EXHIBIT 10.1

 

BRIDGE NOTE PURCHASE AGREEMENT

 

This Agreement is made as of December 31, 2004, by and among MedicalCV, Inc., a
Minnesota corporation (“MDCV”), and each investor who becomes a signatory to
this Agreement (each an “Investor” and collectively, the “Investors”).

 

AGREEMENT

 

SECTION 1 - PURCHASE AND SALE OF NOTES

 

1.1           MDCV hereby agrees to issue and sell to each Investor, and each
Investor hereby agrees to purchase from MDCV on the Closing Date (hereinafter
defined) a Convertible Promissory Note (each a “Note” and collectively, the
“Notes”), in the principal amount set forth opposite such Investor’s name on
Exhibit A, and a five-year warrant for the purchase of the number of shares of
MDCV common stock set forth opposite such Investor’s name on Exhibit A (each a
“Bridge Warrant” and collectively, the “Bridge Warrants”).  The Notes shall be
in the form attached as Exhibit B.  The Bridge Warrants shall be in the form
attached as Exhibit C.  Within 10 days of the issuance of Next Shares (as
defined herein), each Investor will be required to elect one of the following
two alternatives:  (1) convert the outstanding principal of, and accrued but
unpaid interest on, the Note into a number of Next Shares equal to (a) the
amount of the Note being converted divided by (b) 80% of the per share sales
price or per unit sales price, as applicable, of the Next Shares (but not to
exceed $1.49), and retain the Bridge Warrant (“Alternative 1”), or (2) surrender
the Note and the Bridge Warrant to MDCV in exchange for the issuance of a number
of Next Shares and any accompanying warrants issuable in connection with the
Next Shares (the “Additional Warrants”), equal to the amount of such securities
that could be purchased using the outstanding principal of, and accrued but
unpaid interest on, the Note (“Alternative 2”).  MDCV will provide each Investor
with written notice as soon as practicable following the issuance of Next
Shares.  If any Investor fails to make his, her, or its election within 10 days
of the issuance of the Next Shares, such Investor will be deemed to have elected
Alternative 1.  The Notes, the Next Shares issuable upon conversion of the
Notes, the Bridge Warrants, the shares issuable upon exercise of the Bridge
Warrants, the Next Shares issuable upon exchange of the Notes, any Additional
Warrants issuable upon exchange of the Notes, and the shares issuable upon
exercise of any Additional Warrants are sometimes referred to herein as
“Securities.”  The term “Next Shares” mean the equity securities issuable by
MDCV in connection with MDCV’s next round of equity financing subsequent to the
date of this Agreement, subject to the terms and conditions set forth in the
Note.

 

1.2           The closing of the purchase of the Notes and Bridge Warrants and
delivery of the purchase price of the Notes shall take place at the offices of
MedicalCV, Inc., 9725 South Robert Trail, Inver Grove Heights, MN 55077, at
10:30 a.m. on Friday, December 31, 2004 (the “Closing Date”).  At such closing,
each Investor will deliver the purchase price to MDCV and MDCV will deliver to
each Investor an executed original of the Note purchased hereunder and an
executed original of the Bridge Warrant purchased hereunder.  All payments will
be made in United States currency and remittance to MDCV shall be by cashier’s
check or wire transfer.

 

SECTION 2 - REPRESENTATIONS AND WARRANTIES OF MDCV

 

To induce the Investors to purchase the Notes and Bridge Warrants hereunder,
MDCV represents to each Investor as follows:

 

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2.1           Existence of Company.  MDCV is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and has the requisite corporate power and authority to own its properties and to
carry on its business in all material respects as it is now being conducted. 
MDCV is duly qualified or licensed as a foreign corporation in good standing in
each jurisdiction wherein the nature of its activities or of its properties
owned or leased makes such qualification or licensing necessary and failure to
be so qualified or licensed would have a material adverse impact on its
business.

 

2.2           Authority to Execute.  The execution, delivery and performance by
MDCV of this Agreement and each Note and Bridge Warrant (collectively, the “Loan
Documents”) to which it is a party are within MDCV’ s 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 by-laws of MDCV or, of
any agreement or contractual restrictions binding upon or affecting MDCV or any
of its property, and need no further shareholder or creditor consent.

 

2.3           Binding Obligation.  This Agreement is, and the Notes and Bridge
Warrants when delivered hereunder will be, legal, valid, and binding obligations
of MDCV enforceable against MDCV in accordance with their respective terms.

 

2.4           Disclosure.  MDCV has delivered to each Investor a Confidential
Private Placement Memorandum, dated December 21, 2004 (the “PPM”), which
describes the business of MDCV.

 

2.5           Defaults.  MDCV is not in default in the payment of principal or
interest on any indebtedness and is not in default under any instrument or
agreement to which it is a party, and no event has occurred and is continuing
which, 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 under this Agreement.

 

2.6           Litigation.  No litigation or governmental proceeding is pending
or threatened against MDCV that may, alone or together with all other such
matters, have a materially adverse effect on the financial condition,
operations, or prospects of MDCV, and no basis therefore exists.

 

2.7           Securities Laws.  Based in part upon the representations and
warranties contained in Section 3 hereof, no consent, authorization, approval,
permit or order of or filing with any governmental or regulatory authority,
other than a Current Report on Form 8-K which will be filed with the U.S.
Securities and Exchange Commission within 4 business days of the Closing Date
and a Form D which will be filed with the U.S. Securities and Exchange
Commission within 15 days of the Closing Date, is required under current laws
and regulations in connection with the execution and delivery of the Loan
Documents or the offer, issuance, sale or delivery of the Notes and Bridge
Warrants.  Under the circumstances contemplated hereby, the offer, issuance,
sale and delivery of the Notes and Bridge Warrants will not under current laws
and regulations require compliance with the prospectus delivery or registration
requirements of the Securities Act of 1933, as amended (the ”Act”).

 

SECTION 3 - REPRESENTATIONS OF THE INVESTOR

 

3.1           Each Investor, severally and not jointly, hereby represents to
MDCV:

 

a)             Investor has full power and authority to enter into this
Agreement and this Agreement and each other Loan Document to which it is a party
constitutes a valid and legally binding obligation of the Investor, enforceable
in accordance with its terms, subject, as to

 

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enforcement of remedies, to applicable bankruptcy, insolvency, moratorium,
reorganization and similar laws affecting creditors’ rights generally and to
general equitable principles.

 

b)            Investor has had the opportunity to ask questions of, and receive
answers from, executive officers of MDCV concerning the terms and conditions of
the investment and the business and affairs of MDCV, and to obtain any
additional information necessary to verify such information as the Investor
considers necessary or advisable in order to form a decision concerning an
investment in MDCV.  Investor also acknowledges that he has received and has
carefully reviewed the PPM.

 

c)             The Securities are being acquired for investment for the
Investor’s own account and not with the view to, or for resale in connection
with, any distribution or public offering thereof.  Investor understands that
the Securities have not been registered under the Act, or any state securities
laws, by reason of the contemplated issuance in a transaction exempt from the
registration requirements of the Act and applicable state securities laws and
that the reliance of MDCV upon these exemptions is predicated in part upon these
representations by the Investor.  Investor further understands that the
Securities may not be transferred or resold without registration under the Act
and any applicable state securities laws, or an exemption from the requirements
of the Act and applicable state securities laws.

 

d)            Investor is able to bear the loss of his investment in the
Securities without any material adverse effect on the Investor’s financial
position or prospects, and Investor has such knowledge and experience in
financial and business matters to be capable of evaluating the merits and risks
of the investment to be made pursuant to this Agreement.  Without limiting the
foregoing, Investor understands that the Securities are highly speculative,
involve a high degree of risk, and should be purchased only by persons who can
afford the loss of their entire investment.  The Investor has carefully
considered the risks described under the caption “Risk Factors” in the PPM.

 

e)             Investor is (i) a natural person whose individual net worth
(assets less liabilities), or joint net worth with his or her spouse, exceeds
$1,000,000, or (ii) a natural person whose individual income was in excess of
$200,000, or whose joint income with his or her spouse was in excess of
$300,000, in each of the two most recent years, and who has a reasonable
expectation of reaching the same income level for the current year.

 

f)             This Agreement has been duly authorized by all necessary action
on the part of the Investor, has been duly executed and delivered by the
Investor, and is a valid and binding agreement of the Investor.

 

g)            Investor is NOT subject to backup withholding provisions of
Section 3406(a)(i)(C) of the Internal Revenue Code of 1986, as amended (note:
you are subject to backup withholding if (i) you fail to furnish your Social
Security number or taxpayer identification number herein; (ii) the Internal
Revenue Service notifies MDCV that you furnished an incorrect Social Security
number or taxpayer identification number, (iii) you are notified that you are
subject to backup withholding; or (iv) you fail to certify that you are not
subject to backup withholding or fail to certify your Social Security number or
taxpayer identification number).

 

h)            It is understood that the certificates evidencing the Securities
may bear legends required by applicable federal and state securities laws as
well as the following legend:

 

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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE.  THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE
STATE SECURITIES LAWS.

 

SECTION 4 - DEFAULTS

 

4.1           Events of Default.  Each of the following events shall be an event
of default (the ”Events of Default”) for purposes of this Agreement and the
Notes:

 

a)             Failure of MDCV to pay the principal or interest on the Notes
when due;

 

b)            Failure of MDCV to perform or observe any covenant or agreement as
required by the Loan Documents (other than payment obligations) and continuation
of such failure for a period of 10 days following notice from one or more
Investors;

 

c)             MDCV 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 MDCV seeking to adjudicate it bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
custodianship, protection, or relief 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;

 

d)            The entry against MDCV of a final judgment, decree or order for
the payment of money in the excess of $100,000 and the continuance of such
judgment, decree or order unsatisfied for a period of 30 days without a stay of
execution; or

 

e)             Any of the material representations or covenants of MDCV made in
this Agreement or other Loan Documents are proven not to have been true and
correct in any material respect as of the date of this Agreement.

 

4.2           Rights and Remedies.  If any Event of Default shall occur, the
Investors holding Notes representing a majority of the aggregate principal
amount of all of the Notes may elect to exercise any or all of the following
rights and remedies:

 

a)             Declare the Notes, all interest thereon, and all other
obligations under, or pursuant to, the Loan Documents 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; and

 

b)            Exercise any and all other rights and remedies available to the
Investors at law and in equity.

 

4.3           Notice of Defaults.  Within five days of the occurrence or
existence of an Event of Default, MDCV shall give written notice thereof to each
Investor.

 

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4.4           Termination of Section 4.  This Section 4 will terminate upon
repayment of all principal and accrued interest on the Note or conversion or
exchange of the Note in accordance with its terms, whichever occurs earlier.

 

SECTION 5 – SECURITIES REGISTRATION

 

MDCV will grant to Investors any securities registration rights it grants to
purchasers of the Next Shares.

 

SECTION 6 - MISCELLANEOUS

 

6.1           No Waiver; Cumulative Remedies.  No failure or delay on the part
of the Investors 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.

 

6.2           Amendments and Waivers.  No amendment or waiver of any provisions
of any Loan Document shall be effective unless such amendment or waiver is in
writing signed by Investors holding Notes representing a majority of the
aggregate principal amount of all Notes issued pursuant to this Agreement and
such amendment or waiver shall be effective only in the specific instance and
for the specific purpose for which it was given.

 

6.3           Notices, Etc.  All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person, sent by facsimile
transmission to the fax number set forth on the signature page hereof, or such
other number as may hereinafter be designated in writing by the recipient to the
sender, or duly sent by first class registered or certified mail, return receipt
requested, postage prepaid, addressed to such party at the address set forth on
the signature page hereof or such other address as may hereafter be designated
in writing by the addressee to the addresser.  All such notices, requests,
consents and communications shall be deemed to have been received (a) in the
case of personal delivery, on the date of such delivery, (b) in the case of
facsimile transmission, on the date of transmission if sent within normal
business hours, otherwise on the following business day, and (c) in the case of
mailing, on the third day after the posting thereof.

 

6.4           Governing Law.  All Loan Documents will be governed by and
construed in accordance with the laws of the State of Minnesota, excluding that
body of law relating to conflict of laws.

 

6.5           Severability.  If any term in this Agreement or other Loan
Documents shall be held to be illegal or unenforceable, the remaining portions
of this Agreement or other Loan Documents, as the case may be, shall not be
affected, and this Agreement or other Loan Documents, as the case may be, shall
be construed and enforced as if this Agreement or other Loan Documents, as the
case may be, did not contain the term held to be illegal or unenforceable.

 

6.6           Binding Effect; Assignment.  All Loan Documents shall be binding
upon and inure to the benefit of MDCV and the Investor and their respective
successors and assigns.  MDCV may not assign its rights or interest under the
Loan Documents without the prior written consent of the Investors.

 

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6.7           Survival of Warranties.  Except as otherwise noted in this
Agreement, the representations and warranties of contained in or made pursuant
to this Agreement shall survive the execution and delivery of this Agreement.

 

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The undersigned hereby agrees to be bound by the terms and conditions of this
Agreement.

 

 

MEDICALCV, INC.

 

 

 

 

 

 

 

 

By John H. Jungbauer

 

Its Vice President, Finance and

 

Chief Financial Officer

 

 

 

Address:  9725 South Robert Trail

 

Inver Grove Heights, MN 55077

 

 

 

Phone:

(651) 452-3000

 

Fax:

(651) 452-4948

 

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COUNTERPART SIGNATURE PAGE

 

TO

 

NOTE PURCHASE AGREEMENT

 

The undersigned hereby agrees to be bound by the terms and conditions of this
Agreement and acknowledges that the other parties listed on Exhibit A have
executed this Agreement.

 

 

INVESTOR

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Mailing Address:

 

 

 

 

 

 

 

 

 

Residence Address:

 

 

 

 

 

 

 

 

 

Phone:

 

 

 

 

 

Fax:

 

 

 

 

 

SSN:

 

 

 

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EXHIBIT A

 

TO

 

NOTE PURCHASE AGREEMENT

 

 

SCHEDULE OF NOTE PURCHASERS

 

Name and Address of

 

Principal Amount of

 

Shares Purchasable upon

Note Purchaser

 

Convertible Promissory Note

 

Exercise of Bridge Warrant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT B

 

TO

 

NOTE PURCHASE AGREEMENT

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE.  THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE
STATE SECURITIES LAWS.

 

CONVERTIBLE PROMISSORY NOTE

 

Date of Issuance:  December 31, 2004 (“Date of Issuance”)

 

Name of Borrower:  MedicalCV, Inc., a Minnesota corporation (“MDCV”)

 

Name of Holder:                                                       (“Holder”)

 

Principal Amount of Note: $          
                                  (“Principal Amount”)

 

Subject to the terms and conditions of this Note, for good and valuable
consideration received, MDCV promises to pay to the Holder the Principal Amount,
plus simple interest accrued on unpaid principal from the Date of Issuance until
paid at the rate of ten percent (10%) per annum.

 

This Note is one of a series of Convertible Promissory Notes (collectively, the
“Notes”), all of which are substantively identical to this Note except as to the
holder thereof and principal amount thereof.  The Holder of this Note, the
holders of any other Notes, and MDCV are parties to the Bridge Note Purchase
Agreement dated as of December 30, 2004 (the “Agreement”).  The Holder of this
Note and the holders of the other Notes are collectively referred to herein as
“Noteholders.”

 

The following is a statement of the rights of the Holder and the terms and
conditions to which this Note is subject and to which the Holder, by acceptance
of this Note by its signature below, agrees:

 

1.             Payment.

 

(a)           Obligation.  The outstanding principal under this Note will be due
and payable on May 31, 2005, and the accrued interest on this Note will be due
and payable on January 31, 2005, February 28, 2005, March 31, 2005, April 30,
2005 and May 31, 2005, subject to conversion or exchange of this Note upon
consummation of MDCV’s Next Financing, as defined in Section 2(a).  All payments
of principal and/or interest under this Note will be made at the address of the
Holder as is provided by the Holder to MDCV in writing.

 

(b)           Equal Ranking of Notes.  No payment of any amount of principal
and/or interest under this Note will be paid by MDCV to the Holder unless an
amount, prorated among the Notes in proportion to the principal amount of each
Note, is simultaneously paid to the holders of the other Notes.

 

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(c)           Prepayment.  MDCV may prepay this Note without the consent of the
Holder upon not less than 10 days’ prior written notice.

 

2.             Conversion.

 

(a)           Automatic Conversion.  Within 10 days of the consummation of the
Next Equity Financing (as hereinafter defined), each Investor will be required
to elect one of the following two alternatives:  (1) convert the entire unpaid
principal and all accrued but unpaid interest under this Note into fully paid
and nonassessable Next Shares (as hereinafter defined) at a price per share
equal to eighty percent (80%) of the Issuance Price (as hereinafter defined) of
the Next Shares, and retain the Bridge Warrant (“Alternative 1”), or (2)
surrender the Note and the Bridge Warrant to MDCV in exchange for the issuance
of a number of Next Shares and any accompanying warrants issuable in connection
with the Next Shares (“Additional Warrants”), equal to the amount of such
securities that could be purchased using the entire unpaid principal and all
accrued but unpaid interest under this Note (“Alternative 2”).  MDCV will
provide each Investor with written notice as soon as practicable following the
issuance of Next Shares.  If any Investor fails to make his, her, or its
election within 10 days of the issuance of the Next Shares, such Investor will
be deemed to have elected Alternative 1.  The term “Next Equity Financing” means
the sale by MDCV of equity securities issuable by MDCV in connection with MDCV’s
next round of equity financing subsequent to the date of this Note.  The term
“Next Shares” means the equity securities issuable by MDCV in connection with
the Next Equity Financing.  The term “Issuance Price” means the per share sales
price or per unit sales price, as applicable, prior to deduction of any
brokers’, agents’ and underwriters’ commissions and fees, of the sale of the
Next Shares (but not to exceed $1.49).

 

(b)           Mechanics and Effect of Conversion.  MDCV will give all
Noteholders written notice of the Next Equity Financing as soon as practicable
following the Next Equity Financing.  The Noteholders will surrender their Notes
(and Bridge Warrants if Alternative 2 is elected) on or before the date which is
10 days after the Financing Date (as hereinafter defined) at the principal
offices of MDCV together with the executed signature page(s) to the purchase
documents and other agreements applicable to the Next Equity Financing as
requested by MDCV and reasonably acceptable to the Noteholders.  The conversion
or exchange of this Note into the Next Shares, pursuant to Section 2(a) hereof,
will be deemed to have been made on the date which is 10 days after the
Financing Date and the Holder will be treated for all purposes as the record
holder of such Next Shares on such date.  The term “Financing Date” means the
date of the closing of the sale of the Next Shares.

 

(c)           General Conversion Provisions.  Upon conversion or exchange of
this Note, MDCV will be forever released from all of its obligations and
liabilities hereunder and shall, as soon as practicable, issue and deliver to
the Holder a certificate or certificates for the type and number of securities
to which such Holder is entitled.  No fractional shares will be issued upon any
such conversion or exchange of this Note.  In lieu of any fractional share to
which the Holder would otherwise be entitled, MDCV will pay the cash value of
that fractional share to the Holder.

 

3.             Governing Law.  This Note will be governed by and construed in
accordance with the laws of the State of Minnesota, excluding that body of law
relating to conflict of laws.

 

4.             Waiver.  MDCV hereby waives diligence, presentment, demand,
protest, and notice of dishonor.

 

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5.             Acceleration.  If an Event of Default, as defined in the
Agreement, shall occur, then, pursuant to the terms of the Note and the
Agreement, the Holder may declare the principal of this Note, together with
interest accrued thereon, immediately due and payable at any time.

 

[SIGNATURE PAGE TO FOLLOW]

 

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IN WITNESS WHEREOF, MDCV has caused this Note to be issued as of the date first
written above.

 

 

MEDICALCV, INC.

 

 

 

 

 

 

 

 

By John H. Jungbauer

 

Its Vice President, Finance and

 

Chief Financial Officer

 

 

 

 

AGREED AND ACCEPTED:

 

 

 

Signature:

 

 

 

 

 

Name:

 

 

 

 

 

Date:

 

 

 

 

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EXHIBIT C

 

TO

 

NOTE PURCHASE AGREEMENT

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE.  THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE
STATE SECURITIES LAWS.

 

WARRANT

 

TO PURCHASE SHARES OF COMMON STOCK

 

OF

 

MEDICALCV, INC.

 

THIS CERTIFIES THAT, for good and valuable consideration,
                                              (the “Holder”), or the Holder’s
registered assigns, is entitled to subscribe for and purchase from MedicalCV,
Inc., a Minnesota corporation (the “MDCV”), at any time after December 31, 2004,
to and including December 31, 2009, a number of fully paid and nonassessable
shares of MDCV’s Common Stock (the “Shares”) at a price per Share equal to the
issuance price of the equity securities to be sold by MDCV in its next equity
financing following the date of this Warrant (the “Next Shares”), subject to the
antidilution provisions of this Warrant (the “Exercise Price”); provided,
however, that if the Next Shares are not shares of Common Stock, the Exercise
Price shall be equal to the per unit sales price of the Next Shares, subject to
the antidilution provisions of this Warrant.  Notwithstanding the foregoing, the
Exercise Price of this Warrant shall not exceed $1.49 per Share.  This Warrant
is issued under a Bridge Note Purchase Agreement between the MDCV and each
investor named as a signatory therein, dated December 30, 2004 (the
“Agreement”).  The number of Shares for which this Warrant may be exercised is
set forth opposite such Investor’s name on Exhibit A to the Agreement.  As used
herein, the term “Holder” means any party who acquires all or a part of this
Warrant as a registered transferee of the Holder, or any record holder or
holders of the Shares issued upon exercise, whether in whole or in part, of this
Warrant.

 

This Warrant is subject to the following provisions, terms, and conditions:

 

6.             Exercise:  Transferability.  The rights represented by this
Warrant may be exercised by the Holder hereof, in whole or in part (but not as
to a fractional Share), by written notice of exercise (in the form attached
hereto) delivered to MDCV at the principal office of MDCV prior to the
expiration of this Warrant and accompanied or preceded by the surrender of this
Warrant along with a check or wire transfer of good funds in payment of the
Exercise Price for such Shares.  Upon 10 days’ written notice, if the per share
market price of MDCV common stock exceeds $5.00 for 20 consecutive business days
following the date of issuance of this Warrant, MDCV may require the Holder of
this Warrant to exercise this Warrant within 30 days of such notice.  If MDCV
requires the Holder to exercise this Warrant pursuant to the foregoing sentence,
MDCV will permit the Holder to exercise this Warrant on a cashless basis.

 

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7.             Exchange and Replacement.  Subject to Sections 1 and 7 hereof,
this Warrant is exchangeable upon the surrender hereof by the Holder to MDCV at
its office for new Warrants of like tenor and date representing in the aggregate
the right to purchase the number of Shares purchasable hereunder, each of such
new Warrants to represent the right to purchase such number of Shares (not to
exceed the aggregate total number purchasable hereunder) as shall be designated
by the Holder at the time of such surrender.  Upon receipt by MDCV of evidence
reasonably satisfactory to it of the loss, theft, destruction, or mutilation of
this Warrant, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon surrender and cancellation of
this Warrant, if mutilated, MDCV will make and deliver a new Warrant of like
tenor, in lieu of this Warrant.  This Warrant shall be promptly canceled by MDCV
upon the surrender hereof in connection with any exchange or replacement.  MDCV
shall pay all expenses, taxes (other than stock transfer taxes), and other
charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 2.

 

8.             Issuance of the Shares.

 

(a)           MDCV agrees that the Shares purchased upon exercise of this
Warrant shall be and are deemed to be issued to the Holder as of the close of
business on the date on which this Warrant shall have been surrendered and the
payment made for such Shares as aforesaid.  Subject to the provisions of Section
3(B), certificates for the Shares so purchased shall be delivered to the Holder
within a reasonable time not exceeding fifteen (15) days after the rights
represented by this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the right to purchase the number
of Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be delivered to the Holder within such time.

 

(b)           Notwithstanding the foregoing, however, MDCV shall not be required
to deliver any certificate for Shares upon exercise of this Warrant except in
accordance with exemptions from the applicable securities registration
requirements or registrations under applicable securities laws.  Such Holder
shall also provide MDCV with written representations from the Holder and the
proposed transferee satisfactory to MDCV regarding the transfer or, at the
election of MDCV, an opinion of counsel reasonably satisfactory to MDCV to the
effect that the proposed transfer of this Warrant or disposition of Shares may
be effected without registration or qualification (under any federal or state
law) of this Warrant or the Shares.  Upon receipt of such written notice and
either such representations or opinion by MDCV, such Holder shall be entitled to
transfer this Warrant, or to exercise this Warrant in accordance with its terms
and dispose of the Shares, all in accordance with the terms of the notice
delivered by such Holder to MDCV, provided that an appropriate legend, if any,
respecting the aforesaid restrictions on transfer and disposition may be
endorsed on this Warrant or the certificates for the Shares.  Nothing herein,
however, shall obligate MDCV to effect registrations under federal or state
securities laws.  If exemptions are not available when the Holder seeks to
exercise the Warrant, the Warrant exercise period will be extended, if need be,
to prevent the Warrant from expiring, until such time as exemptions are
available, and the Warrant shall then remain exercisable for a period of at
least thirty (30) calendar days from the date MDCV delivers to the Holder
written notice of the availability of such exemptions.  The Holder agrees to
execute such documents and make such representations, warranties, and agreements
as may be required solely to comply with the exemptions relied upon by MDCV for
the issuance of the Shares.

 

9.             Covenants of MDCV.  MDCV covenants and agrees that all Shares
issuable upon exercise of this Warrant will upon issuance, be duly authorized
and validly issued, fully paid, nonassessable, and free from all taxes, liens,
and charges with respect to the issue thereof except for all taxes, liens and
charges imposed upon the Holder.  MDCV further covenants and agrees that during
the period within which rights represented by this Warrant may be exercised,
MDCV will at all times have

 

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authorized and reserved for the purpose of issue or transfer upon exercise of
the subscription rights evidenced by this Warrant a sufficient number of shares
of Common Stock to provide for the exercise of the rights represented by this
Warrant.

 

10.           Antidilution Adjustments.

 

A.           If MDCV shall at any time hereafter subdivide or combine its
outstanding shares of Common Stock, or declare a dividend payable in Common
Stock, the Exercise Price in effect immediately prior to the subdivision,
combination or record date for such dividend payable in Common Stock shall
forthwith be proportionately increased, in the case of combination, or
proportionately decreased, in the case of subdivision or declaration of a
dividend payable in Common Stock, and the number of Shares purchasable upon
exercise of this Warrant, immediately preceding such event, shall be changed to
the number determined by dividing the then current Exercise Price by the
exercise price as adjusted after such subdivision, combination or dividend
payable in Common Stock multiplied by the number of Shares purchasable upon
exercise of this Warrant immediately preceding such event, so as to achieve an
adjusted exercise price and number of Shares purchasable after such event
proportional to such exercise price and number of Shares purchasable immediately
preceding such event.  No adjustment in exercise price shall be required unless
such adjustment would require an increase or decrease of at least five ($0.05)
in such price; provided, however, that any adjustments which are not required to
be so made shall be carried forward and taken into account in any subsequent
adjustment.  All calculations hereunder shall be made to the nearest cent or to
the nearest one-hundredth of a Share, as the case may be.

 

B.            In case of any capital reorganization or any reclassification of
the shares of Common Stock of MDCV, or in the case of any consolidation with or
merger of MDCV into or with another corporation that is not a wholly-owned
subsidiary of MDCV, or the sale of all or substantially all of its assets to
another corporation that is not a wholly-owned subsidiary of MDCV, which is
effected in such a manner that the holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a part of such reorganization, reclassification, consolidation,
merger or sale, as the case may be, this Warrant shall, at the discretion of the
Board of Directors of MDCV, terminate and lawful provision shall be made so that
the Holder of the Warrant shall have the right thereafter to receive the kind
and amount of shares of stock or other securities or property which the Holder
would have been entitled to receive if, immediately prior to such
reorganization, reclassification, consolidation, merger or sale, the Holder had
held the number of Shares which were then purchasable upon the exercise of the
Warrant, less a deduction for the exercise price of this Warrant.  In any such
case, appropriate adjustment (as determined in good faith by the Board of
Directors of MDCV) shall be made in the application of the provisions set forth
herein with respect to the rights and interest thereafter of the Holder of the
Warrant, to the end that the provisions set forth herein (including provisions
with respect to adjustment of the exercise price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the exercise of the Warrant. 
Unless this Warrant shall be so terminated, MDCV shall make provision to ensure
that the successor corporation (if other than MDCV) resulting from such
consolidation or merger or the corporation purchasing such assets, shall assume
by written instrument, the obligation to deliver to such holder such shares of
stock, securities or assets as in accordance with the foregoing provisions, such
shareholder may be entitled to receive.

 

C.            If, for the purpose of reincorporating MDCV in another state, any
capital reorganization or other reclassification of the shares of Common Stock,
or a consolidation or

 

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merger of MDCV into or with another corporation, or the sale of all or
substantially all of its assets to another corporation, is effected in such
manner that the holders of Common Stock of MDCV shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a part of such reorganization, reclassification, consolidation, merger
or sale, as the case may be, lawful provision shall be made so that the Holder
of the Warrant shall have the right thereafter to receive the kind and amount of
shares of stock or other securities or property which the Holder would have been
entitled to receive if, immediately prior to such reorganization,
reclassification, consolidation, merger or sale, the Holder had held the number
of Shares which were then purchasable upon exercise of the Warrant.  MDCV shall
not effect any such consolidation, merger or sale unless, prior to the
consummation thereof, the successor corporation (if other than MDCV) resulting
from such consolidation or merger or the corporation purchasing such assets,
shall assume by written instrument, the obligation to deliver to such holder
such shares of stock, securities or assets as in accordance with the foregoing
provisions such shareholder may be entitled to receive.

 

D.            When any adjustment is required to be made in the Exercise Price,
initial or adjusted, MDCV shall forthwith determine the new Exercise Price, and

 

(i)            prepare and retain on file a statement describing in reasonable
detail the method used in arriving at the new exercise price; and

 

(ii)           cause a copy of such statement to be mailed to the Holder of the
Warrants as of a date within ten (10) days after the date when the circumstances
giving rise to the adjustment occurred.

 

E.            MDCV will not by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets, or
by any other voluntary act or deed, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by MDCV, but will, at all times in good faith, assist,
insofar as it is able, in the carrying out of all provisions hereof and in the
taking of all other action which may be necessary in order to protect the rights
of the Holder hereof against dilution.

 

11.           No Voting Rights.  This Warrant shall not entitle the Holder to
any voting rights or other rights as a shareholder of MDCV.

 

12.           Notice of Transfer of Warrant or Resale of the Shares.

 

(a)           Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to MDCV before transferring this Warrant or
transferring any Shares of such Holder’s intention to do so, describing briefly
the manner of any proposed transfer.  Promptly upon receiving such written
notice, MDCV shall present copies thereof to MDCV’s counsel.  If, in the opinion
of such counsel, the proposed transfer may be effected without registration or
qualification (under any federal or state securities laws), MDCV, as promptly as
practicable, shall notify the Holder of such opinion, whereupon the Holder shall
be entitled to transfer this Warrant or to dispose of Shares received upon the
previous exercise of this Warrant, all in accordance with the terms of the
notice delivered by the Holder to MDCV; provided that an appropriate legend may
be endorsed on this Warrant or the certificates for such Shares respecting
restrictions upon transfer thereof necessary or advisable in the opinion of
counsel to MDCV and satisfactory to MDCV to prevent further transfers which
would be in violation of Section 5 of the Securities Act of 1933,

 

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as amended (the “1933 Act”) and applicable state securities laws; and provided
further that the prospective transferee or purchaser shall execute such
documents and make such representations, warranties, and agreements as may be
required solely to comply with the exemption relied upon by MDCV for the
transfer or disposition of the Warrant or Shares.  MDCV shall not be obligated
to permit the transfer of this Warrant or any Shares to any person who is not an
“accredited investor” as that term is defined under Rule 501 of Regulation D
under the 1933 Act.

 

(b)           If, in the opinion of counsel for MDCV, the proposed transfer or
disposition of this Warrant or such Shares described in the written notice given
pursuant to this Section 7 may not be effected without registration or
qualification of this Warrant or such Shares, MDCV shall promptly give written
notice thereof to the Holder, and the Holder will limit his activities in
respect to such as, in the opinion of such counsel, are permitted by law.

 

13.           Fractional Shares.  Fractional Shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section 8, be entitled under the terms hereof to receive a
fractional Share, MDCV shall, upon the exercise of this Warrant for the largest
number of whole Shares then called for, pay a sum in cash equal to the sum of
(a) the excess, if any, of the market value of such fractional Share over the
proportional part of the Exercise Price represented by such fractional Share,
plus (b) the proportional part of the Exercise Price represented by such
fractional Share.

 

14.           Miscellaneous.  Whenever reference is made herein to the issue or
sale of shares of Common Stock, the term “Common Stock” shall include any stock
of any class of MDCV other than preferred stock with a fixed limit on dividends
and a fixed amount payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of MDCV.

 

Unless MDCV is timely filing reports required under the Securities Exchange Act
of 1934, as amended, MDCV agrees to provide Holder with detailed quarterly and
annual financial statements as soon as available, in a form reasonably
satisfactory to Holder, as well as any other documents as Holder or his counsel
may reasonably request in a form satisfactory to Holder, so long as this Warrant
or any Shares are outstanding and unregistered.

 

Upon written request of the Holder of this Warrant, MDCV will promptly provide
such Holder with a then current written list of the names and addresses of all
holders of warrants originally issued under the terms of, and concurrent with,
this Warrant.

 

The representations, warranties, and agreements herein contained shall survive
the exercise of this Warrant.  This Warrant shall be interpreted under the laws
of the State of Minnesota.

 

Neither this Warrant nor any term hereof may be changed, waived, discharged, or
terminated orally but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.

 

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IN WITNESS WHEREOF, MedicalCV, Inc. has caused this Warrant to be signed by its
duly authorized officer this 31st day of December, 2004.

 

 

MEDICALCV, INC.

 

 

 

 

 

By

 

 

 

John H. Jungbauer

 

Vice President, Finance and

 

Chief Executive Officer

 

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NOTICE OF EXERCISE OF WARRANT

 

 

(To be executed by the registered holder in order to exercise the Warrant.)

 

 

TO:         MEDICALCV, INC.

 

The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash                           of the Shares issuable upon the
exercise of such Warrant, and requests that certificates for such Shares
(together with a new Warrant to purchase the number of Shares, if any, with
respect to which this Warrant is not exercised) shall be issued in the name of:

 

 

 

 

 

 

 

 

(Print Name)

 

 

 

 

 

 

Please insert social security

 

 

or other identifying number

 

 

of registered Holder:

 

 

 

 

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dated:

 

 

 

 

 

 

 

Signature

 

*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever.  When signing on behalf of a
corporation, partnership, trust or other entity, please indicate your
position(s) and title(s) with such entity.

 

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ASSIGNMENT FORM

 

 

(To be signed only upon authorized transfer of the Warrant.)

 

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto
                                                  the right to purchase the
Shares to which the within Warrant relates and appoints
                                                 , attorney, to transfer said
Warrant on the books of MEDICALCV, INC. with full powers of substitution in the
premises.

 

 

Dated:

 

 

 

 

 

(Signature)

 

 

 

 

 

Address:

 

 

 

 

 

 

 

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