EXHIBIT 10.1


 


SECURITIES PURCHASE AGREEMENT


 


This Securities Purchase
Agreement (this “Agreement”) is dated as of March 31,
2005, among MedicalCV, Inc., a Minnesota corporation (the “Company”),
and the investors identified on the signature pages hereto (each an “Investor” and, collectively, the “Investors”).


 


WHEREAS, subject to the
terms and conditions set forth in this Agreement and pursuant to Section 4(2)
of the Securities Act (as defined below) and Rule 506 promulgated thereunder,
the Company desires to issue and sell to each Investor, and each Investor,
severally and not jointly, desires to purchase from the Company certain
securities of the Company, as more fully described in this Agreement.


 


NOW, THEREFORE, IN
CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the Company and the Investors agree as follows:


 


ARTICLE I.

DEFINITIONS


 


1.1                                 Definitions. 
In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, the following terms shall have the meanings
indicated in this Section 1.1:


 


“Action”
means any action, suit, inquiry, notice of violation, proceeding (including any
partial proceeding such as a deposition) or investigation pending or threatened
in writing against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.


 


“Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144, or any Person
that serves as a general partner and/or investment manager or in a similar
capacity of such a Person.


 


“Bankruptcy
Event” means any of the following events:  (a) the Company or any Subsidiary commences a
proceeding under any bankruptcy, reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction relating to the Company or any Subsidiary thereof; (b)
there is commenced against the Company or any Subsidiary any such case or
proceeding that is not dismissed within 60 days after commencement; (c) the Company
or any Subsidiary is adjudicated by a court of competent jurisdiction insolvent
or bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Subsidiary suffers any
appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 days; (e) under
applicable law the Company or any Subsidiary makes a general assignment for the
benefit of creditors; (f) the Company or any Subsidiary fails to pay, or states


 





















 


that it is unable to pay or is unable to pay, its debts generally as
they become due; (g) the Company or any Subsidiary calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring
of its debts; or (h) the Company or any Subsidiary, by any act or failure to
act, expressly indicates its consent to, approval of or acquiescence in any of
the foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.


 


“Benefit
Arrangement” means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or
Multiemployer Plan and which is maintained or otherwise contributed by the
Company.


 


“Benefit
Plan” has the meaning set forth in Section 3.1(aa)(ii).


 


“Business
Day” means any day except Saturday, Sunday and any day that is
a federal legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.


 


“Certificate
of Designation” shall mean a Certificate of Designation
relating to the Shares to be filed prior to the Closing by the Company with the
Secretary of State of the State of Minnesota setting forth the rights,
preferences and privileges set forth on Exhibit A hereto.


 


“Closing”
means the closing of the purchase and sale of Shares and Warrants contemplated
by Section 2.1.


 


“Closing
Date” means the Business Day immediately following the date
on which all of the conditions set forth in Section 2.1(d) and 2.1(e) have
been satisfied, or such other date as the parties may agree.


 


“Code”
means the Internal Revenue Code of 1986, as amended.


 


“Commission”
means the Securities and Exchange Commission.


 


“Common
Stock” means the common stock of the Company, par value $.01 per
share, and any securities into which such common stock may hereafter be
reclassified, converted or exchanged. 


 


“Common
Stock Equivalents” means any securities of the Company or any
Subsidiary which entitle the holder thereof to acquire Common Stock at any
time, including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.


 


“Company
Counsel” means Briggs and Morgan, P.A.


 


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“Disclosure
Materials” has the meaning set forth in Section 3.1(h).


 


“Effective
Date” means the date that the Registration Statement required
by Section 2(a) of the Registration Rights Agreement is first declared
effective by the Commission.


 


“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, or any
successor statute.


 


“ERISA
Group” means the Company and each Subsidiary and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.


 


“Escrow
Agent” means the Escrow Agent as set forth in the Escrow
Agreement.


 


“Escrow
Agreement” means the Escrow Agreement, dated as of the date
of this Agreement, among the Company, J. Giordano Securities Group and Venture
Bank (the “Escrow Agent”).


 


“Exchange
Act” means the Securities Exchange Act of 1934, as amended.


 


“First
Notice” has the meaning set forth in Section 4.4.


 


“GAAP”
means U.S. generally accepted accounting principles.


 


“Intellectual
Property Rights” has the meaning set forth in Section 3.1(p).


 


“Investment
Amount” means, with respect to each Investor, the investment
amount indicated below such Investor’s signature page to this Agreement.


 


“Investor
Deliverables” has the meaning set forth in Section 2.1(c).


 


“Investor
Party” has the meaning set forth in Section 4.12.


 


“Lien”
means any lien, charge, encumbrance, security interest, right of first refusal
or other restrictions of any kind.


 


“Losses”
has the meaning set forth in Section 4.12.


 


“Material
Adverse Effect” means any of (i) a material and adverse
effect on the legality, validity or enforceability of any Transaction Document,
(ii) a material and adverse effect on the results of operations, assets,
prospects, business or condition (financial or otherwise) of the Company and
the Subsidiaries or (iii) an adverse impairment to the Company’s ability to timely
perform its obligations under any Transaction Document.


 


“New
Issue Securities” has the meaning set forth in Section 4.4.


 


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“New York
Courts” means the state and federal courts sitting in the
City of New York, Borough of Manhattan.


 


“Notice
of Acceptance” has the meaning set forth in Section 4.4.


 


“Outside
Date” means April 5, 2005.


 


“PBGC”
means the Pension Benefit Guarantee Corporation or any entity succeeding to any
or all of its functions under ERISA.


 


“Person”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.


 


“Plan”
means at any time an employee pension plan benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person
which was at such time a member of the ERISA Group for employees of any Person
which was at such time a member of the ERISA Group.


 


“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.


 


“Refused
Securities” has the meaning set forth in Section 4.4.


 


“Registration
Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale by the Investors of the Underlying Shares and Warrant Shares.


 


“Registration
Rights Agreement” means the Registration Rights Agreement,
dated as of the date of this Agreement, among the Company and the Investors, in
the form of Exhibit B hereto.


 


“Required
Investors” means one or more Investors representing greater
than 50% of the aggregate principal amount of all Shares then outstanding.


 


“Required Minimum” means, as of any date, the
maximum aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents that the Company
is obligated to issue, whether contingently or otherwise, including, without
limitation, any Underlying Shares issuable upon conversion in full of all Shares
and exercise of all Warrants (without regard to any otherwise applicable conversion
or exercise restrictions contained therein) (assuming for such purpose that the
Conversion Price (as defined in the Certificate of Designation) and the
Exercise Price (as defined in the Warrants) equals 75% of the Conversion Price
and Exercise Price in effect on the Closing Date), subject to


 


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Section 4.16 herein.


 


“Rule 144”
means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such Rule.


 


“SEC
Reports” has the meaning set forth in Section 3.1(h).


 


“Securities”
means the Shares, the Underlying Shares, the Warrants and the
Warrant Shares.


 


“Securities
Act” means the Securities Act of 1933, as amended.


 


“Shares”
means the shares of 5% Series A Convertible Preferred Stock issued or issuable
to the Investors pursuant to this Agreement, having the rights, preferences and
privileges set forth in the Certificate of Designation.


 


“Short
Sales” include, without limitation, all “short sales” as
defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and
all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, short sales, swaps and similar arrangements (including on
a total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers.


 


“Strategic
Transaction” means a transaction or relationship in which (1)
the Company issues shares of Common Stock (A) to a Person which the Board of
Directors of the Company determined in good faith is, itself or through its
Subsidiaries, an operating company in a business synergistic with the business
of the Company or (B) in connection with the acquisition of intellectual
property, and (2) the Company expects to receive benefits in addition to the
investment of funds, but shall not include (x) a transaction in which the
Company is issuing securities primarily for the purpose of raising capital or
to a Person whose primary business is investing in securities or (y) issuances
to lenders or suppliers.


 


“Subsidiary”
means any subsidiary of the Company included in the SEC Reports.


 


“Trading
Day” means (i) a day on which the Common Stock is traded on
an Trading Market, or (ii) if the Common Stock is not quoted on a Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the Pink Sheets LLC (or any similar organization or agency
succeeding to its functions of reporting prices); provided, that in the event
that the Common Stock is not listed or quoted as set forth in (i) and (ii)
hereof, then Trading Day shall mean a Business Day.


 


“Trading
Market” means whichever of the New York Stock Exchange, the
American Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market
or OTC Bulletin Board on which the Common Stock is listed or quoted for trading
on the date in question.


 


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“Transaction
Documents” means this Agreement, the Shares, the Certificate
of Designation, the Registration Rights Agreement, the Escrow Agreement, the
Warrants and any other documents or agreements executed in connection with the
transactions contemplated hereunder.


 


“Underlying
Shares” means the shares of Common Stock issuable upon
conversion of the Shares.


 


“VWAP”
means, with respect to any date of determination, the daily volume weighted
average price (as reported by Bloomberg using the VAP function) of the Common
Stock on such date of determination, or if there is no such price on such date
of determination, then the daily volume weighted average price on the date
nearest preceding such date.


 


“Warrants”
means the Common Stock purchase warrants in the form of Exhibit
C hereto issued or issuable to the Investors at the Closing.


 


“Warrant
Shares” means the shares of Common Stock issuable upon
exercise of the Warrants.


 


ARTICLE II.

PURCHASE AND SALE


 


2.1                                 Closing. 



 


(a)                                  Subject
to the terms and conditions set forth in this Agreement, at the Closing the Company
shall issue and sell to each Investor, and each Investor shall, severally and
not jointly, purchase from the Company, the Shares and the Warrants representing
such Investor’s Investment Amount.  The
Closing shall take place at the offices of Bryan Cave LLP, 1290 Avenue of the
Americas, New York, NY 10104 at 4:30 p.m. (New York City time) on the Closing
Date or at such other location or time as the parties may agree.


 


(b)                                 At
the Closing, the Company shall deliver or cause to be delivered to each Investor
the following (the “Company Deliverables”):


 


(i)                                     one
or more stock certificates, evidencing Shares with a stated value equal to the
Investment Amount indicated below such Investor’s signature on the signature
page to this Agreement, registered in the name of such Investor;


 


(ii)                                  a
Warrant, registered in the name of such Investor, pursuant to which such
Investor shall have the right to acquire the number of Warrant Shares equal to 75%
of the number of Underlying Shares as would be issuable upon a conversion in
full of the stated value of Shares issuable to such Investor in accordance with
Section 2.1(b)(i) (without regard to any limitations on conversion of the
Shares);


 


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(iii)                               a
copy of the executed, filed and effective Certificate of Designation,
accompanied by a certificate evidencing the acceptance thereof by the Secretary
of State of the State of Minnesota;


 


(iv)                              the
legal opinion of Company Counsel, in agreed form, addressed to the Investors; 


 


(v)                                 the
Registration Rights Agreement, duly executed by the Company;


 


(vi)                              a
certificate executed by a duly authorized officer of the Company certifying
that (i) all representations and warranties made by the Company and information
furnished by the Company in any schedules to this Agreement, are true and
correct in all material respects as of each of the date of this Agreement and
the Closing Date, (ii) all covenants, agreements and obligations required by
this Agreement to be performed or complied with by the Company, prior to or at
the Closing, have been performed or complied with and (iii) the items
referenced in Sections 2.1(d)(iv)-(vii) shall have been satisfied and are true
and correct as of the Closing;


 


(vii)                           the
Escrow Agreement, duly executed by the Company; and 


 


(viii)                        any other
documents reasonably requested by such Investor.


 


(c)                                  At
the Closing, each Investor shall deliver or cause to be delivered the following
(the “Investor Deliverables”):


 


(i)                                     the
Investment Amount indicated below such Investor’s name on its signature page of
this Agreement, in United States dollars and in immediately available funds, delivered
by wire transfer to the escrow account specified in the Escrow Agreement for deposit
and distribution in accordance with the terms of the Escrow Agreement; and


 


(ii)                                  to
the Company, the Registration Rights Agreement, duly executed by such Investor.


 


(d)                                 Conditions
Precedent to the Obligations of an Investor to Purchase Shares and Warrants.  The obligation of each Investor to acquire Shares
and Warrants at the Closing is subject to the satisfaction or waiver by such
Investor, at or before the Closing, of each of the following conditions:


 


(i)                                     Representations
and Warranties.  The representations
and warranties of the Company contained in the Transaction Documents shall be
true and correct as of the date when made and as of the Closing Date as though
made on and as of such date;


 


(ii)                                  Performance.  The Company shall have performed, satisfied
and complied with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at or
prior to the Closing;


 


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(iii)                               Officer’s
Certificate.  The officer’s certificate
described in Section 2.1(b)(vi) hereof shall have been delivered;


 


(iv)                              No
Injunction.  No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents;


 


(v)                                 Adverse
Changes.  Since the execution of this
Agreement, no event or series of events shall have occurred that has had or
would reasonably be expected to result in a Material Adverse Effect; 


 


(vi)                              No
Suspensions of Trading in Common Stock. 
Trading in the Common Stock shall not have been suspended by the
Commission or any Trading Market (except for any suspensions of trading of not
more than one Trading Day solely to permit dissemination of material
information regarding the Company) at any time since the date of execution of
this Agreement;


 


(vii)                           Minimum
Subscriptions.  The aggregate of all Investors’ Investment
Amounts shall not be less than $10,000,000. 


 


(viii)                        Debt
Conversion.  Except for the $500,000
in bridge notes described in Schedule 3.1(dd), together with
accrued interest thereon, all outstanding indebtedness of the Company (including
all accrued and unpaid interest, damages and other amounts owing thereunder)
shall have been paid off and satisfied in full through the conversion of all
such indebtedness into Shares and Warrants issuable hereunder (with the “Investment
Amount” of each holder of such indebtedness being equal to the amount of
indebtedness so converted and retired, and any amount not convertible into a
whole number of Shares being settled by the Company in cash) so that, upon the
Closing no indebtedness of the Company for borrowed money will remain
outstanding; and 


 


(ix)                                Company
Deliverables.  The Company shall have
delivered the Closing Company Deliverables in accordance with Section 2.1(b).


 


(e)                                  Conditions
Precedent to the Obligations of the Company to sell Shares and Warrants.  The obligation of the Company to sell Shares
and Warrants at the Closing is subject to the satisfaction or waiver by the
Company, at or before the Closing, of each of the following conditions:


 


(i)                                     Representations
and Warranties.  The representations
and warranties of each Investor contained herein shall be true and correct as
of the date when made and as of the Closing Date as though made on and as of
such date;


 


(ii)                                  Performance.  Each Investor shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by the


 


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Transaction Documents to be performed, satisfied or
complied with by such Investor at or prior to the Closing;


 


(iii)                               No
Injunction.  No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents; and


 


(iv)                              Investors
Deliverables.  Each Investor shall
have delivered its Investor Deliverables in accordance with Section 2.1(c).


 


ARTICLE III.

REPRESENTATIONS AND WARRANTIES


 


3.1                                 Representations and Warranties of
the Company.  The Company hereby makes the following
representations and warranties to each Investor:


 


(a)                                  Subsidiaries.  The Company has no direct or indirect
Subsidiaries.  All references in this
Agreement to Subsidiaries shall be disregarded until such time as the Company
has any Subsidiaries.


 


(b)                                 Organization
and Qualification.  The Company and
each Subsidiary are duly incorporated or otherwise organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents.  The Company and each
Subsidiary are duly qualified to conduct its respective businesses and are in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect.


 


(c)                                  Authorization;
Enforcement.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations thereunder. 
The execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith.  Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or


 


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affecting generally the enforcement of, creditors’ rights and remedies
or by other equitable principles of general application. 


 


(d)                                 No
Conflicts.  The execution, delivery
and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated thereby in
accordance with their respective terms do not and will not (i) conflict with or
violate any provision of the Company’s or any Subsidiary’s certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal
and state securities laws and regulations), or by which any property or asset
of the Company or a Subsidiary is bound or affected; except in the case of each
of clauses (ii) and (iii), such as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.  


 


(e)                                  Filings,
Consents and Approvals.  The Company
is not required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing with the Commission of one or
more Registration Statements in accordance with the requirements Registration
Rights Agreement, (ii) filings required by state securities laws, (iii) the
filing of a Notice of Sale of Securities on Form D with the Commission under
Regulation D of the Securities Act, (iv) the filings required in accordance
with Section 4.7 and 4.10 and (v) those that have been made or obtained
prior to the date of this Agreement.


 


(f)                                    Issuance
of the Securities.  On or prior to
the Closing Date, the Securities will be duly authorized and, when issued and
paid for in accordance with the Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all Liens.  By the Closing Date, the Company shall have
reserved from its duly authorized capital stock a number of shares of Common
Stock issuable upon conversion of the Shares and upon exercise of the Warrants,
which number of reserved shares is not less than the Required Minimum
calculated as of the date hereof.


 


(g)                                 Capitalization.  The number of shares and type of all
authorized, issued and outstanding capital stock of the Company, and all shares
of Common Stock reserved for issuance under the Company’s various option and
incentive plans, is specified in Schedule 3.1(g).  Except as specified in Schedule 3.1(g),
no securities of the Company are entitled to preemptive or similar rights, and
no Person has any right of first refusal, preemptive right, right


 


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of participation, or any similar right to participate
in the transactions contemplated by the Transaction Documents.  Except as specified in Schedule 3.1(g),
there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common
Stock.  Except as specified in Schedule 3.1(g),
the issue and sale of the Securities will not, immediately or with the passage
of time, obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investors) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.


 


(h)                                 SEC
Reports; Financial Statements.  The Company
has filed all reports, forms or other information required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to Section 13(a)
or 15(d) thereof, for the twelve months preceding the date hereof (or such
shorter period as the Company was required by law to file such reports) (the
foregoing materials, including any amendments thereto, being collectively
referred to herein as the “SEC Reports”
and, together with the Schedules to this Agreement (if any), the “Disclosure Materials”) on a timely basis or has timely
filed a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The financial statements of
the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with GAAP applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.  For purposes
of this Agreement, any reports, forms or other information provided to the
Commission whether by filing, furnishing or otherwise providing, is included in
the term “filed” (or any derivations thereof).


 


(i)                                     Press
Releases.  The press releases
disseminated by the Company during the twelve months preceding the date of this
Agreement taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made and when made, not misleading.


 


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(j)                                     Material
Changes.  Since the date of the
latest audited financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables, accrued
expenses and other liabilities incurred in the ordinary course of business
consistent with past practice and (B) liabilities (not to exceed $50,000) not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii) the Company
has not altered its method of accounting or the identity of its auditors, (iv)
the Company has not declared or made any dividend or distribution of cash or
other property to its shareholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v) the Company
has not issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans and consistent with past
practice. The Company does not have pending before the Commission any request
for confidential treatment of information.


 


(k)                                  Litigation.  Except as specified in Schedule 3.1(k),
there is no Action which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) except as specifically disclosed in the SEC Reports, would,
if there were an unfavorable decision, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, nor any
director or officer thereof (in his or her capacity as such), is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty, except
as specifically disclosed in the SEC Reports. 
There has not been, and to the knowledge of the Company, there is not
pending any investigation by the Commission involving the Company or any
current or former director or officer of the Company (in his or her capacity as
such).  The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.


 


(l)                                     Labor
Relations.  No material labor dispute
exists or, to the knowledge of the Company, is imminent with respect to any of
the employees of the Company.


 


(m)                               Compliance.  Except as specified in the SEC Reports or in Schedule 3.1(m),
neither the Company nor any Subsidiary (i) is in default under or in violation
of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such default
or violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not,
individually or in the aggregate,


 


12





















 


have or reasonably be expected to result in a Material
Adverse Effect.  The Company is in
compliance with all effective requirements of the Sarbanes-Oxley Act of 2002,
as amended, and the rules and regulations thereunder, that are applicable to
it, except where such noncompliance could not have or reasonably be expected to
result in a Material Adverse Effect. 


 


(n)                                 Regulatory
Permits.  Except as specified in the
SEC Reports, the Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits could not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect, and neither the Company nor
any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such permits.


 


(o)                                 Title
to Assets.  Except as specified in Schedule 3.1(o),
the Company and the Subsidiaries have good and marketable title in fee simple
to all real property owned by them that is material to their respective
businesses and good and valid title in all personal property owned by them that
is material to their respective businesses, in each case free and clear of all
Liens, except for Liens that do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries. Any real property
and facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the Company and
the Subsidiaries are in compliance, except as could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect.


 


(p)                                 Patents
and Trademarks.  To the knowledge of
the Company, the Company and the Subsidiaries have, or have rights to use, all
patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and other similar rights that are
necessary or material for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have could,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect (collectively, the “Intellectual Property
Rights”).  Neither the Company
nor any Subsidiary has received a written notice that the Intellectual Property
Rights used by the Company or any Subsidiary violate or infringe upon the
rights of any Person.  Except as set forth
in the SEC Reports, to the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights.


 


(q)                                 Insurance.  Except as specified in Schedule 3.1(q),
the Company and the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company and the
Subsidiaries are engaged.  Except as
specified in Schedule 3.1(q), the Company has no reason to believe
that it will not be able to renew its and the Subsidiaries’ existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business on terms
consistent with market for the Company’s and such Subsidiaries’ respective
lines of business.


 


13





















 


(r)                                    Transactions
With Affiliates and Employees. 
Except as set forth in the SEC Reports, none of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the Company
or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, of the nature or
amount that would require disclosure in SEC Reports.


 


(s)                                  Internal
Accounting Controls.  The Company and
the Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.  The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the Company and designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its Subsidiaries,
is made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s Form 10-KSB or 10-QSB, as
the case may be, is being prepared.  The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures in accordance with Item 307 of Regulation S-K under the
Exchange Act for the Company’s most recently ended fiscal quarter or fiscal
year-end (such date, the “Evaluation Date”).  The Company presented in its most recently
filed Form 10-KSB or Form 10-QSB the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. 
Since the Evaluation Date, there have been no changes in the Company’s
internal controls that would be required to be disclosed pursuant to Item 308(c)
of Regulation S-K under the Exchange Act or, to the Company’s knowledge, in
other factors that could reasonably be expected to have a Material Adverse
Effect on the Company’s internal controls.


 


(t)                                    Solvency.  Based on the financial condition of the Company
as of the Closing Date (and assuming that the Closing shall have occurred), (i)
the Company’s fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the Company’s
assets do not constitute an unreasonably small amount of capital to carry on
its business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, and projected
capital requirements through fiscal year 2006 and capital availability thereof;
and (iii) the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking


 


14





















 


into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its debt when such amounts
are required to be paid.  The Company has
no current intention to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt).


 


(u)                                 Certain
Fees.  Except as specified in Schedule 3.1(u),
no brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement.  The Investors
shall have no obligation with respect to any fees or with respect to any claims
(other than such fees or commissions owed by an Investor pursuant to written
agreements executed by such Investor which fees or commissions shall be the
sole responsibility of such Investor) made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by this Agreement.  


 


(v)                                 Certain
Registration Matters. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 3.2(b)-(e), no
registration under the Securities Act is required for the offer, sale and issuance
of the Securities by the Company to the Investors under the Transaction
Documents.  The Company is eligible to
register the resale of its Common Stock for resale by the Investors under Form
SB-2 promulgated under the Securities Act. 
Except for the Registrable Securities (as defined in the Registration
Rights Agreement) and as specified in Schedule 3.1(v), the Company
has not granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been satisfied or
exercised.


 


(w)                               Listing
and Maintenance Requirements.  Except
as specified in the SEC Reports, the Company has not, in the two years
preceding the date hereof, received notice from any Trading Market to the
effect that the Company is not in compliance with the listing or maintenance
requirements thereof.  The Company is,
and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with the listing and maintenance requirements for
continued listing of the Common Stock on the Trading Market on which the Common
Stock is currently listed or quoted.  The
issuance and sale of the Securities under the Transaction Documents does not
contravene the rules and regulations of the Trading Market on which the Common
Stock is currently listed or quoted, and no approval of the shareholders of the
Company thereunder is required for the Company to enter into and to consummate
the transactions contemplated by the Transaction Documents, including, without
limitation, to issue and deliver to the Investors the Securities contemplated
by Transaction Documents.


 


(x)                                   Investment
Company.  The Company is not, and is
not an Affiliate of, and immediately following Closing will not have become, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.


 


(y)                                 Application
of Takeover Protections.  The Company
has taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business


 


15





















 


combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the Company’s
Articles of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Investors or
shareholders of the Company prior to any Closing Date as a result of the Investors
and the Company fulfilling their obligations or exercising their rights under
the Transaction Documents, including without limitation the Company’s issuance
of the Securities and the Investors’ ownership of the Securities.


 


(z)                                   No
Additional Agreements.  Except as
specified in Schedule 3.1(z), the Company does not have any
agreement or understanding with any Investor with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.


 


(aa)                            Compliance
with ERISA.  (i)  Each member of the ERISA Group has fulfilled
its obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code with respect to each
Plan. No member of the ERISA Group has (i) sought a waiver of the minimum
funding standard under Section 412 of the Code in respect of any Plan,
(ii) failed to make any required contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could
result in the imposition of a Lien or the posting of a bond or other security
under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA
other than a liability to the PBGC for premiums under Section 4007 of
ERISA.


 


(ii)                                  The
benefit plans not covered under clause (a) above (including profit sharing,
deferred compensation, stock option, employee stock purchase, bonus, retirement,
health or insurance plans, collectively the “Benefit
Plans”) relating to the employees of the Company are duly registered
where required by, and are in good standing in all material respects under, all
applicable laws.  All required employer
and employee contributions and premiums under the Benefit Plans to the date
hereof have been made, the respective fund or funds established under the
Benefit Plans are funded in accordance with applicable laws, and no past
service funding liabilities exist thereunder.


 


(iii)                               No
Benefit Plans have any unfunded liabilities, either on a “going concern” or “winding
up” basis and determined in accordance with all applicable laws and actuarial
practices and using actuarial assumptions and methods that are reasonable in
the circumstances. No event has occurred and no condition exists with respect
to any Benefit Plans that has resulted or could reasonably be expected to
result in any pension plan having its registration revoked or wound up (in
whole or in part) or refused for the purposes of any applicable laws or being
placed under the administration of any relevant pension benefits regulatory
authority or being required to pay any taxes or penalties (in any material
amounts) under any applicable laws.


 


16





















 


(bb)                          Taxes.  All United States federal, state, county,
municipality local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and each Subsidiary have been filed and all material
taxes due pursuant to such returns or pursuant to any assessment received by
the Company and each Subsidiary have been paid except those being disputed in
good faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in
respect of taxes or other governmental charges have been established in
accordance with GAAP.


 


(cc)                            Absence
of Any Undisclosed Liabilities or Capital Calls.  Except for liabilities described in the SEC
Reports, there are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability,
other than (i) those liabilities provided for in the Company’s financial
statements and (ii) other undisclosed liabilities which, individually or in the
aggregate, could not have, or reasonably be expected to result in, a Material
Adverse Effect.


 


(dd)                          Indebtedness.  The complete amount of indebtedness of the
Company for borrowed money (including all accrued and unpaid interest, damages
and other amounts owing thereunder) is set forth on Schedule 3.1(dd).  Except for the $500,000 in bridge notes described
in Schedule 3.1(dd), together with accrued interest thereon, upon
Closing, all such indebtedness will be retired, paid off and converted into Shares
and Warrants, and holders of such indebtedness will not directly or indirectly
receive any consideration for such conversion other than Shares with a stated
value equal to the amount of indebtedness so converted and retired (with any
amount not convertible into a whole number of Shares being settled by the
Company in cash) plus Warrants determined in accordance with this Agreement.


 


(ee)                            Disclosure.  The Company confirms that neither it nor any
Person acting on its behalf has provided any Investor or its respective agents
or counsel with any information that the Company believes constitutes material,
non-public information except insofar as the existence and terms of the
proposed transactions hereunder may constitute such information.  The Company understands and confirms that the
Investors will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. 
All disclosure provided to the Investors regarding the Company, its
business and the transactions contemplated hereby, furnished by or on behalf of
the Company (including the Company’s representations and warranties set forth
in this Agreement) are true and correct in all material respects and do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.


 


(ff)                                Environmental
Laws.  The Company and its
Subsidiaries (i) are in compliance with any and all Environmental Laws (as
hereinafter defined), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval where, in each of the foregoing clauses
(i), (ii) and (iii), the


 


17





















 


failure to so comply could be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect.  The term “Environmental Laws”
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous
Materials”) into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.


 


3.2                                 Representations and Warranties of
the Investors.  Each Investor hereby, for itself and for no
other Investor, represents and warrants to the Company as follows:


 


(a)                                  Organization;
Authority.  Such Investor is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the applicable Transaction Documents and otherwise
to carry out its obligations thereunder. The execution, delivery and
performance by such Investor of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or, if such Investor is
not a corporation, such partnership, limited liability company or other
applicable like action, on the part of such Investor.  Each of this Agreement and the Registration
Rights Agreement has been duly executed by such Investor, and when delivered by
such Investor in accordance with terms hereof, will constitute the valid and
legally binding obligation of such Investor, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors’
rights and remedies or by other equitable principles of general application.


 


(b)                                 Investment
Intent.  Such Investor is acquiring
the Securities as principal for its own account for investment purposes only
and not with a view to or for distributing or reselling such Securities or any
part thereof, without prejudice, however, to such Investor’s right at all times
to sell or otherwise dispose of all or any part of such Securities in
compliance with applicable federal and state securities laws.  Subject to the immediately preceding
sentence, nothing contained herein shall be deemed a representation or warranty
by such Investor to hold the Securities for any period of time.  Such Investor is acquiring the Securities
hereunder in the ordinary course of its business. Such Investor does not have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.


 


(c)                                  Investor
Status.  At the time such Investor
was offered the Securities, it was, and at the date hereof it is, an “accredited
investor” as defined in Rule 501(a) under the Securities Act.  Such Investor is not a registered
broker-dealer under Section 15 of the Exchange Act.


 


18





















 


(d)                                 General
Solicitation.  Such Investor is not
purchasing the Securities as a result of any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.


 


(e)                                  Access
to Information.  Such Investor
acknowledges that it has reviewed the Disclosure Materials and has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Securities and the merits and risks
of investing in the Securities; (ii) access to information about the Company
and the Subsidiaries and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. 
Neither such inquiries nor any other investigation conducted by or on
behalf of such Investor or its representatives or counsel shall modify, amend or
affect such Investor’s right to rely on the truth, accuracy and completeness of
the Disclosure Materials and the Company’s representations and warranties
contained in the Transaction Documents.


 


(f)                                    Certain
Trading Activities.  Such Investor
has not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Investor, engaged in any transactions
in the securities of the Company (including, without limitations, any Short
Sales involving the Company’s securities) since the earlier to occur of (1) the
time that such Investor was first contacted by the Company or placement agent
engaged by the Company regarding an investment in the Company and (2) the 20th
Trading Day prior to the time that the transactions contemplated by this
Agreement are publicly disclosed by the Company.  Such Investor covenants that neither it nor
any Person acting on its behalf or pursuant to any understanding with it will
engage in any transactions in the securities of the Company (including Short
Sales) prior to the time that the transactions contemplated by this Agreement
are publicly disclosed.  Notwithstanding the foregoing, in the case of
an Investor that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Investor’s assets and the portfolio
managers have no actual knowledge of the investment decisions made by the
portfolio managers managing other portions of such Investor’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.  In addition, such Investor has no “borrow”
with respect to the securities of the Company, nor has such Investor entered
into any agreement to “borrow” with respect to the securities of the Company.


 


(g)                                 Indebtedness.  Following the Closing, the Company will not
owe any Investor or any of its Affiliates any amounts in respect of borrowed
money.


 


(h)                                 Independent
Investment Decision.  Such Investor
has independently evaluated the merits of its decision to purchase Securities
pursuant to this Agreement, and such


 


19





















 


Investor confirms that it has not relied on the advice
of any other Investor’s business and/or legal counsel in making such
decision.    


 


The Company acknowledges and agrees that no Investor
has made or makes any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
this Section 3.2.


 


ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES


 


4.1                                 (a)                                  The Securities may only be disposed
of in compliance with state and federal securities laws.  In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to the Company,
to an Affiliate of an Investor or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. 


 


(b)                                 Certificates
evidencing the Securities will contain the following legend, until such time as
they are not required under Section 4.1(c):


 


[NEITHER THESE SECURITIES
NOR THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE OF THESE SECURITIES
HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED] WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.  [THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE OF THESE
SECURITIES] [THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT SECURED BY SUCH SECURITIES. 



 


The Company acknowledges
and agrees that an Investor may from time to time pledge, and/or grant a security
interest in some or all of the Securities pursuant to a bona fide margin
agreement in connection with a bona fide margin account and, if required under
the terms


 


20





















 


of such agreement or account, such Investor may
transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be
subject to approval or consent of the Company and no legal opinion of legal
counsel to the pledgee, secured party or pledgor shall be required in
connection with the pledge, but such legal opinion may be required in
connection with a subsequent transfer following default by the Investor
transferee of the pledge.  No notice
shall be required of such pledge.  At the
appropriate Investor’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities
including the preparation and filing of any required prospectus supplement
under Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling shareholders
thereunder.


 


(c)                                  Certificates
evidencing Underlying Shares and Warrant Shares shall not contain any legend
(including the legend set forth in Section 4.1(b)): (i) following a sale
of such Securities pursuant to an effective registration statement (including
the Registration Statement) covering such Underlying Shares or Warrant Shares,
or (ii) following a sale of such Securities pursuant to Rule 144 (assuming the
transferor is not an Affiliate of the Company), or (iii) while such Securities
are eligible for sale under Rule 144(k). 
The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. 
The Company agrees that it shall, within three Trading Days following such
time as restrictive legends would not then be required under this Section 4.1(c),
issue and deliver to such Investor certificates that are free of restrictive
legends representing Underlying Shares or Warrant Shares in replacement of
Underlying Shares or Warrant Shares previously issued with restrictive legends.



 


4.2                                 Furnishing of Information. 
As long as any Investor owns the Securities, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. 
As long as any Investor owns Securities, if the Company is not required
to file reports pursuant to such laws, it will prepare and furnish to the Investors
and make publicly available in accordance with Rule 144(c) such information as
is required for the Investors to sell the Underlying Shares and Warrant Shares under
Rule 144. The Company further covenants that it will take such further action
as any holder of Securities may reasonably request, all to the extent required
from time to time to enable such Person to sell the Underlying Shares and
Warrant Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.


 


4.3                                 Listing of Securities. 
The Company agrees that if the Company applies to have the Common Stock
traded on any other Trading Market, it will (i) include in such application the
Underlying Shares and Warrant Shares, and will take such other action as is
necessary or desirable to cause the Underlying Shares and Warrant Shares to be
listed on such other Trading Market as promptly as possible, (ii) take all
action reasonably necessary to continue the listing and trading of its Common
Stock on such other Trading Market, and (iii) comply in all material respects
with the Company’s reporting, filing and other obligations under the bylaws or
rules of such other Trading Market.


 


21










 













4.4                                 Subsequent Placements; Right of
First Refusal.


 


(a)                                  Until
the expiration of the 180th day following the Effective Date (plus
one additional day for each Trading Day following the Effective Date during
which either (1) the Registration Statement is not effective or (2) the
prospectus forming a portion of the Registration Statement is not available for
the resale of all Registrable Securities (as defined in the Registration Rights
Agreement) required to be covered thereby), the Company will not directly or
indirectly, offer, sell or grant any option to purchase (or announce any offer,
sale, grant or any option to purchase) any of its Common Stock or Common Stock
Equivalents.


 


(b)                                 Without
the consent of each holder of outstanding Shares and Warrants, the Company may
not enter into or consummate any agreement providing for an equity line of
credit, variable (or “future”) priced, resetting, self-liquidating, adjusting
or conditional fund raising, or similar financing arrangement.


 


(c)                                  If
at any time prior to the one-year anniversary of the Effective Date (plus one
additional day for each Trading Day following the Effective Date during which
either (1) the Registration Statement is not effective or (2) the
prospectus forming a portion of the Registration Statement is not available for
the resale of all Registrable Securities (as defined in the Registration Rights
Agreement) required to be covered thereby), the Company proposes to issue any
Common Stock or Common Stock Equivalents, other than an issuance described in Section 4.4(d) of
this Agreement (collectively, “New Issue Securities”),
the Company shall first offer all of the New Issue Securities to the Investors
in accordance with the following provisions:


 


(i)                                     The
Company shall publicly disclose its intention to issue New Issue Securities in
a manner such that Investors will not be in possession of material non-public
information concerning the Company as a result of the provisions of this Section (including
receipt of a First Notice, and then give a written notice to each Investor (the
“First Notice”) stating (a) its
intention to issue the New Issue Securities, (b) the number and
description of the New Issue Securities proposed to be issued and (c) the
purchase price (calculated as of the proposed issuance date) and the other
terms and conditions upon which the Company is offering the New Issue
Securities.


 


(ii)                                  Transmittal
of the First Notice to the Investors by the Company shall constitute an offer
by the Company to sell to each Investor up to its proportionate number (based
upon each Investor’s Investment Amount relative to the aggregate Investment
Amount of all Investors signatory hereto) of the New Issue Securities for the
price and upon the terms and conditions set forth in the First Notice.  For a period of five (5) Business Days
after receipt of the of the First Notice, each Investor shall have the option,
exercisable by written notice to the Company (a “Notice of
Acceptance”), to accept the Company’s offer as to all or any part of
such Investor’s proportionate number of the New Issue Securities.  If two or more types of New Issue Securities
are to be issued or New Issue Securities are to be issued together with other
types of securities, including, without limitation, debt Securities, in a
single transaction or related transactions, the rights to purchase New Issue
Securities granted to the Investors under this Section must be exercised
to purchase all types of New Issue Securities and such other securities


 


22





















 


in the same proportion as such New Issue Securities
and other securities are to be issued by the Company.


 


(iii)                               The
Company shall have seven (7) Trading Days from the expiration of the period
set forth in Section 4.4(c)(ii) above to issue, sell or exchange all
or any part of, and publicly announce the transaction with respect to, such New
Issue Securities as to which a Notice of Acceptance has not been given by the
Investors (the “Refused Securities”), but only
upon terms and conditions that are not more favorable than those set forth in
the First Notice.  If by the end of the
seven (7) Trading Days referenced in this subsection the Company has
not made a public announcement with respect to the transaction involving such
New Issue Securities, such transaction shall be deemed terminated and knowledge
of such transaction shall no longer be deemed material, non-public information.


 


(d)                                 The
restrictions and rights contained in Sections 4.4.(a) and (c) shall
not apply to the issuance and sale by the Company of (i) the issuance of
securities upon the exercise or conversion of any Common Stock or Common Stock
Equivalents issued by the Company prior to the date hereof (but will apply to
any amendments, modifications and reissuances thereof), (ii) shares of Common
Stock or Common Stock Equivalents to employees, officers, consultants, or
directors of the Company, as compensation for their services to the Company or
any of its direct or indirect Subsidiaries pursuant to arrangements approved by
the Board of Directors of the Company, (iii) Securities issuable to
Investors pursuant to the Transaction Documents, (iv) the issuance of up
to an aggregate of 1,680,000 shares of Common Stock underlying warrants issued
to J. Giordano or Tower Finance Ltd. as compensation in connection with the
transaction contemplated by the Transaction Documents, (v) the issuance of
an aggregate of 10,000,000 shares of Common Stock or Common Stock Equivalents
in connection with Strategic Transactions of which up to 3,000,000 shares (subject
to equitable adjustment for intervening stock splits and similar events) of
Common Stock or Common Stock Equivalents may be issued in connection with
Strategic Transactions not approved by the Company’s shareholders, (vi) up
to an aggregate of 1,000,000 shares (subject to equitable adjustment for
intervening stock splits and similar events) of Common Stock or Common Stock
Equivalents issued to the Company’s primary landlord in connection with a
restructuring of the Company’s headquarters’ lease, or (vii) the issuance
of up to an aggregate of 8,171,000 shares of Common Stock pursuant to options
that may be issued to members of the Company’s management.


 


4.5                                 Acknowledgment of Dilution. 
The Company acknowledges that the issuance of Underlying Shares upon
conversion of Shares and Warrant Shares upon exercise of Warrants will result
in dilution of the outstanding shares of Common Stock, which dilution may be
substantial.  The Company further
acknowledges that its obligation to honor conversions under the Shares is
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim that the Company may have against any Investor.


 


4.6                                 Integration. 
The Company shall not, and shall use its best efforts to ensure that no
Affiliate of the Company shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated


 


23





















 


with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities to the Investors, or that would be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market in a manner that would require shareholder approval of the sale
of the Securities to the Investors.


 


4.7                                 Reservation
of Shares.  The Company shall
maintain a reserve from its duly authorized shares of Common Stock to comply
with its conversion obligations under the Shares.  If on any date the Company would be, if
notice of conversion were to be delivered on such date, precluded from issuing
the number of (i) Underlying Shares, as the case may be, issuable upon
conversion in full of the Shares or (ii) Warrant Shares, as the case may
be, issuable upon exercise in full of the Warrants (in each case, without
regard to any conversion or exercise caps or other limitation thereunder), due
to the unavailability of a sufficient number of authorized but unissued or
reserved shares of Common Stock, then the Board of Directors of the Company
shall promptly prepare and mail to the shareholders of the Company proxy
materials or other applicable materials requesting authorization to amend the
Company’s Articles of Incorporation or other organizational document to
increase the number of shares of Common Stock which the Company is authorized
to issue so as to provide enough shares for issuance of the Underlying Shares
and Warrant Shares.  In connection
therewith, the Board of Directors shall (a) adopt proper resolutions
authorizing such increase, (b) recommend to and otherwise use its best
efforts to promptly and duly obtain shareholder approval to carry out such
resolutions (and hold a special meeting of the shareholders as soon as
practicable, but in any event not later than the 60th day after delivery of the
proxy or other applicable materials relating to such meeting) and (c) within
five Business Days of obtaining such shareholder authorization, file an
appropriate amendment to the Company’s Articles of Incorporation or other
organizational document to evidence such increase.


 


4.8                                 Conversion Procedures. 
The form of Conversion Notice included in and as defined in the Certificate
of Designation sets forth the totality of the procedures required by the Investors
in order to convert the Shares.  The form
of Exercise Notice included in the Warrants sets forth the totality of the
procedures required by the Investors in order to convert the Warrants.  The Company shall honor conversions of the Shares
and exercises of Warrants and shall deliver Underlying Shares and Warrant
Shares in accordance with the terms, conditions and time periods set forth in the
Certificate of Designation and Warrants.


 


4.9                                 Subsequent Registrations. 
Other than pursuant to the Registration Rights Agreement, prior to the 180th
day (plus one additional day for each Trading Day following the Effective Date
during which either (1) the Registration Statement is not effective or (2) the
prospectus forming a portion of the Registration Statement is not available for
the resale of all Registrable Securities (as defined in the Registration Rights
Agreement) required to be covered thereby) after the Effective Date, the Company
may not file any registration statement with the Commission with respect to any
securities of the Company other than registration statements on Form S-4
or Form S-8 promulgated by the Commission.  Notwithstanding the foregoing, the Company
shall be permitted to continue to file post-effective amendments and
supplements to registration statements previously filed with the Commission, provided,
no shares are added thereto.


 


24





















 


4.10                           Securities Laws Disclosure;
Publicity.  By 9:00 a.m. (New York City time) on the
Trading Day following the execution of this Agreement, and by 9:00 a.m.
(New York City time) on the Trading Day following the Closing Date, the Company
shall issue press releases in forms approved by SF Capital Partners Ltd. disclosing
the transactions contemplated hereby.  On
the Trading Day following the execution of this Agreement the Company will file
a Current Report on Form 8-K disclosing the material terms of the
Transaction Documents (and attach as exhibits thereto the Transaction Documents,
including the schedules and exhibits thereto), and on the Trading Day following
the Closing Date the Company will file an additional Current Report on Form 8-K
to disclose the Closing.  In addition,
the Company will make such other filings and notices in the manner and time
required by the Commission and any Trading Market on which the Common Stock is
listed.  Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Investor, or include
the name of any Investor in any filing with the Commission (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any regulatory agency or Trading Market, without the prior written
consent of such Investor, except to the extent such disclosure is required by
law or Trading Market regulations.


 


4.11                           Non-Public Information. 
The Company covenants and agrees that neither it nor any other Person
acting on its behalf will provide any Investor or its agents or counsel with
any information that the Company believes constitutes material non-public
information, unless prior thereto such Investor shall have executed a written
agreement regarding the confidentiality and use of such information.


 


4.12                           Indemnification of Investors. 
In addition to the indemnity provided in the Registration Rights
Agreement, the Company will indemnify and hold the Investors and their
directors, officers, shareholders, partners, employees and agents (each, an “Investor Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation (collectively, “Losses”) that any such Investor Party may suffer or incur
as a result of or relating to any misrepresentation, breach or inaccuracy of
any representation, warranty, covenant or agreement made by the Company in any
Transaction Document.  In addition to the
indemnity contained herein, the Company will reimburse each Investor Party for
its reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred.


 


4.13                           Use of Proceeds. 
Except for the repayment of $500,000 in bridge notes described in Schedule 3.1(dd),
together with accrued interest thereon, and any cash required to settle any
amount of indebtedness not convertible into a whole number of Shares, the Company
will use the net proceeds from the sale of the Securities hereunder for working
capital purposes and not for the satisfaction of any portion of the Company’s
debt (other than payment of trade payables and accrued expenses in the ordinary
course of the Company’s business and consistent with prior practices), or to
redeem any Common Stock or Common Stock Equivalents.


 


25





















 


4.14                           Existence; Conduct of Business. 
The Company will, and will cause each of the Subsidiaries to, do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence and the rights, licenses, permits, privileges
and franchises material to the conduct of its business, provided, that
the foregoing shall not prohibit (a) any sale, lease, transfer or other
disposition permitted by this Agreement, or (b) any merger of (i) any
domestic Subsidiary with any other domestic Subsidiary, (ii) any domestic
Subsidiary with and into the Company, or (iii) any foreign Subsidiary with
any other foreign Subsidiary.


 


4.15                           Indebtedness. 
The Company will not enter into any agreements nor issue any instruments
for borrowed money prior to the Closing without the consent of SF Capital
Partners, Ltd.


 


4.16                           Reservation of Common Stock.


 


(a)                                  At
any point while the Securities are outstanding, the Company shall maintain a
reserve from its duly authorized shares of Common Stock for issuance pursuant
to the Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.


 


(b)                                 If,
on any date while the Securities are outstanding, the number of authorized but
unissued (and otherwise unreserved) shares of Common Stock is less than 100% of
(i) the Required Minimum on such date, minus (ii) the number of
shares of Common Stock previously issued pursuant to the Transaction Documents,
then the Board of Directors of the Company shall use commercially reasonable
efforts to amend the Company’s certificate or articles of incorporation to
increase the number of authorized but unissued shares of Common Stock to at
least the Required Minimum at such time (minus the number of shares of Common
Stock previously issued pursuant to the Transaction Documents), as soon as
possible and in any event not later than the next annual meeting of
shareholders.  The Company shall obtain
shareholder approval in connection with this Section 4.16(b), with the
recommendation of the Company’s Board of Directors that such proposal be
approved, and the Company shall solicit proxies from its shareholders in
connection therewith in the same manner as all other management proposals in
such proxy statement and all management-appointed proxy-holders shall vote
their proxies in favor of such proposal. 
If the Company does not obtain shareholder approval at the first
meeting, the Company shall call a meeting on the first business day of each
fiscal quarter thereafter to seek shareholder approval until the earlier of the
date shareholder approval is obtained or the Securities are no longer
outstanding.


 


4.17                           Insurance
Matter.  With respect to the Company’s
product liability insurance matter disclosed in Schedule 3.1(q), the
Company covenants and agrees that in the event its current policy is not
continued, renewed or extended with the current insurer, it will purchase 3-year
Supplemental Extended Reporting Period coverage available under such policy for
an additional premium.  Such Supplemental
Extended Reporting Period coverage shall be for the purpose of enabling the
Company to have the coverage for claims that occur before the end of the
current policy period.


 


26





















 


ARTICLE V.

MISCELLANEOUS


 


5.1                                 Fees and Expenses. 
At the Closing, the Company shall pay to Bryan Cave LLP $30,000 as
partial reimbursement of SF Capital Partners Ltd. for its legal fees in
connection with the Transaction Documents (SF Capital Partners Ltd. may deduct
such amount from the Investment Amount deliverable to the Company or Escrow
Agent at Closing), it being understood that Bryan Cave LLP has only rendered
legal advice to SF Capital Partners Ltd., and not to the Company or any other
Investor in connection with the transactions contemplated hereby, and that each
of the Company and the other Investors has relied for such matters on the
advice of its own respective counsel. 
Except as specified in the immediately preceding sentence, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of the
Transaction Documents.  The Company shall
pay all stamp and other taxes and duties levied in connection with the sale of
the Shares.


 


5.2                                 Entire Agreement. 
The Transaction Documents, together with the Schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements, understandings, discussions and
representations, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents and schedules.


 


5.3                                 Notices. 
Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number specified in this Section prior to 5:30 p.m. (New
York City time) on a Trading Day, (b) the next Trading Day after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given.  The address for such notices and
communications shall be as follows:


 


	
  If to the Company:

  	
   

  	
  MedicalCV, Inc.

  
	
   

  	
   

  	
  9725 South Robert Trail

  
	
   

  	
   

  	
  Inver Grove Heights, Minnesota 55077

  
	
   

  	
   

  	
  Facsimile: (651) 452-4948

  
	
   

  	
   

  	
  Attention: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Briggs and Morgan, P.A.

  
	
   

  	
   

  	
  2200 IDS Center

  
	
   

  	
   

  	
  80 South Eighth Street

  
	
   

  	
   

  	
  Minneapolis, Minnesota
  55402

  
	
   

  	
   

  	
  Facsimile: (612) 977-8650

  
	
   

  	
   

  	
  Attention: Avron L. Gordon, Esq.

  



 


27





















 


	
  If to an Investor:

  	
   

  	
  To the address set forth under such Investor’s name
  on the signature pages hereof;

  



 


or such other address as
may be designated in writing hereafter, in the same manner, by such Person.


 


5.4                                 Amendments; Waivers; No Additional
Consideration.  No provision of this Agreement may be waived
or amended except in a written instrument signed by the Company and the Required
Investors except as set forth below and except that the provisions of Section 4.4(b) and
the conditions precedent set forth in Section 2.1(b) may only be
waived or amended by each Investor to be bound by such waiver or amendment.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right. 
No consideration shall be offered or paid to any Investor to amend or
consent to a waiver or modification of any provision of any Transaction
Document unless the same consideration is also offered to all Investors who
then hold Shares.  Without the written
consent or the affirmative vote of each Investor affected thereby, an amendment
or waiver under this Section 5.4 may not:


 


(a)                                  make
any change that impairs the conversion or exercise rights of any Securities;


 


(b)                                 amend
the definition of Required Investors;


 


(c)                                  change
the currency of any amount owed or owing under the Securities or any interest
thereon from U.S. Dollars;


 


(d)                                 impair
the right of any Investor to institute suit for the enforcement of any payment
with respect to, or conversion or exercise of, any Security; or


 


(e)                                  modify
the provisions of this Section 5.4 or Section 5.5.


 


It shall not be necessary for the consent of the
Investors under this Section 5.4 to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent approves the
substance thereof.


 


5.5                                 Termination. 
This Agreement may be terminated prior to the Closing:


 


(a)                                  by
written agreement of the Investors and the Company;


 


(b)                                 by
the Company or an Investor (as to itself but no other Investor) upon written
notice to the other, if the Closing shall not have taken place by 5:30 p.m.
(New York City time) on the Outside Date; provided, that the right to
terminate this Agreement under this


 


28





















 


Section 5.5(b) shall not be available to any
Person whose failure to comply with its obligations under this Agreement has
been the cause of or resulted in the failure of the Closing to occur on or
before such time;


 


(c)                                  by
an Investor (as to itself but no other Investor) if it concludes in good faith
that any of the conditions precedent contained in Sections 2.1(d)(iv), (v) or
(vi) shall have been breached or shall not be capable of being satisfied
by the Outside Date despite the assumed best efforts of the Company.


 


In the event of a
termination pursuant to this Section, the Company shall promptly notify all
non-terminating Investors and shall pay to SF Capital Partners Ltd. all of the
fees and expenses incurred by SF Capital Partners Ltd. (including reasonable
legal fees and expenses) in connection with this Agreement and the transactions
contemplated by this Agreement through the termination date.  Other than as to the foregoing fees and
expenses, upon a termination in accordance with this Section 5.5, the
Company and the terminating Investor(s) shall not have any further obligation
or liability (including as arising from such termination) to the other and no
Investor will have any liability to any other Investor under the Transaction
Documents as a result therefrom.


 


5.6                                 Construction. 
The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.  The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be
applied against any party.  This
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.


 


5.7                                 Successors and Assigns. 
This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns.  The Company may not assign this Agreement or
any rights or obligations hereunder without the prior written consent of the Investors.
Any Investor may assign any or all of its rights under this Agreement to any
Person to whom such Investor assigns or transfers any Securities, provided such
transferee (i) makes the representations of the assigning Investor under
the Agreement, and (ii) agrees in writing to be bound, with respect to the
transferred Securities, by the provisions hereof that apply to the “Investors.”


 


5.8                                 No Third-Party Beneficiaries. 
This Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except as
otherwise set forth in Section 4.12 (as to each Investor Party).


 


5.9                                 Governing Law. 
All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without
regard to the principles of conflicts of law thereof.  Each party agrees that all Proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other


 


29





















 


Transaction Documents (whether brought
against a party hereto or its respective Affiliates, employees or agents) shall
be commenced exclusively in the New York Courts.  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any such New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum.  Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.  Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating
to this Agreement or the transactions contemplated hereby.  If either party shall commence a Proceeding
to enforce any provisions of a Transaction Document, then the prevailing party
in such Proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Proceeding. 
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE,
AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.


 


5.10                           Survival. 
The representations, warranties, agreements and covenants contained
herein shall survive the Closing and the delivery of the Securities.


 


5.11                           Execution. 
This Agreement may be executed in two or more counterparts, all of which
when taken together shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party, it being understood that both parties need not sign the
same counterpart.  In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile
signature page were an original thereof.


 


5.12                           Severability. 
If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.


 


5.13                           Rescission and Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) the Transaction Documents, whenever any Investor
exercises a right, election, demand or option under a Transaction


 


30





















 


Document and the Company does not timely
perform its related obligations within the periods therein provided, then such Investor
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.


 


5.14                           Replacement of Securities. 
If any certificate or instrument evidencing any Securities is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable indemnity, if requested.  The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.  If a replacement certificate or instrument
evidencing any Securities is requested due to a mutilation thereof, the Company
may require delivery of such mutilated certificate or instrument as a condition
precedent to any issuance of a replacement.


 


5.15                           Remedies. 
In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the Investors and the Company
will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may
not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.


 


5.16                           Payment Set Aside. 
To the extent that the Company makes a payment or payments to any Investor
pursuant to any Transaction Document or an Investor enforces or exercises its
rights thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.


 


5.17                           Independent Nature of Investors’
Obligations and Rights.  The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other Investor
under any Transaction Document.  The
decision of each Investor to purchase Securities pursuant to the Transaction
Documents has been made by such Investor independently of any other Investor.  Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the Investors
are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Transaction Documents.  Each Investor


 


31





















 


acknowledges that no other Investor has acted
as agent for such Investor in connection with making its investment hereunder
and that no Investor will be acting as agent of such Investor in connection
with monitoring its investment in the Securities or enforcing its rights under
the Transaction Documents.  Each Investor
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Investor to
be joined as an additional party in any proceeding for such purpose.  The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of
closing a transaction with multiple Investors and not because it was required
or requested to do so by any Investor.


 


5.18                           Limitation of Liability. 
Notwithstanding anything herein to the contrary, the Company
acknowledges and agrees that the liability of an Investor arising directly or
indirectly, under any Transaction Document of any and every nature whatsoever
shall be satisfied solely out of the assets of such Investor, and that no
trustee, officer, other investment vehicle or any other Affiliate of such Investor
or any investor, shareholder or holder of shares of beneficial interest of such
a Investor shall be personally liable for any liabilities of such Investor.


 


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SIGNATURE PAGES FOLLOW]


 


32





















 


IN WITNESS WHEREOF, the
parties hereto have caused this Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated above.


 


	
   

  	
  MEDICALCV, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Marc P.
  Flores

  	
   

  
	
   

  	
   

  	
  Name: Marc P. Flores

  
	
   

  	
   

  	
  Title: President and
  Chief Executive Officer

  



 


 


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SIGNATURE PAGES FOR INVESTORS FOLLOW]


 


33





















 


IN WITNESS WHEREOF, the
parties hereto have caused this Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated above.


 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  SF Capital Partners Ltd.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian H. Davidson

  	
   

  
	
   

  	
   

  	
  Name: Brian H. Davidson

  
	
   

  	
   

  	
  Title: Authorized Signatory

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 3,000,000

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  MedCap Partners, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ C. Fred Toney

  	
   

  
	
   

  	
   

  	
  Name: C. Fred Toney

  
	
   

  	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 2,000,000

  
						



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  MedCap Master Fund, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ C. Fred Toney

  	
   

  
	
   

  	
   

  	
  Name: C. Fred Toney

  
	
   

  	
   

  	
  Title: Managing Partner

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 1,500,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Millennium Partners, L.P.

  
	
   

  	
  By:

  	
  Millennium Management, L.L.C.

  
	
   

  	
  By:

  	
  /s/ Terry Feemey

  	
   

  
	
   

  	
   

  	
  Name: Terry Feemey

  
	
   

  	
   

  	
  Title: Chief Operating Officer

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 2,000,000

  



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Whitebox Hedged High Yield Partners, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Wood

  	
   

  
	
   

  	
   

  	
  Name: Jonathan Wood

  
	
   

  	
   

  	
  Title: Chief Financial Officer/Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 1,000,000

  



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Whitebox Intermarket Partners, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Wood

  	
   

  
	
   

  	
   

  	
  Name: Jonathan Wood

  
	
   

  	
   

  	
  Title: Chief Financial Officer/Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 800,000

  



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Whitebox Convertible Arbitrage Partners, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Wood

  	
   

  
	
   

  	
   

  	
  Name: Jonathan Wood

  
	
   

  	
   

  	
  Title: Chief Financial Officer/Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 500,000

  



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Pandora Select Partners, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jonathan Wood

  	
   

  
	
   

  	
   

  	
  Name: Jonathan Wood

  
	
   

  	
   

  	
  Title: Chief Financial Officer/Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 500,000

  



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  ASA Opportunity Fund, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert D. Furst, Jr. 

  	
   

  
	
   

  	
   

  	
  Name: Robert D. Furst Jr. 

  
	
   

  	
   

  	
  Title: Managing Member of General Partner

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 100,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Furst Capital Partners LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert D. Furst, Jr.

  	
   

  
	
   

  	
   

  	
  Name: Robert D. Furst Jr. 

  
	
   

  	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 200,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  The Larry Haimovitch 2000 Separate Property

  Revocable Trust

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Larry Haimovitch 

  	
   

  
	
   

  	
   

  	
  Name: Larry Haimovitch

  
	
   

  	
   

  	
  Title: Trustee

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 50,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  ProMed Partners, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Barry Kurokawa

  	
   

  
	
   

  	
   

  	
  Name: Barry Kurokawa

  
	
   

  	
   

  	
  Title: Managing Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 210,000

  
					



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  ProMed Partners II, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Barry Kurokawa

  	
   

  
	
   

  	
   

  	
  Name: Barry Kurokawa

  
	
   

  	
   

  	
  Title: Managing Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 53,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  ProMed Offshore Fund, Ltd.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Barry Kurokawa

  	
   

  
	
   

  	
   

  	
  Name: Barry Kurokawa

  
	
   

  	
   

  	
  Title: Managing Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 34,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  ProMed Offshore Fund II, Ltd.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Barry Kurokawa

  	
   

  
	
   

  	
   

  	
  Name: Barry Kurokawa

  
	
   

  	
   

  	
  Title: Managing Director

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 703,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Alice Ann Corporation

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 30,000

  
					



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Robert G. Allison

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 50,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  William H. Baxter Revocable Trust

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Gary A. Bergren

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 30,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Craig L. Campbell IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Bradley A. Erickson
  IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 35,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Anne S. Chudnofsky

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 20,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Dorothy J. Hoel

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Robert H. Clayburgh
  IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 35,000

  
					



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Elizabeth J. Kuehne

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Raymond R. Johnson

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Charles W. Pappas IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Richard C. Perkins

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 50,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  John T. Potter

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 35,000

  
					



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Paul C. Seel and Nancy S. Seel JTWROS

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  E. Terry Skone

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 35,000

  
					



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Donald O. and Janet Voight TTEE’s FBO Janet M.
  Voight

  Trust U/A dtd 8/29/96

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO James B. Wallace SPN/PRO

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 35,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Michael R. Wilcox IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Daniel S. and Patrice M. Perkins JTWROS

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel S. Perkins & /s/ Patrice M.
  Perkins

  	
   

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,000

  
					



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Mark L. Beese IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Daniel S. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Daniel S. Perkins 

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 8,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  David H. and Lise B. Potter JTWROS

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Daniel S. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Daniel S. Perkins 

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 20,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Pyramid Partners, L.P.

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Daniel S. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Daniel S. Perkins 

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 150,000

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  PKM Properties, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul K. Miller

  	
   

  
	
   

  	
   

  	
  Name: Paul K. Miller

  
	
   

  	
   

  	
  Title: Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 150,000

  
					



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter L. Hauser

  	
   

  
	
   

  	
   

  	
  Name: Peter L. Hauser

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 1,008,611.11

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Robert D. Furst Jr. Money Purchase Pension Plan and
  Trust

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert D. Furst Jr.

  	
   

  
	
   

  	
   

  	
  Name: Robert D. Furst Jr.

  
	
   

  	
   

  	
  Title: Trustee

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 201,722.22

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Bradley A. Erickson
  IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 30,258.33

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Piper Jaffray as Custodian FBO Robert G. Allison IRA

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,125.28

  
					



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Dennis D. Gonyea

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 50,430.56

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  John T. Potter

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,215.28

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Carolyn Salon

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 30,258.33

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Alan R. Reckner

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 15,129.17

  
					



 





















 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Joel Salon

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,125.28

  
					



 


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Brust Limited Partnership

  
	
   

  	
  Perkins Capital Management Inc., Attorney-in-fact

  
	
   

  	
  By:

  	
  /s/ Richard C. Perkins

  	
   

  
	
   

  	
   

  	
  Name: Richard C. Perkins

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 25,215.28

  
					



 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
  Goben Enterprises LP

  
	
   

  	
  A Minnesota Limited Partnership

  
	
   

  	
  By:

  	
  /s/ Gary Benson

  	
   

  
	
   

  	
   

  	
  Name: Gary Benson

  
	
   

  	
   

  	
  Title: General Partner

  
	
   

  	
   

  
	
   

  	
  Investment Amount:

  	
  $ 200,000

  
					



 


 





















 


SCHEDULE 3.1(g)


 


As of March 24, 2005


 


	
   

  	
   

  	
  Authorized

  	
   

  	
  Outstanding

  	
   

  
	
  Preferred Stock

  	
   

  	
  5,000,000

  	
   

  	
  0

  	
   

  
	
  Common Stock

  	
   

  	
  95,000,000

  	
   

  	
  10,737,083

  	
   

  
	
  Option / Equity
  Incentive Plans

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1992

  	
   

  	
  500,000

  	
   

  	
  49,750

  	
   

  
	
  1993

  	
   

  	
  300,000

  	
   

  	
  77,000

  	
   

  
	
  1997

  	
   

  	
  500,000

  	
   

  	
  236,416

  	
   

  
	
  2001

  	
   

  	
  1,328,895

  	
   

  	
  990,877

  	
   

  
	
  Options Outside Plans

  	
   

  	
   

  	
   

  	
  225,000

  	
   

  
	
  Warrants

  	
   

  	
   

  	
   

  	
  7,172,636

  	
   

  
	
  Anti-Dilution
  Adjustments (assumes $13.1 million new money)

  	
   

  	
   

  	
   

  	
  1,740,753

  	
   

  
	
  Total
  Shares, Options and Warrants

  	
   

  	
   

  	
   

  	
  21,229,515

  	
   

  



 


Excludes issuable Common
Stock or Common Stock Equivalents as follows:


 


MidSouth Capital
(6,500)


Baxter Capital
Advisors, Inc. (26,000)


ROI Group
Associates, Inc. (80,000)


Management Group
(8,171,000)


Tower Finance,
Ltd. (68,000)


 





















 


SCHEDULE 3.1(k)


 


On March 4, 2005,
the Company became aware of a forty-six year-old male patient who had undergone
double valve replacement surgery on February 14, 2003 in which the patient
received an aortic and mitral Omnicarbon heart valves manufactured by the
Company.  The patient suffered from
pulmonary edema and severe mitral insufficiency.  An attending physician has stated that the
leaflet of the mitral valve prosthesis could not be visualized and had
detached.  The patient underwent
emergency surgery to replace the valve, after which the patient was transferred
to intensive care where, on March 5, 2005, the patient died.  The Company has not completed an
investigation of the matter.  The Company
has sent an initial report to the Food and Drug Administration of the incident
and has undertaken an investigation of the matter.  No claim has been made against the
Company.  The Company believes that the
claim will be covered by its products liability insurance policy, subject to
the contractual limitations and coverage limits thereof.  The Company has notified its products
liability insurer of the incident.


 


On or about September 27,
2004, the Company received a letter from legal counsel for Segmed, Inc.
and Dr. William F. Northup III.  Dr. Northup
and Segmed entered into an Assignment Agreement with the Company dated August 7,
2002, relating to the Company’s annuloplasty technology for the repair of
mitral and tricuspid heart valves developed by Dr. Northup and
Segmed.  The letter alleges that the
Company has abandoned the commercialization of the annuloplasty technology,
thereby constituting a termination of the assignment of the technology.  The letter claims that Dr. Northup is
considering reclaiming his rights to the technology which would require the
Company to return the property and documents related to the assignment
including, but not limited to, the apparatus and other intellectual
property.  The Company disputes that it
has abandoned the commercialization of the annuloplasty and has had continuing
discussions with Dr. Northup. 
Neither Dr. Northup nor his legal counsel have made further
allegations that the technology has been abandoned.  The Company has had continuing discussions
with Dr. Northrup concerning its sale of the annuloplasty technology to a
medical device company.  Dr. Northrup
has participated in these discussions, which are in an early stage.


 





















 


SCHEDULE 3.1(m)


 


On or about September 27,
2004, the Company received a letter from legal counsel for Segmed, Inc.
and Dr. William F. Northup III.  Dr. Northup
and Segmed entered into an Assignment Agreement with the Company dated August 7,
2002, relating to the Company’s annuloplasty technology for the repair of
mitral and tricuspid heart valves developed by Dr. Northup and
Segmed.  The letter alleges that the
Company has abandoned the commercialization of the annuloplasty technology,
thereby constituting a termination of the assignment of the technology.  The letter claims that Dr. Northup is
considering reclaiming his rights to the technology which would require the
Company to return the property and documents related to the assignment
including, but not limited to, the apparatus and other intellectual property.  The Company disputes that it has abandoned
the commercialization of the annuloplasty and has had continuing discussions
with Dr. Northup.  Neither Dr. Northup
nor his legal counsel have made further allegations that the technology has
been abandoned.  The Company has had continuing
discussions with Dr. Northrup concerning its sale of the annuloplasty
technology to a medical device company.  Dr. Northrup
has participated in these discussions, which are in an early stage.


 


In February, April and
May, 2004, the Company conducted a private placement to accredited investors of
units, each consisting of one share of common stock and one warrant to purchase
one share of common stock.  The Company
sold 2,730,763 units for aggregate gross proceeds of $4,014,222.  The Company agreed to use commercially
reasonable best efforts to cause the shares and the shares underlying the
warrants sold in the above-referenced private placement to be registered for
resale on Form SB-2 and to cause such registration to be declared
effective by the Commission within 90 days following the initial filing
thereof.  The Company satisfied its
obligations to file such registration statement and to cause such registration
statement to be declared effective by the Commission.  The Company is presently obligated to update
such registration statement by means of a post-effective amendment to disclose
the fundamental change in its business since the time of filing and to include
updated financial information.  The
Company has not completed the required updating, but intends to do so as soon
as practicable following the Closing of the transactions contemplated by the
Transaction Documents.  No claim has been
made against the Company arising out of such registration obligations.


 





















 


SCHEDULE 3.1(o)


 


 


	
  File Number

  	
   

  	
  Date

  	
   

  	
  Secured Party

  	
   

  	
  Collateral Description

  	
   

  	
  Amount of

  Obligation

  	
   

  	
  Status

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  00215773

  	
   

  	
  2/27/98

  	
   

  	
  Citigroup

  	
   

  	
  All Inventory, etc.

  	
   

  	
  Repaid in full

  	
   

  	
  Release

  	
   

  
	
  020024930253

  	
   

  	
  8/19/02

  	
   

  	
  Segmed

  	
   

  	
  Certain Intellectual Property pursuant to Security
  Agreement dated 8/7/02

  	
   

  	
  $

  	
  500,000.00

  	
   

  	
  Active UCC-1

  	
   

  
	
  020036276297

  	
   

  	
  1/17/03

  	
   

  	
  PKM Properties, LLC

  	
   

  	
  All assets of every kind and description and all
  proceeds thereof.

  	
   

  	
  $

  	
  943,333.00

  	
   

  	
  To be converted to securities

  	
   

  
	
  020038002441

  	
   

  	
  7/9/03

  	
   

  	
  PKM Properties, LLC

  	
   

  	
  All assets of every kind and description and all
  proceeds thereof.

  	
   

  	
  $

  	
  1,000,000.00

  	
   

  	
  To be converted to securities

  	
   

  
	
  020038002898

  	
   

  	
  7/9/03

  	
   

  	
  Peter Hauser

  	
   

  	
  All assets of every kind and description and all
  proceeds thereof.

  	
   

  	
  $

  	
  1,000,000.00

  	
   

  	
  To be converted to securities

  	
   

  
	
  020039543927

  	
   

  	
  11/21/03

  	
   

  	
  Draft Co.

  	
   

  	
  All assets of every kind and description and all
  proceeds thereof.

  	
   

  	
  Repaid in full

  	
   

  	
  Release

  	
   

  



 





















 


SCHEDULE 3.1(q)


 


The Company has a $5
million products liability insurance policy for worldwide coverage.  This policy expires on March 20,
2005.  The Company has been advised by
its insurance representative that the insurer may seek to reduce coverage under
the policy, including policy limits, due to the Company’s financial
condition.  The Company has accepted an
offer from the insurer to extend the expiring policy until April 20,
2005.  Between the closing and April 20,
2005, the Company intends to use its best efforts to renew or replace the
products liability policy.  The Company
believes, based upon discussions with its insurance representatives, that upon
completion of its private placement, it will be able to renew the coverage or
secure alternate insurance.  The Company
is unable to predict, however, whether there will be any change in its coverages
or the premium therefor.  In the event
that the policy is not continued, renewed or extended with the current insurer,
it is the intention of the Company to purchase 3-year Supplemental
Extended Reporting Period coverage available to the Company for an additional
premium.  This coverage does not extend
the policy, but allows the Company to have coverage for claims that occur
before the end of the policy period.


 


The Company has informed
the insurer of a potential claim arising out of the patient heart valve implant
matter described in Schedule 3.1(k).


 





















 


SCHEDULE 3.1(u)


 


The Company has engaged J
Giordano Securities Group (“Giordano”) as its non-exclusive agent and Tower
Finance, Ltd. (“Tower”) as its finder in connection with the transaction
contemplated by the Agreement (the “Private Placement”).  The Company has agreed to pay Giordano such
commissions, fees and reimbursement of expenses as are set forth in the
engagement letter, dated December 17, 2004, as amended March 16, 2005
(the “Giordano Agreement”).  The Company
has agreed to pay Tower such finder’s fee and reimbursement of expenses as are
set forth in the finder agreement, dated December 8, 2004, as amended March 16,
2005 (the “Tower Agreement”).


 


Pursuant to the Giordano
Agreement, the Company has agreed (1) to pay Giordano a cash commission
equal to 6% of the gross proceeds raised upon the sale of Shares to its clients
(exclusive of Shares issued upon conversion of indebtedness in the Private
Placement), (2) to reimburse Giordano for reasonable expenses incurred in
connection with the Private Placement, and (3) to issue to Giordano
five-year warrants to purchase a number of shares of common stock equal to 6%
of the number of shares of common stock issuable upon conversion of the Shares
sold in the Private Placement to its clients (exclusive of Shares issued upon
the conversion of indebtedness in the Private Placement).


 


Pursuant to the Tower
Agreement, the Company has agreed (1) to pay Tower a finder’s fee equal to
6% of the gross proceeds raised upon the sale of Shares to persons introduced
to the Company by Tower (exclusive of Shares issued upon conversion of
indebtedness in the Private Placement), (2) to reimburse Tower for
reasonable expenses incurred in connection with the Private Placement, and (3) to
issue to Tower five-year warrants to purchase a number of shares of common
stock equal to 6% of the number of shares of common stock issuable upon
conversion of the Shares sold in the Private Placement to persons introduced to
the Company by Tower (exclusive of Shares issued upon the conversion of
indebtedness in the Private Placement).


 





















 


SCHEDULE 3.1(v)


 


	
  Date

  Issued

  	
   

  	
  Quantity

  	
   

  	
  Exercise

  Price ($)

  	
   

  	
  Expiration

  Date

  	
   

  	
  Description

  	
   

  
	
  08/21/01

  	
   

  	
  400,000

  	
   

  	
  6.50

  	
   

  	
  08/21/06

  	
   

  	
  Warrants issued in 2001 Bridge Loan

  	
   

  
	
  11/20/01

  	
   

  	
  112,500

  	
   

  	
  6.75

  	
   

  	
  11/20/06

  	
   

  	
  Warrants issued to IPO Underwriter

  	
   

  
	
  11/17/04

  	
   

  	
  34,014

  	
   

  	
  TBD

  	
   

  	
  11/17/14

  	
   

  	
  Warrants issued in PKM Financing

  	
   

  
	
  12/01/04

  	
   

  	
  25,000

  	
   

  	
  1.46

  	
   

  	
  12/01/11

  	
   

  	
  Warrant issued to LightWave on Milestone

  	
   

  
	
  12/31/04

  	
   

  	
  45,000

  	
   

  	
  TBD

  	
   

  	
  12/31/09

  	
   

  	
  Warrants issued in Perkins Financing

  	
   

  
	
  01/13/05

  	
   

  	
  40,000

  	
   

  	
  TBD

  	
   

  	
  01/13/10

  	
   

  	
  Warrant issued in Furst Financing

  	
   

  
	
  03/03/05

  	
   

  	
  750,000

  	
   

  	
  0.50

  	
   

  	
  03/03/15

  	
   

  	
  Warrant issued in PKM Financing

  	
   

  
	
  TOTAL

  	
   

  	
  1,406,514

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


Excludes shares covered
by registration statement described in Schedule 3.1(m).


Excludes shares issuable
pursuant to anti-dilution adjustments.


 





















 


SCHEDULE 3.1(z)


 


Debt Conversion Agreement
by and between MedicalCV, Inc. and PKM Properties, LLC.


 


Debt Conversion Agreement
by and between MedicalCV, Inc. and Peter L. Hauser.


 


Letter Electing
Alternative 2 pursuant to December 2004 Bridge Note Purchase Agreement by
and between MedicalCV, Inc. and Perkins Capital Management.


 


Letter Electing
Alternative 2 pursuant to January 2005 Bridge Note Purchase Agreement by
and between MedicalCV, Inc. and Robert Furst Pension Plan &
Trust.


 





















 


SCHEDULE 3.1(dd)


 


	
  Lender

  	
   

  	
  Type

  	
   

  	
  Amount

  Due ($)

  	
   

  
	
  PKM Properties, LLC

  	
   

  	
  Letter of Credit

  	
   

  	
  943,333

  	
   

  
	
  PKM Properties, LLC

  	
   

  	
  Term Debt

  	
   

  	
  1,500,000

  	
   

  
	
  Peter L. Hauser

  	
   

  	
  Term Debt

  	
   

  	
  1,000,000

  	
   

  
	
  Perkins and Furst

  	
   

  	
  Convertible Notes

  	
   

  	
  425,000

  	
   

  
	
  PKM Properties, LLC

  	
   

  	
  Credit Agreement

  	
   

  	
  500,000

  	
   

  
	
  PKM Properties, LLC

  	
   

  	
  Credit Agreement (Bridge Notes)

  	
   

  	
  500,000

  	
   

  
	
  Accrued Interest

  	
   

  	
  (through March 31, 2005)

  	
   

  	
  40,325

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  4,908,658

  	
   

  



 


Excludes payments due
Dakota County and Dakota Electric Association.