Document:

EXHIBIT 10.4

 

 

 

 

 

 

 

 

 

011603

SUBORDINATED MORTGAGE,
SECURITY AGREEMENT

AND FIXTURE FINANCING STATEMENT

 

THIS SECOND MORTGAGE is made as of the 17th day of January, 2003, by
MedicalCV, Inc., a Minnesota corporation (“Mortgagor”)
for the benefit of PKM Properties, LLC, a Minnesota limited liability company (“Mortgagee”).

 

RECITALS

 

A.            Mortgagor is the owner of all the tracts or parcels of land located in Dakota County,
Minnesota, and described in attached Exhibit
A  (hereinafter called the “Land”),
together with:  (i) all of the
buildings, structures and other improvements now standing or at any time
hereafter constructed or placed upon the Land; (ii) all lighting, heating,
ventilating, air-conditioning, sprinkling and plumbing fixtures, water and
power systems, engines and machinery, boilers, furnaces, oil burners, elevators
and motors, communication systems, dynamos, transformers, electrical equipment
and all other fixtures of every description located in or on, or used, or
intended to be used in connection with the Land or any building or other
improvements now or hereafter located thereon (excluding, however, fixtures
owned by tenants occupying space in any building now or hereafter located on
the Land); (iii) all hereditaments, easements, appurtenances, riparian rights,
rents, issues, profits, condemnation awards, mineral rights and water rights
now or hereafter belonging or in any way pertaining to the Land or to any
building or other improvements now or hereafter located thereon and all the
estates, rights and interests of Mortgagor in the Land; (iv) all furniture,
furnishings, maintenance equipment and all other personal property now or
hereafter located in, or on, or used, or intended to be used in connection with
the Land or any building or other improvement now or hereafter located thereon
and all replacements and additions thereto (excluding personal property owned
by tenants occupying space in any building now or hereafter located on the
Land); and (v) all additions, accessions, increases, parts, fittings,
accessories, replacements, substitutions, betterments, repairs and proceeds to
any and all of the foregoing (all of the foregoing, together with the Land, are
hereinafter referred to as the “Mortgaged
Property”).

 

B.            The
Mortgaged Property is presently encumbered by a Mortgage, Security Agreement, Fixture Financing Statement, and Assignment
of Leases and Rents dated November 23, 1999, and recorded in the office of the
Dakota County Recorder on December 13, 1999, as Document No. 1659505 (the “First Mortgage”). 
The First Mortgage secures a promissory note, in the original principal
amount of Two Million Five Hundred Thousand Dollars ($2,500,000), originally
dated November 23, 1999, and amended by: 
(i) an instrument entitled Change of Terms Agreement, dated
November 23, 2000; (ii) an amended and restated Promissory Note dated March 27,
2002; (iii) an instrument entitled Change in Terms Agreement, dated
November 23, 2002; (iv) that certain Allonge given by Associated Bank
Minnesota, a Minnesota banking corporation f/k/a Riverside Bank in favor of
Mortgagee; and (v) an Amended and Restated Promissory Note of even date
herewith (collectively, the “First Mortgage
Note”).

 

 

 

 

C.            Mortgagee has agreed to make a
discretionary loan to Mortgagor in an amount not to exceed Nine Hundred Forty
Three Thousand Six Hundred Sixty Six Dollars ($943,666.00) pursuant to an
agreement dated as of January 17, 2003 entitled Discretionary Credit
Agreement (the “Discretionary Credit
Agreement”).  Each advance to
be made in connection with the Discretionary Credit Agreement will be evidenced
by a promissory note dated as of January 17, 2003 entitled Discretionary Credit
Note (the “Discretionary Credit Note”).  The Discretionary Credit Note is secured by
this Subordinated Mortgage, Security Agreement and Fixture Financing Statement
(the “Second Mortgage”), which
shall be considered subordinate to the First Mortgage.

 

GRANT OF MORTGAGE AND
SECURITY INTEREST

 

IN CONSIDERATION of
Mortgagee’s agreement to make a discretionary loan to Mortgagor on the basis
described in the Discretionary Credit Agreement, the Discretionary Credit Note,
and this Second Mortgage, and for the purpose of securing the repayment of:  (i) the indebtedness evidenced by the Discretionary
Credit Note and all renewals, extensions and modifications thereof and any note
issued in substitution thereof; (ii) the payment of all other sums, together with
interest thereon, as may be advanced by Mortgagee in accordance with this
Second Mortgage or the Discretionary Credit Note, and any other instruments
securing payment of the Discretionary Credit Note (the indebtedness evidenced
by the Discretionary Credit Note and all such other sums are hereinafter
collectively referred to as the “Indebtedness”);
and (iii) the performance of all of the covenants and agreements of Mortgagor
contained in the Discretionary Credit Agreement or any other document entered
into or given by Mortgagor in connection with the Additional Loan, Mortgagor
does hereby mortgage, grant, bargain, sell, assign, transfer and convey to
Mortgagee forever the Mortgaged Property described above.

 

To
Have and To Hold the Mortgaged Property unto Mortgagee forever; provided,
nevertheless, that this Second Mortgage is upon the express condition that if
Mortgagor shall pay to Mortgagee as and when due and payable the principal of
and interest on the Discretionary Credit Note and all other Indebtedness, and
shall also keep and perform each and every covenant and agreement herein
contained, then this Second Mortgage and the estate hereby granted shall cease
and be and become void and shall be released of record at the expense of
Mortgagor; otherwise this Second Mortgage shall be and remain in full force and
effect.

 

Mortgagor
represents, warrants and covenants to and with Mortgagee that Mortgagor is
lawfully seized of the Land in fee simple; Mortgagor has good right and full
power and authority under all applicable provisions of law to execute this
Second Mortgage and to mortgage the Mortgaged Property; that the Mortgaged Property
is free from all liens, security interests and encumbrances except the First
Mortgage and those interests listed on attached Exhibit B; that Mortgagor will warrant and defend the
title to the Mortgaged Property and the lien and priority of this Second
Mortgage against all claims and demands of all persons whomsoever, whether now
existing or hereafter arising, other than the First Mortgage and the interests listed
on attached Exhibit B; and
that all buildings and improvements now or hereafter located on the Land are,
or will be located entirely within the boundaries of the Land.  The covenants and warranties of this Section
shall survive foreclosure of this Second Mortgage and shall run with the Land.

 

 

 

 

PROVISIONS

 

1.             Payment of the Discretionary Credit Note and Other Indebtedness.  Mortgagor will duly and timely pay the
principal of and interest on the Discretionary Credit Note in accordance with its
terms, and all other Indebtedness, when and as due and payable.  The provisions of the Discretionary Credit
Note are hereby incorporated by reference into this Second Mortgage as fully as
if set forth at length herein.

 

2.             Taxes and Assessments. 
Mortgagor shall pay all real estate taxes and installments of special
assessments relating to the Mortgaged Property when due, prior to the
attachment of any penalty for nonpayment thereof.  If any special assessment is imposed against the Mortgaged
Property, Mortgagee may, at any time, require Mortgagor to pay off the entire balance of such assessments.  In addition, Mortgagee may, at any time,
require Mortgagor to pay to Mortgagee on the day monthly installments of
interest or principal and interest are payable under the Discretionary Credit
Note, until the Discretionary Credit Note is paid in full and all other
obligations under this Second Mortgage are satisfied, a sum equal to
one-twelfth (1/12) of the yearly taxes and assessments levied against the
Mortgaged Property as estimated initially and from time to time by Mortgagee,
to be applied by Mortgagee to pay said taxes and assessments (such amounts
being hereafter referred to as the “Tax Funds”).  Mortgagee shall apply the Tax Funds to pay
said taxes and assessments prior to the date that penalty attaches for
nonpayment so long as the amount of Funds held by Mortgagee is sufficient at
that time to make such payments.  No
earnings or interest shall be payable to Mortgagor on the Tax Funds.  Such Funds shall not be, nor be deemed to be,
trust funds, and Mortgagee shall have the right to hold the Tax Funds in any manner
Mortgagee elects and may commingle the Tax Funds with other moneys held by
Mortgagee.

 

                If the amount of the Tax Funds
held by Mortgagee shall exceed at any time the amount deemed necessary by
Mortgagee to provide for the payment of taxes and assessments, such excess
shall, at the option of Mortgagee, either be promptly repaid to Mortgagor or be
credited to Mortgagor on the next monthly installment of Funds due.  If at any time the amount of the Tax Funds
held by Mortgagee shall be less than the amount deemed necessary by Mortgagee
to pay taxes and assessments as they fall due, Mortgagor shall promptly pay to
Mortgagee any amount necessary to make up the deficiency upon notice from
Mortgagee to Mortgagor requesting payment thereof.  The Tax Funds are pledged as additional security for the
Indebtedness.

 

                If any Event of Default (as
defined in Section 18
hereof) occurs, Mortgagee may apply, at its election, and in any order
Mortgagee may, in its sole and absolute discretion, determine, any Tax Funds
held by Mortgagee at the time of application to pay taxes and assessments which
are then or will thereafter become due, or as a credit against the
Indebtedness.  Upon payment in full of
all Indebtedness, Mortgagee shall promptly refund to Mortgagors any Tax Funds
held by Mortgagee.

 

3.             Application of Payments. 
All payments received by Mortgagee from Mortgagor under the
Discretionary Credit Note or this Second Mortgage shall be applied by Mortgagee
in the following order of priority:  (i)
amounts payable to Mortgagee by Mortgagor under Section 2 hereof; (ii) interest payable on advances made
pursuant to Section 13
hereof; (iii) principal of advances made pursuant to Section 13 hereof; (iv) interest
payable on the Discretionary Credit Note, in such order as Mortgagee may
determine; (v) principal of the Discretionary Credit Note, in such order as
Mortgagee may determine; and (vi) any other sums secured by this Second
Mortgage, in such order of application as Mortgagee may determine.

 

 

 

 

4.             Payment of Taxes, Assessments and Other Charges.  Subject to payments in the manner provided
under Section 2 hereof and
to Section 9 relating to
contests, Mortgagor shall pay before a penalty may attach for nonpayment
thereof, all taxes and assessments and all other charges whatsoever levied upon
or assessed or placed against the Mortgaged Property, except that assessments
may be paid in installments so long as no fine or penalty is added to any
installment for the nonpayment thereof. 
Mortgagor shall likewise pay any and all governmental levies or
assessments such as maintenance charges, owner association dues or charges or
fees, levies or charges resulting from covenants, conditions and restrictions
affecting the Mortgaged Property, which are assessed or imposed upon the Mortgaged
Property or any part thereof or become due and payable, and which create, may
create or appear to create a lien upon the Mortgaged Property, or any part
thereof.  Mortgagor shall likewise pay
all taxes, assessments and other charges, levied upon or assessed, placed or
made against, or measured by, this Second Mortgage, or the recording hereof, or
the Indebtedness secured hereby.  If any
legislative action or judicial decision occurs after the date of this Second
Mortgage which imposes upon Mortgagee the obligation to pay any such taxes,
assessments or other charges, or which deducts the amount secured by this
Second Mortgage from the value of the Mortgaged Property for the purpose of
taxation, or which changes in any way the laws now in force for the taxation of
the mortgages or debts secured thereby, or the manner of the operation of any
such taxes so as to affect the interests of Mortgagee, then, and in such event,
Mortgagor shall bear and pay the full amount of such taxes, assessments or
other charges.  Notwithstanding the
foregoing provisions of this Section 4,
if for any reason payment by Mortgagor of any such taxes, assessments or other
charges would be unlawful, or if the payment thereof would render the
indebtedness evidenced by the Discretionary Credit Note usurious, Mortgagee may
declare the whole sum secured by the Mortgage, with interest thereon, to be
immediately due and payable.  Mortgagor
shall promptly furnish to Mortgagee all notices received by Mortgagor of
amounts due under this Section and in the event Mortgagor shall make payment
directly, Mortgagor shall promptly furnish to Mortgagee receipts evidencing
such payments.

 

5.             Payment of Utility Charges.  Subject to Section 9
relating to contests, Mortgagor shall pay all charges made by utility
companies, whether public or private, for electricity, gas, heat, water, sewer,
or other utility services furnished or used in connection with the Mortgaged
Property or any part thereof, and will, upon written request of Mortgagee,
furnish proper receipts evidencing such payment.

 

6.             Liens.  Subject to Section 9 hereof relating to contests,
Mortgagor shall not create, incur or suffer to exist any lien, encumbrance or
charge on the Mortgaged Property or any part thereof which might or could be
held to be equal or prior to the lien of this Second Mortgage, other than the
First Mortgage and the interests set forth in Exhibit B hereto. 
Mortgagor shall pay, when due, amounts due pursuant to the Indebtedness and
any other debt secured by any lien against the Mortgaged Property, including,
without limitation, the First Mortgage and the interests set forth in Exhibit B.

 

7.             Compliance with Laws. 
Subject to Section 9
relating to contests, Mortgagor shall comply with all present and future
statutes, laws, rules, orders, regulations and ordinances affecting the
Mortgaged Property, any part thereof or the use thereof.

 

8.             Hazardous Substances. 
Mortgagor represents and warrants to Mortgagee that except as disclosed
in the existing Phase I Environmental assessment dated September 27, 1999
prepared by Pinnacle Engineering, Inc.: 
(i) there are not present in, on or under the Mortgaged Property any
Hazardous Substances (as defined below); (ii) the Mortgaged Property is not
presently being used and, to the best of Mortgagor’s knowledge after due
inquiry, has not in the past been used, for the handling, storage,
transportation, manufacture, release or disposal of any Hazardous Substances; (iii)
there are no present and have not in the past been any claims, investigations,
administrative proceedings, litigation, regulatory hearings or requests or
demands for remedial or response actions or for compensation, which 

 

 

 

 

may be
proposed, threatened or pending with respect to the Mortgaged Property,
alleging noncompliance with or violation of any Environmental Law (as defined
below), seeking relief under any Environmental Law or relating to any required
environmental permits, licenses or authorizations; (iv) all reports and notices
required by any Environmental Law have been duly made with respect to the
Mortgaged Property, and all permits, licenses and authorizations required by
any Environmental Law have been obtained and are in full force and effect with
respect to the Mortgaged Property; (v) to the best of Mortgagor’s knowledge,
based upon its investigation and inquiry, there is not now present, nor has
there ever been present, in, on or under the Mortgaged Property any
above-ground or underground storage tanks used for the storage of petroleum,
petroleum by-products or any other Hazardous Substances; (vi) the Mortgaged
Property is not and never has been listed on the United States Environmental
Protection Agency’s National Priorities List of Hazardous Waste Sites or on any
other list, schedule, log, inventory or record of hazardous waste sites
maintained by any federal, state, or local agency; and (vii) Mortgagor has
disclosed and delivered to Mortgagee all environmental reports and
investigations which Mortgagor has obtained or ordered with respect to the
Mortgaged Property.

 

                Mortgagor shall not use, or
permit the use of, the Mortgaged Property for the handling, storage,
transportation, manufacture, release or disposal of any Hazardous
Substances.  In addition, Mortgagor
shall not install or maintain, or permit the installation or maintenance of,
any above-ground or underground storage tanks for the storage of petroleum,
petroleum by-products or other Hazardous Substances in, about or under the
Mortgaged Property unless:  (i)
Mortgagor has obtained the prior written consent of Mortgagee for such
installation and maintenance; and (ii) Mortgagor installs and maintains such
above-ground or underground storage tanks in compliance with all applicable
Environmental Laws.  Notwithstanding the
foregoing, Mortgagor and any occupant of the Mortgaged Property may use or
store immaterial amounts of commonly known and used materials which may be
deemed Hazardous Substances hereunder, provided that any such use or storage:  (A) does not constitute a remunerative
activity of Mortgagor; (B) is incidental to Mortgagor’s primary use of the
Mortgaged Property and does not constitute a primary use thereof; and (C)
complies at all times with all applicable Environmental Laws.

 

                Upon the occurrence of an Event
of Default hereunder or if Mortgagee, in its sole and absolute discretion,  believes that any Hazardous Substance is
present on or is being handled, stored, transported, manufactured, released or
disposed of in, on or under the Mortgaged Property, Mortgagee or its authorized
agent may enter upon the Mortgaged Property for the purpose of performing
inspections, taking soil borings, or conducting any other tests or procedures,
and obtain such further environmental reports as Mortgagee deems necessary or
appropriate, from a reputable environmental consultant of Mortgagee’s choice,
all at Mortgagor’s expense.  If any such
environmental report indicates any presence, handling, storage, transportation,
manufacture, release or disposal of Hazardous Substances in, on or under the
Mortgaged Property, Mortgagee may require Mortgagor, at Mortgagor’s expense, to
remedy any such presence, handling, storage, transportation, manufacture,
release or disposal to the satisfaction of Mortgagee.

 

                Mortgagor shall immediately
notify Mortgagee in writing of any claim, investigation, administrative
proceeding, litigation, regulatory hearing or request or demand for remedial or
response action or for compensation which may be proposed, threatened or
pending, alleging the presence, handling, storage, transportation, manufacture,
release or disposal of Hazardous Substances in, on or under the Mortgaged
Property.  Mortgagee shall have the
right, but not the obligation, to join and participate in any such
investigation, administrative proceeding, litigation, regulatory hearing or
other action and to have its attorneys’ fees and expenses in connection
therewith paid by Mortgagor.  Without 

 

 

 

 

Mortgagee’s
prior written consent, Mortgagor shall not take any remedial or response action
or enter into any settlement or other compromise with respect to any claim,
investigation, administrative proceeding, litigation, regulatory hearing or
request or demand for remedial or response action or for compensation which, in
Mortgagee’s reasonable judgment, may impair the value of Mortgagee’s security
under this Second Mortgage.

 

                For purposes of this Second
Mortgage:  (i) “Environmental Law” means the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et
seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1802 et
seq.,  the Toxic Substances Control
Act, 15 U.S.C. § 2601 et seq., the Federal Water Pollution Control Act, 33
U.S.C. §
1251 et seq., the Clean Water Act, 33 U.S.C. § 1321 et
seq., the Clean Air Act, 42 U.S.C. § 7401 et
seq., the Minnesota Environmental Response and Liability Act, Minn. Stat.
Chap. 115B, the Minnesota Petroleum Tank Release Cleanup Act, Minn. Stat. Chap.
115C, and any other federal, state, county, municipal, local or other statute,
law, ordinance or regulation which may relate to or deal with human health or
the environment, all as may be from time to time amended; and (ii)  “Hazardous
Substances” means asbestos urea formaldehyde, polychlorinated
biphenyls (“PCBs”), nuclear fuel
or material, chemical waste, radioactive material, explosives, known
carcinogens, petroleum products and by-products and other dangerous, toxic or
hazardous pollutants, contaminants, chemicals, materials or substances listed
or identified in, or regulated by, any Environmental Law.

 

9.             Permitted Contests.            Mortgagor
shall not be required to:  (i) pay any
tax, assessment or other charge referred to in Sections 2 or 4 hereof; (ii) pay any charge referred to in
Section 5 hereof, (iii) discharge
or remove any lien, encumbrance or charge referred to in Section 6 hereof, or (iv) comply with
any statute, law, rule, regulation or ordinance referred to in Section 7 hereof, so long as Mortgagor
shall:  (a) contest, in good faith, the
existence, amount or the validity thereof, the amount of damages caused thereby
or the extent of its liability therefor, by appropriate proceedings which shall
operate during the pendency thereof to prevent: (A) the collection of, or other
realization upon the tax, assessment, charge or lien, encumbrance or charge so
contested; (B) the sale, forfeiture or loss of the Mortgaged Property or any
part thereof; and (C) any interference with the use or occupancy of the
Mortgaged Property or any part thereof; and (b) shall give such security to
Mortgagee as may be demanded by Mortgagee to ensure compliance with the
foregoing provisions of this Section 9.  Mortgagor shall give prompt written notice
to Mortgagee of the commencement of any contest referred to in this Section 9.

 

10.           Insurance.  Mortgagor, at its sole cost and expense,
will maintain insurance of the following character:

 

a.                                       Insurance on the buildings and other improvements now existing or
hereafter erected on the Land, and on the fixtures and personal property included
in the Mortgaged Property, against loss by fire and other hazards covered by
the so-called “all-risk” form of policy without a co-insurance clause, in an
amount equal to the actual replacement cost thereof (exclusive of foundations
and excavations) without deduction for physical depreciation, which insurance
shall in no event be less than the sum of the unpaid principal balances secured
by the First Mortgage and this Second Mortgage at any given time.

 

b.                                      During any period when alterations are made to the Mortgaged
Property, Mortgagor shall provide builder’s risk insurance coverage in form,
substance, and in an amount reasonably acceptable to Mortgagee.

 

 

 

 

c.                                       If the Mortgaged Property includes steam boilers or other
equipment for the generation or transmission of steam, insurance against loss
or damage by explosion, rupture or bursting of steam boilers, pipes, turbines,
engines and other pressure vessels and equipment, in an amount satisfactory to
Mortgagee, without a co-insurance clause.

 

d.                                      If the Land or any part thereof is located in a designated
official flood-hazardous area, flood insurance insuring the buildings and
improvements now existing or hereafter erected on the Land in an amount equal
to the lesser of the principal balance of the Discretionary Credit Note or the
maximum limit of coverage made available with respect to such buildings and
improvements under the Federal Flood Disaster Protection Act of 1973, as
amended, and the regulations issued thereunder.

 

e.                                       Comprehensive general liability insurance protecting against
claims arising from any accident or occurrence in or upon the Mortgaged
Property in an amount acceptable to Mortgagee.

 

f.                                         Such worker’s compensation insurance as is required by statute.

 

g.                                      Insurance against interruption of business in respect of the
Mortgaged Property in an amount sufficient to pay twelve (12) months’ debt
service on the sum of the First Mortgage Note and Discretionary Credit Note,
and the First Mortgage and this Second Mortgage, including principal and
interest thereof and tax and assessment payments described in Section 2.

 

                All insurance policies and
renewals thereof maintained by Mortgagor shall be written by an insurance
carrier satisfactory to Mortgagee, in the case of the coverages described in Subsections a through d and g, contain
a standard mortgagee and lender loss payable clause in favor of and in form
acceptable to Mortgagee, contain an agreement of the insurer that it will not
cancel or modify the policy except after 30 days’ prior written notice to
Mortgagee, and be reasonably satisfactory to Mortgagee in all other
respects.  The insurance maintained
pursuant to Subsections e and f
shall name Mortgagee as an additional insured.

 

                Mortgagor will deliver to
Mortgagee certificates satisfactory to Mortgagee evidencing the insurance which
is required under Section 10,
and Mortgagor shall promptly furnish to Mortgagee copies of all renewal notices
and all receipts of paid premiums received by it.  At least 30 days prior to the expiration date of a required
policy, Mortgagor shall deliver to Mortgagee a certificate evidencing any renewal
in form satisfactory to Mortgagee.  If
Mortgagor has a blanket insurance policy in force providing coverage for
several properties of Mortgagor, including the Mortgaged Property, Mortgagee
will accept a certificate of such insurance together with a copy of such
blanket insurance policy; provided the certificate sets forth the amounts of
insurance and coverage, and such amounts are at least equal to the amounts
required hereinabove, the original policy of insurance is written by a carrier
or carriers acceptable to Mortgagee, insures against the risks set forth
hereinabove, cannot be amended, modified or canceled without thirty (30) days’
prior written notice to any mortgagee of Mortgagor, is in an amount not less
than the unpaid principal balance secured by the First Mortgage and this Second
Mortgage, and has a full replacement cost endorsement meeting the requirements
of this Section 10.  Promptly following any demand by Mortgagee,
Mortgagor shall deliver to Mortgagee copies of the policies required by this Section 10.

 

 

 

 

                If the Mortgaged Property is
sold at a foreclosure sale or if Mortgagee shall acquire title to the Mortgaged
Property, Mortgagee shall have all of the right, title and interest of
Mortgagor in and to any insurance policies required under Subsections a through d and g and the
unearned premiums thereon and in and to the proceeds resulting from any damage
to the Mortgaged Property prior to such sale or acquisition.

 

                If the Mortgaged Property or any
part thereof shall be damaged or destroyed by fire or other casualty, Mortgagor
will promptly give written notice thereof to the insurance carrier and
Mortgagee, and will not adjust any damage or loss unless Mortgagee shall have
joined in such adjustment; but if there has been no adjustment of any such
damage or loss within four (4) months from the date of occurrence thereof and
if an Event of Default shall exist at the end of such four-month period or at
any time thereafter, Mortgagee may alone make proof of loss, adjust and
compromise any claim under the policies and appear in and prosecute any action
arising from such policies.  In
connection therewith, Mortgagor does hereby irrevocably authorize, empower and
appoint Mortgagee as attorney-in-fact for Mortgagor (which appointment is
coupled with an interest) to do any and all of the foregoing in the name and on
behalf of Mortgagor.

 

                All sums paid under any
insurance policy required in Subsections 10
a through d and g shall be paid to Mortgagee.  Mortgagee shall at its option apply the
same, whether or not its security is impaired (after first deducting therefrom
Mortgagee’s expenses incurred in collecting the same including but not limited
to reasonable attorneys’ fees) to the reduction of the Indebtedness, whether or
not due, to the payment of the restoration, repair, replacement or rebuilding
of the Mortgaged Property that is damaged or destroyed, in such manner as
Mortgagee may determine.  If this Second
Mortgage is foreclosed, all right, title, and interest of Mortgagor in and to
any insurance policies then in force and proceeds of insurance not yet paid for
loss or damage shall pass to the purchaser at the foreclosure sale.  Any application of insurance proceeds shall
not extend or postpone the due dates of the monthly installments payable under
the Discretionary Credit Note or change the amount of such installments.

 

                Mortgagor shall promptly
reimburse Mortgagee upon demand for all of Mortgagee’s expenses incurred in
connection with the collection of the insurance proceeds, including but not
limited to reasonable attorneys’ fees, and all such expenses, together with
interest from the date of disbursement at the rate stated in the Discretionary
Credit Note (unless collection of interest from Mortgagor at such rate would be
contrary to applicable law, in which event such amounts shall bear interest at
the highest rate which may be collected from Mortgagor under applicable law)
shall be additional amounts secured by this Second Mortgage.

 

11.           Preservation
and Maintenance of the Mortgaged Property.  Mortgagor shall:  (i) keep the buildings and other improvements now or hereafter
erected on the Land in safe and good repair and condition, ordinary
depreciation excepted; (ii) upon damage to or destruction of the Mortgaged
Property or any part thereof by fire or other casualty, restore, repair,
replace or rebuild the Mortgaged Property that is damaged or destroyed to the
condition it was in immediately prior to such damage or destruction, whether or
not any insurance proceeds are available or sufficient for such purpose, unless
Mortgagee shall have elected to apply such proceeds to reduction of the
Indebtedness; (iii) constantly maintain the parking and landscaped areas of the
Mortgaged Property; (iv) not commit waste or permit impairment or deterioration
of the Mortgaged Property; (v) not alter or permit the alteration of the design
or structural character of any building now or hereafter erected on the Land or
hereafter constructed, or construct, additions to existing buildings or
additional buildings on the Land without the prior written consent of
Mortgagee; (vi) not remove from the Land any of the fixtures and personal
property included in the Mortgaged Property unless the same is immediately
replaced with property of at least equal value and utility, and this Second
Mortgage becomes a valid lien on such property subject only to the lien of the
First Mortgage and the interests described on attached Exhibit B.

 

 

 

 

12.           Inspection.  Mortgagee or its agents shall have the right,
at all reasonable times, to enter upon the Mortgaged Property for the purposes
of inspecting the Mortgaged Property or any part thereof.  Mortgagee shall, however, have no duty to
make such inspection.  If Mortgagor
exercises its rights to enter into the Mortgaged Property for purposes of
conducting an inspection or performing work as provided anywhere in this
Mortgage, then the Mortgagee shall:  (i)
give reasonable prior notice to Mortgagor; (ii) use reasonable efforts to
conduct the inspection or perform the work in a manner which will not interfere
with regulatory requirements of the United States Food and Drug Administration
of which Mortgagor advises Mortgagee in writing, except to the extent necessary
to protect Mortgagee’s interest in the Mortgaged Property; and (iii) not
unnecessarily enter into portions of the Mortgaged Property which contain
proprietary manufacturing processes and products.

 

13.           Protection
of Mortgagee’s Security. 
Subject to the rights of Mortgagor under Section 9 hereof, if Mortgagor fails to perform any of the
covenants and agreements contained in this Second Mortgage, or if any action or
proceeding is commenced which affects the Mortgaged Property or the interest of
Mortgagee therein, or the title thereto, then Mortgagee, at Mortgagee’s option,
may perform such covenants and agreements, defend against and/or investigate
such action or proceeding, and take such other action as Mortgagee deems
necessary to protect Mortgagee’s interest. 
Mortgagee shall be the sole judge of the legality, validity and priority
of any claim, lien, encumbrance, tax, assessment, charge and premium paid by it
and of the amount necessary to be paid in satisfaction thereof.  Mortgagee is hereby given the irrevocable
power of attorney (which power is coupled with an interest and is irrevocable)
to enter upon the Mortgaged Property as Mortgagor’s agent in Mortgagor’s name
to perform any and all covenants and agreements to be performed by Mortgagor as
herein provided.  Any amounts or
expenses disbursed or incurred by Mortgagee pursuant to this Section 13, with interest thereon,
shall become additional Indebtedness of Mortgagor secured by this Second
Mortgage.  Unless Mortgagor and
Mortgagee agree in writing to other terms of repayment, such amounts shall be
immediately due and payable, and shall bear interest from the date of
disbursement at the highest annual rate stated in the Discretionary Credit
Note, unless collection from Mortgagor of interest at such rate would be
contrary to applicable law, in which event such amounts shall bear interest at
the highest rate which may be collected from Mortgagor under applicable
law.  Mortgagee shall, at its option, be
subrogated to the lien of any mortgage or other lien discharged in whole or in
part by the Indebtedness or by Mortgagee under the provisions hereof, and any
such subrogation rights shall be additional and cumulative security for this
Second Mortgage.  Nothing contained in
this Section 13 shall require
Mortgagee to incur any expense or do any act hereunder, and Mortgagee shall not
be liable to Mortgagor for any damages or claims arising out of action taken by
Mortgagee pursuant to this Section 13.

 

14.  Condemnation.  Mortgagor hereby irrevocably assigns to
Mortgagee any award or payment which becomes payable by reason of any taking of
the Mortgaged Property, or any part thereof, whether directly or indirectly or
temporarily or permanently, in or by condemnation or other eminent domain
proceedings (hereinafter called a “Taking”).  Promptly upon receipt by Mortgagor of notice
of the institution of any proceeding or negotiations for a Taking, Mortgagor
shall give notice thereof to Mortgagee. 
Mortgagee may appear in any such proceedings and participate in any such
negotiations and may be represented by counsel.  Mortgagor, notwithstanding that Mortgagee may not be a party to
any such proceeding, will promptly give to Mortgagee copies of all notices,
pleadings, judgments, determinations and other papers received by Mortgagor
therein.  Mortgagor will not enter into
any agreement permitting or consenting to 

 

 

 

 

the
taking of the Mortgaged Property, or any part thereof, or providing for the
conveyance thereof in lieu of condemnation, with anyone authorized to acquire
the same in condemnation or by eminent domain unless Mortgagee shall first have
consented thereto in writing.  All
awards in connection with a Taking shall be adjusted jointly by Mortgagor and
Mortgagee.  All awards payable as a
result of a Taking shall be paid to Mortgagee, which may, at its option, apply
them, after first deducting Mortgagee’s expenses incurred in the collection
thereof, to the payment of the Indebtedness, whether or not due and in such
order of application as Mortgagee may determine, or to the repair or
restoration of the Mortgaged Property, in such manner as Mortgagee may
determine.  Any application of Taking
awards to principal of the Discretionary Credit Note shall not extend or postpone
the due dates of the monthly installments payable under the Discretionary
Credit Note or change the amount of such installments.

 

                If the Taking involves a taking
of any building or other improvement now or hereafter located on the Land,
Mortgagor shall proceed, with reasonable diligence, to demolish and remove any
ruins and complete repair or restoration of the Mortgaged Property as nearly as
possible to its respective size, type and character immediately prior to the
Taking, whether or not the condemnation awards are available or adequate to
complete such repair or restoration unless Mortgagee has applied the entire
condemnation award to payment of the Indebtedness.  Mortgagor shall promptly reimburse Mortgagee upon demand for all
of Mortgagee’s expenses (including reasonable attorney’s fees) incurred in the
collection of awards and their disbursement in accordance with this Section,
and all such expenses, together with interest from the date of disbursement at
the rate stated in the Discretionary Credit Note (unless collection of interest
from Mortgagor at such rate would be contrary to applicable law, in which event
such amounts shall bear interest at the highest rate which may be collected
from Mortgagor under applicable law) shall be additional amounts secured by
this Second Mortgage.

 

15.           Financial
Statements.  Mortgagor
shall provide the following financial statements to Mortgagee, all prepared in
accordance with generally accepted accounting principles, consistently applied:  (i) as soon as practicable after the end of
each calendar year, and in no event later than May 1st  of the following year, detailed financial
statements of Mortgagor, including a balance sheet and statements of income,
retained earnings and cash flows, prepared 
in accordance with generally accepted accounting principles, all in such
detail as Mortgagee may reasonably require; and (ii) any other information or
books and records relating to Mortgagor or the Mortgaged Property that
Mortgagee may reasonably require.

 

                Mortgagor shall keep and
maintain at all times at Mortgagor’s address stated below or at such other
place as Mortgagee may approve in writing, complete and accurate books of
accounts and records in sufficient detail to reflect correctly the results of
the operation of the Mortgaged Property and copies of all written contracts,
leases and other instruments which affect the Mortgaged Property.  Without limiting the foregoing, such books
and records shall show the name of each tenant occupying the Mortgaged
Property, the rent paid by each such tenant, and the security deposits paid by
such tenant, if any.  Such books,
records, contracts, leases and other instruments shall be subject to
examination and inspection by Mortgagee or its representative during ordinary
business hours.

 

16.           No
Further Financing. 
Mortgagor shall not create, permit to be created, or permit to remain,
any subordinate lien on the Mortgaged Property or any part thereof to secure
any indebtedness for borrowed money, without obtaining the prior written
consent of Mortgagee.

 

17.           Security
Interest.  This Second
Mortgage shall constitute a security agreement with respect to (and Mortgagor
hereby grants Mortgagee a security interest in) all personal property and
fixtures included in the Mortgaged Property as more specifically described in Grant
of Mortgage and Security Interest 

 

 

 

 

Sections
of this Mortgage.  Mortgagor authorizes
Mortgagee to record any financing statements covering such personal property
and fixtures (in a form satisfactory to Mortgagee) which Mortgagee may
reasonably consider necessary or appropriate to perfect its security interest
in such items, with or without Mortgagor’s signature on such financing
statements.

 

18.           Events
of Default.  Each of the
following occurrences shall constitute an event of default hereunder (herein called
an “Event of Default”):

 

a.                                       There occurs any default under the First Mortgage or the First
Mortgage Note which is not cured within any applicable cure period provided for
therein (and the terms and conditions of the First Mortgage Note and the First
Mortgage are incorporated herein by reference for this purpose).

 

b.                                      Mortgagor does not duly and timely pay any installment of
interest or principal and interest payable under the Discretionary Credit Note
on the date such installment is due.

 

c.                                       Mortgagor shall subject the Mortgaged Property to the lien of any
further financing in default of Mortgagor’s agreement contained in Section 16 hereof.

 

d.                                      Mortgagor shall fail to duly and timely pay when and as due any
payment for taxes and assessments required to be paid by Section 2.

 

e.                                       Mortgagor shall fail to duly and timely provide the insurance
coverage required under Section 10.

 

f.                                         Mortgagor shall fail duly to perform or observe any other of the
covenants or agreements contained in this Second Mortgage, the Discretionary
Credit Agreement, or the Discretionary Credit Note and not specifically cited
as an Event of Default elsewhere in this Section
18.

 

g.                                      Mortgagor shall make an assignment for the benefit of its
creditors, or Mortgagor shall generally not be paying its debts as they become
due, or a petition is be filed by or against Mortgagor under the United States
Bankruptcy Code, or Mortgagor shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of a material part of its
properties or of the Mortgaged Property or there is an appointment of a
trustee, receiver or liquidator of any material part of its properties or of
the Mortgaged Property.

 

h.                                      A judgment, writ or warrant of attachment or execution, or
similar process is entered and becomes a lien on, or is issued or levied
against, the Mortgaged Property or any part thereof and shall not be released,
vacated or fully bonded within fifteen (15) days after its entry, issue or
levy.

 

i.                                          The Mortgaged Property, or any part thereof, shall be sold,
conveyed, transferred, encumbered or full possessory rights therein
transferred, or the controlling interest in Mortgagor shall be sold, conveyed,
transferred or encumbered, whether voluntarily, involuntarily or by operation
of law; this provision shall apply to each and every sale, transfer, conveyance
or encumbrance regardless of whether or not Mortgagee has consented or waived
its rights, whether by action or omission, in connection with any previous
sale, transfer, conveyance or encumbrance.

 

 

 

 

j.                                          An event of default, however defined, shall occur under the
Discretionary Credit Agreement or any other instrument or document given by
Mortgagor in connection with the First Mortgage or this Second Mortgage.

 

19.           Acceleration.  If an Event of Default occurs and is
continuing, Mortgagee may, at its option, without notice to Mortgagor, declare
the entire Indebtedness evidenced by the Discretionary Credit Note, or
otherwise secured hereby, immediately due and payable.

 

20.           Remedies.  If an Event of Default occurs and is continuing, Mortgagor, upon
demand of Mortgagee, shall forthwith surrender to Mortgagee the actual
possession of the Mortgaged Property. If and to the extent permitted by law,
Mortgagee, or such officers or agents as Mortgagee may appoint, may enter and
take possession of all or any part of the Mortgaged Property, and may exclude
Mortgagor and its agents and employees therefrom, and may have joint access
with Mortgagor to the books, papers and accounts of Mortgagor.

 

                                If
Mortgagor shall, for any reason, fail to surrender or deliver any such
Mortgaged Property or any part thereof after such demand by Mortgagee,
Mortgagee may obtain a judgment or decree conferring on Mortgagee the right to
immediate possession or requiring Mortgagor to deliver immediate possession of
all or part of such Mortgaged Property to Mortgagee, and Mortgagor hereby
specifically consents to the entry of that judgment or decree.  Mortgagor will pay to Mortgagee, upon
demand, all expenses of obtaining such judgment or decree and reasonable
compensation to Mortgagee, its attorneys and agents; and all such expenses and
compensation shall, until paid, be considered a part of the Indebtedness
secured by the lien of this Second Mortgage.

 

                                Upon
every such entering upon or taking of possession, Mortgagee may hold, store,
use, operate, manage and control the Mortgaged Property and conduct the
business thereof, and from time to time: 
(i) make all necessary and proper maintenance, repairs, renewals,
replacements, additions, betterments and improvements thereto and thereon and
purchase or otherwise acquire additional fixtures, personal property and other
property; (ii) insure or keep the Mortgaged Property insured; (iii) lease,
manage and operate the Mortgaged Property and exercise all rights and powers of
Mortgagor to the same extent as Mortgagor could in its own name or otherwise
with respect to the same; (iv) enter into any and all agreements with respect
to the exercise by others of any of the powers herein granted to Mortgagee, all
as Mortgagee from time to time may determine to be in its own best
interest.  Mortgagee may collect and
receive all the rents and other income payable in connection with the Mortgaged
Property, including those past due as well as those accruing thereafter, and,
after deducting:  (A) all expenses of
taking, holding, managing and operating the Mortgaged Property (including
compensation for the services of all persons employed for such purposes); (B)
the cost of all such maintenance, repairs, renewals, replacements, additions,
betterments, improvements and purchases and acquisitions; (C) the cost of such
insurance as Mortgagee may determine to be necessary, appropriate or desirable;
(D) such taxes, assessments, and other similar charges as Mortgagee may
determine to pay; (E) other proper charges upon the Mortgaged Property or any
part thereof; and (F) the reasonable compensation, expenses and disbursements
of the attorneys and agents of Mortgagee, shall apply the remainder of the
monies and proceeds so received by Mortgagee to the Indebtedness evidenced by
the Discretionary Credit Note or otherwise secured hereby.  Mortgagee shall have no liability for any
loss, damage, injury, cost or expense resulting from any action or omission by
it or its representatives which was taken or omitted in good faith.

 

 

 

 

                If
an Event of Default occurs and is continuing, Mortgagee, upon application to a
court of competent jurisdiction, shall be entitled, without notice and without
regard to the occupancy of the Mortgaged Property, the insolvency of the
Mortgagor, any showing of waste of the Mortgaged Property, or inadequacy of the
Mortgaged Property as security for the Indebtedness, to the appointment of a
receiver to take possession of and to operate the Mortgaged Property and to
collect and apply the rents and other income thereof.  The receiver shall have all of the rights and powers provided
under, and to the fullest extent permitted by, applicable law.  Mortgagor shall pay to Mortgagee upon demand
all expenses, including receiver’s fees, costs and agent’s compensation,
incurred pursuant to the provisions of this Section; and all such expenses
shall be secured by this Second Mortgage.

 

If an Event of Default shall
have occurred and is continuing, Mortgagee may, either with or without entry or
taking possession as hereinabove provided or otherwise, proceed by suit or
suits at law or in equity or by any other appropriate proceeding or
remedy:  (i) to enforce payment of the
Discretionary Credit Note or the performance of any term of the Discretionary
Credit Note or this Second Mortgage; (ii) Mortgagee may (and is hereby
authorized and empowered to) foreclose this Mortgage by action or
advertisement, pursuant to Chapters 580 through 582 of the statutes of the State
of Minnesota in such case made and provided, power being expressly granted to
sell the Mortgaged Property (including, without limitation, and at the option
of the Mortgagee, any personal property or other rights constituting a part
thereof) at public auction and convey the same to the purchaser in fee simple
and, out of the proceeds arising from such sale, to pay all or any part of the
Indebtedness secured hereby with interest, and all legal costs and charges of
such foreclosure and the maximum attorneys’ fees permitted by law, which costs,
charges and fees the Mortgagor agrees to pay; (iii) to collect the rents and
other income payable under any or all leases of the Mortgaged Property directly
from the tenants thereunder upon notice to each such tenant that an Event of
Default exists hereunder accompanied by a demand on such tenant for the payment
to Mortgagee of all rents and other charges due and to become due under that
tenant’s lease, and Mortgagor FOR THE BENEFIT
OF MORTGAGEE AND EACH SUCH TENANT hereby covenants and agrees that
the tenant shall be under no duty to question the accuracy of Mortgagee’s
statement regarding the occurrence of an Event of Default, and shall
unequivocally be authorized to pay such rents and other amounts due pursuant to
the lease in question to Mortgagee without regard to the truth of Mortgagee’s
statement regarding the occurrence of an Event of Default and notwithstanding
notices from Mortgagor disputing the existence of an Event of Default such that
the payment of rent and other charges by tenant to Mortgagee pursuant to such a
demand shall constitute performance in full as to Mortgagor of the tenant’s
obligation under the lease in question to the extent of the rents and/or other
charges so paid to Mortgagee; and (iv) to pursue any other right or remedy
available to Mortgagee, all as the Mortgagee shall deem most effectual for such
purposes.  Mortgagee shall take action
either by such proceedings or by the exercise of its powers with respect to
entry or taking possession, as Mortgagee may determine.

 

                                Mortgagee,
at Mortgagee’s option, is authorized to foreclose this Second Mortgage, subject
to or free of the rights of any tenants of the Mortgaged Property.  The failure to make any tenants of the
Mortgaged Property parties defendant to any foreclosure proceedings and to
foreclose their rights will not be, nor be asserted by Mortgagor to be, a
defense to any proceedings instituted by the Mortgagee to collect the
Indebtedness secured by this Second Mortgage, or any deficiency remaining
unpaid after the foreclosure sale of the Mortgaged Property.

 

                                No
delay or omission of Mortgagee or of any holder of the Discretionary Credit
Note to exercise any right, power or remedy accruing upon any Event of Default
shall exhaust or impair any such right, power or remedy or shall be construed
to be a waiver of any such default, or acquiescence therein; and 

 

 

 

 

every right, power and remedy given by this Mortgage to Mortgagee may
be exercised from time to time and as often as may be deemed expedient by
Mortgagee.  Acceleration
of maturity of the Discretionary Credit Note, once claimed hereunder by
Mortgagee, may, at the option of Mortgagee, be rescinded by written
acknowledgment to that effect by Mortgagee, but the tender and acceptance of
partial payments alone shall not in any way affect or rescind such acceleration
of maturity of the Discretionary Credit Note, provided that any such
acceleration shall be subject to Mortgagor’s right of reinstatement as provided
in

Minnesota Statutes §580.30.

 

                                No
waiver of any Event of Default shall be effective unless made in writing by
Mortgagee.  No waiver of any Event of
Default hereunder shall extend to or shall affect any subsequent or any other
then existing Event of Default or shall impair any rights, powers or remedies
consequent thereon.

 

                                No
right, power or remedy conferred upon or reserved to Mortgagee by this Second
Mortgage is intended to be exclusive of any other right, power or remedy, but
each and every such right, power and remedy shall be cumulative and concurrent
and shall be in addition to any other right, power and remedy given hereunder
or now or hereafter existing at law or in equity or by statute.

 

                                Mortgagee
hereby is subrogated to the claims and liens of all parties whose claims or
liens are discharged or paid with the proceeds of the Indebtedness secured by
this Mortgage.

 

21.  Further Assurances.  Mortgagor will do, execute, acknowledge and
deliver all further acts, deeds, conveyances, transfers, security interests,
security agreements, financing statements, renewals, certificates, affidavits,
continuation statements and other documents and assurances necessary or proper
to effectuate, complete, or perfect, or to continue and preserve, or to
preserve and protect, the obligations of Mortgagor under the Discretionary
Credit Agreement, the Discretionary Credit Note and other documents given in
connection with the Additional Loan, and the lien and security interest
provided for by this Second Mortgage in the Mortgaged Property or any part
thereof, or to preserve and protect the Mortgaged Property, and  Mortgagor agrees that this shall be done at
Mortgagor’s sole expense, not later than fifteen (15) days after demand by
Mortgagee.  Upon any failure by
Mortgagor to do so, Mortgagee may make, execute, record, file, re-record and/or
re-file any and all such acts, deeds, conveyances, transfers, security
interests, security agreements, financing statements, renewals, certificates,
affidavits, continuation statements and other documents and assurances for and
in the name of Mortgagor, and Mortgagor hereby irrevocably appoints Mortgagee
the agent and attorney-in-fact of Mortgagor to do so.

 

22.           Estoppel
Certificate.  Mortgagor
agrees at any time and from time to time, upon not less than fifteen (15) days
prior notice by Mortgagee, to execute, acknowledge and deliver, without charge,
to Mortgagee or to any person designated by Mortgagee, a statement in writing
certifying:  (i) that the First Mortgage
and this Second Mortgage are unmodified (or if there have been modifications,
identifying the same by the date thereof and specifying the nature thereof); (ii)
the principal amount then secured by the First Mortgage Note and the
Discretionary Credit Note; (iii) the unpaid balance of the First Mortgage Note
and Discretionary Credit Note; (iv) that Mortgagor has not received any notice
of an Event of Default or notice of acceleration or foreclosure of the First
Mortgage or this Second Mortgage (or if Mortgagor has received such a notice,
that it has been revoked, if such be the case); (v) that to the knowledge of
Mortgagor, no Event of Default exists under the First Mortgage, First Mortgage
Note, this Second Mortgage, or the Discretionary Credit Note (or if any such
Event of Default does exist, specifying the same and stating that the same has
been cured, if that is the case); (vi) that Mortgagor, to its knowledge, has no
claims or offsets against Mortgagee (or if Mortgagor has any such claims,
specifying the same); and (vii) the dates to which the principal, interest and
other sums and charges payable by Mortgagor pursuant to the First Mortgage Note
and Discretionary Credit Note have been paid.

 

 

 

 

23.           Successors
and Assigns Bound; Number; Gender; Agents; Captions; Amendments.  The covenants and agreements herein
contained shall bind, and the rights hereunder shall inure to, the respective
heirs, legal representatives, successors and assigns of Mortgagee and
Mortgagor; provided, however, that this Section
23 shall not limit the effect of Section 18.  Wherever
used, the singular number shall include the plural, and the plural the
singular, and the use of any gender shall apply to all genders.  The captions and headings of the Sections of
this Second Mortgage are for convenience only and are not to be used to
interpret or define the provisions hereof. 
No amendment of this Second Mortgage shall be effective unless in a
writing executed by Mortgagor and Mortgagee.

 

24.           Notice.  Any notice to a party this Second Mortgage
shall be deemed to have been given and received by upon delivery by courier, or
when mailed by certified mail, return receipt requested, at the following
address:

 

	
   

  	
  If to Mortgagor:

  	
  MedicalCV, Inc.

  9725 South Robert Trail

  Inver Grove Heights, MN 55077

  Attention:  Chief Executive Officer

  

 

 

 

 

	
   

  	
  If to Mortgagee:

  	
  PKM Properties, LLC

  c/o Gracon Contracting, Inc.

  606 24th Avenue South, Suite B12

  Minneapolis, MN 55454

  Attention:  Paul K. Miller

  

 

or at
such other address as Mortgagor may designate in writing to Mortgagee.  Mortgagor shall give Mortgagee at least
thirty (30) days’ prior written notice of any change in Mortgagor’s name,
jurisdiction of organization, or address of its chief executive office.

 

25.           Governing
Law; Severability.  This
Second Mortgage shall be governed by the substantive laws of the State of
Minnesota.  In the event that any
provision or clause of this Second Mortgage conflicts with applicable law, such
conflict shall not affect other provisions of this Second Mortgage which can be
given effect without the conflicting provisions and to this end the provisions
of the Mortgage are declared to be severable.

 

26.                                 Counterparts.  This Second Mortgage may be executed in any
number of counterparts, each of which shall be an original, but  all of which together shall constitute one instrument.

 

27.           Production
of Documents.  Mortgagor
shall, while this Second Mortgage is in full force and effect, furnish
Mortgagee with such documents, instruments and papers as Mortgagee may
reasonably request from time to time in order for Mortgagee to assign this
Second Mortgage or effectuate a sale or a participation in the Additional Loan
evidenced by the Discretionary Credit Note and this Second Mortgage.

 

28.           Waiver
of Marshalling. 
Mortgagor, any party who consents to this Second Mortgage and any party
who now or hereafter acquires a lien on the Mortgaged Property and who has
actual or constructive notice of this Second Mortgage hereby waives any and all
right to require the marshalling of assets in connection with the exercise of
any of the remedies permitted by applicable law or provided herein.

 

29.           Fixture
Filing.  From the date of
its recording, this Second Mortgage shall be effective as a financing statement
filed as a fixture filing with respect to all goods constituting part of the
Mortgaged Property which are or which may become fixtures related to the Land described
herein.  For this purpose, the following
information is set forth:

 

a.             Name and Address of Debtors
(Mortgagor):

 

MedicalCV,
Inc.

9725
South Robert Trail

Inver
Grove Heights, MN 55077

Attention:  Chief Executive Officer

 

b.             Name and Address of Secured Party
(Mortgagee):

 

PKM
Properties, LLC

c/o
Gracon Contracting, Inc.

606
24th Avenue South, Suite B12

Minneapolis,
MN 55454

Attention:  Paul K. Miller

 

 

 

 

c.                                       This document covers goods which are or are to become fixtures.

 

d.                                      The name of the record owner of the Land is the Debtor described
above.

 

e.                                       The Organizational Identification Number of the Debtor is 7J-436.

 

30.           Future
Advances

 

a.                                       As of the date of this Second Mortgage, Four Hundred Forty Three
Thousand Six Hundred Sixty Six Dollars ($443,666) of the original principal
amount of the Discretionary Credit Note have been disbursed to Mortgagor.  Mortgagee’s obligation to disburse the remaining
Five Hundred Thousand Dollar ($500,000) balance of the Discretionary Credit
Note shall be considered a discretionary facility, and Mortgagee may disburse
or refrain from disbursing all or any portion of such balance in Mortgagee’s
sole and absolute discretion.

 

b.                                      At such time as Mortgagor closes an anticipated Three Million
Dollar ($3,000,000) loan to be made by TCF National Bank, the remaining balance
of the Discretionary Credit Note shall be considered a committed facility, and
Mortgagee’s obligation to disburse the balance of the Discretionary Credit Note
in conformance and subject to the provisions of the Discretionary Credit
Agreement shall be considered mandatory.

 

c.                                       Because this Second Mortgage secures future advances, the amount
of such advances is not currently known. 
The acceptance of this Second Mortgage by Mortgagee, however,
constitutes an acknowledgment that Mortgagee is aware of the provisions of
Minnesota Statutes § 287.05, subd. 5, and intends to comply with the requirements
contained therein.

 

d.                                      The maximum principal amount of indebtedness secured by this
Second Mortgage at any one time, excluding advances made by Mortgagee in
protection of the Mortgaged Property or the lien of this Second Mortgage, shall
be Nine Hundred Forty Three Thousand Six Hundred Sixty Six Dollars ($943,666).

 

e.                                       The representations contained in Subsections b and c of this Section 30 are made solely for the
benefit of county recording authorities in determining the mortgage registry
tax payable as a prerequisite to the recording of this Second Mortgage.  Mortgagor acknowledges that such
representations do not constitute or imply an agreement by Mortgagee to make
any future advances to Mortgagor other than in conformance with the provisions
of Subsections a and b of
this Section 30 or other
applicable provisions of this Second Mortgage.

 

 

 

 

IN WITNESS WHEREOF, Mortgagor has caused this Second Mortgage to be duly executed
as of the day and year first-above written.

 

 

MEDICALCV,
INC.

 

 

	
  By

  	
  /s/ Blair P. Mowery

  
	
   

  	
   

  
	
  Its

  	
  President and CEO

  

 

 

 

	
  STATE OF MINNESOTA

  	
  )

  	
   

  
	
   

  	
  )

  	
  ss.

  
	
  COUNTY OF HENNEPIN

  	
  )

  	
   

  
	
   

  	
   

  	
   

  

The
foregoing instrument was acknowledged before me this 17th day of
January, 2003, by Blair P. Mowery, the Chief Executive Officer of MedicalCV,
Inc., a corporation under the laws of Minnesota, on behalf of the corporation.

 

 

	
  /s/ Sjur Midness

  
	
  Notary Public

  

 

This instrument was drafted by:

 

FREDRIKSON & BYRON, P. A.

4000 Pillsbury Center

200 South Sixth Street

Minneapolis, Minnesota  55402

 

 

 

 

EXHIBIT A

 

That part of the West Half (W 1⁄2) of the
Southwest Quarter (SW 1⁄4) of Section Nineteen (19), Township Twenty-seven (27),
Range Twenty-two (22), Dakota County, Minnesota lying Northerly of the
Northerly right-of-way line of Minnesota State Trunk Highway No. 3 and Westerly
of the Westerly right-of-way line of the Chicago, Milwaukee, St. Paul and
Pacific Railroad Company;

 

EXCEPT that part thereof included within the
North 417.42 feet of the East 417.42 feet of the Northwest Quarter (NW 1⁄4) of
the Southwest Quarter (SW 1⁄4) of Section Nineteen (19), Township Twenty-seven
(27), Range Twenty-two (22), Dakota County, Minnesota, as measured along the
North and East lines thereof; and

 

EXCEPT that part described as follows:  Commencing at the Northwest corner of said
West Half (W 1⁄2) of the Southwest Quarter (SW 1⁄4); thence South 0 degrees 01
minutes 18 seconds East (assumed bearing), a distance of 700 feet along the
West line of said West Half (W 1⁄2) of the Southwest Quarter (SW 1⁄4) to the point
of beginning of the parcel to be described; thence North 89 degrees 58 minutes
42 seconds East a distance of 500 feet; thence South 0 degrees 01 minutes 18
seconds East a distance of 343.44 feet; more or less, to the Northerly
right-of-way line of State Trunk Highway No. 3; thence Southwesterly along said
right-of-way line 604.14 feet, more or less, to its intersection with the West
line of said West Half (W 1⁄2) of the Southwest Quarter (SW 1⁄4); thence Northerly
along said West line 666.87 feet, more or less, to the point of beginning,
according to the Government Survey thereof; located in Dakota County, Minnesota
(Abstract Property).

 

 

 

EXHIBIT B

 

 

1.                                       Facts which
would be disclosed by a comprehensive survey of the premises described herein.

 

2.                                       Real estate
taxes and installments of special assessments due and payable in 2003 and
thereafter.

 

3.                                       Mortgage,
Assignment of Rents, Security Agreement and Fixture Financing Statement
executed by CV Dynamics, Inc. in favor of Riverside Bank, dated November 23,
1999, filed December 13, 1999, as Document No. 1659505 in the original amount
of $2,500,000.00.

 

4.                                       Financing
Statement by and between CV Dynamics, Inc. as debtor, and Riverside Bank as
secured party, filed January 20, 2000, as Document No. 1667451.

 

5.                                       Conditional Use
Permit issued by the City of Inver Grove Heights dated July 14, 1997, recorded
July 24, 1997 as Document No. 1434761 indicating the approval of the Inver
Grove Heights City Council of a Conditional Use Permit to allow a PCS tower on
the property at 9605 Jefferson Trail (L-1, limited industrial zoning district).  City Council Resolution No. 6854 approved
May 12, 1997.

 

6.                                       Subject to road
easement in favor of the State of Minnesota as set forth in final certificate
recorded February 2, 1955 in Book 64, page 240.

 

7.                                       Easement
between Soo Line Railroad Company, a Minnesota corporation, in favor of
Cooperative Power Association, a Minnesota Corporation, dated November 15,
1991, recorded January 10, 1992 for construction and maintenance of electric
transmission lines.

 

8.                                       Trunk
watermain, sanitary sewer extension and utility easement(s) over the
Southeasterly 20 feet lying south of the north 417.42 feet of the Northwest 1⁄4
of the Southwest 1⁄4 in favor of the City of Inver Grove Heights, as created in
Document No. 1740919.EXHIBIT 10.5

 

WARRANT

 

To Purchase
350,000 Shares of

Common
Stock

of

MEDICALCV,
INC.

 

This Warrant and the
securities issuable upon exercise of this Warrant have not been registered
under the Securities Act of 1933 (the “Securities Act”) or under any state
securities or “Blue Sky” laws (“Blue Sky Laws”). No transfer, sale, assignment,
pledge, hypothecation or other disposition of this Warrant or the securities
issuable upon exercise of this Warrant or any interest therein may be made
except (a) pursuant to an effective registration statement under the Securities
Act and any applicable Blue Sky Laws or (b) if the Company has been furnished
with an opinion of counsel for the holder, which opinion and counsel shall be
reasonably satisfactory to the Company, to the effect that no registration is
required because of the availability of an exemption from registration under
the Securities Act and applicable Blue Sky Laws.

 

THIS CERTIFIES THAT,
for good and valuable consideration, PKM PROPERTIES, LLC a Minnesota limited
liability company (“PKM Properties”) or its registered assigns, is
entitled to subscribe for and purchase from MedicalCV, Inc., a Minnesota
corporation (the “Company”), at any time to and including the date that
is five (5) years after the date hereof. 
Three Hundred Fifty Thousand (350,000) fully paid and nonassessable
shares of the Common Stock of the Company at the price of  $0.596 per share (the “Warrant Exercise
Price”), subject to the antidilution provisions of this Warrant.  The shares which may be acquired upon
exercise of this Warrant are referred to herein as the “Warrant Shares.” As
used herein, the term “Holder” means PKM Properties, any party who acquires all
or a part of this Warrant as a registered transferee of PKM Properties, or any
record holder or holders of the Warrant Shares issued upon exercise, whether in
whole or in part, of the Warrant; the term “Common Stock” means the Company’s
Common Stock, $.01 par value.

 

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

 

1.             Exercise;
Conversion Right; Transferability

 

(a)           The rights represented by this
Warrant 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 a
fractional share of Common Stock), by written notice of exercise (in the form
attached hereto) delivered to the Company at the principal office of the
Company prior to the expiration of this Warrant and accompanied or preceded by
the surrender of this Warrant along with a check in payment of the Warrant
Exercise Price for such shares.

 

(b)           Subject
to the restrictions on transfer of this Warrant or the Warrant Shares set forth
herein, the Holder of this Warrant shall have the right to require the Company
to convert this Warrant (the “Conversion Right’) at any time after the
date hereof and prior to its expiration into shares of Common Stock as provided
for in Sections 1(b) through 1(d) hereof. 
Upon exercise of the Conversion Right, the Company shall deliver to the
Holder (without payment by the Holder of any Warrant Exercise Price) that
number of shares of Company Common Stock equal to the quotient obtained by
dividing (i) the value of the Warrant at the time the Conversion Right is
exercised (determined by subtracting the aggregate Warrant Exercise Price for
the Warrant Shares in effect immediately prior to the exercise of the
Conversion Right from the aggregate Fair Market Value (as defined in
Section 10 hereof) for the Warrant Shares immediately prior to the exercise
of the Conversion Right) by (ii) the Fair Market Value of one share of Common
Stock immediately prior to the exercise of the Conversion Right.

 

 

 

 

(c)           The
Conversion Right may be exercised by the Holder, at any time or from time to
time, after the date hereof and prior to its expiration, on any business day by
delivering a written notice in the form attached hereto (the “Conversion
Notice”) to the Company at the offices of the Company exercising the
Conversion Right and specifying (i) the total number of shares of Common Stock
the Holder will purchase pursuant to such conversion and (ii) a place and date
not less than one or more than 20 business days from the date of the Conversion
Notice for the closing of such purchase.

 

(d)           At
any closing under Section 1(c) hereof, (i) the Holder will surrender the
Warrant, (ii) the Company will deliver to the Holder a certificate or
certificates for the number of shares of Common Stock issuable upon such
conversion, 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 of
shares, if any, with respect to which the Warrant shall not have been
exercised.

 

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

 

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

 

3.             Issuance
of the Warrant Shares.

 

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

 

(b)           Notwithstanding the foregoing, the
Company shall not be required to deliver any certificate for Warrant Shares
upon exercise of this Warrant except in accordance with exemptions from the
applicable securities registration requirements or registrations under
applicable securities laws.  Nothing
herein, however, shall obligate the Company to effect registrations under
federal or state securities laws, except as provided in Section 9.  If registrations are not in effect and if
exemptions are not available when the Holder seeks to exercise the Warrant, the
Warrant exercise period will be extended, if need be, to prevent the 

 

 

 

 

Warrant
from expiring, until such time as either registrations become effective or
exemptions are available, and the Warrant shall then remain exercisable for a
period of at least 30 calendar days from the date the Company delivers to the
Holder written notice of the availability of such registrations or
exemptions.  The Holder agrees to
execute such documents and make such representations, warranties, and
agreements as may be required solely to comply with the exemptions relied upon
by the Company, or the registrations made, for the issuance of the Warrant
Shares.

 

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

 

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

 

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

 

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

 

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

 

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

 

then,
in any such event, the Warrant Exercise Price in effect immediately prior to
such event shall (until adjusted again pursuant hereto) be adjusted immediately
after such event to a price (calculated to the nearest full cent) determined by
dividing (A) the number of shares of Common Stock outstanding immediately prior
to such event, multiplied by the then existing Warrant Exercise Price, by (B)
the total number of shares of Common Stock outstanding immediately after such
event (including in each case the maximum number of shares of Common Stock
issuable in respect of any securities convertible into Common Stock), and the
resulting quotient shall be the adjusted Warrant Exercise Price per share.  An adjustment made pursuant to this
subsection shall become effective immediately after the record date in the case
of a dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
reclassification.  If, in connection
with an adjustment made pursuant to this subsection or otherwise, the Holder of
any Warrant thereafter surrendered for exercise shall become entitled to receive
shares of two or more classes of capital stock or shares of Common Stock and
other capital stock of the Company, the Board of Directors (whose determination
shall be conclusive) shall determine the allocation of the adjusted Warrant
Exercise Price between or among shares of such classes of capital stock or
shares of Common Stock and other capital stock.  All calculations under this subsection shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.  In the event that at any time, in connection
with an adjustment made pursuant to this subsection or otherwise, the Holder of
any Warrant thereafter surrendered for exercise shall become entitled to
receive any shares of the Company other than shares of Common Stock, thereafter
the Warrant Exercise Price of such other shares so receivable upon exercise of
any Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
Common Stock contained in this Section.

 

 

 

 

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

 

(c)           In case of any consolidation or
merger to which the Company is a party other than a merger or consolidation in
which the Company is the continuing corporation, or in case of any sale or
conveyance to another corporation of all or substantially all of the assets of
the Company, as an entirety, or in the case of any statutory exchange of
securities with another corporation (including any exchange effected in
connection with a merger of a third corporation into the Company), there shall
be no adjustment under subsection (a) of this Section above but the Holder of
each Warrant then outstanding shall have the right thereafter to convert such
Warrant into the kind and amount of shares of stock and other securities and
property which the Holder would have owned or have been entitled to receive
immediately after such consolidation, merger, statutory exchange, sale, or
conveyance had such Warrant been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale, or
conveyance.  The Company shall give
written notice, by first-class mail, postage prepaid, addressed to the
Holder as shown on the books of the Company, of the date on which such
consolidation, merger, sale, conveyance or statutory exchange shall take
place.  Such notice shall also specify
the date as of which the Holder shall be entitled to exchange such Holder’s
Warrant Shares (if any) for securities or other property deliverable upon such
consolidation, merger, sale, conveyance or statutory exchange, as the case may
be.  Such written notice shall be at
least 20 days prior to the action in question. 
In any such case, if deemed necessary by the Company’s Board of
Directors to fairly protect the rights of the Holders stated herein,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section with respect to the rights and interests thereafter of any
Holders of the Warrant, to the end that the provisions set forth in this
Section shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock and other securities and
property thereafter deliverable on the exercise of the Warrant.  The provisions of this subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.

 

(d)           Upon any adjustment of the Warrant
Exercise Price, then and in each such case, the Company shall give written
notice thereof, by first-class mail, postage prepaid, addressed to the
Holder as shown on the books of the Company, which notice shall state the
Warrant 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 upon
the exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.

 

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

 

7.             Notice
of 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 Warrant
or 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 to
counsel to the original purchaser of this Warrant.  If in the opinion of each such counsel the proposed transfer may
be effected without registration or qualification (under any federal or state
securities laws), the Company, as promptly as practicable, shall notify the
Holder 

 

 

 

 

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

 

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

 

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

 

9.             Registration
Rights.

 

(a)           If the Company at any time within two
(2) years after complete exercise of this Warrant proposes to register under
the Securities Act (except by a Form S-4 or Form S-8 Registration
Statement or any successor forms thereto) any of its equity securities, it will
give written notice to all Holders of this Warrant, any Warrants issued
pursuant to Section 2 and/or Section 3(a) hereof, and any Warrant Shares of its
intention to do so and, on the written request of any such Holder given within
twenty (20) days after receipt of any such notice (which request shall specify
the interest in this Warrant or the Warrant Shares intended to be sold or
disposed of by such Holder and describe the nature of any proposed sale or
other disposition thereof), the Company will use its best efforts to cause all
such Warrant Shares, the Holders of which shall have requested the registration
or qualification thereof, to be included in such registration statement
proposed to be filed by the Company; provided that:

 

(i)            if a greater number of Warrant
Shares is offered for participation in the proposed offering than in the
reasonable opinion of the managing underwriter of the proposed offering can be
accommodated without adversely affecting the proposed offering, then the amount
of Warrant Shares proposed to be offered by such Holders for registration, as
well as the number of securities of any other selling shareholders
participating in the registration, shall be proportionately reduced to a number
deemed satisfactory by the managing underwriter

 

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

 

 

 

 

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

 

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

 

(b)           Further, on a one-time basis
only, provided Form S-3, or such successor form as may be adopted, is
available, during the term of this Warrant, upon request by the Holder or
Holders of a majority in interest of this Warrant, of any Warrants issued
pursuant 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 Holders
may reasonably request, such number of Warrant Shares issued and to be issued
upon conversion of the Warrants requested by such Holders in their request to
the Company; provided that the Company shall not be obligated to include any
Warrant Shares in any such registration for any Holder who is able to sell all
of the Warrant Shares in a single transaction pursuant to Rule 144 under the
Securities Act (or any other similar rule or regulation) during the three-month
period beginning on the date such notice is received by such holder, calculated
as of the date of such receipt.  The
Company shall keep effective and maintain any registration, qualification,
notification, or approval specified in this Paragraph (b) for such period as
may be reasonably necessary for such Holder or Holders of such Warrant Shares
to dispose thereof and from time to time shall amend or supplement the
prospectus used in connection therewith to the extent necessary in order to
comply with applicable law.

 

(c)           Upon the exercise of registration rights
pursuant to this Section 9, Holder agrees to supply the Company with such
information as may be required by the Company to register or qualify the shares
to be registered.

 

(d)           With respect to each inclusion of
securities in a registration statement pursuant to this Section 9, the Company
shall bear the following fees, costs, and expenses: all registration, filing
and NASD fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, fees and disbursements of counsel for the
underwriter or underwriters of such securities (if the Company is required to
bear such fees and disbursements), all internal expenses, and legal fees and
disbursements and other expenses of complying with state securities laws of any
jurisdictions in which the securities to be offered are to be registered or
qualified.  Fees and disbursements of
special counsel and accountants for the selling Holders, underwriting discounts
and commissions, and transfer taxes for selling Holders and any other expenses
relating to the sale of securities by the selling Holders not expressly
included above shall be borne by the selling Holders.

 

(e)           The Company hereby indemnifies each
of the Holders of this Warrant and of any Warrant Shares, and the officers and
directors, if any, who control such Holders, within the meaning of Section 15
of the Securities Act, against all losses, claims, damages, and liabilities
caused by (i) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus (and as amended or
supplemented if the Company shall have furnished any amendments thereof or
supplements thereto), any Preliminary Prospectus or any state securities law
filings; (ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as such losses, claims, damages, or liabilities are
caused by any untrue statement or omission contained in information furnished
in writing to the Company by such Holder expressly for use 

 

 

 

 

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

 

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

 

(a)           If the Company’s Common Stock is
traded on an exchange or is quoted on the Nasdaq National Market, then the
average 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 not
traded on an exchange or on the Nasdaq National Market but is traded on the
Nasdaq SmallCap Market, then the average of the closing bid and ask prices
reported for the ten (10) business days immediately preceding the Determination
Date; or

 

(c)           If the Company’s Common Stock is not
traded on an exchange, on the Nasdaq National Market, or on the Nasdaq SmallCap
Market, then the fair market value as determined in good faith by the Board of
Directors of the Company.

 

[signature
page follows]

 

 

 

 

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

 

 

	
   

  	
  MEDICALCV, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Blair P. Mowery

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its

  	
  President and CEO

  

 

 

 

 

NOTICE OF EXERCISE OF
WARRANT

 

(To be signed upon the exercise of the
Warrant)

 

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

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Name)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Address)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Social
  Security or Tax Ident. No.)

  

 

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

 

 

CONVERSION NOTICE

 

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

 

The undersigned hereby irrevocably elects to exercise
the Conversion Right provided in Sections 1(b) through 1(d) of the within Warrant for, and to acquire
thereunder,            shares
of Common Stock.  If said number of
shares shall not be all the shares purchasable under the within Warrant, a new
Warrant is to be issued in the name of said undersigned for the balance
remaining of the shares purchasable thereunder rounded up to the next higher
number of shares.

 

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

 

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

 

 

ASSIGNMENT OF WARRANT

 

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

 

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

 

	
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  (Social
  Security or Tax Ident. No.)

  

 

 

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00050-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00050-of-00352.parquet"}]]