**EXHIBIT 10.1**

 

**MEDICALCV, INC.**

** **

**NON-QUALIFIED STOCK OPTION AGREEMENTPURSUANT TO 2001 EQUITY INCENTIVE PLAN**

** **
| No. of  shares subject to option: 68,584 |   | Option No.: F-033v2 |
|-----------------------------------------------|--------|---------------------|

Date of grant: November 18,2004

 

THIS OPTION AGREEMENT is entered into by and between MedicalCV, Inc.,a Minnesota corporation (the “Company”), and John H. Jungbauer (the “Optionee”)pursuant to the Company’s 2001 Equity Incentive Plan, as amended to date (the “Plan”).  Unless otherwise defined herein, certaincapitalized terms shall have the meaning set forth in the Plan.

 

W I T N E S S E T H:

 

1.                         Natureof the Option.  This Option is notintended to qualify as an Incentive Stock Option within the meaning of Section 422of the United States Internal Revenue Code of 1986, as amended.

 

2.                         Grantof Option.  Pursuant to theprovisions of the Plan, the Company grants to the Optionee, subject to theterms and conditions of the Plan and to the terms and conditions herein setforth, the right and option to purchase from the Company all or a part of anaggregate of 68,584 (sixty-eight thousand, five hundred eighty-four) shares ofStock (the “Shares”) at the purchase price of $2.16 per share, such Option tobe exercised as hereinafter provided.

 

3.                         Termsand Conditions.  It is understood andagreed that the Option evidenced hereby is subject to the following terms andconditions:

 

(a)                    ExpirationDate.  This Option shall expire tenyears after the date of grant specified above. Notwithstanding the foregoing, if the Optionee’s employment orrelationship with the Company or Related Company is terminated by reason ofdeath, Disability or Retirement, this Option shall expire on the one-yearanniversary of the termination date.  Ifthe Optionee’s employment or relationship with the Company or Related Companyis terminated by reasons for other than death, Disability or Retirement, thisOption shall, subject to Section 4 of the Plan, expire on the three-monthanniversary of the termination date. Except as otherwise provided by the Board, an Optionee shall be consideredto have a “Disability” if the Optionee is unable, by reason of a medicallydeterminable physical or mental impairment, to substantially perform theprincipal duties of employment with the Company, which condition, in theopinion of a physician selected by the Board, is expected to have a duration ofnot less than 120 days.

 

(b)                   Exerciseof Option.  Subject to the Plan andthe other terms of this Agreement regarding the exercisability of this Option,this Option shall be exercisable cumulatively, to the extent it is vested, asset forth in Exhibit A.  Anyexercise shall be accompanied by a written notice to the Company specifying thenumber of shares of Stock as to which the Option is being exercised.  Notation of any partial exercise shall bemade by the Company on Schedule I hereto. This Option may not be exercised for a fraction of a Share, and must beexercised for no fewer than one hundred (100) shares of Stock, or such lessernumber of shares as may be vested.

 

(c)                    Paymentof Purchase Price Upon Exercise.  At the time of any exercise, the ExercisePrice of the Shares as to which this Option is exercised shall be paid in cashto the Company, unless, in accordance with the provisions of Section 4.2(c) ofthe Plan, the Board shall permit or require payment of the purchase price inanother manner set forth in the Plan.

 

(d)                   Nontransferability.  This Option shall not be transferable otherthan by will or by the laws of descent and distribution.  During the lifetime of the Optionee, thisOption shall be exercisable only by the Optionee or by the Optionee’s guardianor legal representative.  No transfer ofthis Option by the Optionee by will or by the laws of descent and distributionshall be effective to bind the Company unless the Company is furnished withwritten notice thereof and a copy of the will and/or such other evidence as theBoard may determine necessary to establish the validity of the transfer.

 

(e)                    Accelerationof Option Upon Change in Control.  In the event of a Change in Control, as definedin Section 1.3 of the Plan, the provisions of Section 3(b) and Exhibit Ahereof pertaining to vesting shall cease to apply and this Option shall becomeimmediately vested and fully exercisable with respect to all Shares; provided,however, that the

 

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provisionsof this Subsection 3(e) shall not apply unless the Optionee has beenemployed by the Company for a period equal to or exceeding one calendaryear.  No acceleration of vesting shalloccur under this Subsection 3(e) in the event a surviving corporationor its parent assumes this Option or in the event the surviving corporation orits parent substitutes an option agreement with substantially the same terms asprovided in this Agreement.  Nothing inthis Subsection 3(e) shall limit the Committee’s authority to cancelthis Option in accordance with Section 9 of the Plan.

 

(f)                      Subjectto Lock Up.  Optionee understandsthat the Company at a future date may file a registration or offering statement(the “Registration Statement”) with the Securities and Exchange Commission tofacilitate an underwritten public offering of its securities.  The Optionee agrees, for the benefit of theCompany, that should such an underwritten public offering be made and shouldthe managing underwriter of such offering require, the undersigned will not,without the prior written consent of the Company and such underwriter, duringthe Lock Up Period as defined herein: sell, transfer or otherwise dispose of,or agree to sell, transfer or otherwise dispose of this Option or any of theShares acquired upon exercise of this Option during the Lock Up Period; or sellor grant, or agree to sell or grant, options, rights or warrants with respectto any of the Shares acquired upon exercise of this Option.  The foregoing does not prohibit gifts todonees or transfers by will or the laws of descent to heirs or beneficiariesprovided that such donees, heirs and beneficiaries shall be bound by therestrictions set forth herein.  The term “LockUp Period” shall mean the lesser of (x) 180 days or(y) the period during which Company officers and directors are restricted bythe managing underwriter from effecting any sales or transfers of theShares.  The Lock UpPeriod shall commence on the effective date of the Registration Statement.

 

(g)                   NotAn Employment Contract.  The Option will not confer on the Participantany right with respect to continuance of employment or other service with theCompany or any Subsidiary, nor will it interfere in any way with any right theCompany or any Subsidiary would otherwise have to terminate or modify the termsof such Participant’s employment or other service at any time.

 

(h)                   NoRights as Shareholder.  The Optioneeshall have no rights as a shareholder of the Company with respect to any Sharesprior to the date of issuance to the Optionee of a certificate for such Shares.

 

(i)                       Compliancewith Law and Regulations.  ThisOption and the obligation of the Company to sell and deliver Shares hereundershall be subject to all applicable laws, rules and regulations (including,but not limited to, federal securities laws) and to such approvals by anygovernment or regulatory agency as may be required.  This Option shall not be exercisable, and theCompany shall not be required to issue or deliver any certificates for Sharesof Stock prior to the completion of any registration or qualification of suchShares under any federal or state law, or any rule or regulation of anygovernment body which the Company shall, in its sole discretion, determine tobe necessary or advisable.  Moreover,this Option may not be exercised if its exercise or the receipt of Shares ofStock pursuant thereto would be contrary to applicable law.

 

(j)                       Withholding.  All deliveries and distributions under thisAgreement are subject to withholding of all applicable taxes.  At the election of the Participant, andsubject to such rules and limitations as may be established by theCommittee from time to time, such withholding obligations may be satisfiedthrough the surrender of shares of Stock which the Participant already owns, orto which the Participant is otherwise entitled under the Plan.

 

4.                         Terminationof Employment. Upon the termination of the employment of Optionee prior tothe expiration of the Option, the following provisions shall apply:

 

(a)                    Uponthe Involuntary Termination of Optionee’s employment or the voluntarytermination or resignation of Optionee’s employment, the Optionee may exercisethe Option to the extent the Optionee was vested in and entitled to exercisethe Option at the date of such employment termination for a period of three (3) monthsafter the date of such employment termination, or until the term of the Optionhas expired, whichever date is earlier. To the extent the Optionee was not entitled to exercise this Option atthe date of such employment termination, or if Optionee does not exercise thisOption within the time specified herein, this Option shall terminate.

 

(b)                   Ifthe employment of an Optionee is terminated by the Company for cause, then theBoard or the Committee shall have the right to cancel any Options granted tothe Optionee under the Plan.

 

5.                         Death,Disability or Retirement of Optionee. Upon the death, Disability or Retirement, as defined herein, of Optioneeprior to the expiration of the Option, the following provisions shall apply:

 

(a)                    Ifthe Optionee is at the time of his or her Disability employed by the Company ora Subsidiary and has been in continuous employment (as determined by theCommittee in its sole discretion) since the Date of Grant of

 

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theOption, then the Option may be exercised by the Optionee for one (1) yearfollowing the date of such Disability or until the expiration date of theOption, whichever date is earlier, but only to the extent the Optionee wasvested in and entitled to exercise the Option at the time of his or herDisability.  For purposes of this Section 5,the term “Disability” shall mean that the Optionee is unable, by reason of amedically determinable physical or mental impairment, to substantially performthe principal duties of employment with the Company, which condition, in theopinion of a physician selected by the Board, is expected to have a duration ofnot less than 120 days, unless the Optionee is employed by the Company, aParent, a Subsidiary or an Affiliate, pursuant to an employment agreement whichcontains a definition of “Disability,” in which case such definition shallcontrol.  The Committee, in its solediscretion, shall determine whether an Optionee has a Disability and the dateof such Disability.

 

(b)                   Ifthe Optionee is at the time of his or her death employed by the Company or aSubsidiary and has been in continuous employment (as determined by theCommittee in its sole discretion) since the Date of Grant of the Option, thenthe Option may be exercised by the Optionee’s estate or by a person whoacquired the right to exercise the Option by will or the laws of descent anddistribution, for one (1) year following the date of the Optionee’s deathor until the expiration date of the Option, whichever date is earlier, but onlyto the extent the Optionee was vested in and entitled to exercise the Option atthe time of death.

 

(c)                    Ifthe Optionee is at the time of his or her Retirement employed by the Company ora Subsidiary and has been in continuous employment (as determined by theCommittee in its sole discretion) since the Date of Grant of the Option, thenthe Option may be exercised by the Optionee for one (1) year following thedate of the Optionee’s Retirement or until the expiration date of the Option,whichever date is earlier, but only to the extent the Optionee was vested inand entitled to exercise the Option at the time of Retirement.  For purposes of this Section 5,Retirement of the Participant shall mean, with the approval of the Committee,the occurrence of the Participant’s Date of Termination on or after the datethe Participant attains age 55.

 

(d)                   Ifthe Optionee dies within three (3) months after Termination of Optionee’semployment with the Company or a Subsidiary the Option may be exercised for nine(9) months following the date of Optionee’s death or the expiration dateof the Option, whichever date is earlier, by the Optionee’s estate or by aperson who acquires the right to exercise the Option by will or the laws ofdescent or distribution, but only to the extent the Optionee was vested in andentitled to exercise the Option at the time of Termination.

 

6.                         Terminationof Relationship for Misconduct.  Ifthe Board or the Committee reasonably believes that the Optionee has committedan act of misconduct, it may suspend the Optionee’s right to exercise thisoption pending a determination by the Board or the Committee.  If the Board or the Committee determines thatthe Optionee has committed an act of misconduct, neither the Optionee nor theOptionee’s estate shall be entitled to exercise any option whatsoever. Forpurposes of this Section 6, an act of misconduct shall includeembezzlement, fraud, dishonesty, nonpayment of an obligation owed to theCompany, breach of fiduciary duty or deliberate disregard of the Company’s rules resultingin loss, damage or injury to the Company, or if the Optionee makes anunauthorized disclosure of any Company trade secret or confidentialinformation, engages in any conduct constituting unfair competition withrespect to the Company, or induces any party to breach a contract with theCompany,   In making such determination,the Board or the Committee shall act fairly and shall give the Optionee anopportunity to appear and present evidence on the Optionee’s behalf at ahearing before the Board or the Committee.

 

7.                         OptioneeBound by Plan.  The Optionee herebyacknowledges receipt of a copy of the Plan and agrees to be bound by all theterms and provisions thereof.  In theevent of any question or inconsistency between this Agreement and the Plan, theterms and conditions of the Plan shall govern.

 

8.                         Heirsand Successors.  This Agreement shallbe binding upon, and inure to the benefit of, the Company and its successorsand assigns, and upon any person acquiring, whether by merger, consolidation,purchase of assets or otherwise, all or substantially all of the Company’sassets and business.  If any rightsexercisable by the Participant or benefits deliverable to the Participant underthis Agreement have not been exercised or delivered, respectively, at the timeof the Participant’s death, such rights shall be exercisable by the DesignatedBeneficiary, and such benefits shall be delivered to the DesignatedBeneficiary, in accordance with the provisions of this agreement and thePlan.  The “Designated Beneficiary” shallbe the beneficiary or beneficiaries designated by the Participant in a writingfiled with the Committee in such form and at such time as the Committee shallrequire.  If a deceased Participant failsto designate a beneficiary, or if the Designated Beneficiary does not survivethe Participant, any rights that would have been exercisable by the Participantand any benefits distributable to the Participant shall be exercised by ordistributed to the legal representative of the estate of the Participant.  If a deceased Participant designates abeneficiary and the Designated Beneficiary survives the Participant but diesbefore the Designated Beneficiary’s

 

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exercise of all rights under this Agreement or beforethe complete distribution of benefits to the Designated Beneficiary under thisAgreement, then any rights that would have been exercisable by the DesignatedBeneficiary shall be exercised by the legal representative of the estate of theDesignated Beneficiary, and any benefits distributable to the DesignatedBeneficiary shall be distributed to the legal representative of the estate ofthe Designated Beneficiary.

 

9.                         PlanGoverns.  Notwithstanding anything inthis Agreement to the contrary, the terms of this Agreement shall be subject tothe terms of the Plan, a copy of which may be obtained by the Participant fromthe office of the Secretary of the Company; and this Agreement is subject toall interpretations, amendments, rules and regulations promulgated by the Committeefrom time to time pursuant to the Plan.

 

10.                   Notices.  Any notice hereunder to the Company shall beaddressed to it at its principal executive offices, located at 9725 SouthRobert Trail, Inver Grove Heights, Minnesota 55077, Attention: Chief ExecutiveOfficer; and any notice hereunder to the Optionee shall be addressed to theOptionee at the address last appearing in the employment records of theCompany; subject to the right of either party to designate at any timehereunder in writing some other address.

 

11.                   Counterparts.  This Agreement may be executed in twocounterparts each of which shall constitute one and the same instrument.

 

12.                   GoverningLaw.  This Agreement shall begoverned by and construed in accordance with the laws of the State ofMinnesota, except to the extent preempted by federal law, without regard to theprinciples of comity or the conflicts of law provisions of any otherjurisdiction.

 

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IN WITNESS WHEREOF, MedicalCV, Inc. has caused this Agreement tobe executed by its Chief Executive Officer and the Optionee has executed thisAgreement, both as of the day and year first above written.

 
|   | **MedicalCV, Inc.**         |
|--------|----------------------------------|
|   |                             |
|   |                             |
|   | /s/ Marc P. Flores               |   |
|   | By Marc P. Flores                |
|   | Its President and CEO            |
|   |                             |
|   |                             |
|   | **OPTIONEE**                     |
|   | ** **                       |
|   |                             |
|   | /s/ John H. Jungbauer            |   |
|   | John H. Jungbauer                |
|   | 12122 Everton Avenue North       |
|   | White Bear Lake, MN   55110 |
|        |                                  |  |  |

 

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**EXHIBIT A**

** **

**OPTION AND VESTING DATA**

** **
| Name of Optionee:                   |   | John H. Jungbauer      |
|-------------------------------------|--------|------------------------|
|                                |   |                   |
| Number of Shares Subject to Option: |   | 68,584                 |
|                                |   |                   |
| Date of Grant:                      |   | November 18, 2004 |

 

**OPTION VESTING SCHEDULE**

** **

| ** **             | ** ** | **NO. OF SHARES** | ** ** |
|------------------------|------------|-------------------|------------|
| **DATE**               | ** ** | **EXERCISABLE**   | ** ** |
|                   |       |              |       |
| November 18, 2005 |       | 17,146            |       |
| November 18, 2006 |       | 17,146            |       |
| November 18, 2007 |       | 17,146            |       |
| November 18, 2008 |       | 17,146            |       |

 

The above vesting schedule assumes an ongoing relationship withthe Company.  Your rights to exercise theunvested portion of your option will cease upon termination of relationshipwith the Company, subject to Change in Control provisions set forth in Section 9of the Plan.  Reference is made to thePlan and to relevant sections of the Agreement between you and the Company foryour rights to exercise the vested portion of your option in the event oftermination of your relationship with the Company during lifetime or upondeath.  The above vesting schedule isin all respects subject to the terms of those documents.

 
| **OPTIONEE**                                                                   | ** ** | **MEDICALCV, INC.**                      |
|--------------------------------------------------------------------------------|------------|------------------------------------------|
| ** **                                                                     | ** ** | ** **                               |
| ** **                                                                     | ** ** | ** **                               |
| /s/ John H. Jungbauer                                                          | ** ** | ** **                               | /s/ Marc P. Flores | ** ** |
| John H. Jungbauer

12122 Everton Avenue North

White Bear Lake, MN  55110 |       | By Marc P. Flores

Its President and CEO |
|                                                                                |            |                                          |  |  |

 

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SCHEDULE I - NOTATIONS ASTO PARTIAL EXERCISE

 
| ** **   | ** ** | **Number of** | ** ** | **Balance of** | ** ** | ** **     | ** ** | ** **   |
|--------------|------------|---------------|------------|----------------|------------|----------------|------------|--------------|
| **Date of**  | ** ** | **Purchased** | ** ** | **Shares on**  | ** ** | **Authorized** | ** ** | **Notation** |
| **Exercise** | ** ** | **Shares**    | ** ** | **Option**     | ** ** | **Signature**  | ** ** | **Date**     |
| ** **   | ** ** | ** **    | ** ** | ** **     | ** ** | ** **     | ** ** | ** **   |
| ** **   | ** ** | ** **    | ** ** | ** **     | ** ** | ** **     | ** ** | ** **   |
| ** **   | ** ** | ** **    | ** ** | ** **     | ** ** | ** **     | ** ** | ** **   |

 

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