Document:

EXHIBIT 10.2

 

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

 

MEDICALCV, INC.

 

FORM OF WARRANT

 

	
  Warrant No. [  ]

  	
   

  	
  Original Issue Date: April 1, 2005

  

 

MedicalCV, Inc.,
a Minnesota corporation (the “Company”),
hereby certifies that, for value received, [       ]
or its registered assigns (the “Holder”), is
entitled to purchase from the Company up to a total of [            ](1) shares of Common Stock (each
such share, a “Warrant Share” and all such
shares, the “Warrant Shares”), at any time and
from time to time from and after the Original Issue Date and through and
including April 1, 2010 (the “Expiration Date”),
and subject to the following terms and conditions:

 

1.             Definitions. 
As used in this Warrant, the following terms shall have the respective
definitions set forth in this Section 1. 
Capitalized terms that are used and not defined in this Warrant that are
defined in the Purchase Agreement (as defined below) shall have the respective
definitions set forth in the Purchase Agreement.

 

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

 

(1) A number of shares equal to 75% of the number of shares into which
the Preferred Stock may initially be converted (without regard to any conversion
caps or other limitations thereunder).

 

 

“Common Stock”
means the common stock of the Company, par value $0.01 per share, and any
securities into which such common stock may hereafter be reclassified.

 

“Exercise Price” means
$0.50, subject to adjustment in accordance with Section 9.

 

“Fundamental Transaction”
means any of the following: (1) the Company effects any merger or consolidation
of the Company with or into another Person, (2) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or
another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (4) the Company effects any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property.

 

“Original Issue Date”
means the Original Issue Date first set forth on the first page of this
Warrant.

 

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

 

“Purchase Agreement”
means the Securities Purchase Agreement, dated March 31, 2005, to which the
Company and the original Holder are parties.

 

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

 

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

 

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

 

2.             Registration of Warrant.  The Company shall register this Warrant upon
records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof
from time to time.  The Company may deem and
treat the registered Holder

 

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of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes,
absent actual notice to the contrary.

 

3.             Registration of Transfers.  The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Company at its address specified herein. 
Upon any such registration or transfer, a new Warrant to purchase Common
Stock, in substantially the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing the
remaining portion of this Warrant not so transferred, if any, shall be issued
to the transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights
and obligations of a holder of a Warrant.

 

4.             Exercise and Duration of Warrants.  This Warrant shall be exercisable by the
registered Holder at any time and from time to time on or after the Original
Issue Date and through and including the Expiration Date.  At 5:30 p.m., New York City time on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value.  The
Company may not call or redeem any portion of this Warrant without the prior
written consent of the affected Holder.

 

5.             Delivery of Warrant Shares.

 

(a)           To
effect exercises hereunder, the Holder shall not be required to physically
surrender this Warrant unless the aggregate Warrant Shares represented by this
Warrant is being exercised.  Upon
delivery of the Exercise Notice (in the form attached hereto) to the Company
(with the attached Warrant Shares Exercise Log) at its address for notice set
forth herein and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, the Company shall
promptly (but in no event later than three Trading Days after the Date of
Exercise (as defined herein)) issue and deliver to the Holder, a certificate
for the Warrant Shares issuable upon such exercise, which, unless otherwise
required by the Purchase Agreement, shall be free of restrictive legends.  The Company shall, upon request of the Holder
and subsequent to the date on which a registration statement covering the
resale of the Warrant Shares has been declared effective by the Securities and
Exchange Commission, use its reasonable best efforts to deliver Warrant Shares
hereunder electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions, if available, provided,
that, the Company may, but will not be required to change its transfer agent if
its current transfer agent cannot deliver Warrant Shares electronically through
the Depository Trust Corporation.  A “Date of Exercise” means the date on which the Holder shall
have delivered to the Company: (i) the Exercise Notice (with the Warrant
Exercise Log attached to it), appropriately completed and duly signed and (ii)
if such Holder is not utilizing the cashless exercise provisions set forth in
this Warrant, payment of the Exercise Price for the number of Warrant Shares so
indicated by the Holder to be purchased.

 

(b)           If
by the third Trading Day after a Date of Exercise the Company fails to deliver
the required number of Warrant Shares in the manner required pursuant to
Section 5(a), then the Holder will have the right to rescind such exercise.

 

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(c)           If
by the third Trading Day after a Date of Exercise the Company fails to deliver
the required number of Warrant Shares in the manner required pursuant to
Section 5(a), and if after such third Trading Day and prior to the receipt of
such Warrant Shares, the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”), then the Company shall
(1) pay in cash to the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to the Holder
in connection with the exercise at issue by (B) the closing bid price of the
Common Stock at the time of the obligation giving rise to such purchase
obligation and (2) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder.  The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In.

 

(d)           The
Company’s obligations to issue and deliver Warrant Shares in accordance with
the terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation
of law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of Warrant Shares.  Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing Warrant Shares upon exercise of the Warrant as
required pursuant to the terms hereof.

 

6.             Charges, Taxes and Expenses.  Issuance and delivery of Warrant Shares upon
exercise of this Warrant shall be made without charge to the Holder for any
issue or transfer tax, withholding tax, transfer agent fee or other incidental
tax or expense in respect of the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant
Shares or Warrants in a name other than that of the Holder.  The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.

 

7.             Replacement of Warrant.  If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity (which shall not include a surety bond), if
requested.  Applicants for a New Warrant
under such circumstances shall also comply with such other

 

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reasonable regulations and procedures and pay such other reasonable
third-party costs as the Company may prescribe. 
If a New Warrant is requested as a result of a mutilation of this
Warrant, then the Holder shall deliver such mutilated Warrant to the Company as
a condition precedent to the Company’s obligation to issue the New Warrant.

 

8.             Reservation of Warrant Shares.  The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of Persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company
covenants that all Warrant Shares so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with
the terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.

 

9.             Certain Adjustments.  The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9.

 

(a)           Stock
Dividends and Splits.  If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Exercise Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of
this paragraph shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.

 

(b)           Fundamental
Transactions.  If, at any time while
this Warrant is outstanding there is a Fundamental Transaction, then the Holder
shall have the right thereafter to receive, upon exercise of this Warrant, the
same amount and kind of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the holder of the
number of Warrant Shares then issuable upon exercise in full of this Warrant
(the “Alternate Consideration”).  For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to
such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this

 

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Warrant following
such Fundamental Transaction.  At the
Holder’s option and request, any successor to the Company or surviving entity
in such Fundamental Transaction shall, either (1) issue to the Holder a new
warrant substantially in the form of this Warrant and consistent with the
foregoing provisions and evidencing the Holder’s right to purchase the
Alternate Consideration for the aggregate Exercise Price upon exercise thereof,
or (2) purchase the Warrant from the Holder for a purchase price, payable in
cash within five Trading Days after such request (or, if later, on the
effective date of the Fundamental Transaction), equal to the Black Scholes
value of the remaining unexercised portion of this Warrant on the date of such
request.  The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this paragraph (c) and insuring that the Warrant (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

 

(c)           Subsequent
Equity Sales.

 

(i)            While
this Warrant is outstanding, if the Company or any subsidiary thereof, as
applicable, shall at any time issue shares of Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock, at a price
per share less than the Exercise Price (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights issued in
connection with such issuance, be entitled to receive shares of Common Stock at
a price less than the Exercise Price, such issuance shall be deemed to have
occurred for less than the Exercise Price), then, the Exercise Price shall be
reduced to equal such lower price.  Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued.  The Company shall notify the
Holder in writing, no later than the Trading Day following the issuance of any
Common Stock or Common Stock Equivalent subject to this section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms.

 

(ii)           For
purposes of this subsection 9(c), the following subsections (c)(ii)(l) to
(c)(ii)(6) shall also be applicable:

 

(1)  Issuance of Rights or Options.  In case at any time the Company shall in any
manner grant (directly and not by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any options for
the purchase of, Common Stock or any stock or security convertible into or
exchangeable for Common Stock (such warrants, rights or options being called “Options” and such convertible or exchangeable stock or
securities being called “Convertible Securities”)
whether or not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the sum (which sum shall constitute the applicable consideration) of (x)
the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus (y) the aggregate amount
of additional consideration payable to the Company upon the exercise of all
such Options, plus (z), in the case of such Options which relate to Convertible
Securities,

 

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the aggregate
amount of additional consideration, if any, payable upon the issue or sale of
such Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be
less than the Exercise Price in effect immediately prior to the time of the
granting of such Options, then the total number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of
the total amount of such Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued for such price per share as of
the date of granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding for purposes of adjusting
the Exercise Price.  Except as otherwise
provided in subsection 9(c)(ii)(3), no adjustment of the Exercise Price shall
be made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities.

 

(2)  Issuance of Convertible Securities.  In case the Company shall in any manner issue
(directly and not by assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert any such
Convertible Securities are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the sum (which sum shall constitute the applicable consideration)
of (x) the total amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus (y) the aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (ii) the total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Exercise Price in effect immediately prior
to the time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per share as of
the date of the issue or sale of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Exercise Price,
provided that (a) except as otherwise provided in subsection 9(c)(ii)(3), no
adjustment of the Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities and (b)
no further adjustment of the Exercise Price shall be made by reason of the
issue or sale of Convertible Securities upon exercise of any Options to
purchase any such Convertible Securities for which adjustments of the Exercise
Price have been made pursuant to the other provisions of subsection 9(c).

 

(3)  Change in Option Price or Conversion
Rate.  Upon the happening of any of
the following events, namely, if the purchase price provided for in any Option
referred to in subsection 9(c)(ii)(l) hereof, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities
referred to in subsections 9(c)(ii)(l) or 9(c)(ii)(2), or the rate at which
Convertible Securities referred to in subsections 9(c)(ii)(l) or 9(c)(ii)(2)
are convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the time
of such event shall forthwith be readjusted to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional

 

7

 

consideration or
conversion rate, as the case may be, at the time initially granted, issued or
sold.  On the termination of any Option
for which any adjustment was made pursuant to this subsection 9(c) or any right
to convert or exchange Convertible Securities for which any adjustment was made
pursuant to this subsection 9(c) (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by the
Company), the Exercise Price then in effect hereunder shall forthwith be
changed to the Exercise Price which would have been in effect at the time of
such termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never been issued.

 

(4)  Stock Dividends.  Subject to the provisions of this Section 9(c),
in case the Company shall declare a dividend or make any other distribution
upon any stock of the Company (other than the Common Stock) payable in Common
Stock, Options or Convertible Securities, then any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without
consideration.

 

(5)  Consideration for Stock.  In case any shares of Common Stock, Options
or Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the gross amount received by the Company
therefor, provided that all deductions therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Company in
connection therewith shall not exceed 10% of the aggregate consideration
received.  In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value of such consideration
as determined in good faith by the Board of Directors of the Company, after
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith as long as
such expenses, commissions or concessions do not exceed 10% in the aggregate.  In case any Options shall be issued in
connection with the issue and sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued for such consideration as determined in good faith by the
Board of Directors of the Company.  If
Common Stock, Options or Convertible Securities shall be issued or sold by the
Company and, in connection therewith, other Options or Convertible Securities
(the “Additional Rights”) are issued, then
the consideration received or deemed to be received by the Company shall be
reduced by the fair market value of the Additional Rights (as determined using
the Black-Scholes option pricing model or another method mutually agreed to by
the Company and the Holder).  The Board
of Directors of the Company shall respond promptly, in writing, to an inquiry
by the Holders as to the fair market value of the Additional Rights.  In the event that the Board of Directors of
the Company and the Required Holders are unable to agree upon the fair market
value of the Additional Rights, the Company and the Required Holders shall
jointly select an appraiser, who is experienced in such matters.  The decision of such appraiser shall be final
and conclusive, and the cost of such appraiser shall be borne evenly by the
Company and the Holders.

 

(6)  Record Date.  In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to

 

8

 

subscribe for or
purchase Common Stock, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.

 

(iii)          Notwithstanding
the foregoing, no adjustment will be made under this paragraph (c) in respect
of: (i) the issuance of securities upon the exercise or conversion of any
Common Stock or Common Stock Equivalents issued by the Company prior to the
date hereof (but will apply to any amendments, modifications and reissuances
thereof), (ii) the grant of options, warrants or other Common Stock Equivalents
under any duly authorized Company stock option, restricted stock plan or stock
purchase plan whether now existing or hereafter approved by the Compensation
Committee of the Company’s Board of Directors in the future (but not as to any
amendments or other modifications to the amount of Common Stock issuable
thereunder, the terms set forth therein, or the exercise price set forth
therein) and the issuance of Common Stock in respect thereof, (iii) Securities
issuable to Investors pursuant to the Transaction Documents, (iv) the issuance
of up to an aggregate of 1,680,000 shares of Common Stock underlying warrants
issued to J. Giordano or Tower Finance Ltd. as compensation in connection with
the transaction contemplated by the Transaction Documents, (v) the issuance of
an aggregate of 10,000,000 shares of Common Stock or Common Stock Equivalents
in connection with Strategic Transactions of which up to 3,000,000 shares
(subject to equitable adjustment for intervening stock splits and similar
events) of Common Stock or Common Stock Equivalents may be issued in connection
with Strategic Transactions not approved by the Company’s shareholders, (vi) up
to an aggregate of 1,000,000 shares (subject to equitable adjustment for
intervening stock splits and similar events) of Common Stock or Common Stock
Equivalents issued to the Company’s primary landlord in connection with a
restructuring of the Company’s headquarters’ lease, or (vii) the issuance of up
to an aggregate of 8,171,000 shares of Common Stock pursuant to options that
may be issued to members of the Company’s management.

 

(d)           Number
of Warrant Shares.  Simultaneously
with any adjustment to the Exercise Price pursuant to this Section 9, the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the adjusted number of
Warrant Shares shall be the same as the aggregate Exercise Price in effect
immediately prior to such adjustment.

 

(e)           Calculations.  All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable.  The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.

 

(f)            Notice
of Adjustments.  Upon the occurrence
of each adjustment pursuant to this Section 9, the Company at its expense
will promptly compute such adjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant

 

9

 

Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing
the transactions giving rise to such adjustments and showing in detail the
facts upon which such adjustment is based. 
Upon written request, the Company will promptly deliver a copy of each
such certificate to the Holder and to the Company’s Transfer Agent.

 

(g)           Notice
of Corporate Events.  If the Company
(i) declares a dividend or any other distribution of cash, securities or other
property in respect of its Common Stock, including without limitation any
granting of rights or warrants to subscribe for or purchase any capital stock
of the Company or any Subsidiary, (ii) authorizes or approves, enters into any
agreement contemplating or solicits shareholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the
Holder a notice describing the material terms and conditions of such
transaction (but only to the extent such disclosure would not result in the
dissemination of material, non-public information to the Holder) at least 10
calendar days prior to the applicable record or effective date on which a
Person would need to hold Common Stock in order to participate in or vote with
respect to such transaction, and the Company will take all steps reasonably
necessary in order to insure that the Holder is given the practical opportunity
to exercise this Warrant prior to such time so as to participate in or vote
with respect to such transaction; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the validity of the
corporate action required to be described in such notice.

 

10.           Payment of Exercise Price. The Holder may pay the
Exercise Price in one of the following manners:

 

(a)           Cash
Exercise.  The Holder may deliver
immediately available funds; or

 

(b)           Cashless
Exercise.  If an Exercise Notice is
delivered at a time following the Effectiveness Date under the Registration
Rights Agreement when a registration statement permitting the Holder to resell
the Warrant Shares is not then effective or the prospectus forming a part
thereof is not then available to the Holder for the resale of the Warrant
Shares, then the Holder may notify the Company in an Exercise Notice of its
election to utilize cashless exercise, in which event the Company shall issue
to the Holder the number of Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the
Holder.

 

Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.

 

A = the average of the closing prices for the five
Trading Days immediately prior to (but not including) the Exercise Date.

 

B = the Exercise Price.

 

10

 

For purposes of Rule 144 promulgated under the
Securities Act, it is intended, understood and acknowledged that the Warrant
Shares issued in a cashless exercise transaction shall be deemed to have been
acquired by the Holder, and the holding period for the Warrant Shares shall be
deemed to have commenced, on the date this Warrant was originally issued.

 

11.           Limitations on Exercise.  Notwithstanding anything to the contrary
contained herein, the number of Warrant Shares that may be acquired by the
Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall
be limited to the extent necessary to insure that, following such exercise (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder’s for purposes of
Section 13(d) of the Exchange Act, does not exceed 9.999% of the total number
of issued and outstanding shares of Common Stock (including for such purpose
the shares of Common Stock issuable upon such exercise).  For such purposes, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. 
This provision shall not restrict the number of shares of Common Stock
which a Holder may receive or beneficially own in order to determine the amount
of securities or other consideration that such Holder may receive in the event
of a Fundamental Transaction as contemplated in Section 9 of this Warrant.  This restriction may not be waived.(2)

 

12.           No Fractional Shares.  No fractional shares of Warrant Shares will
be issued in connection with any exercise of this Warrant.  In lieu of any fractional shares which would,
otherwise be issuable, the Company shall pay cash equal to the product of such
fraction multiplied by the closing price of one Warrant Share as reported by
the applicable Trading Market on the date of exercise.

 

13.           Notices.  Any
and all notices or other communications or deliveries hereunder (including,
without limitation, any Exercise Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 5:30 p.m. (New York City time) on a Trading
Day, (ii) the next Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number specified
in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New
York City time) on any Trading Day, (iii) the Trading Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be
given.  The addresses for such communications
shall be:  (i) if to the Company, to
MedicalCV, Inc., 9725 South Robert Trail, Inver Grove Heights, Minnesota 55077,
Attn: Chief Financial Officer, or to Facsimile
No.:  (651) 452-4948 (or such other
address as the Company shall indicate in writing in accordance with this
Section), or (ii) if to the Holder, to the address or facsimile number
appearing on the Warrant Register or such other address or facsimile number as
the Holder may provide to the Company in accordance with this Section.

 

(2) This provision will not appear in the warrant for either PKM
Properties, LLC or Paul K. Miller or their respective successors, personal
representatives and assigns.

 

11

 

14.           Warrant Agent. 
The Company shall serve as warrant agent under this Warrant.  Upon 10 days’ notice to the Holder, the
Company may appoint a new warrant agent. 
Any corporation into which the Company or any new warrant agent may be
merged or any corporation resulting from any consolidation to which the Company
or any new warrant agent shall be a party or any corporation to which the
Company or any new warrant agent transfers substantially all of its corporate
trust or shareholders services business shall be a successor warrant agent
under this Warrant without any further act. 
Any such successor warrant agent shall promptly cause notice of its
succession as warrant agent to be mailed (by first class mail, postage prepaid)
to the Holder at the Holder’s last address as shown on the Warrant Register.

 

15.           Miscellaneous.

 

(a)           This
Warrant shall be binding on and inure to the benefit of the parties hereto and
their respective successors and assigns. 
Subject to the preceding sentence, nothing in this Warrant shall be
construed to give to any Person other than the Company and the Holder any legal
or equitable right, remedy or cause of action under this Warrant.  This Warrant may be amended only in writing
signed by the Company and the Holder and their successors and assigns.

 

(b)           All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York (except for matters governed by
corporate law in the State of Minnesota), without regard to the principles of
conflicts of law thereof.  Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of this Warrant and the transactions herein contemplated (“Proceedings”) (whether brought against a party hereto or
its respective Affiliates, employees or agents) shall be commenced exclusively
in the New York Courts.  Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New York
Courts for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any Proceeding, any claim that
it is not personally subject to the jurisdiction of any New York Court, or that
such Proceeding has been commenced in an improper or inconvenient forum. Each
party hereto hereby irrevocably waives personal service of process and consents
to process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and
agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Warrant or the transactions contemplated
hereby.  If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party
in such Proceeding shall be reimbursed by the other party for its attorney’s
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such Proceeding.

 

(c)           The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.

 

12

 

(d)           In
case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

 

(e)           Prior
to exercise of this Warrant, the Holder hereof shall not, by reason of being a
Holder, be entitled to any rights of a shareholder with respect to the Warrant
Shares.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

13

 

IN WITNESS WHEREOF, the Company has caused this
Warrant to be duly executed by its authorized officer as of the date first
indicated above.

 

 

	
   

  	
  MEDICALCV, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

14

 

EXERCISE NOTICE

MEDICALCV, INC.

WARRANT DATED APRIL
1, 2005

 

The undersigned Holder hereby irrevocably elects to
purchase                     
shares of Common Stock pursuant to the above referenced Warrant.  Capitalized terms used herein and not
otherwise defined have the respective meanings set forth in the Warrant.

 

(1)           The
undersigned Holder hereby exercises its right to purchase                        
Warrant Shares pursuant to the Warrant.

 

(2)           The
Holder intends that payment of the Exercise Price shall be made as (check one):

 

                “Cash Exercise” under Section 10

 

                “Cashless Exercise” under Section 10

 

(3)           If
the holder has elected a Cash Exercise, the holder shall pay the sum of $                  
to the Company in accordance with the terms of the Warrant.

 

(4)           Pursuant
to this Exercise Notice, the Company shall deliver to the holder                   
Warrant Shares in accordance with the terms of the Warrant.

 

(5)           By its delivery of this Exercise
Notice, the undersigned represents and warrants to the Company that in giving
effect to the exercise evidenced hereby the Holder will not beneficially own in
excess of the number of shares of Common Stock (determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934) permitted to be owned
under Section 11 of this Warrant to which this notice relates.

 

 

	
  Dated:                   ,      

  	
   

  	
  Name of Holder:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Print)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature must conform in all respects to

  name of holder as specified on the face of the

  Warrant)

  
								

 

15

 

Warrant
Shares Exercise Log

 

	
  Date

  	
   

  	
  Number of Warrant

  Shares Available to be

  Exercised

  	
   

  	
  Number of Warrant Shares

  Exercised

  	
   

  	
  Number of

  Warrant Shares

  Remaining to

  be Exercised

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

16

 

MEDICALCV, INC. 

WARRANT ORIGINALLY
ISSUED APRIL 1, 2005

WARRANT NO.
[  ]

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of
Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto                                                              
the right represented by the above-captioned Warrant to purchase                    
shares of Common Stock to which such Warrant relates and appoints                   
attorney to transfer said right on the books of the Company with full power of
substitution in the premises.

 

Dated:                  ,
       

 

 

	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform in all respects to name of

  holder as specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address of Transferee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  In the presence of:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
				

 

17EXHIBIT 10.3

 

FORM OF DEBT CONVERSION AGREEMENT

 

DEBT CONVERSION AGREEMENT,
dated effective the 29th day of March, 2005, by and between MedicalCV, Inc.,
a Minnesota corporation (the “Company”), and                                 
(the “Lender”).

 

RECITALS

 

1.                                       Lender
has previously made available to the Company certain loans described in Exhibit A
attached hereto and made a part hereof (collectively, the “Loans”).

 

2.                                       Under
the Loans, the Company is indebted to Lender in the principal amount of $                 ,
plus accrued interest thereon
through the effective time of the conversion effected hereby, if any
(collectively the “Loan Balance”).

 

3.                                       The
Company seeks to complete a private placement (the “Private Placement”) of its
5% Series A Convertible Preferred Stock (the “Preferred Stock”) and Common
Stock Purchase Warrants (the “Warrants”
and together with the Preferred Stock collectively, the “Securities”)
and has requested that Lender convert the Loans into the Securities, to be
purchased pursuant to the terms and conditions of that certain Securities
Purchase Agreement in the form attached hereto as Exhibit B and
made a part hereof (the “Securities Purchase Agreement”).

 

4.                                       Lender
has reviewed the Securities Purchase Agreement and the documents appended
thereto (collectively the “Private Placement Documents”) to be entered into
among the Company and the investors to be named therein and has agreed to the
terms thereof and the conversion of the Loan Balance and to become an investor
in the Private Placement, in
each case subject to the conditions and according to the terms in this
Agreement.

 

NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants set forth herein, the
parties agree as follows:

 

1.                                       Conversion
of Loans.

 

1.1                                 Subject
to the terms and conditions of this Agreement and the
Private Placement Documents, Lender agrees to convert the Company’s obligation
to pay the Loan Balance to Lender into the Securities by entering into the
Private Placement Documents with the Company and having the Company’s
obligation to pay the Loan Balance converted into Lender’s payment of its “Investment
Amount” under a Securities Purchase Agreement between the Company and the
Lender.  The Company agrees that upon the
effective time of the conversion, such conversion will satisfy the Lender’s
obligation to pay its “Investment Amount” under the Securities Purchase
Agreement between the Company and the Lender.

 

1.2                                 The
conversion of the Loan Balance shall be deemed to occur upon: (1) the
satisfaction of all conditions precedent to such conversion set forth in this
Agreement, and (2) the

 

1

 

satisfaction or
waiver of all conditions precedent to the obligations of Lender to purchase
Securities as provided in the Securities Purchase Agreement between Lender and
the Company.

 

1.3                                 The
Company agrees to execute and deliver (or cause to be executed and delivered,
as the case may be) to the Lender at the date and time of the closing of the
Company’s Private Placement (the “Closing”) each of the Private Placement
Documents required to be given by the Company to the “Investors” as defined in
the Securities Purchase Agreement, each in form reasonably acceptable to the
Lender, including, without limitation, a Securities Purchase Agreement, a
Registration Rights Agreement (as defined in the Securities Purchase
Agreement), the Warrants, one or more certificates evidencing the correct
number of shares of Preferred Stock, and certain other opinions and
certificates.  Lender agrees to execute
and deliver to the Company at the Closing each of the Private Placement
Documents requiring the signature of an investor.

 

2.                                       Conditions
Precedent.  The effectiveness of the
conversion described in Section 1.1 above and any of the Lender’s obligations
under any Private Placement Documents entered into in connection therewith is
expressly conditioned upon the prior or simultaneous satisfaction of the
following conditions precedent:

 

2.1                                 The
Company must receive gross cash proceeds in the Private Placement of at least
$10,000,000, excluding conversion of the Loan Balance.

 

2.2                                 The
Company must execute and deliver a Securities Purchase Agreement to the Lender
and satisfy all of the conditions precedent to the obligations of Lender to
purchase Securities as provided in such Securities Purchase Agreement with
respect to Lender in its capacity “Investor” under such agreement.

 

2.3                                 The
representations and warranties in Section 4 below must be true and
correct.

 

3.                                       Termination.

 

3.1                                 In
the event a Closing does not occur on or before April 5, 2005, this
Agreement (and any Private Placement Documents entered into by the Lender)
shall be null and void and of no further force or effect.

 

3.2                                 The
Company may terminate this Agreement upon written notice to Lender if the
Company determines to abandon or materially modify the terms of the Private
Placement.

 

3.3                                 Any
termination pursuant to this Section 3 shall be without liability by any
party to the other.

 

4.                                       Representations
and Warranties.  To induce the Lender
to enter into this Agreement, the Company represents and warrants to the Lender
that:

 

4.1                                 The
execution, delivery and performance by the Company of this Agreement has been
duly authorized by all necessary corporate action by the Company, and this
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
limitations as to enforceability which might

 

2

 

result from bankruptcy,
insolvency, moratorium and other similar laws affecting creditors’ rights
generally and subject to limitations on the availability of equitable remedies.

 

5.                                       Miscellaneous.

 

5.1                                 This
Agreement contains the entire understanding of the parties with respect to the
subject matter hereof and supersedes all prior agreements, understandings,
discussions and representations, oral or written, with respect to the
conversion of the Loans.

 

5.2                                 Any
and all notices or communications required or permitted shall be in writing and
shall be sent by manual delivery, telegram, telex, facsimile transmission,
overnight courier or United States mail (postage prepaid) addressed to such
party at the address specified on the signature page hereof, or at such
other address as such party shall hereafter specify to the other party hereto
in writing.

 

5.3                                 This
Agreement shall be binding on the Company and the Lender and their respective
successors and assigns, and shall inure to the benefit of the Company and the
Lender, and their successors and assigns. 
The Company shall not assign its rights or duties hereunder without the
written consent of the Lender.

 

5.4                                 Any
provision of the Agreement which is prohibited or unenforceable in any
jurisdiction shall, in such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.

 

5.5                                 The
captions or headings herein are for convenience only and in no way define,
limit or describe the scope or intent of any provision of this Agreement.

 

5.6                                 This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument, and either of the
parties hereto may execute this Agreement by signing any such counterpart.

 

5.7                                 The
validity, construction and enforceability of this Agreement shall be governed
by the internal laws of the State of Minnesota, without giving effect to
conflict of laws principles thereof.

 

[Signatures contained on
following page]

 

3

 

THE PARTIES HERETO have caused this Agreement to be executed as of the
date first above written.

 

	
   

  	
   

  	
  MEDICALCV,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: John
  H. Jungbauer

  
	
   

  	
   

  	
  Title: Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  9725 South
  Robert Trail

  
	
   

  	
   

  	
  Inver Grove
  Heights, MN 55077

  
	
   

  	
   

  	
  Attention:
  Chief Executive Officer

  
	
   

  	
   

  	
  Telephone:
  (651) 452-3000

  
	
   

  	
   

  	
  Fax: (651)
  452-4948

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
   

  	
  Avron L.
  Gordon, Esq.

  
	
   

  	
   

  	
  Briggs and
  Morgan, P.A.

  
	
   

  	
   

  	
  2200 IDS
  Center

  
	
   

  	
   

  	
  80 South
  Eighth Street

  
	
   

  	
   

  	
  Minneapolis,
  MN 55402

  
	
   

  	
   

  	
  Telephone:
  (612) 977-8455

  
	
   

  	
   

  	
  Fax (612) 977-8650

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LENDER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [ADDRESS]

  
						

 

4

 

EXHIBIT A

 

[DESCRIPTION OF INDEBTEDNESS BEING CONVERTED]

 

A-1

 

EXHIBIT B

 

[PRIVATE PLACEMENT DOCUMENTS]

 

B-1

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