TABLE OF CONTENTS

			Page
SECTION 1. AGREEMENT TO SELL AND PURCHASE			1
	1.1  Authorization of Notes and Warrants		1
	1.2  Sale and Purchase		1
SECTION 2. CLOSING, DELIVERY AND PAYMENT			2
	2.1 The Closings		2
	2.2 Closing Deliveries		2
SECTION 3. WARRANT RIGHTS			2
	3.1 Issuance of Warrants		2
SECTION 4. SECURITY AND EVENTS OF DEFAULT			3
	4.1 Security		3
	4.2 Events of Default		3
	4.3 Rights and Remedies		4
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY			4
	5.1 Organization and Standing		4
	5.2 Corporate Power; Authority		4
	5.3 Subsidiaries		5
	5.4 Capitalization		5
	5.5 SEC Reporting		6
	5.6 Financial Statements		6
	5.7 Changes		6
	5.8 Material Obligations		7
	5.9 Intellectual Property Rights		8
	5.10 Title to Properties and Assets		8
	5.11 No Defaults		8
	5.12 No Conflict		9
	5.13 Litigation		9
	5.14 Tax Returns and Payments		9
	5.15 Transactions with Affiliates and Employees		9
	5.16 Sarbanes-Oxley; Internal Accounting Controls		10
	5.17 Environmental and Safety Laws		10
	5.18 Condition of Collateral		11
	5.19 Licenses		11
	5.20 Insurance		11
	5.21 Labor Relations		11

 

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	5.22 Consent	11
	5.23 Offering	11
	5.24 Brokers or Finders	12
	5.25 Registration and Listing Requirements	12
	5.26 Correctness of Representations	12
	5.27 Disclosure	12
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE HOLDERS		12
	6.1 Organization; Authority	13
	6.2 Investment Representations	13
	6.3 Correctness of Representations	14
SECTION 7. CONDITIONS TO CLOSING		14
	7.1 Conditions to Holders’ Obligations at the Closing	14
	7.2 Conditions to Obligations of the Company	14
SECTION 8. REGISTRATION RIGHTS		15
	8.1 Registration Rights	15
	8.2 Registration Procedures	15
	8.3 Discontinued Disposition	16
	8.4 Non-Registration Event	17
	8.5 Registration Expenses	17
	8.6 Indemnification	17
	8.7 Information from Holder	19
	8.8 Rule 144 Reporting	19
SECTION 9. MISCELLANEOUS		19
	9.1 Payment of Fees	19
	9.2 Governing Law; Venue	20
	9.3 Survival	20
	9.4 Successors and Assigns	20
	9.5 Entire Agreement	20
	9.6 Severability	20
	9.7 Amendment and Waiver	20
	9.8 Delays or Omissions	21
	9.9 Notices	21
	9.10 Titles and Subtitles; Counterparts	21
	9.11 Exculpation among Holders	21

 

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SECURED NOTE PURCHASE AGREEMENT

THIS SECURED NOTE PURCHASE AGREEMENT (the “Agreement” ) is entered into effective as of the 20th day of April, 2007 (the “Effective Date” ), by and among MedicalCV, Inc. , a Minnesota corporation (the “Company” ), and the holders listed on Schedule 1.0 hereto (each a “ Holder ” and collectively the “ Holders ”).

RECITALS :

WHEREAS, the Company proposes to authorize the sale and issuance of Secured Promissory Notes in the form attached hereto as Exhibit A (each a “Note” and collectively the “Notes” ); and

WHEREAS, the Holders desire to purchase, severally and not jointly, the Notes and the Company desires to issue and sell such Notes to the Holders, on the terms and conditions set forth herein; and

WHEREAS, in connection with the sale and issuance of the Notes, the Company also proposes to issue to the Holders thereof warrants to purchase shares of the Company’s Common Stock, par value $0.01 per share (each a “Warrant” and collectively the “Warrants” ).

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows:

SECTION 1.         AGREEMENT TO SELL AND PURCHASE

1.1         Authorization of Notes and Warrants

On or prior to the closing under this Agreement (the “Closing” ), the Company shall have authorized the sale and issuance of the Notes and Warrants to the Holders.  The Notes will be of one series designated the “2007 Secured Notes.”

1.2         Sale and Purchase

(a)  First Closing.  Subject to the terms and conditions hereof, at the first closing (the “First Closing” ), the Company agrees to issue and sell to each Holder, severally and not jointly, and each such Holder agrees to purchase from the Company, severally and not jointly, a Note in the principal amount set forth opposite each Holder’s name on Schedule 1.0 (for each Holder, the “Principal Amount” ).

(b)  Subsequent Closings.  Following the First Closing, the Company may close on the sale of additional Notes (a “Subsequent Closing” ) as follows:

(i)  Additional Note Purchase Option .  Within 45 days after the First Closing, those Holders identified on Schedule 1.0 that are affiliates of Whitebox Advisors, LLC (the “Whitebox Entities” ) will have the right, but not the obligation, to purchase from the Company and the Company will have the obligation to sell to the Whitebox Entities one or more additional Notes having an aggregate principal amount up to $2,000,000.

(ii)  Amendment of Schedule 1.0 .  Schedule 1.0 shall be amended to reflect any such sale

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pursuant to this Section 1.2.

(c)  Restrictive Covenant.  The Company covenants and agrees with the Holders that it will not issue more than an aggregate of $12,500,000 principal amount of 2007 Secured Notes, which shall include the stated Principal Amount of all Notes issued to the Whitebox Entities pursuant to this Agreement, and provided that such Notes may not be issued on terms and conditions more favorable than set forth in this Agreement.  The Company further agrees to provide the Whitebox Entities with a minimum of two (2) business days prior written notice of any such issuance of 2007 Secured Notes.

SECTION 2.         CLOSING, DELIVERY AND PAYMENT

2.1         The Closings

The First Closing shall take place at 10:00 a.m. local time on the date hereof, at the offices of Fulbright & Jaworski L.L.P. in Minneapolis, Minnesota, or at such other time or place as the Company and the Holders may mutually agree.  Any Subsequent Closing shall be held at such time and place as the parties shall mutually agree.

2.2         Closing Deliveries

At each Closing, subject to the terms and conditions hereof, the Company and the Holders, as applicable, shall execute this Agreement and the Company shall deliver to each Holder a Note in the form of Exhibit A attached hereto against delivery to the Company by such Holder of the stated principal amount of such Holder’s Note, payable to the Company by wire transfer of immediately available funds to the bank account designated in wire transfer instructions provided by the Company.  At that time, the parties shall also execute (i) the Security Agreement and the related UCC Financing Statement in the forms attached hereto as Exhibit C (the “Security Documents” ) ; and (ii) the Closing Warrant described in Section 3.1(a) below. Collectively with this Agreement, the Security Documents, Notes, and Warrants, together with the exhibits, Schedules (as defined below), and all other documents required to be delivered in connection herewith and therewith, shall be referred to collectively as the “Transaction Agreements.”

SECTION 3.         WARRANT RIGHTS

3.1         Issuance of Warrants

(a)  At each Closing, the Company will issue to the each Holder purchasing Notes in such Closing a warrant in the form attached hereto as Exhibit B1 entitling the Holder to purchase such number of shares of the Company’s Common Stock that is equal to the quotient obtained by dividing (i) 60% of the stated Principal Amount of such Holder’s Note by (ii) $4.00 (the “Closing Warrants” ).

(b)   During the initial twelve (12) months following the Effective Date, interest on the Notes will accrue and be added to the Principal Amount of the Notes.  Within thirty (30) days following the end of such 12-month period, the Company shall issue to each Holder a warrant in the form attached hereto as Exhibit B2 entitling such Holder to purchase such number of shares of the Company’s Common Stock that is equal to the quotient obtained by dividing (i) 60% of the accrued interest on such Holder’s Note for the initial 12-month period by (ii) $4.00 (the “Initial Interest Warrant” ).

(c)   Following the initial 12-month period, the Company will have the option to (i) pay the accrued interest on the Notes quarterly in arrears or (ii) allow the interest for such quarter to continue

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to accrue and be added to the Principal Amount of the Note.  Any payment of accrued interest must be made to the Holders on or before the 15 th  day following the end of such quarter.  If the Company elects to have the quarterly interest added to the Principal Amount of the Notes, then the Company shall issue to each Holder, within thirty (30) days following the end of such quarter, a warrant in the form attached hereto as Exhibit B2 entitling such Holder to purchase such number of shares of the Company’s Common Stock that is equal to the quotient obtained by dividing (i) 60% of the accrued interest on such Holder’s Note for the quarter by (ii) $4.00 (the “Quarterly Interest Warrants” ).  In each instance, the option elected by the Company under this Section 3.1(c) shall apply equally to all the Notes outstanding at the time of such election.

SECTION 4.         SECURITY AND EVENTS OF DEFAULT

4.1         Security

In accordance with the terms and conditions set forth in the Security Agreement attached hereto as Exhibit C (the “Security Agreement” ), the Notes and payment of all principal, interest and other sums thereunder, shall be secured by a first priority security interest.  The security interest granted pursuant to this Agreement and the Security Agreement, shall be in all of the Company’s right, title and interest in and to all of the Company’s assets, as more particularly described in the Security Agreement, whether now owned or hereafter acquired while any of the Notes are outstanding (the “Collateral” ).

The Collateral shall include (i) all substitutes and replacements for and proceeds of any and all of the Collateral, and in the case of all tangible Collateral, all accessions, accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or use in connection with any such goods and (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods. receipts, bills of lading and other documents of title now or hereafter covering such goods.

4.2         Events of Default

Each of the following will constitute an “Event of Default” under the Notes:

(a)            Failure of the Company to pay the principal or interest on any of the Notes when due and continuation of such failure for a period of five (5) days following written notice from any of the Holders;

(b)            Failure of the Company to perform or observe any material covenant or agreement as required by the Transaction Agreements and continuation of such failure for a period of ten (10) days following written notice from any of the Holders;

(c)            If any of the representations and warranties of the Company made in this Agreement are proven not to have been true and correct in any material respect as of the date of this Agreement;

(d)            The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an

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involuntary case or other proceeding commenced against it or (vi) take any action for the purpose of effecting any of the foregoing; or

(e)            Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or its debts under any bankruptcy, insolvency or other similar law or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within thirty (30) days of commencement.

4.3         Rights and Remedies

If any Event of Default occurs, subject to the terms and conditions of the Security Agreement, any or all of the Holders may exercise any or all of the following rights and remedies, which shall be cumulative:

(a)            Declare such Holder’s Note and all accrued but unpaid interest thereon to be immediately due and payable, and upon such declaration such Note and interest thereon shall immediately be due and payable, without presentment, demand, protest or any notice of any kind, all of which are expressly waived; and

(b)            Exercise any and all other rights and remedies available to such Holder under the Note, the Security Agreement, and otherwise available to the Holder at law and in equity.

SECTION 5.         REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth on the schedules delivered separately to the Holders in connection with this Agreement (the “Schedules” ), the Company represents and warrants to each Holder as of the Closing Date as follows:

5.1          Organization and Standing

The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Minnesota and is in good standing under such laws.  The Company has the requisite corporate power and authority to own and operate the Company’s properties and assets, and to carry on the Company’s business as presently conducted.  The Company is presently qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a Material Adverse Effect. No proceeding has been instituted in any jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification.  “Material Adverse Effect” shall mean any event, happening, occurrence or development that, individually or in the aggregate, whether or not arising in the ordinary course of business, could reasonably be expected to have a material adverse effect on the Company’s business, operations, properties, prospects, assets, liabilities or condition (financial or otherwise).

5.2          Corporate Power; Authority

The Company has all requisite legal and corporate power and authority to execute and deliver the Transaction Agreements, to sell and issue the Notes and Warrants in accordance with this Agreement, to issue shares of Common Stock issuable upon exercise of the Warrants ( the “ Warrant Shares ” ), and to carry out and perform the Company’s obligations under the terms of the Transaction Agreements.  Each

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Transaction Agreement to which it is a party has been duly executed by the Company, and when delivered by the Company in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Company, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

5.3          Subsidiaries

The Company does not own or control, directly or indirectly, any interest in any corporation, partnership, limited liability company, association or other business entity.

5.4          Capitalization

(a)            The authorized and issued capital stock of the Company, immediately prior to the First Closing, is set forth in the attached Schedule 5.4(a) .  All issued and outstanding shares of the Company’s capital stock (i) have been duly authorized and validly issued, (ii) are fully paid and nonassessable and (iii) were issued in compliance with all applicable state and federal laws concerning the issuance of securities.

(b)           Schedule 5.4(b) sets forth all of the Company’s capital stock that, as of the date of the First Closing, has been reserved for issuance pursuant to any agreement, option plan or otherwise, which, when issued, will have been duly authorized, validly issued, fully paid and nonassessable, and will be issued in compliance with all applicable state and federal laws concerning the issuance of securities.

(c)           The Warrant Shares issuable upon exercise of the Warrants have been duly and validly reserved and, when issued in compliance with the provisions of this Agreement, the Warrant, and applicable law, will be validly issued, fully paid, and non-assessable.  The Warrant Shares will be free of any liens or encumbrances, other than any liens or encumbrances created by or imposed upon a Holder with respect to such Holder’s Warrant Shares; provided, however, that the Warrant Shares are subject to transfer restrictions under state and/or federal securities laws and as set forth in the Transaction Agreements.  Except as set forth on Schedule 5.4(c) , the Warrants and Warrant Shares are not subject to any preemptive rights or first refusal rights.  Except as set forth on Schedule 5.4(c) , neither the offer nor issuance of the Warrants or the Warrant Shares constitutes an event under any anti-dilution provisions of any securities issued or issuable by the Company which will either increase the number of shares issuable pursuant to such provisions or decrease the consideration per share to be received by the Company pursuant to such provisions.

(d)            Except as set forth on Schedule 5.4(d) , there are no outstanding agreements or preemptive or similar rights affecting the Company’s capital stock and no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of any shares of capital stock of the Company.

(e)            Except as set forth on Schedule 5.4(e) , there are no shareholder agreements, voting agreements, proxy rights or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the Company’s knowledge, between or among any of the Company’s shareholders.

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5.5          SEC Reporting

The Company has timely filed all reports, forms, statements, schedules, exhibits and other documents, and any amendments thereto, as required to be filed by it under the Securities Act of 1933, as amended (the “Securities Act” ) and the Securities Exchange Act of 1934, as amended (the “Exchange Act” ), including pursuant to Section 13(a) or 15(d) thereof, for the 12 months preceding the date of this Agreement (collectively, together with any and all documents incorporated by reference therein, the “ SEC Filings ”), or has requested and obtained a valid extension of such time of filing and subsequently filed any such SEC Filing prior to the expiration of such extension.  As of their respective filing dates, the SEC Filings complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations promulgated by the Securities and Exchange Commission (the “Commission” ) thereunder, as applicable, and none of the SEC Filings contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

5.6          Financial Statements

(a)            The Company’s: (i) Annual Report on Form 10-KSB for the year ended April 30, 2006; and (ii) Quarterly Reports on Form 10-QSB for the quarters ended July 31, 2006, October 31, 2006 and January 31, 2007 (with January 31, 2007 being referred to herein as (the “Balance Sheet Date” ) (collectively, the “Financial Statements” ), present fairly the financial position of the Company as of such dates and the results of operations for the periods covered thereby (subject, in the case of the interim financial statements, to year-end audit adjustments) and have been prepared in accordance with generally accepted accounting principles consistently applied ( “GAAP” ), except as may be otherwise specified in such Financial Statements or the notes thereto.  Specifically, but not by way of limitation, (x) the balance sheets or notes thereto disclose all of the debts, liabilities and obligations of any nature of the Company properly accrued  at each of the Annual and Quarterly Report dates and at the Balance Sheet Date which, individually or in the aggregate, are material and which in accordance with GAAP would be required to be disclosed in such balance sheets, and the omission of which would, in the aggregate, have a Material Adverse Effect on the Company; (y) except as set forth on Schedule 5.6(a) , the Company does not have any off-balance sheet arrangements or transactions; and (z) the Financial Statements include appropriate reserves for all taxes and other liabilities accrued at such date but not yet payable.

5.7          Changes .

Except as set forth on Schedule 5.7 or disclosed in an appropriate SEC Filing, since the Balance Sheet Date, the Company has not:

(a)            suffered any change in  the Company’s assets, liabilities, financial condition, or operating results, except for changes in the ordinary course of business, none of which individually or in the aggregate, have had or are likely to result in a Material Adverse Effect;

(b)            suffered any damage, destruction, or loss (whether or not covered by insurance) that, in any case or in the aggregate, have had a Material Adverse Effect;

(c)            agreed to waive or actually waived any valuable right or any material debt owed to the Company;

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(d)            suffered any change or amendment to any agreement by which the Company or any of the Company’s assets or properties are bound or subject, except to the extent that any such change or amendment has not had, or will not likely have, a Material Adverse Effect;

(e)            made any loans to the Company’s employees, officers or directors, or to any members of their respective immediate families, other than travel advances and other advances made in the ordinary course of the Company’s business;

(f)             received any Company officer’s resignation or terminated any Company officer;

(g)            made any material change in any compensation arrangement or agreement with any employee;

(h)            made any declaration or payment of any dividend or other distribution;

(i)             received notice or become aware that the Company has lost a customer or that any Company customer has canceled a material order, which loss or cancellation would constitute a Material Adverse Effect; or

(j)             suffered any change or amendment to any agreement relating to a change in the contingent obligations of the Company;

(k)            received notice of any labor organization activity related to the Company;

(l)             incurred any debt obligation or liability, including any debts assumed or guaranteed by the Company, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business;

(m)           made any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets;

(n)            issued or sold any shares of capital stock or other securities or granted any options, warrants or other purchase rights with respect thereto other than as contemplated by this Agreement;

(o)            suffered any other event or condition of any character that has had, or could be reasonably expected to have, a Material Adverse Effect; or

(p)           made any arrangement or commitment by the Company to do any of the acts described in paragraphs (a) through (o) above.

5.8          Material Obligations

The Company has no liabilities or obligations (whether absolute, accrued, contingent or otherwise), except for such liabilities or obligations specifically reflected in balance sheets or notes thereto in the Financial Statements and current liabilities incurred in the ordinary course of business since the Balance Sheet Date, which are not, either in any individual case or in the aggregate, material to the Company.

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5.9          Intellectual Property Rights .

(a)            The Company owns or possesses sufficient legal rights to all patents, patent rights, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, trade secrets, inventions, know-how, information, processes, licenses and other similar proprietary rights necessary or material for use in connection with its business as described in its SEC Filings (the “Intellectual Property Rights” ) and which the failure to so possess could have a Material Adverse Effect.  Except as disclosed in the Company’s SEC Filings, the Company has no knowledge nor has it received notice that the conduct of the Company’s business as presently conducted materially conflicts with or infringes upon the Intellectual Property Rights of any other person or entity.  The Company is not obligated to make any payments by way of royalties, fees, or otherwise to any owner of, licensor of, or claimant to any Intellectual Property Rights with respect to the use of such Intellectual Property Rights in connection with the conduct of the Company’s business as presently conducted.  Except as disclosed in the Company’s SEC Filings, there are no material agreements, understandings, instruments, contracts, judgments, orders, or decrees to which the Company is a party or by which the Company is bound that involve indemnification by the Company with respect to infringement of Intellectual Property Rights (other than indemnification obligations arising from purchase or sale of goods and services or license and other agreements entered into in the ordinary course of business).

(b)            With respect to the Company’s Intellectual Property Rights, each Company employee having access to or knowledge of the Company Intellectual Property Rights has executed a confidentiality, non-competition and invention assignment agreement, substantially in the form(s) made available to the Holders (each, a “Confidentiality Agreement” ).  No employee has excluded from such employee’s Confidentiality Agreement any works or inventions that were made by such employee before such person’s employment or engagement with the Company and that are also relevant to the Company’s business as currently conducted or as proposed to be conducted.  Each Company consultant who has had access to the Company’s Intellectual Property Rights has entered into an agreement containing appropriate confidentiality, non-competition and invention assignment provisions.

5.10        Title to Properties and Assets

The Company has good and marketable title to all of the Company’s properties and assets, and the Company has good title to all of the Company’s leasehold interests, in each case subject to no material mortgage, pledge, lien, lease, or encumbrance, except for (a) liens for current taxes not yet due and payable, (b) liens imposed by law and incurred in the ordinary course of business for obligations not past due, (c) liens in respect of pledges or deposits under workers’ compensation laws or similar legislation, and (d) possible minor liens, encumbrances, and title defects that do not in any case have a Material Adverse Effect on the value of the property subject thereto or have a Material Adverse Effect on the Company’s operations and that have not arisen other than in the ordinary course of the Company’s business.

5.11        No Defaults

The Company is not in violation of its Articles of Incorporation or Bylaws, each amended as to date.  The Company is not (i) in default under or in violation of any other agreement or instrument to which it is a party or by which it or any of its properties are bound or affected, which default or violation would have a Material Adverse Effect on the Company, (ii) in default with respect to any order of any court, arbitrator or governmental body or subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters, or (iii) in violation of any statute, rule or regulation of any governmental authority which violation would have a Material Adverse Effect on the Company.

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5.12        No Conflict

The execution, delivery and performance of the Transaction Agreements by the Company, the issuance and sale of the Notes, Warrants and Warrant Shares, if issued, and the consummation by the Company of the other transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

5.13        Litigation

Except as disclosed in the Company’s SEC Filings, there is no action, suit, proceeding or investigation pending or currently threatened in writing against the Company that questions the Company’s Intellectual Property Rights, any Material Contracts or the right of the Company to enter into any of such contracts, or to consummate the transactions contemplated by the Transaction Agreements, or which could be expected to result, either individually or in the aggregate, in any Material Adverse Effect or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for any of the foregoing.  The foregoing includes, without limitation, actions pending or threatened, either verbally or in writing, involving the prior employment of any of the Company’s employees, their use in connection with the Company’s business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers.  The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.  There is no material action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate.

5.14        Tax Returns and Payments

The Company has filed with appropriate federal, state, and local governmental agencies all tax returns that the Company is required to file.  All taxes shown to be due and payable on such returns, any assessments imposed, and all other taxes due and payable by the Company have been paid or will be paid before the time they become delinquent.  The Company has not been advised in writing or otherwise become aware (a) that any of the Company’s tax returns have been or are being audited as of the Effective Date or (b) of any deficiency in assessment or proposed judgment with respect to the Company’s federal, state, or local taxes.

5.15        Transactions with Affiliates and Employees

Except as disclosed in the Company’s SEC Filings, none of its officers or directors and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction

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with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan or equity incentive plan of the Company.

5.16        Sarbanes-Oxley; Internal Accounting Controls

The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 and any rules or regulations promulgated thereunder by the Commission that are applicable to it as of the Effective Date.  The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.  The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date” ) and concluded that such controls were ineffective as of the Evaluation Date.   The Company presented in its most recently filed periodic report under the Exchange Act such conclusion of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, and no significant deficiencies or material weakness in internal controls over financial reporting, other than as disclosed in the Company’s SEC Filings, have been identified.

5.17        Environmental and Safety Laws

The Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and no expenditures are or are reasonably anticipated to be required in order to comply with any such existing statute, law or regulation.  During the period that the Company has owned or leased its properties and facilities, (i) there have been no disposals, releases or threatened releases of Hazardous Materials (as defined below) by the Company on, from or under such properties or facilities, and (ii) other than normal office products and cleaning supplies, it has not used, generated, manufactured or stored on, under or about such properties or facilities or transported to or from such properties or facilities any Hazardous Materials.  For purposes of this Section, the terms “disposal,” “release” and “threatened release” shall have the definitions assigned thereto by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601, et seq. as amended ( “CERCLA” ).  For the purposes of this Section, “Hazardous Materials” shall mean any hazardous or toxic substance, material or waste, which is regulated under, or defined as a “hazardous substance,” “pollutant,” “contaminant,”  “toxic  chemical,”  “hazardous  material,” “toxic substance” or

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“hazardous chemical” under (1) CERCLA; (2) the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001, et seq.; (3) the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; (4) the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq.; (5) the Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651, et seq.; (6) regulations promulgated under any of the above statutes; or (7) any applicable state or local statute, ordinance, rule or regulation that has a scope or purpose similar to those statutes identified above.

5.18        Condition of Collateral

The Collateral has been kept in reasonable condition and repair in the ordinary course of business, and is reasonably fit and suitable for the purposes for which they it is being used and, to the extent applicable, is believed by the Company to conform in all material respects with applicable ordinances, regulations and laws.

5.19        Licenses

The Company possesses from the appropriate regulatory agency, commission, board, government body and authority, whether state, local, federal or foreign, all licenses, permits, certifications, authorizations, approvals, franchises and rights which (i) are necessary for it to engage in the business currently conducted by it, and (ii) if not possessed by the Company, would have a Material Adverse Effect.  A list of all material licenses, permits, approvals and similar rights currently in effect is set forth on Schedule 5.19 .

5.20        Insurance

The Company has in full force and effect fire and casualty insurance policies and insurance against other hazards, risks, and liabilities to persons and property to the extent and in the manner customary for similarly situated companies in similar businesses, and such insurance policies have been issued by financially sound, duly licensed and reputable insurers.

5.21        Labor Relations

No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.

5.22        Consent

Other than the declaration of effectiveness by the Commission of any Registration Statement required to be filed pursuant to this Agreement, no consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company, or any of its affiliates, the NASD, the OTC Bulletin Board or the Company’s shareholders is required for execution of the Transaction Agreements, including, without limitation the issuance and sale of the Notes, Warrants and Warrant Shares and the performance of the Company’s obligations under the Transaction Agreements.  The Company has obtained all required waivers of preemption rights in connection with the issuance of the Notes and Warrants.

5.23        Offering

Subject in part to the accuracy of the Holders’ representations and warranties in Section 6, the offer, sale, and issuance of the Notes and Warrants in compliance with the terms of this Agreement

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constitute transactions exempt from the registration requirements of Section 5 of the Securities Act and all applicable state securities laws.  Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of the Notes or Warrants to any person or persons so as to bring the sale of such Notes and Warrants by the Company within the registration provisions of the Securities Act or any applicable state securities laws.

5.24        Brokers or Finders

With the exception of Craig-Hallum Capital Group LLC, the Company has not engaged any brokers, finders, or agents.  The Holders have not incurred, and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Transaction Agreements.

5.25        Registration and Listing Requirements

The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and quoted on the OTC Bulletin Board under the symbol “MCVI.OB.”  The Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration, nor has the Company received any oral or written notice that its Common Stock will cease to be quoted on the OTC Bulletin Board.  The Company is not aware of any event or circumstance that will or may cause the Company Common Stock to cease to be quoted on the OTC Bulletin Board.

5.26        Correctness of Representations

The Company represents that the foregoing representations and warranties are true and correct as of the date hereof, and, unless the Company otherwise notifies the Holders in writing prior to the Effective Date, shall be true and correct as of the Effective Date.

5.27        Disclosure

The Company has made available to the Holders all the information that the Holders have requested in connection with their decisions as to whether to purchase the Notes and Warrants pursuant to this Agreement.  Neither the Transaction Agreements nor any other exhibits, schedules, documents or certificates delivered in connection with the Transaction Agreements, which shall include the Company’s SEC Filings, when taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.

SECTION 6.         REPRESENTATIONS AND WARRANTIES OF THE HOLDERS

Each Holder, severally and not jointly, hereby represents and warrants to the Company as of the date hereof and as of each Closing Date with respect to each purchase of Notes by such Holder as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement):

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6.1          Organization; Authority

Holder is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Agreements and otherwise to carry out its obligations hereunder and thereunder.  The execution, delivery and performance by Holder of the transactions contemplated by the Transaction Agreements have been duly authorized by all necessary corporate or similar action on the part of such Holder.  Each Transaction Agreement to which it is a party has been duly executed by Holder, and when delivered by Holder in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Holder, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

6.2          Investment Representations

(a)             Information about the Company.   The Holder has had access to and has been furnished with information relating to the business, operations and financial condition of the Company as well as this Agreement and the transactions contemplated hereby, and has had an adequate opportunity to ask such questions of, and receive answers from, the Company or an agent or representative of the Company, regarding the Company and its business to the extent deemed necessary by the Holder in order to form a decision concerning an investment in the Company.

(b)           Holder Bears Economic Risk.   Holder has substantial experience in evaluating and investing in highly speculative securities and as such is capable of evaluating the merits and risks of its investment in the Company.  Holder understands that the Company has no present intention of registering the Notes, Warrants or any of the Warrant Shares, excepts as provided in Section 8 of this Agreement.  Holder also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Holder to transfer all or any portion of the Notes, Warrants or the Warrant Shares under the circumstances, in the amounts or at the times Holder might propose.

(c)           Acquisition for Own Account.   Holder is acquiring the Notes and Warrants, and will acquire the Warrant Shares, for Holder’s own account for investment only, and not with a view towards their public distribution.

(d)           Holder Can Protect Its Interest.   Holder represents that by reason of its, or of its management’s, business or financial experience, Holder has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement and the Security Documents.  Further, Holder is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement.

(e)           Accredited Holder.   Holder represents that it is an accredited Holder within the meaning of Regulation D of the Securities Act.

(f)            Residence.   Each Holder is a bona fide resident of, or entity duly formed pursuant to the laws of, and is domiciled in, the state or country set forth in his, her or its address as provided below.

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6.3          Correctness of Representations

Holder represents that the foregoing representations and warranties are true and correct as of the date hereof, and, unless Holder otherwise notifies the Company in writing prior to the Effective Date, shall be true and correct as of the Effective Date.

SECTION 7.         CONDITIONS TO CLOSING

7.1          Conditions to Holders’ Obligations at the Closing

Holders’ obligations under this Agreement are subject to the satisfaction, at or prior to the respective Closing, of the following conditions:

(a)           Representations and Warranties True; Performance of Obligations.   The representations and warranties made by the Company in Section 5 shall be true and correct in all material respects as of the Effective Date, and the Company shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to such Closing.

(b)           Consents, Permits, and Waivers.   The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Transaction Agreements (except for such as may be properly obtained subsequent to the Closing).

(c)           Corporate Documents.   The Company shall have delivered to Holders or their counsel copies of all corporate documents of the Company as Holders shall reasonably request.

(d)           Proceedings and Documents.   All corporate and other proceedings in connection with the transactions contemplated at the Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Holders and their counsel, and the Holders and their counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request.

(e)           Payment of Fees.  All fees required to be paid at the Closing under Section 9.1 shall have been paid.

(f)            Compliance Certificate.  The Company will have delivered to counsel for each Holder a certificate, executed on the Company’s behalf by the Company’s Chief Executive Officer, in substantially the form attached as Exhibit D , certifying the satisfaction of the closing conditions listed in this Section 7.1.

(g)            Legal Opinion.  The Holders will have received from the Company’s legal counsel a legal opinion, dated as of the Effective Date, in substantially the form attached as Exhibit E .

(h)            Secretary’s Certificate.  The Company will have delivered to counsel for each Holder a certificate, executed on the Company’s behalf by the Company’s Secretary, in substantially the form attached as Exhibit F .

7.2          Conditions to Obligations of the Company

The Company’s obligations under this Agreement are subject to the satisfaction, on or prior to the respective Closing, of the following conditions:

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(a)           Representations and Warranties True; Performance of Obligations.   The representations and warranties made by Holders in Section 6 shall be true and correct in all material respects as of the Effective Date, and the Holders shall have performed and complied with all agreements and conditions herein required to be performed or complied with by Holders.

SECTION 8.         REGISTRATION RIGHTS

8.1          Registration Rights

The Company agrees to prepare and file with the Commission, no later than fifteen (15) days following the date on which the Company’s Annual Report on Form 10-KSB is due for the fiscal year ending April 30, 2007 (the “Filing Date” ), a registration statement on Form SB-2, Form S-3 or such other form of registration statement as may be required by the Securities Act or as may be deemed appropriate by the Company (the “Registration Statement ” ) to enable the resale of the Warrant Shares underlying the Closing Warrants (the “Registrable Securities” ) by the Holders from time to time on the OTC Bulletin Board or in privately-negotiated transactions.  The term “Registrable Securities” does not include the Warrant Shares underlying the Initial Interest Warrants or any Quarterly Interest Warrants issued to the Holders.

8.2          Registration Procedures

The Company will keep each Holder advised in writing as to the status of the Registration Statement as set forth herein.  At the Company’s expense, the Company will:

(a)         use commercially reasonable efforts to cause the Registration Statement to be declared effective by the Commission within forty-five (45) days of the Filing Date (in the case of no review of the Registration Statement by the Commission) or ninety (90) days of the Filing Date (in the case of a review of the Registration Statement by the Commission) (as applicable, the “Required Effective Date” );

(b)         promptly and without delay prepare and file with the Commission, and concurrently provide copies to the Holder, such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep the Registration Statement current, effective and free from any material misstatement or omission to state a material fact for a period not exceeding, with respect to each Holder’s Registrable Securities, the earlier of the (i) second anniversary of the effective date of the Registration Statement, (ii) the date on which the Holder may sell all Registrable Securities then held by the Holder without restriction by the volume limitations of Rule 144(e) of the Securities Act, or (iii) such time as all Registrable Securities have been sold pursuant to a Registration Statement;

(c)          furnish such number of prospectuses and other documents incident to such prospectus, including any prospectus amendment or prospectus supplement, as a Holder from time to time may reasonably request;

(d)          use commercially reasonable efforts to register and qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions as will be reasonably requested by the Holders; provided, that the Company will not be required, in connection with any such registration and qualification or as a condition to any such registration and qualification, to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

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(e)         notify each Holder of Registrable Securities covered by such Registration Statement at any time when a prospectus relating to such Registration Statement is required to be delivered under the Securities Act of the occurrence of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

(f)         notify each Holder, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued;

(g)        at the request of any such Holder, furnish: (i) at the sole expense of the Company, an opinion dated as of the effective date of the Registration Statement the counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to the Holder or Holders making such request, covering such matters as such underwriters and Holder or Holders may reasonably request; and (ii) letters dated as of the effective date of the Registration Statement and as of the closing date, from the independent certified public accountants of the Company, addressed to the underwriters, if any, and to the Holder or Holders making such request, covering such matters as such underwriters and Holder or Holders may reasonably request;

(h)         if requested by the Holders, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by this Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request; and

(i)            at any time after the Registrable Securities are covered by an effective Registration Statement, the Company may deliver to the Holders of such Registrable Securities a certificate (the “Suspension Certificate” ) approved by the Chief Executive Officer of the Company and signed by an officer of the Company stating that the effectiveness of and sales of Registrable Securities under the Registration Statement would:

(A)  materially interfere with any transaction that would require the Company to prepare financial statements under the Securities Act that the Company would otherwise not be required to prepare in order to comply with its obligations under the Exchange Act, or

(B)  require public disclosure of any transaction of the type discussed in Section 8.2(i)(A) prior to the time such disclosure might otherwise be required;

Beginning five (5) Business Days after the receipt of a Suspension Certificate by Holders of Registrable Securities, the Company may, in its discretion, require such Holders of Registrable Securities to refrain from selling or otherwise transferring or disposing of any Registrable Securities or other Company securities then held by such Holders for a specified period of time that is customary under the circumstances (not to exceed 30 days during any 12-month period).  The Company may impose stop transfer instructions to enforce any required agreement of the Holders under this Section 8.2(i).

8.3          Discontinued Disposition

Each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any

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event of the kind described in Section 8.2(e) or Section 8.2(f), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice” ) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.  The Company will use commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable.

8.4          Non-Registration Event

The Company acknowledges and agrees that the Holders will suffer material damages if the Registration Statement is not declared effective by the Commission by the Required Effective Date and maintained in the manner and within the time periods contemplated by Section 8.2 hereof, and it would not be feasible to ascertain the extent of such damages with precision.  Accordingly, if the Registration Statement is not declared effective by the Commission on or prior to the Required Effective Date (the “Non-Registration Event” ), then, for so long as the Non-Registration Event shall continue, the Company shall pay to each Holder as liquidated damages for each month during the pendency of such Non-Registration Event an amount equal to one (1%) percent per month (pro rated for any portion thereof) of the aggregate value of the Warrant Shares underlying the Holder’s Closing Warrants then held by such Holder (which shall be measured at $4.00 per share); provided, however, that no amount in liquidated damages shall be paid to any Holder pursuant to this Section 8.4 for the Company’s failure to register the Warrant Shares if such failure is as a result of an interpretation by the Commission that Securities Act Rule 415 prohibits such registration. Payments to be made pursuant to this Section 8.4 shall be due and payable to the Holders in immediately available funds within ten (10) business days after receipt of written demand from a Holder.

8.5          Registration Expenses

The Company will be responsible for all expenses incurred by it in connection with the preparation and filing of the Registration Statement, regardless of whether any Registrable Securities are sold pursuant to such Registration Statement.  All selling expenses incurred by any Holder in connection with the Registration Statement or the Registrable Securities, including broker or similar commissions, will be borne by such Holder.

8.6          Indemnification

(a)           Indemnification by Company.  The Company will indemnify each Holder, and each Holder’s officers, directors, members, governors, employees, partners, legal counsel, and accountants, and each person controlling such Holder within the meaning of Section 15 of the Securities Act with respect to any registration, qualification, or compliance effected pursuant to this Section 8, and each underwriter, if any, and each person who controls, within the meaning of Section 15 of the Securities Act, any underwriter, against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect of such expenses, claims, losses, damages, and liabilities) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular, or other document (including any related registration statement, notification, or similar document) incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state in such document a material fact required to be stated in such document or necessary to make the statements in such document not misleading, or any violation by the Company of the Securities Act and any applicable state securities laws or any rule or regulation under the Securities Act or state securities laws applicable to the Company and relating to action or inaction

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required of the Company in connection with any such registration, qualification, or compliance, and will reimburse each such Holder, and each of such Holder’s officers, directors, partners, legal counsel, and accountants, and each person controlling such Holder, and each such underwriter, and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability, or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use in such document.  The Parties expressly agree and acknowledge that the indemnity agreement contained in this Section 8.6(a) will not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the Company’s consent (which consent will not be unreasonably withheld, delayed or conditioned).

(b)           Indemnification by Holder .  Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify the Company, and each of the Company’s directors, officers, legal counsel, and accountants, and each underwriter, if any, of the Company’s securities covered by such a registration statement, and each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, and each of their respective officers, directors, and partners, and each person controlling such Holder or other Company stockholder, against all claims, losses, damages, and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state in such document a material fact required to be stated in such document or necessary to make the statements in such document not misleading, and will reimburse the Company, and such Holders, and directors, officers, legal counsel, and accountants, and underwriters, and control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use in such document; provided that such Holder’s obligations under this Section 8.6(b) will not apply to amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect of such claims, losses, damages, or liabilities) if such settlement is effected without such Holder’s consent (which consent will not be unreasonably withheld, delayed or conditioned); and provided further that in no event will any indemnity under this Section 8.6(b) exceed the net proceeds.  For purposes of this Section 8.6(b) and Section 8.6(d), the term “net proceeds,” with respect to any particular Holder, means the proceeds from the offering received by such Holder after deducting underwriters’ commissions, discounts, and expenses attributable to the Registrable Securities sold by such Holder.

(c)           Indemnification Procedures.  Each party entitled to indemnification under this Section 8.6 (the “ Indemnified Party ” ) will give notice to the party required to provide indemnification (the “ Indemnifying Party ” ) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and will permit the Indemnifying Party to assume the defense of such claim or any litigation resulting from such claim; provided that counsel for the Indemnifying Party who will conduct the defense of such claim or any litigation resulting from such claim, will be approved by the Indemnified Party (whose approval will not be unreasonably withheld), and the Indemnified Party may participate in such defense at such Indemnified Party’s expense.  Notwithstanding the foregoing, any Indemnified Party’s failure to give notice as provided in this Section 8.6(c) will not relieve the Indemnifying Party of the Indemnifying Party’s obligations under this Section 8.6 to the extent such failure is not prejudicial.  No Indemnifying Party, in the defense of any such claim or litigation, will,

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except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term of such judgment or such settlement the claimant’s or plaintiff’s release of such Indemnified Party from all liability in respect to such claim or litigation.  Each Indemnified Party will furnish such information regarding such Indemnified Party or the claim in question as an Indemnifying Party may reasonably request in writing and as will be reasonably required in connection with defense of such claim and litigation resulting from such claim.

(d)           Indemnification Unavailability.  If the indemnification provided for in this Section 8.6 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to in this Section 8.6, then the Indemnifying Party, instead of indemnifying such Indemnified Party under Section 8.6(a) or Section 8.6(b), will contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and of the Indemnified Party, on the other hand, in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations; provided, however, that in no event will any contribution by a Holder under this Section 8.6(d) exceed the net proceeds (as defined in Section 8.6(b)).  The relative fault of the Indemnifying Party and of the Indemnified Party will be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the Parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

8.7          Information from Holder

Each Holder will furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as will be reasonably required in connection with any registration, qualification, or compliance referred to in this Section 8.

8.8          Rule 144 Reporting

With a view to making available the benefits of certain Commission rules and regulations that may permit the sale of the Warrant Shares underlying the Initial Interest Warrant and the Quarterly Interest Warrant, if exercised (the “Restricted Securities” ), to the public without registration, the Company agrees to:

(a)           file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

(b)           so long as a Holder owns any Restricted Securities, furnish to the Holder, promptly upon the Holder’s written request, a written statement by the Company as to the Company’s compliance with the reporting requirements of Rule 144 and the Exchange Act.

SECTION 9.         MISCELLANEOUS

9.1          Payment of Fees

The Company shall pay to the Whitebox Entities all reasonable expenses, including the fees of its legal counsel, incurred by the Whitebox Entities and their advisor, Whitebox Advisors, LLC, in

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connection with entry into this Agreement and the other Transaction Agreements including but not limited to any and all fees and expenses related to due diligence or other matters relating to or arising out of any of the foregoing.

9.2          Governing Law; Venue

This Agreement shall be governed by the laws of the State of Minnesota without regard to the conflicts of law principles of any jurisdiction.  With respect to any disputes arising out of or related to this Agreement or to any other Transaction Agreement, the parties consent to the exclusive jurisdiction of, and venue in, the state courts in Hennepin County, Minnesota (or, in the event of exclusive federal jurisdiction, the federal courts of the District of Minnesota).

9.3          Survival

The representations, warranties, covenants and agreements made herein shall survive the closing of the transactions contemplated hereby.  All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument.

9.4          Successors and Assigns

This Agreement, and any and all rights, duties, and obligations under this Agreement, will not be assigned, transferred, delegated, or sublicensed by any party without the other party’s prior written consent.  Any attempt by any party without such prior written consent to assign, transfer, delegate, or sublicense any rights, duties, or obligations that arise under this Agreement will be void.  Subject to the foregoing and except as otherwise provided in this Agreement, the provisions of this Agreement will inure to the benefit of, and be binding upon, the parties’ respective successors, assigns, heirs, executors, and administrators.

9.5          Entire Agreement

The Transaction Agreements and all the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.

9.6          Severability

In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

9.7          Amendment and Waiver

This Agreement may be amended or modified only upon the written consent of the Company and the Holders holding a majority-in-interest of the Principal Amount of the Notes.

20

 

9.8          Delays or Omissions

It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under any of the Transaction Agreements shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring.  It is further agreed that any waiver, permit, consent or approval of any kind or character on any Holder’s part of any breach, default or noncompliance under any of the Transaction Agreements or any waiver on such party’s part of any provisions or conditions of any of the Transaction Agreements must be in writing and shall be effective only to the extent specifically set forth in such writing.  All remedies under the Transaction Agreements or as otherwise afforded to any party shall be cumulative and not alternative.

9.9          Notices

All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified; (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) three (3) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent to the Company at its address on the first page hereof and to the Holders at their respective addresses set forth on the signature page hereof or at such other address as the Company or an Holder may designate by ten (10) days advance written notice to the other parties hereto.

9.10        Titles and Subtitles; Counterparts

The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.  This Agreement may be delivered via facsimile and may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

9.11        Exculpation among Holders

Each Holder acknowledges that it is not relying upon any representation or warranty of any person, firm, or corporation, other than the Company, in making its investment or decision to invest in the Company.  Each Holder agrees that none of the other Holders or the respective controlling persons, officers, directors, partners, agents, or employees of any other Holder shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the transactions contemplated hereby.

IN WITNESS WHEREOF, the undersigned have hereunto affixed their signatures.

MEDICALCV, INC.

 

 

	By	/s/ Marc P. Flores
		Marc P. Flores
		Its President and Chief Executive Officer

 

[Separate Holder Signature Pages Follow]

21

 

HOLDERS:

WHITEBOX READY LTD.

a British Virgin Islands limited company

By:	/s/ Jonathan D. Wood
		Jonathan D. Wood
		Chief Financial Officer
		Address:
		3033 Excelsior Boulevard
		Suite 300
		Minneapolis, MN  55416
		Tax I.D./Social Security No.

 

SIGNATURE PAGE TO SECURED NOTE PURCHASE AGREEMENT

 

SCHEDULE 1.0

LIST OF HOLDERS

 

 

MedicalCV, Inc.

Schedule 5.4(a) — Authorized and Issued Capital Stock

As of April 15, 2007

 

		Authorized		Issued and Outstanding		Available for Issuance
5% Series A Redeemable Convertible Preferred Stock; $0.01 par value; stated value $10,000 per share		1,900		0		1,900
Preferred Stock; $0.01 par value		998,100		0		998,100
Common Stock; $0.01 par value		24,000,000		9,837,224		14,162,776
Capital Stock		25,000,000		9,837,224		15,162,776

 

 

MedicalCV, Inc.

Schedule 5.4(b) — Capital Stock Reserved for Issuance

As of April 15, 2007

 

		Capital Stock Reserved for Issuance
1992 Stock Option Plan		50,000
1993 Director Stock Option Plan		30,000
1997 Stock Option Plan		50,000
2001 Equity Incentive Plan		600,000
2005 Director Stock Option Plan		100,000
Capital stock reserved for stock options issued outside of shareholder approved plans		513,715
Capital stock reserved for warrants		1,293,638
Capital Stock Reserved for Issuance		2,637,353

 

 

MedicalCV, Inc.

Schedule 5.4(c) — Securities Issued or Issuable with Anti-Dilution Provisions Potentially Impacted by Issuance of Warrants in this Transaction, including participation rights

As of April 15, 2007

 

Dated Issued

Expiration Date

Pre-Event # of Shares

Pre-Event Exercise Price

Pre-Event Extended Value

Post-Event # of Shares

Post-Event Exercise Price

Post-Event Extended Value

Holder Name

Warrant Type

Anti-Dilution Type

Anti-Dilution Expiration

Right of Participation

2/3/2004

2/3/2014

143,260

$

4.62

661,861

TBD

TBD

TBD

PKM Properties, LLC

Regular

Wtg. Avg.

Life

2/3/2004

2/3/2014

58,874

$

4.62

271,998

TBD

TBD

TBD

Peter L. Hauser

Regular

Wtg. Avg.

Life

5/21/2004

5/21/2009

8,243

$

4.62

38,084

TBD

TBD

TBD

Nicholas P. Hauser

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

15,666

$

4.62

72,375

TBD

TBD

TBD

John C. Feltl

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

6,837

$

4.62

31,589

TBD

TBD

TBD

Mary Joanne Feltl

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

805

$

4.62

3,718

TBD

TBD

TBD

Alan Frailich

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

2,164

$

4.62

9,997

TBD

TBD

TBD

John Ryden

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

786

$

4.62

3,633

TBD

TBD

TBD

Berthel Fisher & Co. Financial Services, Inc.

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

786

$

4.62

3,633

TBD

TBD

TBD

Neil Engquist

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

637

$

4.62

2,942

TBD

TBD

TBD

Okoboji Financial Services

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

2,735

$

4.62

12,634

TBD

TBD

TBD

David Lantz

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

127

$

4.62

588

TBD

TBD

TBD

G. Douglas Pritchard

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

3,500

$

4.62

16,168

TBD

TBD

TBD

A. Gordon Schierman

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

2,699

$

4.62

12,469

TBD

TBD

TBD

Donald Steinkamp

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

636

$

4.62

2,938

TBD

TBD

TBD

William Freerks

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

1,333

$

4.62

6,157

TBD

TBD

TBD

Chip A. Rice

Unit

Wtg. Avg.

Life

5/21/2004

5/21/2009

2,068

$

4.62

9,555

TBD

TBD

TBD

Nicholas H. Shermeta

Unit

Wtg. Avg.

Life

11/13/2003

11/13/2013

29,278

$

4.44

129,994

TBD

TBD

TBD

PKM Properties, LLC

Regular

Wtg. Avg.

Life

10/13/2006

10/13/2011

75,000

$

4.37

327,375

75,000

$

4.00

300,000

Potomac Capital Partners LP

Regular

Full Ratchet

7/13/2007

Yes

10/13/2006

10/13/2011

50,000

$

4.37

218,250

50,000

$

4.00

200,000

Potomac Capital International Ltd

Regular

Full Ratchet

7/13/2007

Yes

10/13/2006

10/13/2011

53,571

$

4.37

233,837

53,571

$

4.00

214,284

Pleiades Investment Partners - R LP

Regular

Full Ratchet

7/13/2007

Yes

11/17/2004

11/17/2014

11,494

$

4.35

49,999

TBD

TBD

TBD

PKM Properties, LLC

Regular

Wtg. Avg.

Life

11/24/2003

11/24/2013

3,059

$

4.25

13,001

TBD

TBD

TBD

Richard H. Nicholson

Regular

Wtg. Avg.

Life

11/24/2003

11/24/2013

3,059

$

4.25

13,001

TBD

TBD

TBD

CPL Investments

Regular

Wtg. Avg.

Life

11/24/2003

11/24/2013

9,176

$

4.25

38,998

TBD

TBD

TBD

Nicholson Boys LP

Regular

Wtg. Avg.

Life

11/24/2003

11/24/2013

6,117

$

4.25

25,997

TBD

TBD

TBD

Raft Co.

Regular

Wtg. Avg.

Life

11/24/2003

11/24/2013

9,176

$

4.25

38,998

TBD

TBD

TBD

Draft Co.

Regular

Wtg. Avg.

Life

4/4/2003

4/4/2013

60,932

$

3.59

218,746

N/A

N/A

N/A

PKM Properties, LLC

Regular

Wtg. Avg.

Life

7/1/2003

7/1/2013

62,429

$

3.59

224,120

N/A

N/A

N/A

PKM Properties, LLC

Regular

Wtg. Avg.

Life

7/1/2003

7/1/2013

74,164

$

3.59

266,249

N/A

N/A

N/A

Peter L. Hauser

Regular

Wtg. Avg.

Life

8/20/2003

8/20/2013

11,734

$

3.59

42,125

N/A

N/A

N/A

PKM Properties, LLC

Regular

Wtg. Avg.

Life

1/17/2003

1/17/2013

59,600

$

3.50

208,600

N/A

N/A

N/A

PKM Properties, LLC

Regular

Wtg. Avg.

Life

3/3/2005

3/3/2015

72,734

$

3.40

247,296

N/A

N/A

N/A

PKM Properties, LLC

Regular

Wtg. Avg.

Life

3/3/2005

3/3/2015

2,166

$

3.40

7,364

N/A

N/A

N/A

Robert G. Allison IRA

Regular

Wtg. Avg.

Life

3/3/2005

3/3/2015

2,746

$

3.40

9,336

N/A

N/A

N/A

Bradley A. Erickson IRA

Regular

Wtg. Avg.

Life

3/3/2005

3/3/2015

5,067

$

3.40

17,228

N/A

N/A

N/A

Dennis D. Gonyea

Regular

Wtg. Avg.

Life

3/3/2005

3/3/2015

2,166

$

3.40

7,364

N/A

N/A

N/A

John T. Potter

Regular

Wtg. Avg.

Life

3/3/2005

3/3/2015

2,166

$

3.40

7,364

N/A

N/A

N/A

Brust Limited Partnership

Regular

Wtg. Avg.

Life

3/3/2005

3/3/2015

1,005

$

3.40

3,417

N/A

N/A

N/A