Medacquisition with any of its respective officers or directors.  The

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Borrower will reimburse the Bank for its reasonable costs and expenses of conducting such periodic examinations.

(c)Notification of Default, Etc.  Notify the Bank as promptly as practicable (but in any event not later than 5 Business Days) after the Borrower or Medacquisition obtains knowledge of: (i) the occurrence of any event which constitutes an Event of Default or which would constitute an Event of Default with the passage of time or the giving of notice or both; or (ii) the commencement of any litigation or governmental proceedings of any type that could materially adversely affect the financial condition or business operations of the Borrower or Medacquisition.

(d)Compliance Certificate.  At the time any financial statement is required to be provided to Bank under this Agreement, the Borrower will provide to Bank a certificate of the controller of the Borrower substantially in the form of Exhibit C attached hereto (appropriately completed).  If that certificate shows that an Event of Default or any event that would constitute an Event of Default with the passage of time or the giving of notice or both, has occurred, the certificate shall state in reasonable detail the circumstances surrounding such event and action proposed by the Borrower to cure such event.

(e)Keeping of Financial Records and Books of Account.  Maintain proper financial records in accordance with generally accepted accounting principles consistently applied that fully and correctly reflect all financial transactions and all assets and liabilities of the Borrower and Medacquisition.

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(f)Tangible Net Worth.  Maintain Tangible Net Worth of not less than $6,000,000.00 at December 31, 2003 and of not less than $10,000,000.00 at December 31, 2004.

(g)Senior Funded Debt Ratio.  Maintain as of the end of each fiscal quarter a Senior Funded Debt Ratio of not more than the following:

Time Period	Maximum Ratio
2004	1.25 to 1
2005	1.15 to 1
2003	1.50 to 1
2006 and thereafter	1.0 to 1

(h)Fixed Charge Coverage Ratio.  Maintain as of the end of each fiscal quarter a Fixed Charge Coverage Ratio of not less than 1.20 to 1.

(i)Maintenance of Insurance.  Maintain such insurance with reputable insurance carriers as is normally carried by companies engaged in similar businesses and owning similar property, and name the Bank as loss payee on all policies insuring personal property in which the Bank has a security interest and provide the Bank with certificates of insurance evidencing its status as a loss payee.  The loss payee endorsement shall provide for payment to the Bank notwithstanding any acts or omissions of the Borrower or Medacquisition and shall require notice to the Bank 30 days prior to the expiration or cancellation of the insurance.

(j)Maintenance of Properties, Etc.  Maintain and preserve, and cause Medacquisition to maintain and preserve, all of its properties that are necessary or useful in the proper conduct of its business, in good working order and condition, ordinary wear and tear excepted.

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(k)Payment of Taxes.  Pay, and cause Medacquisition to pay, all taxes, assessments and governmental charges of any kind payable by it as such taxes, assessments and charges become due and before any penalty shall be imposed, except as the Borrower or Medacquisition shall contest in good faith and by appropriate proceedings providing such reserves as are required by generally accepted accounting principles.

(l)Compliance with ERISA.  Cause each Plan to comply and be administered in accordance with those provisions of ERISA that are applicable to such Plan.

(m)Maintenance of Accounts.  Maintain, and cause Medacquisition to maintain, its corporate bank accounts at the Bank except for such incidental accounts that reasonable business judgment requires to be maintained elsewhere, and either (i) keep collected demand deposit balances in such accounts in the amount necessary to compensate the Bank for applicable activity charges in such accounts, as calculated by the Bank and applied to such balances in a manner consistent with all similar accounts or (ii) pay such activity charges on a monthly basis.

(n)Preservation of Corporate Existence, Etc.  Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership of its properties, and cause Medacquisition to do so.

Section 5.2.Negative Covenants.  So long as any Note shall remain unpaid or the Bank shall have a Commitment hereunder, and unless the Bank shall give its prior written consent, the Borrower will not, and will not permit Medacquisition to:

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(a)Liens.  Create or suffer to exist any mortgage, pledge, lien, security interest or other encumbrance with respect to any assets now owned or hereafter acquired by the Borrower or Medacquisition except those encumbrances made in favor of the Bank and present and future purchase money security interests on, or leases of, equipment (“Permitted Liens”).

(b)Debt.  Create or suffer to exist any Debt except the Debt under this Agreement or the Notes, Debt consisting of contingent earn-out payments that may be due in 2004 or 2005 in connection with the BIOMEC Purchase and Debt secured by Permitted Liens.

(c)Guaranties, Etc.  Assume, guarantee, endorse or otherwise become liable upon the obligation of any Person except by endorsement of negotiable instruments for collection in the ordinary course of business.

(d)Merger, Etc.  Merge or consolidate with any other Person; sell, transfer, convey, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or a substantial portion of its assets (whether now owned or hereafter acquired) to any other Person, except for the completion of the BIOMEC Purchase and a merger of Medacquisition into the Borrower.

(e)Transactions with Affiliates.  Engage in any transaction (including, without limitation, loans or financial accommodations of any kind) with any Affiliate, other than the completion of the BIOMEC Purchase, provided that such transactions are permitted if they are on terms no less favorable to the Borrower or Medacquisition, as applicable, than would be obtainable if no such relationship existed.

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(f)Investments in Other Persons.  Make any loan or advance to any Person; or purchase or otherwise acquire the capital stock, assets, or obligations of, or any interest in, any other Person other than readily marketable direct obligations of the United States of America, deposits in commercial banks of recognized standing operating in the United States of America and other investments not in excess of $250,000.00 in the aggregate outstanding at any time.

(g)Change in Nature of Business.  Make any material change in the line of business of the Borrower or Medacquisition, taken as a whole, as carried on at the date hereof.

(h)Fixed Assets.  Expend for fixed assets an amount aggregating more than $2,000,000.00 in any fiscal year for the Borrower and Medacquisition combined.

ARTICLE VI.

DEFAULT

Section 6.1.Events of Default.  “Events of Default” in this Agreement means any of the following events:

(a)Failure of the Borrower to pay the principal of any Note when due or, if payable on demand, upon demand;

(b)Failure of the Borrower to pay any interest or fees required to be paid hereunder or under any Note when due;

(c)Any representation or warranty made by, or on behalf of, any Loan Party in, or pursuant to, any Loan Document shall prove to have been incorrect in any material respect when made or the Borrower or Medacquisition shall dispose of any collateral described in the Security Agreement in violation of the Security Agreements;

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(d)Default in performance of any other covenant or agreement of any Loan Party in, or pursuant to, any Loan Document and continuance of such default or breach for a period of 30 days after written notice thereof to such Person by the Bank;

(e)Any Loan Party shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, custodianship, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief, or the appointment of a receiver, custodian, trustee, or other similar official for it or for any substantial part of its property; or any Loan Party shall take any corporate action to authorize any of the actions set forth above in this subsection; and in the case of a proceeding of the type described in this paragraph commenced against any Loan Party, that proceeding shall not be dismissed within 60 days or that Loan Party shall consent to that proceeding;

(f)The Borrower or Medacquisition shall fail to pay any of its Debts that individually or in the aggregate total more than $100,000.00 (but excluding Debt evidenced by any Note) any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue

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after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof;

(g)The entry against any Loan Party of a final judgment, decree or order for the payment of money in excess of $150,000.00 and the continuance of such judgment, decree or order unsatisfied for a period of 30 days without a stay of execution;

(h)Any Reportable Event (as defined in ERISA) shall have occurred and continue for 30 days; or any Plan shall have been terminated by the Borrower or Medacquisition not in compliance with ERISA, or a trustee shall have been appointed by a court to administer any Plan, or the Pension Benefit Guaranty Corporation shall have instituted proceedings to terminate any Plan or to appoint a trustee to administer any Plan.

Section 6.2.Rights and Remedies.  If any Event of Default shall occur and be continuing, the Bank may exercise any or all of the following rights and remedies:

(a)By written notice to the Borrower, suspend or terminate the Commitment, whereupon the same shall forthwith be suspended or terminated;

(b)Declare the Notes, all interest thereon, and all other obligations under, or pursuant to, any Loan Document to be immediately due and payable, and upon such declaration such Notes, interest and other obligations shall immediately be due and payable, without presentment, demand, protest or any notice of any kind, all of which are expressly waived;

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(c)Exercise any right or remedy under the Security Agreements, or any other right or remedy of a secured party under the Uniform Commercial Code as in effect in Minnesota;

(d)Exercise any other right or remedy available to the Bank at law or in equity.

ARTICLE VII.

MISCELLANEOUS

Section 7.1.No Waiver; Cumulative Remedies.  No failure or delay on the part of the Bank in exercising any right or remedy under, or pursuant to, any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy or power preclude other or further exercise thereof, or the exercise of any other right, remedy or power.  The remedies in the Loan Documents are cumulative and are not exclusive of any remedies provided by law.

Section 7.2.Amendments and Waivers.  No amendment or waiver of any provision of any Loan Document shall be effective unless such amendment or waiver is in writing and is signed by the Bank, and such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which it was given.

Section 7.3.Notices, Etc.  All notices and other communications provided for hereunder shall be in writing (including telecopier communication) and mailed or telecopied or delivered, if to the Borrower, at its address stated in the preamble hereof, Attention:  Michael Erdmann; and if to the Bank, at its address stated in the preamble hereof, Attention:  John R. Dan; or, as to each party, at such other address as shall be designated by such party in a written notice to the other party.  All such notices and communications shall, when mailed or telecopied,

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be effective when deposited in the mails or transmitted by telecopier, respectively, addressed as provided above, except that notices to the Bank pursuant to the provisions of Article II shall not be effective until received by the Bank.

Section 7.4.Costs and Expenses.  The Borrower agrees to pay all costs and expenses of the Bank, including reasonable attorneys fees and expenses, in connection with the administration and enforcement of the Loan Documents (whether suit is commenced or not).

Section 7.5.Right of Set-off.  Upon the occurrence and during the continuance of any Event of Default the Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Borrower or Medacquisition against any and all of the obligations of the Borrower now or hereafter existing under any Loan Document, irrespective of whether or not the Bank shall have made any demand under any Loan Document and although such obligations may be unmatured.  The Bank agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application.  The rights of the Bank under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that the Bank may have.

Section 7.6.Governing Law.  All Loan Documents shall be governed by the laws of the State of Minnesota.  Any term used in this Agreement and not otherwise defined shall have the definition given that term in the Uniform Commercial Code as in effect in the State of Minnesota from time to time, and such definition automatically shall change on the effective date of any amendment to the Uniform Commercial Code that changes such definition.  If any term in this

25

Agreement shall be held to be illegal or unenforceable, the remaining portions of this Agreement shall not be affected, and this Agreement shall be construed and enforced as if this Agreement did not contain the term held to be illegal or unenforceable.  The Borrower hereby irrevocably submits to the jurisdiction of the Minnesota District Court, Fourth District, and the Federal District Court, District of Minnesota, Fourth Division, over any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of such action or proceeding may be heard and determined in any such court.

Section 7.7.Binding Effect; Assignment.  All Loan Documents shall be binding upon and inure to the benefit of the Loan Parties and the Bank and their respective successors and assigns.  No Loan Party shall have the right to assign its rights or interest under any such agreement without the prior written consent of the Bank.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written.

MedAmicus, Inc.
By
	James D. Hartman
	Its President & CEO
M&I Marshall & Ilsley Bank
By
Its
By
Its

26

EXHIBIT A

REVOLVING PROMISSORY NOTE

$3,000,000.00 Dated: October 17, 2003

For value received, on April 30, 2004, MedAmicus, Inc., a Minnesota corporation (the “Borrower”) promises to pay to the order of M&I Marshall & Ilsley Bank (the “Bank”), at its offices in Minneapolis, Minnesota, in lawful money of the United States of America, the principal amount of Three Million and no/100 Dollars ($3,000,000.00) or, if less, the aggregate unpaid principal amount of Advances made by the Bank to the Borrower pursuant to the Loan Agreement (as defined below); together with interest on any and all principal amounts remaining unpaid hereon from the date of this Note until such principal amounts are fully paid at a fluctuating annual rate equal to 2.25% above LIBOR (as defined in the Loan Agreement).  Interest shall be due and payable on the last day of each calendar month starting on November 30, 2003.  Each change in the fluctuating interest rate shall take effect simultaneously with the corresponding change in LIBOR.

All Advances made by the Bank to the Borrower pursuant to the Loan Agreement and all principal payments made by the Borrower on this Note shall be recorded by the Bank.

This Note is the Revolving Note referred to in, and is entitled to the benefits of, the Revolving Credit and Term Loan Agreement dated as of the date hereof (the “Loan Agreement”) between the Borrower and the Bank, which Loan Agreement, among other things, contains provisions for the acceleration of the maturity of this Note upon the happening of certain stated

A-1

events, for an increase to the interest rate upon the happening of certain stated events, and for prepayments of the principal amount due under this Note upon stated terms and conditions.

MedAmicus, Inc.
By	[DRAFT ONLY. DO NOT SIGN.]
	James D. Hartman
	Its President & CEO

A-2

EXHIBIT B

TERM PROMISSORY NOTE

$5,000,000.00 Dated: October 17, 2003

For value received, MedAmicus, Inc., a Minnesota corporation (the “Borrower”) promises to pay to the order of M&I Marshall & Ilsley Bank (the “Bank”), at its offices in Minneapolis, Minnesota, in lawful money of the United States of America, the principal amount of Five Million and no/100 Dollars ($5,000,000.00); together with interest on any and all principal amounts remaining unpaid hereon from the date of this Note until such principal amounts are fully paid at a fluctuating annual rate equal to 2.50% above LIBOR (as defined in the Loan Agreement).  Each change in the fluctuating interest rate shall take effect simultaneously with the corresponding change in LIBOR.

The Borrower shall pay principal in 60 monthly installments of $83,334.00 each payable on the last day of each month starting on November 30, 2003 and continuing on the last day of each month thereafter until October 31, 2008 when all remaining principal and accrued interest shall be due and payable in full.  The Borrower shall pay accrued interest on this Note on the last day of each month starting on November 30, 2003 and at maturity.

This Note is the Term Note referred to in, and is entitled to the benefits of, the Revolving Credit and Term Loan Agreement dated as of the date hereof (the “Loan Agreement”) between the Borrower and the Bank, which Loan Agreement, among other things, contains provisions for the acceleration of the maturity of this Note upon the happening of certain stated events, for an

B-1

increase to the interest rate upon the happening of certain stated events, and for prepayments of the principal amount due under this Note upon stated terms and conditions.

MedAmicus, Inc.
By	[DRAFT ONLY. DO NOT SIGN.]
	James D. Hartman
	Its President & CEO

B-2

EXHIBIT C

FORM OF COMPLIANCE CERTIFICATE

I, the                                              of MedAmicus, Inc. (the “Borrower”), hereby provide this Compliance Certificate in accordance with Section 5.1(d) of the Revolving Credit and Term Loan Agreement (the “Agreement”) dated as of October 17, 2003 between the Borrower and M&I Marshall & Ilsley Bank.

I certify that as of the date hereof:

(1)The representations and warranties of the Borrower contained in Article IV of the Agreement are correct as though made on the date hereof.

(2)No event has occurred and is continuing that constitutes an Event of Default under the Agreement or would constitute an Event of Default but for the requirement that notice be given or time elapse or both.

(3)The Borrower’s and Medacquisition, Inc.’s State of formation is Minnesota.

I further certify that as of                                    , 20    :

(1)Tangible Net Worth as defined in the Agreement was $                       compared to a minimum in the Agreement of $                              .  [Year end report only]

(2)Fixed asset expenditures were                          compared to a maximum in the Agreement of $2,000,000.  [Year end report only]

(3)The Senior Funded Debt Ratio as defined in the Agreement was             to 1 compared to a minimum in the Agreement of             to 1.  [Quarter end report only]

(4)The Fixed Charge Coverage Ratio as defined in the Agreement was           to 1 compared to a minimum in the Agreement of 1.20 to 1.  [Quarter end report only]

Dated:
	Title:

C-1

EXHIBIT D

BORROWING BASE CERTIFICATE

A.	Gross Accounts Receivable
B.	Less Ineligibles:
	Over 90 days from invoice date
	10% rule (subject to special $500,000 Medtronic threshold)
	Receivables from Affiliates
C.	Total Eligible Receivables (A-B)
D.	Advance Rate –     % (Cx    %)
E.	Net Book Value Inventory (Excluding Medacquisition’s raw materials and work in process)
F.	Advance Rate –     % (Ex    %)
G.	Total Borrowing Base (D+F)
H.	Less Line of Credit Outstanding
I.	Availability (the lesser of Amount of Commitment minus H or G minus H must be equal to or greater than $0 at all times)

Dated:
	Title:

The collateral eligibility and advance rates shall be reviewed by the Bank annually.

D-1

EX-10.5

EXHIBIT 10.5

TERM PROMISSORY NOTE

$5,000,000.00 Dated: October 17, 2003

For value received, MedAmicus, Inc., a Minnesota corporation (the “Borrower”) promises to pay to the order of M&I Marshall & Ilsley Bank (the “Bank”), at its offices in Minneapolis, Minnesota, in lawful money of the United States of America, the principal amount of Five Million and no/100 Dollars ($5,000,000.00); together with interest on any and all principal amounts remaining unpaid hereon from the date of this Note until such principal amounts are fully paid at a fluctuating annual rate equal to 2.50% above LIBOR (as defined in the Loan Agreement).  Each change in the fluctuating interest rate shall take effect simultaneously with the corresponding change in LIBOR.

The Borrower shall pay principal in 60 monthly installments of $83,334.00 each payable on the last day of each month starting on November 30, 2003 and continuing on the last day of each month thereafter until October 31, 2008 when all remaining principal and accrued interest shall be due and payable in full.  The Borrower shall pay accrued interest on this Note on the last day of each month starting on November 30, 2003 and at maturity.

This Note is the Term Note referred to in, and is entitled to the benefits of, the Revolving Credit and Term Loan Agreement dated as of the date hereof (the “Loan Agreement”) between the Borrower and the Bank, which Loan Agreement, among other things, contains provisions for the acceleration of the maturity of this Note upon the happening of certain stated events, for an

increase to the interest rate upon the happening of certain stated events, and for prepayments of the principal amount due under this Note upon stated terms and conditions.

MedAmicus, Inc.
By	/s/  James D. Hartman
	James D. Hartman
	Its President & CEO

2

EX-10.6

EXHIBIT 10.6

REVOLVING PROMISSORY NOTE

$3,000,000.00 Dated: October 17, 2003

For value received, on April 30, 2004, MedAmicus, Inc., a Minnesota corporation (the “Borrower”) promises to pay to the order of M&I Marshall & Ilsley Bank (the “Bank”), at its offices in Minneapolis, Minnesota, in lawful money of the United States of America, the principal amount of Three Million and no/100 Dollars ($3,000,000.00) or, if less, the aggregate unpaid principal amount of Advances made by the Bank to the Borrower pursuant to the Loan Agreement (as defined below); together with interest on any and all principal amounts remaining unpaid hereon from the date of this Note until such principal amounts are fully paid at a fluctuating annual rate equal to 2.25% above LIBOR (as defined in the Loan Agreement).  Interest shall be due and payable on the last day of each calendar month starting on November 30, 2003.  Each change in the fluctuating interest rate shall take effect simultaneously with the corresponding change in LIBOR.

All Advances made by the Bank to the Borrower pursuant to the Loan Agreement and all principal payments made by the Borrower on this Note shall be recorded by the Bank.

This Note is the Revolving Note referred to in, and is entitled to the benefits of, the Revolving Credit and Term Loan Agreement dated as of the date hereof (the “Loan Agreement”) between the Borrower and the Bank, which Loan Agreement, among other things, contains provisions for the acceleration of the maturity of this Note upon the happening of certain stated

events, for an increase to the interest rate upon the happening of certain stated events, and for prepayments of the principal amount due under this Note upon stated terms and conditions.

MedAmicus, Inc.
By	/s/  James D. Hartman
	James D. Hartman
	Its President & CEO

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EX-10.7

EXHIBIT 10.7

SECURITY AGREEMENT

DATED:  October 17, 2003

DEBTOR:	SECURED PARTY:
MedAmicus, Inc.	M&I Marshall & Ilsley Bank
15301 Highway 55 West	651 Nicollet Mall
Plymouth, MN 55447	Minneapolis, MN 55402-1611
State of Formation: Minnesota
State Organizational No.:  3Y-537

1.Security Interest and Collateral.  To secure the payment and performance of each and every debt, liability and obligation of every type and description that 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, 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 joint, several or joint and several; all such debts, liabilities and obligations collectively referred to as the “Obligations”), Debtor hereby grants Secured Party a security interest (the “Security Interest”) in the following property (the “Collateral”):

(a)INVENTORY:

All inventory of Debtor, whether now owned or hereafter acquired and wherever located;

(b)EQUIPMENT:

All equipment of Debtor, whether now owned or hereafter acquired, including but not limited to all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and recordkeeping equipment, parts and tools, and the goods described in any equipment schedule or list herewith or hereafter

furnished to Secured Party by Debtor (but no such schedule or list need be furnished in order for the security interest granted herein to be valid as to all of Debtor’s equipment);

(c)ACCOUNTS AND OTHER RIGHTS TO PAYMENT:

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

(d)INTANGIBLES:

All intangibles of Debtor, whether now owned or hereafter acquired, including but not limited to, general intangibles, investment property, software, applications for patents, patents, copyrights, trademarks, trade secrets, goodwill, tradenames, customers lists, permits and franchises, internet domain names, uniform resource locators (URL’s), website contracts and registration rights and the right to use Debtor’s name;

together with all substitutions and replacements for and products of any of the foregoing property and together with proceeds of any and all of the foregoing property and, in the case of all tangible

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Collateral, together with all accessions and together with (i) all accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in connection with any such goods, and (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods.

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

(a)Debtor is a corporation.

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

(c)Debtor’s chief executive office is located at the address of Debtor shown at the beginning of this Agreement.

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

(a)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, except the Security Interest and Permitted Liens (as defined in the Loan Agreement), and will defend the Collateral against all claims or demands of all persons other than Secured Party and the holder of Permitted Liens.  Any such security interests, liens or encumbrances not permitted under this Agreement shall be void.  Debtor will not sell or otherwise dispose of the Collateral or any interest therein without the prior written consent of Secured Party, except that, until the occurrence of an Event of Default and the revocation by Secured Party of Debtor’s right to do so, Debtor may sell any inventory constituting Collateral to buyers in the ordinary course of

3

business.  This Agreement has been duly and validly authorized by all necessary corporate action.

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

(c)Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, set-off or counterclaim (other than those arising in the ordinary course of business) of the account debtor or other obligor named therein or in Debtor’s records pertaining thereto as being obligated to pay such obligation.  Debtor will neither agree to any material modification or amendment nor agree to any cancellation of any such obligation without Secured Party’s prior written consent, and will not subordinate any such right to claims of other creditors of such account debtor or other obligor.

(d)Debtor will:

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

(ii)promptly pay all taxes and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the Security Interest except as Debtor shall contest in good faith and by appropriate proceedings providing such reserves as are required by generally accepted accounting principles;

(iii)keep all Collateral free and clear of all security interests, liens and encumbrances except the Security Interest and Permitted Liens;

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(iv)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 and to send and discuss with account debtors and other obligors requests for verifications of amounts owed to Debtor;

(v)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;

(vi)promptly notify Secured Party of any loss of or material damage to any Collateral or of any adverse change, known to Debtor, in the prospect of payment of any sums due on or under any instrument, chattel paper, or account constituting Collateral;

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

(viii)at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (in case of Collateral consisting of motor vehicles) and such other risks and in such amounts as Secured Party may reasonably request with any loss payable to Secured Party to the extent of its interest;

(ix)from time to time authorize such financing statements as Secured Party may reasonably require in order to perfect the Security Interest and, if any Collateral consists of an asset subject to a certificate of title, execute such documents as may be required to have the Security Interest properly noted on a certificate of title;

(x)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 satisfaction, protection, defense or enforcement of the Security Interest or the continuance, protection, defense or enforcement of this Agreement or any or all of the Obligations, including expenses incurred in any litigation or bankruptcy or insolvency proceedings;

5

(xi)execute, deliver or endorse any and all instruments, documents, assignments, security agreements and other agreements and writings that 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;

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

(xiii)not permit any tangible Collateral to become part of or to be affixed to any real property without first assuring to the reasonable satisfaction of Secured Party that the Security Interest will be prior and senior to any interest, or lien then held or thereafter acquired by any mortgagee of such real property or the owner or purchaser of any interest therein; and

(xiv)inform Secured Party of any change to Debtor’s name, address or state of formation prior to the effective date of such change and authorize and deliver to Secured Party any financing statement that is necessary as a result of that change to maintain the perfected status of the Security Interest.

If Debtor at any time fails to perform or observe any agreement contained in this Section 3(d), and if such failure shall continue for a period of ten calendar days after Secured Party gives Debtor written notice thereof (or, in the case of the agreements contained in clauses (viii) and (ix) of this Section 3(d), immediately upon the occurrence of such failure, without notice or lapse of time), Secured Party may (but need not) perform or observe such agreement on behalf and in the name, place and stead of Debtor (or, at Secured Party’s option, in Secured Party’s own name) and may (but need not) take any and all other actions that Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens, or encumbrances, the performance of obligations under contracts or agreements with account debtors or other obligors, the procurement and maintenance

6

of insurance, the filing of financing statements, the endorsement of instruments, and the procurement of repairs, transportation or insurance); and, except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Debtor shall thereupon pay Secured Party on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys’ fees) incurred by Secured Party in connection with or as a result of Secured Party’s performing or observing such agreements or taking such actions, together with interest thereon from the date expended or incurred by Secured Party at the highest rate then applicable to any of the Obligations.  To facilitate the performance or observance by Secured Party of such agreements of Debtor, Debtor hereby irrevocably appoints (which appointment is coupled with an interest) Secured Party, or its delegate, as the attorney-in-fact of Debtor with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Debtor, any and all instruments, documents, financing statements, termination statements for filings not permitted under this Agreement held by other secured parties, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by Debtor under this Section 3 and Section 4.

4.Lock Box, Collateral Account.  If Secured Party so requests at any time after the occurrence of an Event of Default, Debtor will direct each of its account debtors to make payments due under the relevant account or chattel paper directly to a special lockbox to be under the control of Secured Party.  Debtor hereby authorizes and directs Secured Party to deposit into a special collateral account to be established and maintained with Secured Party all checks, drafts and cash payments, received in such lockbox.  All deposits in such collateral account shall

7

constitute proceeds of Collateral and shall not constitute payment of any Obligations.  At its option, Secured Party may at any time, apply finally collected funds on deposit in such collateral account to the payment of the Obligations in such order of application as Secured Party may determine, or permit Debtor to withdraw all or any part of the balance on deposit in such collateral account.  If a collateral account is so established, Debtor agrees that it will promptly deliver to Secured Party, for deposit into such collateral account all payments on accounts and chattel paper received by it.  All such payments shall be delivered to Secured Party in the form received (except for Debtor’s endorsement where necessary).  Until so deposited, all payments on accounts and chattel paper received by Debtor shall be held in trust by Debtor for and as the property of Secured Party and shall not be commingled with any funds or property of Debtor.

5.Account Verification and Collection Rights of Secured Party.  Secured Party shall have the right to verify any accounts in the name of Debtor or in its own name; and Debtor, whenever requested, shall furnish Secured Party with duplicate statements of the accounts, which statements may be mailed or delivered by Secured Party for that purpose.  Notwithstanding Secured Party’s rights under Section 4 with respect to any and all debt instruments, chattel papers, accounts, and other rights to payment constituting Collateral (including proceeds), Secured Party may at any time after the occurrence of an Event of Default notify any account debtor, or any other person obligated to pay any amount due, that such chattel paper, account, or other right to payment has been assigned or transferred to Secured Party for security and shall be paid directly to Secured Party.  If Secured Party so requests at any such time, Debtor will so notify such account debtors and other obligors in writing and will indicate on all invoices to such account debtors or other obligors that the amount due is payable directly to Secured Party.  At any time after Secured Party or Debtor gives such notice to an account debtor or other obligor,

8

Secured Party may (but need not), in its own name or in Debtor’s name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such chattel paper, account, or other right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor.

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

7.Events of Default.  An Event of Default under the Revolving Credit and Term Loan Agreement (the “Loan Agreement”) between Debtor and Secured Party dated as of the date hereof shall be an Event of Default hereunder.

8.Remedies upon Event of Default.  Upon the occurrence of an Event of Default under Section 7 and at any time thereafter, Secured Party may exercise any one or more of the following rights and remedies: (i) declare all unmatured Obligations to be immediately due and payable, and the same shall thereupon be immediately due and payable, without presentment of other notice or demand; (ii) exercise and enforce any or all rights and remedies available upon

9

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 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 designated by Secured Party that 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 10) at least 10 calendar days prior to the date of intended disposition or other action; (iii) 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.  Secured Party is hereby granted a nonexclusive, worldwide and royalty-free license to use or otherwise exploit all trademarks, trade secrets, franchises, copyrights and patents of Debtor that Secured Party deems necessary or appropriate to the disposition of any Collateral.

9.Other Personal Property.  Unless at the time Secured Party takes possession of any tangible Collateral, or within seven days thereafter, Debtor gives written notice to Secured Party of the existence of any goods, papers or other property of Debtor, not affixed to or constituting a part of such Collateral, but that are located or found upon or within such Collateral, describing such property, Secured Party shall not be responsible or liable to Debtor for any action taken or omitted by or on behalf of Secured Party with respect to such property without actual knowledge of the existence of any such property or without actual knowledge that it was located or to be found upon or within such Collateral.

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10.Miscellaneous.  This Agreement does not contemplate a sale of accounts, payment intangibles or chattel paper.  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 a 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.  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 and Secured Party may disclaim any and all implied warranties (as imposed by law) in connection with the disposition of Collateral.  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

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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.  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 that 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.  Debtor hereby irrevocably submits to the jurisdiction of the Minnesota District Court, Fourth District, and the Federal District Court, District of Minnesota, Fourth Division, over any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of such action or proceeding may be heard and determined in any such court.

M&I Marshall & Ilsley Bank	MedAmicus, Inc.
By	By
Its		James D. Hartman
		Its President & CEO
By
Its

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EX-10.8

EXHIBIT 10.8

THIRD PARTY SECURITY AGREEMENT

DATED:  October 17, 2003

DEBTOR:	SECURED PARTY:
Medacquisition, Inc.	M&I Marshall & Ilsley Bank
15301 Highway 55 West	651 Nicollet Mall
Plymouth, MN 55447	Minneapolis, MN 55402-1611
State of Formation: Minnesota
State Organizational No.:  574143-2

1.Security Interest and Collateral.  To secure the payment and performance of each and every debt, liability and obligation of every type and description that MedAmicus, Inc. (the “Borrower”) 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, 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 joint, several or joint and several; all such debts, liabilities and obligations collectively referred to as the “Obligations”), Debtor hereby grants Secured Party a security interest (the “Security Interest”) in the following property (the “Collateral”):

(a) INVENTORY:

All inventory of Debtor, whether now owned or hereafter acquired and wherever located;

(b) EQUIPMENT:

All equipment of Debtor, whether now owned or hereafter acquired, including but not limited to all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and recordkeeping equipment, parts and tools, and the goods described in any equipment schedule or list herewith or hereafter furnished to Secured Party by Debtor (but no such schedule or list need be

furnished in order for the security interest granted herein to be valid as to all of Debtor’s equipment);

(c) ACCOUNTS AND OTHER RIGHTS TO PAYMENT:

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

(d) INTANGIBLES:

All intangibles of Debtor, whether now owned or hereafter acquired, including but not limited to, general intangibles, investment property, software, applications for patents, patents, copyrights, trademarks, trade secrets, goodwill, tradenames, customers lists, permits and franchises, internet domain names, uniform resource locators (URL’s), website contracts and registration rights and the right to use Debtor’s name;

together with all substitutions and replacements for and products of any of the foregoing property and together with proceeds of any and all of the foregoing property and, in the case of

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all tangible Collateral, together with all accessions and together with (i) all accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in connection with any such goods, and (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods.

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

(a)Debtor is a corporation.

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

(c)Debtor’s chief executive office is located at the address of Debtor shown at the beginning of this Agreement.

3.Additional Representations, Warranties and Agreements.

Debtor represents, warrants and agrees that:

(a)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, except the Security Interest and Permitted Liens (as defined in the Loan Agreement), and will defend the Collateral against all claims or demands of all persons other than Secured Party and the holders of Permitted Liens.  Any such security interests, liens or encumbrances not permitted under this Agreement shall be void.  Debtor will not sell or otherwise dispose of the Collateral or any interest therein without the prior written consent of Secured Party, except that, until the occurrence of an Event of Default and the revocation by Secured Party of Debtor’s right to do so, Debtor may sell any inventory constituting Collateral to buyers in the ordinary

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course of business.  This Agreement has been duly and validly authorized by all necessary corporate action.

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

(c)Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, set-off or counterclaim (other than those arising in the ordinary course of business) of the account debtor or other obligor named therein or in Debtor’s records pertaining thereto as being obligated to pay such obligation.  Debtor will neither agree to any material modification or amendment nor agree to any cancellation of any such obligation without Secured Party’s prior written consent, and will not subordinate any such right to claims of other creditors of such account debtor or other obligor.

(d)Debtor will:

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

(ii)promptly pay all taxes and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the Security Interest except as Debtor shall contest in good faith and by appropriate proceedings providing such reserves as are required by generally accepted accounting principles;

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(iii)keep all Collateral free and clear of all security interests, liens and encumbrances except the Security Interest and Permitted Liens;

(iv)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 to send and discuss with account debtors and other obligors requests for verifications of amounts owed to Debtor;

(v)keep accurate and complete records pertaining to the Collateral and submit to Secured Party such periodic reports concerning the Collateral as Secured Party may from time to time reasonably request;

(vi)promptly notify Secured Party of any loss of or material damage to any Collateral or of any adverse change, known to Debtor, in the prospect of payment of any sums due on or under any instrument, chattel paper, or account constituting Collateral;

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

(viii)at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (in case of Collateral consisting of motor vehicles) and such other risks and in such amounts as Secured Party may reasonably request with any loss payable to Secured Party to the extent of its interest;

(ix)from time to time authorize such financing statements as Secured Party may reasonably require in order to perfect the Security Interest and, if any Collateral consists of an asset subject to a certificate of title, execute such documents as may be required to have the Security Interest properly noted on a certificate of title;

(x)pay when due or reimburse Secured Party on demand for all out-of-pocket expenses (including reasonable

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attorneys’ fees) incurred by Secured Party in connection with the satisfaction, protection, defense or enforcement of the Security Interest or the continuance, protection, defense or enforcement of this Agreement, including expenses incurred in any litigation or bankruptcy or insolvency proceedings;

(xi)execute, deliver or endorse any and all instruments, documents, assignments, security agreements and other agreements and writings that 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;

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

(xiii)not permit any tangible Collateral to become part of or to be affixed to any real property without first assuring to the reasonable satisfaction of Secured Party that the Security Interest will be prior and senior to any interest, or lien then held or thereafter acquired by any mortgagee of such real property or the owner or purchaser of any interest therein; and

(xiv)inform Secured Party of any change to Debtor’s name, address or state of formation prior to the effective date of such change and authorize and deliver to Secured Party any financing statement that is necessary as a result of that change to maintain the perfected status of the Security Interest.

If Debtor at any time fails to perform or observe any agreement contained in this Section 3(d), and if such failure shall continue for a period of ten calendar days after Secured Party gives Debtor written notice thereof (or, in the case of the agreements contained in clauses (viii) and (ix) of this Section 3(d), immediately upon the occurrence of such failure, without notice or lapse of time), Secured Party may (but need not) perform or observe such agreement on behalf and in the name, place and stead of Debtor (or, at

6

Secured Party’s option, in Secured Party’s own name) and may (but need not) take any and all other actions that Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens, or encumbrances, the performance of obligations under contracts or agreements with account debtors or other obligors, the procurement and maintenance of insurance, the filing of financing statements, the endorsement of instruments, and the procurement of repairs, transportation or insurance); and, except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Debtor shall thereupon pay Secured Party on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys’ fees) incurred by Secured Party in connection with or as a result of Secured Party’s performing or observing such agreements or taking such actions, together with interest thereon from the date expended or incurred by Secured Party at the highest rate then applicable to any of the Obligations.  To facilitate the performance or observance by Secured Party of such agreements of Debtor, Debtor hereby irrevocably appoints (which appointment is coupled with an interest) Secured Party, or its delegate, as the attorney-in-fact of Debtor with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Debtor, any and all instruments, documents, financing statements, termination statements for filings not permitted under this Agreement held by other secured parties, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by Debtor under this Section 3 and Section 4.

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4.Lock Box, Collateral Account.  If Secured Party so requests at any time after the occurrence of an Event of Default, Debtor will direct each of its account debtors to make payments due under the relevant account or chattel paper directly to a special lockbox to be under the control of Secured Party.  Debtor hereby authorizes and directs Secured Party to deposit into a special collateral account to be established and maintained with Secured Party all checks, drafts and cash payments, received in said lockbox.  All deposits in said collateral account shall constitute proceeds of Collateral and shall not constitute payment of any Obligations.  At its option, Secured Party may at any time, apply finally collected funds on deposit in said collateral account to the payment of the Obligations in such order of application as Secured Party may determine, or permit Debtor to withdraw all or any part of the balance on deposit in said collateral account.  If a collateral account is so established, Debtor agrees that it will promptly deliver to Secured Party, for deposit into said collateral account all payments on accounts and chattel paper received by it.  All such payments shall be delivered to Secured Party in the form received (except for Debtor’s endorsement where necessary).  Until so deposited, all payments on accounts and chattel paper received by Debtor shall be held in trust by Debtor for and as the property of Secured Party and shall not be commingled with any funds or property of Debtor.

5.Account Verification and Collection Rights of Secured Party.  Secured Party shall have the right to verify any accounts in the name of Debtor or in its own name; and Debtor, whenever requested, shall furnish Secured Party with duplicate statements of the accounts, which statements may be mailed or delivered by Secured Party for that purpose.  Notwithstanding Secured Party’s rights under Section 4 with respect to any and all debt instruments, chattel papers, accounts, and other rights to payment constituting Collateral

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(including proceeds), Secured Party may at any time after the occurrence of an Event of Default notify any account debtor, or any other person obligated to pay any amount due, that such chattel paper, account, or other right to payment has been assigned or transferred to Secured Party for security and shall be paid directly to Secured Party.  If Secured Party so requests at any such time, Debtor will so notify such account debtors and other obligors in writing and will indicate on all invoices to such account debtors or other obligors that the amount due is payable directly to Secured Party.  At any time after Secured Party or Debtor gives such notice to an account debtor or other obligor, Secured Party may (but need not), in its own name or in Debtor’s name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such chattel paper, account, or other right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor.

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

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7.Events of Default.  An Event of Default under the Revolving Credit and Term Loan Agreement (the “Loan agreement”) between Borrower and Secured Party dated as of the date hereof shall be an Event of Default hereunder.

8.Remedies upon Event of Default.  Upon the occurrence of an Event of Default under Section 7 and at any time thereafter, Secured Party may exercise any one or more of the following rights and remedies: (i) declare all unmatured Obligations to be immediately due and payable, and the same shall thereupon be immediately due and payable, without presentment of other notice or demand; (ii) 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 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 designated by Secured Party that 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 12) at least 10 calendar days prior to the date of intended disposition or other action; (iii) exercise or enforce any or all other rights or remedies available to Secured Party by law or agreement against the Collateral, against Borrower, against Debtor or against any other person or property.  Secured Party is hereby granted a nonexclusive, worldwide and royalty-free license to use or otherwise exploit all trademarks, trade secrets, franchises, copyrights and patents of Debtor that Secured Party deems necessary or appropriate to the disposition of any Collateral.

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9.Waivers by Debtor.  Debtor waives notice of Secured Party’s acceptance hereof and notice of the creation, existence and payment or nonpayment of the Obligations.  None of the following acts or things (that Secured Party is authorized to do or not to do with or without notice to Debtor) shall in any way affect or impair the Security Interest or Debtor’s liabilities and obligations hereunder: (a) any extension or renewal (whether or not for longer than the original period) of any or all of the Obligations; (b) any change in the terms of payment or other terms of any or all of the Obligations or any collateral therefor, or any substitution or exchange of any evidence of any or all of the Obligations or collateral therefor, or any release of any collateral for any or all of the Obligations; (c) any waiver or forbearance granted to Borrower or any other person liable with respect to any or all of the Obligations or any release of, compromise with, or failure to assert rights against Borrower or any such other person; (d) the procurement or failure to procure any other collateral for or guarantors or sureties of any or all of the Obligations; (e) the transfer to any person, at any time, of any interest in any of the Obligations or any collateral therefor; (f) any arrangement, composition, extension, moratoria or other relief granted to Borrower pursuant to any statute now in force or hereafter enacted; (g) any interruption in business relations between Secured Party and Borrower; (h) the failure or neglect to protect or preserve any obligation or any collateral therefor, or to exercise any right that may be available to Secured Party by law or agreement prior to or after an Event of Default or a default under any other agreement, or any delay in doing any of the foregoing; (i) the failure or neglect to ascertain or assure that the proceeds of any loan to Borrower are used in any particular manner; and (j) the application or failure to apply in any particular manner any payments or credits upon the Obligations.  Debtor waives any right Debtor may have to a discharge now or hereafter under Uniform Commercial Code § 3-605.

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10.Other Collateral.  Whether or not Debtor requests or demands that Secured Party do so, Secured Party shall not be required before exercising and enforcing its rights under this Agreement first to resort for payment of the Obligations to Borrower or to any guarantor or surety or other person obligated with respect to any Obligation, or to their properties or estates, or to any security interest or other collateral securing payment of any or all of the Obligations, or to any other interests, properties, liens, rights or remedies whatsoever.  Debtor agrees to defer exercising, and hereby waives, any and all rights that Debtor might otherwise have to obtain reimbursement or payment from Borrower or other persons obligated with respect to any or all of the Obligations or out of the property of Borrower or of such other persons (whether such rights to obtain reimbursement or payment are rights of recourse, rights of subrogation, rights of contribution, or otherwise) until all the Obligations shall have been fully paid to Secured Party.  If any payment applied by Secured Party to the Obligations is thereafter set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the bankruptcy, insolvency or reorganization of Borrower or any other obligor), the Obligations to which such payment was applied shall for the purposes of this Agreement be deemed to have continued in existence, notwithstanding such application, and this Agreement shall be enforceable as to any Collateral released by Secured Party in reliance on such payment.

11.Other Personal Property.  Unless at the time Secured Party takes possession of any tangible Collateral, or within seven days thereafter, Debtor gives written notice to Secured Party of the existence of any goods, papers or other property of Debtor, not affixed to or constituting a part of such Collateral, but that are located or found upon or within such Collateral, describing such property, Secured Party shall not be responsible or liable to Debtor for any action taken or omitted by or on behalf of Secured Party with respect to such property

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without actual knowledge of the existence of any such property or without actual knowledge that it was located or to be found upon or within such Collateral.

12.Miscellaneous.  This Agreement does not contemplate a sale of accounts, payment intangibles or chattel paper.  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 a 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.  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 and Secured Party may disclaim any and all implied warranties (as imposed by law) in connection with the disposition of Collateral.  This Agreement shall be binding upon and inure to the benefit of Debtor and

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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.  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 that 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.  Debtor hereby irrevocably submits to the jurisdiction of the Minnesota District Court, Fourth District, and the Federal District Court, District of Minnesota, Fourth Division, over any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of such action or proceeding may be heard and determined in any such court.

M&I Marshall and Ilsley Bank	Medacquisition, Inc.
By	By
Its		James D. Hartman
		Its President & CEO
By
Its

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EX-31

Exhibit 31

CERTIFICATION

I, James D. Hartman certify that:

1.I have reviewed this quarterly report on Form 10-Q of Medamicus, Inc.

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2003	/s/	James D. Hartman
		President, Chief Executive Officer and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION

The undersigned certifies pursuant to 18 U.S.C. § 1350, that:

(1)The accompanying Quarterly Report on Form 10-Q for the three and nine month periods ended September 30, 2003, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the accompanying Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date November 6, 2003	/s/  James D. Hartman
	President, Chief Executive Officer and
	Chief Financial Officer