**EXHIBIT 10.5**

** **

**WARRANT**

 

**To Purchase350,000 Shares of**

**CommonStock**

**of**

**MEDICALCV,INC.**

 

*This Warrant and thesecurities issuable upon exercise of this Warrant have not been registeredunder the Securities Act of 1933 (the “Securities Act”) or under any statesecurities or “Blue Sky” laws (“Blue Sky Laws”). No transfer, sale, assignment,pledge, hypothecation or other disposition of this Warrant or the securitiesissuable upon exercise of this Warrant or any interest therein may be madeexcept (a) pursuant to an effective registration statement under the SecuritiesAct and any applicable Blue Sky Laws or (b) if the Company has been furnishedwith an opinion of counsel for the holder, which opinion and counsel shall bereasonably satisfactory to the Company, to the effect that no registration isrequired because of the availability of an exemption from registration underthe Securities Act and applicable Blue Sky Laws.*

 

THIS CERTIFIES THAT,for good and valuable consideration, PKM PROPERTIES, LLC a Minnesota limitedliability company (“PKM Properties”) or its registered assigns, isentitled to subscribe for and purchase from MedicalCV, Inc., a Minnesotacorporation (the “Company”), at any time to and including the date thatis five (5) years after the date hereof. Three Hundred Fifty Thousand (350,000) fully paid and nonassessableshares of the Common Stock of the Company at the price of  $0.596 per share (the “Warrant ExercisePrice”), subject to the antidilution provisions of this Warrant.  The shares which may be acquired uponexercise of this Warrant are referred to herein as the “Warrant Shares.” Asused herein, the term “Holder” means PKM Properties, any party who acquires allor a part of this Warrant as a registered transferee of PKM Properties, or anyrecord holder or holders of the Warrant Shares issued upon exercise, whether inwhole or in part, of the Warrant; the term “Common Stock” means the Company’sCommon Stock, $.01 par value.

 

This Warrant is subjectto the following provisions, terms and conditions:

 

1.             Exercise;Conversion Right; Transferability

 

(a)           The rights represented by thisWarrant may be exercised by the Holder hereof at any time, for a period of five(5) years commencing on the date hereof, in whole or in part (but not as to afractional share of Common Stock), by written notice of exercise (in the formattached hereto) delivered to the Company at the principal office of theCompany prior to the expiration of this Warrant and accompanied or preceded bythe surrender of this Warrant along with a check in payment of the WarrantExercise Price for such shares.

 

(b)           Subjectto the restrictions on transfer of this Warrant or the Warrant Shares set forthherein, the Holder of this Warrant shall have the right to require the Companyto convert this Warrant (the “Conversion Right’) at any time after thedate hereof and prior to its expiration into shares of Common Stock as providedfor in Sections 1(b) through 1(d) hereof. Upon exercise of the Conversion Right, the Company shall deliver to theHolder (without payment by the Holder of any Warrant Exercise Price) thatnumber of shares of Company Common Stock equal to the quotient obtained bydividing (i) the value of the Warrant at the time the Conversion Right isexercised (determined by subtracting the aggregate Warrant Exercise Price forthe Warrant Shares in effect immediately prior to the exercise of theConversion Right from the aggregate Fair Market Value (as defined inSection 10 hereof) for the Warrant Shares immediately prior to the exerciseof the Conversion Right) by (ii) the Fair Market Value of one share of CommonStock immediately prior to the exercise of the Conversion Right.

 

 

 

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(c)           TheConversion Right may be exercised by the Holder, at any time or from time totime, after the date hereof and prior to its expiration, on any business day bydelivering a written notice in the form attached hereto (the “ConversionNotice”) to the Company at the offices of the Company exercising theConversion Right and specifying (i) the total number of shares of Common Stockthe Holder will purchase pursuant to such conversion and (ii) a place and datenot less than one or more than 20 business days from the date of the ConversionNotice for the closing of such purchase.

 

(d)           Atany closing under Section 1(c) hereof, (i) the Holder will surrender theWarrant, (ii) the Company will deliver to the Holder a certificate orcertificates for the number of shares of Common Stock issuable upon suchconversion, together with cash, in lieu of any fraction of a share, and (iii)the Company will deliver to the Holder a new warrant representing the number ofshares, if any, with respect to which the Warrant shall not have beenexercised.

 

(e)           Subject to the provisions ofSection 7 hereof, this Warrant shall be fully transferable, in whole or inpart; provided that this Warrant shall be transferable only on the books of theCompany by the Holder in person, or by duly authorized attorney, on surrenderof the Warrant, properly assigned.

 

2.             Exchange and Replacement.  Subject to Sections 1 and 7 hereof, thisWarrant is exchangeable upon the surrender hereof by the Holder to the Companyat its office for new Warrants of like tenor and date representing in theaggregate the right to purchase the number of Warrant Shares purchasablehereunder, each of such new Warrants to represent the right to purchase suchnumber of Warrant Shares (not to exceed the aggregate total number purchasablehereunder) as shall be designated by the Holder at the time of such surrender.  Upon receipt by the Company of evidencereasonably satisfactory to it of the loss, theft, destruction, or mutilation ofthis Warrant, and, in case of loss, theft or destruction, of indemnityreasonably satisfactory to it, and upon surrender and cancellation of this Warrant,if mutilated, the Company will make and deliver a new Warrant of like tenor, inlieu of this Warrant.  This Warrantshall be promptly canceled by the Company upon the surrender hereof inconnection with any exchange or replacement. The Company shall pay all expenses, taxes (other than stock transfertaxes), and other charges incurred by it in connection with the preparation,execution, and delivery of Warrants pursuant to this Section 2.

 

3.             Issuanceof the Warrant Shares.

 

(a)           The Company agrees that the shares ofCommon Stock purchased upon exercise of this Warrant shall be and are deemed tobe issued to the Holder as of the close of business on the date on which thisWarrant shall have been surrendered and the payment made for such Warrant Sharesas aforesaid.  Subject to the provisionsof paragraph (b) of this Section 3, certificates for the Warrant Shares sopurchased shall be delivered to the Holder within a reasonable time, notexceeding fifteen (15) days after the rights represented by this Warrant shallhave been so exercised, and, unless this Warrant has expired, a new Warrantrepresenting the right to purchase the number of Warrant Shares, if any, withrespect to which this Warrant shall not then have been exercised shall also bedelivered to the Holder within such time.

 

(b)           Notwithstanding the foregoing, theCompany shall not be required to deliver any certificate for Warrant Sharesupon exercise of this Warrant except in accordance with exemptions from theapplicable securities registration requirements or registrations underapplicable securities laws.  Nothingherein, however, shall obligate the Company to effect registrations underfederal or state securities laws, except as provided in Section 9.  If registrations are not in effect and ifexemptions are not available when the Holder seeks to exercise the Warrant, theWarrant exercise period will be extended, if need be, to prevent the 

 

 

 

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Warrantfrom expiring, until such time as either registrations become effective orexemptions are available, and the Warrant shall then remain exercisable for aperiod of at least 30 calendar days from the date the Company delivers to theHolder written notice of the availability of such registrations orexemptions.  The Holder agrees toexecute such documents and make such representations, warranties, andagreements as may be required solely to comply with the exemptions relied uponby the Company, or the registrations made, for the issuance of the WarrantShares.

 

4.             Covenants of the Company.  The Company covenants and agrees that allWarrant Shares will, upon issuance, be duly authorized and issued, fully paid,nonassessable, and free from all taxes, liens, and charges with respect to theissuance thereof.  The Company furthercovenants and agrees that during the period within which the rights representedby this Warrant may be exercised, the Company will at all times have authorizedand reserved for the purpose of issue or transfer upon exercise of thesubscription rights evidenced by this Warrant a sufficient number of shares ofCommon Stock to provide for the exercise of the rights represented by thisWarrant.

 

5.             Antidilution Adjustments.  The provisions of this Warrant are subjectto adjustment as provided in this Section 5; provided that no adjustment shallbe made pursuant to this Section 5 which has the effect of duplicating anyadjustment made pursuant to the Articles of Incorporation of the Company or anyCertificate of Designation thereto, if any.

 

(a)           The Warrant Exercise Price shall beadjusted from time to time such that in case the Company shall hereafter:

 

(i)            pay any dividends on any class ofstock of the Company payable in Common Stock or securities convertible intoCommon Stock;

 

(ii)           subdivide its then outstanding sharesof Common Stock into a greater number of shares; or

 

(iii)          combine outstanding shares of CommonStock, by reclassification or otherwise;

 

then,in any such event, the Warrant Exercise Price in effect immediately prior tosuch event shall (until adjusted again pursuant hereto) be adjusted immediatelyafter such event to a price (calculated to the nearest full cent) determined bydividing (A) the number of shares of Common Stock outstanding immediately priorto such event, multiplied by the then existing Warrant Exercise Price, by (B)the total number of shares of Common Stock outstanding immediately after suchevent (including in each case the maximum number of shares of Common Stockissuable in respect of any securities convertible into Common Stock), and theresulting quotient shall be the adjusted Warrant Exercise Price per share.  An adjustment made pursuant to thissubsection shall become effective immediately after the record date in the caseof a dividend or distribution and shall become effective immediately after theeffective date in the case of a subdivision, combination orreclassification.  If, in connectionwith an adjustment made pursuant to this subsection or otherwise, the Holder ofany Warrant thereafter surrendered for exercise shall become entitled to receiveshares of two or more classes of capital stock or shares of Common Stock andother capital stock of the Company, the Board of Directors (whose determinationshall be conclusive) shall determine the allocation of the adjusted WarrantExercise Price between or among shares of such classes of capital stock orshares of Common Stock and other capital stock.  All calculations under this subsection shall be made to thenearest cent or to the nearest 1/100 of a share, as the case may be.  In the event that at any time, in connectionwith an adjustment made pursuant to this subsection or otherwise, the Holder ofany Warrant thereafter surrendered for exercise shall become entitled toreceive any shares of the Company other than shares of Common Stock, thereafterthe Warrant Exercise Price of such other shares so receivable upon exercise ofany Warrant shall be subject to adjustment from time to time in a manner and onterms as nearly equivalent as practicable to the provisions with respect toCommon Stock contained in this Section.

 

 

 

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(b)           Upon each adjustment of the WarrantExercise Price pursuant to Section 5(a) above, the Holder of each Warrant shallthereafter (until another such adjustment) be entitled to purchase at theadjusted Warrant Exercise Price the number of shares, calculated to the nearestfull share, obtained by multiplying the number of shares specified in suchWarrant (as adjusted as a result of all adjustments in the Warrant ExercisePrice in effect prior to such adjustment) by the Warrant Exercise Price ineffect prior to such adjustment and dividing the product so obtained by theadjusted Warrant Exercise Price.

 

(c)           In case of any consolidation ormerger to which the Company is a party other than a merger or consolidation inwhich the Company is the continuing corporation, or in case of any sale orconveyance to another corporation of all or substantially all of the assets ofthe Company, as an entirety, or in the case of any statutory exchange ofsecurities with another corporation (including any exchange effected inconnection with a merger of a third corporation into the Company), there shallbe no adjustment under subsection (a) of this Section above but the Holder ofeach Warrant then outstanding shall have the right thereafter to convert suchWarrant into the kind and amount of shares of stock and other securities andproperty which the Holder would have owned or have been entitled to receiveimmediately after such consolidation, merger, statutory exchange, sale, orconveyance had such Warrant been converted immediately prior to the effectivedate of such consolidation, merger, statutory exchange, sale, orconveyance.  The Company shall givewritten notice, by first-class mail, postage prepaid, addressed to theHolder as shown on the books of the Company, of the date on which suchconsolidation, merger, sale, conveyance or statutory exchange shall takeplace.  Such notice shall also specifythe date as of which the Holder shall be entitled to exchange such Holder’sWarrant Shares (if any) for securities or other property deliverable upon suchconsolidation, merger, sale, conveyance or statutory exchange, as the case maybe.  Such written notice shall be atleast 20 days prior to the action in question. In any such case, if deemed necessary by the Company’s Board ofDirectors to fairly protect the rights of the Holders stated herein,appropriate adjustment shall be made in the application of the provisions setforth in this Section with respect to the rights and interests thereafter of anyHolders of the Warrant, to the end that the provisions set forth in thisSection shall thereafter correspondingly be made applicable, as nearly as mayreasonably be, in relation to any shares of stock and other securities andproperty thereafter deliverable on the exercise of the Warrant.  The provisions of this subsection shallsimilarly apply to successive consolidations, mergers, statutory exchanges,sales or conveyances.

 

(d)           Upon any adjustment of the WarrantExercise Price, then and in each such case, the Company shall give writtennotice thereof, by first-class mail, postage prepaid, addressed to theHolder as shown on the books of the Company, which notice shall state theWarrant Exercise Price resulting from such adjustment and the increase or decrease,if any, in the number of shares of Common Stock purchasable at such price uponthe exercise of this Warrant, setting forth in reasonable detail the method ofcalculation and the facts upon which such calculation is based.

 

6.             No Voting Rights.  This Warrant shall not entitle the Holder toany voting rights or other rights as a shareholder of the Company.

 

7.             Noticeof Transfer of Warrant or Resale of the Warrant Shares.

 

(a)           The Holder, by acceptance hereof,agrees to give written notice to the Company before transferring this Warrantor transferring any Warrant Shares of such Holder’s intention to do so,describing briefly the manner of any proposed transfer.  Promptly upon receiving such written notice,the Company shall present copies thereof to the Company’s counsel and tocounsel to the original purchaser of this Warrant.  If in the opinion of each such counsel the proposed transfer maybe effected without registration or qualification (under any federal or statesecurities laws), the Company, as promptly as practicable, shall notify theHolder 

 

 

 

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ofsuch opinion, whereupon the Holder shall be entitled to transfer this Warrantor to dispose of Warrant Shares received upon the previous exercise of thisWarrant, all in accordance with the terms of the notice delivered by the Holderto the Company; provided that an appropriate legend may be endorsed on thisWarrant or the certificates for such Warrant Shares respecting restrictionsupon transfer thereof necessary or advisable in the opinion of counsel andsatisfactory to the Company to prevent further transfers which would be inviolation of Section 5 of the Securities Act of 1933, as amended (the“Securities Act”) and applicable state securities laws; and provided furtherthat the prospective transferee or purchaser shall execute such documents andmake such representations, warranties, and agreements as may be required solelyto comply with the exemptions relied upon by the Company for the transfer ordisposition of the Warrant or Warrant Shares.

 

(b)           If in the opinion of either of thecounsel referred to in this Section 7, the proposed transfer or disposition ofthis Warrant or such Warrant Shares described in the written notice givenpursuant to this Section 7 may not be effected without registration orqualification of this Warrant or such Warrant Shares the Company shall promptlygive written notice thereof to the Holder, and the Holder will limit itsactivities in respect to such transfer or disposition as, in the opinion ofboth such counsel, are permitted by law.

 

8.             Fractional Shares.  Fractional shares shall not be issued uponthe exercise of this Warrant, but in any case where the Holder would, exceptfor the provisions of this Section, be entitled under the terms hereof toreceive a fractional share, the Company shall, upon the exercise of thisWarrant for the largest number of whole shares then called for, pay a sum incash equal to the sum of (a) the excess, if any, of the Fair Market Value ofsuch fractional share over the proportional part of the Warrant Exercise Pricerepresented by such fractional share, plus (b) the proportional part of theWarrant Exercise Price, if paid by the Holder, represented by such fractionalshare.

 

9.             RegistrationRights.

 

(a)           If the Company at any time within two(2) years after complete exercise of this Warrant proposes to register underthe Securities Act (except by a Form S-4 or Form S-8 RegistrationStatement or any successor forms thereto) any of its equity securities, it willgive written notice to all Holders of this Warrant, any Warrants issuedpursuant to Section 2 and/or Section 3(a) hereof, and any Warrant Shares of itsintention to do so and, on the written request of any such Holder given withintwenty (20) days after receipt of any such notice (which request shall specifythe interest in this Warrant or the Warrant Shares intended to be sold ordisposed of by such Holder and describe the nature of any proposed sale orother disposition thereof), the Company will use its best efforts to cause allsuch Warrant Shares, the Holders of which shall have requested the registrationor qualification thereof, to be included in such registration statementproposed to be filed by the Company; provided that:

 

(i)            if a greater number of WarrantShares is offered for participation in the proposed offering than in thereasonable opinion of the managing underwriter of the proposed offering can beaccommodated without adversely affecting the proposed offering, then the amountof Warrant Shares proposed to be offered by such Holders for registration, aswell as the number of securities of any other selling shareholdersparticipating in the registration, shall be proportionately reduced to a numberdeemed satisfactory by the managing underwriter

 

(ii)           the Company may, at its solediscretion and without the consent of any holder of the Warrant Shares,withdraw such registration statement and abandon the proposed offering in whichany such holder had requested to participate;

 

 

 

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(iii)          if the offering to which the registrationstatement relates is to be distributed by or through an underwriter, eachholder of the Warrant Shares shall agree, as a condition to the inclusion ofsuch holder’s securities in such registration, to sell securities held by suchholder through such underwriter on the same terms and conditions as theunderwriter agrees to sell securities on behalf of the Company and not to sell,transfer, pledge, assign or otherwise dispose of the Warrant Shares of theCompany not sold by such holder in such offering for such period (up to 180days after the effective date of the registration statement) as may be requiredby the underwriter;

 

(iv)          the Company shall not be obligated toinclude any Warrant Shares in any such registration for any Holder who is ableto sell all of the Warrant Shares in a single transaction pursuant to Rule 144under the Securities Act (or any other similar rule or regulation) during thethree-month period beginning on the date such notice is received by suchholder, calculated as of the date of such receipt.

 

(b)           Further, on a one-time basisonly, provided Form S-3, or such successor form as may be adopted, isavailable, during the term of this Warrant, upon request by the Holder orHolders of a majority in interest of this Warrant, of any Warrants issuedpursuant to Section 2 and/or Section 3(a) hereof, and of any Warrant Shares,the Company will promptly take all necessary steps to register or qualify,under the Securities Act and the securities laws of such states as the Holdersmay reasonably request, such number of Warrant Shares issued and to be issuedupon conversion of the Warrants requested by such Holders in their request tothe Company; provided that the Company shall not be obligated to include anyWarrant Shares in any such registration for any Holder who is able to sell allof the Warrant Shares in a single transaction pursuant to Rule 144 under theSecurities Act (or any other similar rule or regulation) during the three-monthperiod beginning on the date such notice is received by such holder, calculatedas of the date of such receipt.  TheCompany shall keep effective and maintain any registration, qualification,notification, or approval specified in this Paragraph (b) for such period asmay be reasonably necessary for such Holder or Holders of such Warrant Sharesto dispose thereof and from time to time shall amend or supplement theprospectus used in connection therewith to the extent necessary in order tocomply with applicable law.

 

(c)           Upon the exercise of registration rightspursuant to this Section 9, Holder agrees to supply the Company with suchinformation as may be required by the Company to register or qualify the sharesto be registered.

 

(d)           With respect to each inclusion ofsecurities in a registration statement pursuant to this Section 9, the Companyshall bear the following fees, costs, and expenses: all registration, filingand NASD fees, printing expenses, fees and disbursements of counsel andaccountants for the Company, fees and disbursements of counsel for theunderwriter or underwriters of such securities (if the Company is required tobear such fees and disbursements), all internal expenses, and legal fees anddisbursements and other expenses of complying with state securities laws of anyjurisdictions in which the securities to be offered are to be registered orqualified.  Fees and disbursements ofspecial counsel and accountants for the selling Holders, underwriting discountsand commissions, and transfer taxes for selling Holders and any other expensesrelating to the sale of securities by the selling Holders not expresslyincluded above shall be borne by the selling Holders.

 

(e)           The Company hereby indemnifies eachof the Holders of this Warrant and of any Warrant Shares, and the officers anddirectors, if any, who control such Holders, within the meaning of Section 15of the Securities Act, against all losses, claims, damages, and liabilitiescaused by (i) any untrue statement or alleged untrue statement of a materialfact contained in any Registration Statement or Prospectus (and as amended orsupplemented if the Company shall have furnished any amendments thereof orsupplements thereto), any Preliminary Prospectus or any state securities lawfilings; (ii) any omission or alleged omission to state therein a material factrequired to be stated therein or necessary to make the statements therein notmisleading except insofar as such losses, claims, damages, or liabilities arecaused by any untrue statement or omission contained in information furnishedin writing to the Company by such Holder expressly for use 

 

 

 

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therein;and each such Holder by its acceptance hereof severally agrees that it willindemnify and hold harmless the Company, each of its officers who signs suchRegistration Statement, each underwriter of the Common Stock so registered, andeach person, if any, who controls the Company or such underwriter, within themeaning of Section 15 of the Securities Act, with respect to losses, claims,damages, or liabilities which are caused by any untrue statement or omissioncontained in information furnished in writing to the Company by such Holderexpressly for use therein.

 

10.           FairMarket Value.  Fair Market Value ofa share of Common Stock as of a particular date (the “Determination Date”)shall mean:

 

(a)           If the Company’s Common Stock istraded on an exchange or is quoted on the Nasdaq National Market, then theaverage closing or last sale prices, respectively, reported for the ten (10)business days immediately preceding the Determination Date; or

 

(b)           If the Company’s Common Stock is nottraded on an exchange or on the Nasdaq National Market but is traded on theNasdaq SmallCap Market, then the average of the closing bid and ask pricesreported for the ten (10) business days immediately preceding the DeterminationDate; or

 

(c)           If the Company’s Common Stock is nottraded on an exchange, on the Nasdaq National Market, or on the Nasdaq SmallCapMarket, then the fair market value as determined in good faith by the Board ofDirectors of the Company.

 

*[signaturepage follows]*

 

 

 

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IN WITNESS WHEREOF,MedicalCV, Inc. has caused this Warrant to be signed by its duly authorizedofficer and this Warrant to be dated 30 January, 2003.

 

 
|   | MEDICALCV, INC. |
|--------|-----------------|
|   |            |   |
|   |            |   |
|   | By              | /s/ Blair P. Mowery |
|   |            |   |   |
|   |            | Its | President and CEO |

 

 

 

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NOTICE OF EXERCISE OFWARRANT

 

(To be signed upon the exercise of theWarrant)

 

The undersigned hereby irrevocably elects to exercisethe attached Warrant to purchase, for cash,                    of the shares of Common Stock issuable upon the exercise of such Warrant, andrequests that certificates for the shares of Common Stock (together with a newWarrant to purchase the number of shares, if any, with respect to which thisWarrant is not exercised) be issued in the name and address set forth below.

 
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 *                                      The signature on the Notice of Exercise of Warrant must correspond tothe name as written upon the face of the Warrant in every particular withoutalteration or enlargement or any change whatsoever.  When signing on behalf of a corporation, partnership, trust orother entity, PLEASE indicate your position(s) and title(s) with such entity.

 

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CONVERSION NOTICE

 

(To be signed upon exercise of Warrantpursuant to Sections 1(b) through 1(d))

 

The undersigned hereby irrevocably elects to exercisethe Conversion Right provided in Sections 1(b) through 1(d) of the within Warrant for, and to acquirethereunder,            sharesof Common Stock.  If said number ofshares shall not be all the shares purchasable under the within Warrant, a newWarrant is to be issued in the name of said undersigned for the balanceremaining of the shares purchasable thereunder rounded up to the next highernumber of shares.

 

Please issue a certificate or certificates for theshares of Common Stock in the name set forth below.

 
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|   |   |   | (Social  Security or Tax Ident. No.) |

 

*                                         The signature on the Conversion Notice must correspond to the name aswritten upon the face of the Warrant in every particular without alteration orenlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or otherentity, PLEASE indicate your position(s) and title(s) with such entity.

 

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ASSIGNMENT OF WARRANT

 

(To be signed only upon authorized transferof the Warrant)

 

FOR VALUE RECEIVED, the undersigned hereby sells,assigns, and transfers unto                    the right to purchase                     shares of Common Stock of MedicalCV, Inc., to which the within Warrant relatesand appoints                     ,as attorney-in-fact, to transfer said right on the books ofMedicalCV, Inc. with full power of substitution in the premises.  By accepting such transfer, the transfereehas agreed to be bound in all respects by the terms and conditions of the withinWarrant.

 
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|   |   |   | (Social  Security or Tax Ident. No.) |

 

 

*                                         The signature on the Assignment of Warrant must correspond to the nameas written upon the face of the Warrant in every particular without alterationor enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or otherentity, PLEASE indicate your positions) and title(s) with such entity.

 

 

 

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