**Exhibit 10.16**

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**MEDICALCV,INC.**

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**NON-QUALIFIEDSTOCK OPTION AGREEMENT**

**PURSUANTTO 2001 EQUITY INCENTIVE PLAN**

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| No. of shares  subject to option: 149,850 |   | Option No.:  F-032 |
|-------------------------------------------|--------|--------------------|
| Date of grant: November 18,  2004    |   |               |

 

THIS OPTION AGREEMENT is entered into by and betweenMedicalCV, Inc., a Minnesota corporation (the “Company”), and Lawrence L.Horsch (the “Optionee”) pursuant to the Company’s 2001 Equity Incentive Plan,as amended to date (the “Plan”).  Unlessotherwise defined herein, certain capitalized terms shall have the meaning setforth in the Plan.

 

W I T N E S S E T H:

 

# 1.                                       Nature of the Option.  ThisOption is not intended to qualify as an Incentive Stock Option within themeaning of Section 422 of the United States Internal Revenue Code of 1986,as amended.

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# 2.                                       Grant of Option.  Pursuant to the provisions of thePlan, the Company grants to the Optionee, subject to the terms and conditionsof the Plan and to the terms and conditions herein set forth, the right andoption to purchase from the Company all or a part of an aggregate of 149,850(one hundred forty-nine thousand, eight hundred fifty) shares of Stock (the “Shares”)at the purchase price of $1.67 per share, such Option to be exercised ashereinafter provided.

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# 3.                                       Terms and Conditions.  It isunderstood and agreed that the Option evidenced hereby is subject to thefollowing terms and conditions:

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## (a)                                  ExpirationDate.  This Option shall expire tenyears after the date of grant specified above. Notwithstanding the foregoing, if the Optionee’s employment or relationshipwith the Company or Related Company is terminated by reason of death,Disability or Retirement, this Option shall expire on the one-year anniversaryof the termination date.  If the Optionee’semployment or relationship with the Company or Related Company is terminated byreasons for other than death, Disability or Retirement, this Option shall,subject to Section 4 of the Plan, expire on the three-month anniversary ofthe termination date.  Except asotherwise provided by the Board, an Optionee shall be considered to have a “Disability”if the Optionee is unable, by reason of a medically determinable physical ormental impairment, to substantially perform the principal duties of employmentwith the Company, which condition, in the opinion of a physician selected bythe Board, is expected to have a duration of not less than 120 days.

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## (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.  Any exerciseshall be accompanied by a written notice to the Company specifying the numberof 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

 

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## may not be exercised for a fraction of a Share, andmust be exercised for no fewer than one hundred (100) shares of Stock, or suchlesser number of shares as may be vested.

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## (c)                                  Paymentof Purchase Price Upon Exercise.  Atthe time of any exercise, the Exercise Price of the Shares as to which thisOption is exercised shall be paid in cash to the Company, unless, in accordancewith the provisions of Section 4.2(c) of the Plan, the Board shall permitor require payment of the purchase price in another manner set forth in thePlan.

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## (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.

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## (e)                                  Accelerationof Option Upon Change in Control.  Inthe event of a Change in Control, as defined in Section 1.3 of the Plan,the provisions of Section 3(b) and Exhibit A hereof pertaining to vestingshall cease to apply and this Option shall become immediately vested and fullyexercisable with respect to all Shares; provided, however, that the 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 corporation orits parent assumes this Option or in the event the surviving corporation or itsparent 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 cancel thisOption in accordance with Section 9 of the Plan.

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## (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 whichCompany officers and directors are restricted by the managing underwriter fromeffecting any sales or transfers of the Shares. The Lock Up Period shall commence on the effective date of theRegistration Statement.

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## (g)                                 NotAn Employment Contract.  The Optionwill not confer on the Participant any right with respect to continuance ofemployment or other service with the Company or any Subsidiary, nor will itinterfere in any way with any right the Company or any Subsidiary would

 

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## otherwise have to terminate or modify the terms ofsuch Participant’s employment or other service at any time.

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## (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.

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## (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, butnot 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.

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## (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 the Committeefrom time to time, such withholding obligations may be satisfied through thesurrender of shares of Stock which the Participant already owns, or to whichthe Participant is otherwise entitled under the Plan.

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# 4.                                       Termination of Employment. Upon the termination of the employment ofOptionee prior to the expiration of the Option, the following provisions shallapply:

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## (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)months after the date of such employment termination, or until the term of theOption has 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.

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## (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.

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# 5.                                       Death, Disability or Retirement of Optionee.  Upon thedeath, Disability or Retirement, as defined herein, of Optionee prior to theexpiration of the Option, the following provisions shall apply:

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## (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 the Option, thenthe Option may be exercised by the Optionee for one (1) year following the dateof such Disability or until the expiration date of the Option, whichever dateis earlier, but only to the extent the Optionee was vested in and entitled toexercise the Option at the time of his or her Disability.  For purposes of this Section 5, the term“Disability”

 

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## 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.

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## (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 death oruntil the expiration date of the Option, whichever date is earlier, but only tothe extent the Optionee was vested in and entitled to exercise the Option atthe time of death.

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## (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 the dateof 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].

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## (d)                                 Ifthe Optionee dies within three (3) months after Termination of Optionee’semployment with the Company or a Subsidiary the Option may be exercised fornine (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.

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# 6.                                       Termination of Relationship for Misconduct.  If theBoard or the Committee reasonably believes that the Optionee has committed anact of misconduct, it may suspend the Optionee’s right to exercise this optionpending 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 the Optionee’s estate shall beentitled to exercise any option whatsoever. For purposes of this Section 6,an act of misconduct shall include embezzlement, fraud, dishonesty, nonpaymentof an obligation owed to the Company, breach of fiduciary duty or deliberatedisregard of the Company’s rules resulting in loss, damage or injury to theCompany, or if the Optionee makes an unauthorized disclosure of any Companytrade secret or confidential information, engages in any conduct constitutingunfair competition with respect to the Company, or induces any party to breacha contract with the Company,   In makingsuch determination, the Board or the Committee shall act fairly and shall givethe Optionee an opportunity to appear and present evidence on the Optionee’sbehalf at a hearing before the Board or the Committee.

 

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# 7.                                       Optionee Bound by Plan.  TheOptionee hereby acknowledges receipt of a copy of the Plan and agrees to bebound by all the terms and provisions thereof. In the event of any question or inconsistency between this Agreement andthe Plan, the terms and conditions of the Plan shall govern.

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# 8.                                       Heirs and Successors.  ThisAgreement shall be binding upon, and inure to the benefit of, the Company andits successors and assigns, and upon any person acquiring, whether by merger,consolidation, purchase of assets or otherwise, all or substantially all of theCompany’s assets and business.  If anyrights exercisable by the Participant or benefits deliverable to theParticipant under this Agreement have not been exercised or delivered,respectively, at the time of the Participant’s death, such rights shall beexercisable by the Designated Beneficiary, and such benefits shall be deliveredto the Designated Beneficiary, in accordance with the provisions of thisagreement and the Plan.  The “DesignatedBeneficiary” shall be the beneficiary or beneficiaries designated by theParticipant in a writing filed with the Committee in such form and at such timeas the Committee shall require.  If adeceased Participant fails to designate a beneficiary, or if the DesignatedBeneficiary does not survive the Participant, any rights that would have beenexercisable by the Participant and any benefits distributable to theParticipant shall be exercised by or distributed to the legal representative ofthe estate of the Participant.  If a deceasedParticipant designates a beneficiary and the Designated Beneficiary survivesthe Participant but dies before the Designated Beneficiary’s exercise of allrights under this Agreement or before the complete distribution of benefits tothe Designated Beneficiary under this Agreement, then any rights that wouldhave been exercisable by the Designated Beneficiary shall be exercised by thelegal representative of the estate of the Designated Beneficiary, and anybenefits distributable to the Designated Beneficiary shall be distributed tothe legal representative of the estate of the Designated Beneficiary.

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# 9.                                       Plan Governs.  Notwithstanding anything in thisAgreement to the contrary, the terms of this Agreement shall be subject to theterms of the Plan, a copy of which may be obtained by the Participant from theoffice of the Secretary of the Company; and this Agreement is subject to allinterpretations, amendments, rules and regulations promulgated by the Committeefrom time to time pursuant to the Plan.

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# 10.                                 Notices.  Any notice hereunder to theCompany shall be addressed to it at its principal executive offices, located at9725 South Robert Trail, Inver Grove Heights, Minnesota 55077, Attention: ChiefExecutive Officer; and any notice hereunder to the Optionee shall be addressedto the Optionee 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.

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# 11.                                 Counterparts.  This Agreement may be executed intwo counterparts each of which shall constitute one and the same instrument.

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# 12.                                 Governing Law.  This Agreement shall be governedby and construed in accordance with the laws of the State of Minnesota, exceptto the extent preempted by federal law, without regard to the principles ofcomity or the conflicts of law provisions of any other jurisdiction.

 

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IN WITNESS WHEREOF, MedicalCV, Inc. has caused thisAgreement to be executed by its Chief Financial Officer and the Optionee has executedthis Agreement, both as of the day and year first above written.

 
| ** ** | **MEDICALCV,  INC.**                |
|------------|-------------------------------------|
|       |                                |
|       |                                |
|       | /s/ John H. Jungbauer               |
|       | By John H. Jungbauer                |
|       | Its Vice President, Finance and CFO |
|       |                                |
| ** ** | **OPTIONEE**                        |
| ** ** | ** **                          |
| ** ** | ** **                          |
| ** ** | **/s/ Lawrence L. Horsch**          |
|       | Lawrence L.  Horsch                 |
|       | 1404 Hilltop Ridge                  |
|       | Houlton, WI 54082                   |

 

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**EXHIBITA**

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**OPTIONAND VESTING DATA**

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| Name of  Optionee:                   |   | Lawrence L.  Horsch     |
|--------------------------------------|--------|-------------------------|
|                                 |   |                    |
| Number of Shares  Subject to Option: |   | 149,850                 |
|                                 |   |                    |
| Date of Grant:                       |   | November 18,  2004 |

 

**OPTIONVESTING SCHEDULE**

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| **DATE**                | ** ** | **NO. OF SHARES  EXERCISABLE** | ** ** |
|-------------------------|------------|--------------------------------|------------|
|                    |       |                           |       |
| December 18,  2004 |       | 49,950                         |       |
| January 18,  2005  |       | 49,950                         |       |
| February 18,  2005 |       | 49,950                         |       |

 

The above vesting schedule assumesan ongoing relationship with the Company. Your rights to exercise the unvested portion of your option will ceaseupon termination of relationship with the Company, subject to Change in Controlprovisions set forth in Section 9 of the Plan.  Reference is made to the Plan and to relevantsections of the Agreement between you and the Company for your rights toexercise the vested portion of your option in the event of termination of yourrelationship with the Company during lifetime or upon death.  The above vesting schedule is in allrespects subject to the terms of those documents.

 
| **OPTIONEE**            | **MEDICALCV,  INC.**                |
|-------------------------|-------------------------------------|
| ** **              | ** **                          |
| ** **              | ** **                          |
| /s/ Lawrence L.  Horsch | ** **                          | /s/ John H. Jungbauer |
| Lawrence L.  Horsch     | By John H. Jungbauer                |
| 1404 Hilltop  Ridge     | Its Vice President, Finance and CFO |
| Houlton, WI  54082      | ** **                          |
|                         |                                     |  |

 

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SCHEDULE I - NOTATIONS AS TO PARTIAL EXERCISE

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

 

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