Document:

EXHIBIT 10.1

 

July 1, 2003

 

Mr. Jules L. Fisher, Chief
Financial Officer

MedicalCV, Inc.

9725 South Robert Trail

Inver Grove Heights, Minnesota
55077

 

Dear Mr. Fisher:

 

The
undersigned (“Lender”) agrees to lend MedicalCV, Inc. (“Borrower”) up to
$1,000,000, all as hereinafter described.

 

Section
1.  Loan, Interest and Fees.

 

1.1           The Loan.  Subject to the terms and conditions of this
Agreement, Lender will loan to Borrower the sum of $1,000,000 (the “Loan”).

 

1.2           The Note.  The Loan shall be evidenced by a promissory
note in the form of Exhibit A attached hereto (as hereafter
amended, extended, renewed or replaced, the “Note”).  All unpaid principal and all interest accrued on the Note shall
be due and payable on June 30, 2004 (the “Maturity Date”).  The Borrower shall prepay its obligations
hereunder as provided in that certain Subordination and Intercreditor Agreement
between Lender and PKM Properties, LLC (“PKM”) in the form of Exhibit B
attached hereto (as it may be amended, modified, supplemented, restated or
replaced from time to time) (the “Subordination and Intercreditor Agreement”).

 

1.3           Interest.  The principal balance of the Loan shall bear
interest as set forth in the Note, payable as set forth in the Note.

 

1.4           Optional Prepayments.  Borrower may prepay the Loan, in whole or in
part, at any time, without premium or penalty.

 

1.5           Payments.  Payments of principal, interest, fees and
expenses hereunder and under the Note shall be made without set-off or
counterclaim in immediately available funds not later than 5:00 p.m.,
Minneapolis time, on the dates called for under this Agreement at the address
of Lender set forth in Section 6.3. 
Funds received on any day after such time shall be deemed to have been
received on the next business day. 
Whenever any payment would be due on a day which is not a business day,
such payment shall be made on the next succeeding business day and such
extension of time shall be included in the computation of any interest or fees.

 

1.6           Subordination.  The Loan and Note are junior and subordinate
to certain obligations of Borrower to PKM as set forth in the Subordination and
Intercreditor Agreement.

 

1

 

Lender agrees to execute and
deliver to Borrower and PKM the Subordination and Intercreditor Agreement.

 

1.7           Placement Fee.  Concurrent with the funding of the Loan,
Borrower will pay Lender a placement fee equal to $65,000.  The Borrower will pay the foregoing fee by
issuing checks payable as follows:  (a)
$59,900 to Healthcare Finance Solutions and (b) $5,100 to Peter L. Hauser.

 

1.8           Collateral Security.  As security for the prompt satisfaction of
Borrower’s obligations under the Loan, the Borrower grants to the Lender a lien
on, and a security interest in, the assets described in the security agreement
in the form of Exhibit C attached hereto (the “Security
Agreement”).  Borrower agrees to execute
and deliver to Lender the Security Agreement.

 

Section
2.  Conditions Precedent.

 

The obligation
of Lender to make the Loan hereunder shall be subject to the satisfaction of
the conditions precedent that Lender shall have received all of the following,
in form and substance satisfactory to Lender, each duly executed (as hereafter
amended, modified, extended, renewed or replaced, the “Loan Documents”):

 

(a)           The Note.

 

(b)           Borrower’s
acceptance and acknowledgment of the Subordination and Intercreditor Agreement.

 

(c)           A warrant for the
purchase of 380,357 shares of Borrower’s common stock at an exercise price of
$.70 per share, in the form attached hereto as Exhibit D (the
“Warrant”).

 

(d)           The placement fee in
the amount of $65,000, and.

 

(e)           Such other
instruments, documents and agreement as Lender shall reasonably require.

 

Section
3.  Representations and Warranties.

 

To induce
Lender to enter into this Agreement, to grant the Commitment and to make Loan
hereunder, Borrower represents and warrants to Lender:

 

3.1           Validity.  The Loan Documents constitute the legal,
valid and binding obligations of Borrower, enforceable against Borrower in accordance
with their terms.

 

3.2           No Conflict; No Default.  The execution, delivery and performance by
Borrower of the Loan Documents will not result in a breach of or constitute a
default under any indenture, loan or credit agreement or any other agreement, lease
or instrument to which Borrower is a party or by which he or any of his
properties may be bound.

 

2

 

3.3           Financial Statements and Condition.  The Borrower’s unaudited financial
statements, dated as of January 31, 2003, as heretofore furnished to Lender,
fairly present the financial condition of Borrower.  Since such date, there has been no material adverse change in the
financial condition or assets of Borrower. 
Borrower has filed all forms, reports and documents required to be filed
by it with the SEC since November 20, 2001 and has heretofore made available to
the Lender, in the form filed with the SEC (excluding any exhibits thereto),
(i) its Annual Report on Form 10-KSB for the fiscal year ended April 30, 2002,
and (ii) all other forms, reports, registration statements and other documents
filed by Borrower with the SEC since November 20, 2001 (the forms, reports,
registration statements and other documents referred to in clauses (i) and (ii)
above being referred to herein, collectively, as the “Borrower SEC
Reports”).  To the best of Borrower’s
knowledge, the Borrower SEC Reports and any other forms, reports and other
documents filed by Borrower with the SEC after the date of this Agreement (i)
were or will be prepared in accordance with the requirements of the Securities
Act and the Exchange Act, as the case may be, and the rules and regulations
thereunder and (ii) did not at the time they were filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were or are made, not
misleading.  Lender acknowledges or
represents that:

 

(a)           He has received and
reviewed the Borrower SEC Reports;

 

(b)           He is able to bear
the economic risk of the transaction described in this Agreement;

 

(c)           He understands the
risk of investment in Borrower, including the effect of subordination of the
Loan to Borrower’s senior creditor, PKM;

 

(d)           He has been given
access to full and complete information regarding Borrower, including the
opportunity to meet with officers, ask questions of and receive answers from
such officers, and review such documents as he may have requested, and has
utilized such access to his satisfaction for the purpose of obtaining
information in addition to, or verifying information included in, Borrower SEC
Reports and other information disclosed by Borrower orally or in writing;

 

(e)           Neither the Note nor
the Warrant have been registered under the Securities Act of 1933, as amended
(the “Act”) or state securities laws; and

 

(f)            The Note and
Warrant are being purchased for his own account and for investment and without
the intention of reselling or redistributing the same, and that if Lender
should determine to dispose or transfer the Note or Warrant, he will not do so
without (1) obtaining an opinion of counsel satisfactory to Borrower that such
proposed disposition or transfer may lawfully be made without registration
under the Act, or (2) such registrations are in effect.

 

3.4           Litigation and Contingent
Liabilities.  There are no material
actions, suits or proceedings pending or, to the knowledge of Borrower,
threatened against or affecting Borrower

 

3

 

before any court, arbitrator,
governmental department or other instrumentality and Borrower has no material
contingent liabilities.

 

Section
4.  Covenants.

 

Borrower
covenants and agrees with Lender that for so long as there is any amount
remaining unpaid on the Note, or Lender has any obligation to make the Loan
hereunder, Borrower will comply with the following:

 

4.1           Financial Statements.  Furnish to Lender such information on
Borrower as Lender may reasonably request from time to time.

 

4.2           Access to Records.  Permit Lender at Lender’s expense to discuss
Borrower’s affairs, finances and accounts with officers of Borrower, all at
such reasonable times and as often as Lender may reasonably request.

 

4.3           Reimbursement of Expenses.  Promptly reimburse Lender for any and all
expenses of collection of the Loan, including reasonable attorneys’ fees.

 

Section
5.  Representation of Lender.

 

Lender
represents that he is an “Accredited Investor” as defined in Rule 501(a) of
Regulation D under the Act based upon the undersigned having a net worth, or
joint net worth with spouse, in excess of $1,000,000.

 

Section
6.  Miscellaneous.

 

6.1           Binding Effect.  The parties hereto agree that this Agreement
shall be binding upon and inure to the benefit of their respective heirs,
successors in interest and assigns.

 

6.2           Governing Law.  This Agreement and the rights and
obligations of the parties hereunder and under the Note and any other documents
delivered herewith shall be construed in accordance with and governed by the
substantive laws (but not the laws of conflict) of the State of Minnesota.  Borrower hereby consents to the jurisdiction
of the courts of the State of Minnesota and federal courts located in the State
of Minnesota for any actions brought hereon or on the Note.

 

6.3           Notices.  Any notices required or contemplated
hereunder shall be effective upon the placing thereof in the United States
mails, certified mail and with return receipt requested, postage prepaid, and
addressed as follows:

 

	
  If to Borrower:

  	
  MedicalCV, Inc.

  
	
   

  	
  9725 South Robert Trail

  
	
   

  	
  Inver Grove Heights,
  MN  55077

  
	
   

  
	
  If to Lender:

  	
  Peter L. Hauser

  
	
   

  	
  16913 Kings Court

  
	
   

  	
  Lakeville, Minnesota 55044

  
				

 

4

 

6.4           No Waivers.  No failure or delay on the part of Lender in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower and Lender shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power, or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege.

 

6.5           Accounting Terms.  All accounting terms not otherwise
specifically defined in this Agreement shall be construed in accordance with
generally accepted accounting principles consistently applied.

 

	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Peter L. Hauser

  	
   

  
	
   

  	
  PETER L. HAUSER

  

 

 

Accepted and
agreed to as of the date above.

 

	
   

  	
  MEDICALCV, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jules L. Fisher

  	
   

  
	
   

  	
   

  	
  Jules L. Fisher

  
	
   

  	
   

  	
  Its:  Chief Financial Officer

  

 

5EXHIBIT 10.2

 

SUBORDINATED NOTE

 

	
  $1,000,000.00

  	
   

  	
  July 1, 2003

  
	
   

  	
   

  	
  Minneapolis, Minnesota

  

 

For value
received, the undersigned, MedicalCV, Inc., a Minnesota corporation (“Maker”),
hereby promises to pay to the order of Peter Ludwig Hauser (“Lender”), at 16913
Kings Court, Lakeville, Minnesota 55044, or at any other place designated at
any time in writing by the holder hereof, in lawful money of the United States
of America, the principal sum of One Million and 00/100 dollars
($1,000,000.00), together with interest (calculated on the basis of actual days
elapsed in a 360-day year) on the unpaid principal hereof, from the date
immediately available funds representing the principal sum are credited to the
account of the Maker until this Note is fully paid, at a rate equal to ten
percent (10%) per annum (the “Applicable Rate”).  As used herein, “due date” means June 30, 2004.  The Maker shall prepay its obligations
hereunder as provided in that certain Subordination and Intercreditor Agreement
between Lender and PKM Properties, LLC (“PKM”) dated the date hereof as it may
be amended, modified, supplemented, restated or replaced from time to time (the
“Subordination and Intercreditor Agreement”).

 

Interest shall
be payable monthly, on the last day of each month commencing July 31, 2003, and
on the last day of each succeeding month thereafter until this Note is paid in
full on or prior to the due date.

 

This Note
shall be payable in lawful money of the United States of America in immediately
available funds.  All payments on this
Note shall be applied to the payment of accrued interest before being applied
to the payment of principal.  Any
payment which is required to be made on a day which is not a banking business
day for the Lender shall be payable on the next succeeding banking business day
and such additional time shall be included in the computation of interest.  The principal amount of this Note may be
prepaid in whole or in part at any time without prior notice, premium, or
penalty so long as such prepayment is accompanied by payment of all interest
accrued on the amount prepaid.

 

Payment of the
principal amount of the indebtedness represented by this Note is subordinate
and junior to payment of certain indebtedness of Maker to PKM existing prior to
the date of this Note, as set forth in the Subordination and Intercreditor
Agreement.

 

In case any
principal of or interest on this Note is not paid when due or mandatorily
prepayable, the outstanding unpaid principal balance of this Note and the
accrued interest thereon shall automatically become immediately due and payable
and Maker shall be liable for all costs of enforcement and collection of this
Note incurred by Lender or any other holder of this Note, including but not
limited to reasonable attorneys’ fees, disbursements, and court costs.  In the event of a default hereunder, Maker
shall pay all reasonable attorneys’ fees and disbursements incurred by Lender
in obtaining advice as to its rights and remedies in connection with such
default.

 

1

 

Maker waives
presentment, notice of dishonor, protest, and notice of protest, and any or all
other notices or demands (other than demand for payment) in connection with the
delivery, acceptance, performance, default, endorsement, or guaranty of this
Note.  The liability of Maker hereunder
shall be unconditional and shall not be in any manner affected by any
indulgence whatsoever granted or consented to by the holder hereof, including
but not limited to any extension of time, renewal, waiver, or other
modification.  Any failure of the holder
to exercise any right hereunder shall not be construed as a waiver of the right
to exercise the same or any other right at any time and from time to time
thereafter.  Lender or any holder may accept
late payments, or partial payments, even though marked “payment in full” or
containing words of similar import or other conditions, without waiving any of
its rights.  No amendment, modification,
or waiver of any provision of this Note nor consent to any departure by Maker
therefrom shall be effective, irrespective of any course of dealing, unless the
same shall be in writing and signed by Lender, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.  This Note cannot be
changed or terminated orally or by estoppel or waiver or by any alleged oral
modification regardless of any claimed partial performance referable thereto.

 

Any notice
from Lender to Maker shall be deemed given when delivered to Maker by hand or
when deposited in the U.S. mail and addressed to Maker at the last address of
Maker appearing on Lender’s records.

 

This Note
shall be governed by and construed in accordance with the laws of the State of
Minnesota applicable to instruments made and to be performed wholly within that
state.  If any provision of this Note is
held to be illegal or unenforceable for any reason whatsoever, such illegality
or unenforceability shall not affect the validity of any other provision hereof.

 

MAKER AGREES THAT ANY ACTION, SUIT, OR
PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND
PROSECUTED IN THE STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN
HENNEPIN COUNTY, MINNESOTA.  MAKER
CONSENTS TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY
SUCH COURT HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS
BE MADE BY REGISTERED MAIL DIRECTED TO MAKER AT ITS ADDRESS SET FORTH BELOW OR
TO ANY OTHER ADDRESS AS MAY APPEAR IN LENDER’S RECORDS AS THE ADDRESS OF MAKER.

 

2

 

IN ANY ACTION, SUIT OR PROCEEDING IN RESPECT
OF OR ARISING OUT OF THIS NOTE, LENDER AND MAKER BOTH WAIVE TRIAL BY JURY, AND
MAKER ALSO WAIVES (i) THE RIGHT TO INTERPOSE ANY SETOFF OR COUNTERCLAIM OF ANY
NATURE OR DESCRIPTION; (ii) ANY OBJECTION BASED ON FORUM NON CONVENIENS OR
VENUE; AND (iii) ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE, OR SPECIAL DAMAGES.

 

	
   

  	
  MEDICALCV, INC.,

  
	
   

  	
  a Minnesota corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jules L. Fisher

  	
   

  
	
   

  	
   

  	
   Jules L. Fisher

  
	
   

  	
   

  	
   Its: Chief Financial Officer

  

 

ADDRESS OF THE MAKER:

 

9725 South Robert Trail

Inver Grove Heights, MN  55077

 

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