Careview Communications, Inc. 8-K [crvw-8k_071318.htm]

Exhibit 10.54

SENIOR SECURED CONVERTIBLE NOTE

NEITHER THE ISSUANCE AND SALE OF THIS NOTE NOR ANY SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES
LAWS. THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE OR THE SHARES
OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE UNDER THE SECURITIES ACT,
AS APPLICABLE, OR (B) AN OPINION OF COUNSEL (SELECTED BY THE HOLDER AND
REASONABLY ACCEPTABLE TO THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY BE OFFERED FOR SALE, SOLD, ASSIGNED OR TRANSFERRED PURSUANT TO
AN EXEMPTION FROM REGISTRATION; PROVIDED THAT SUCH OPINION OF COUNSEL SHALL NOT
BE REQUIRED IN CONNECTION WITH ANY SUCH SALE, ASSIGNMENT OR TRANSFER TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT IS, PRIOR TO SUCH SALE, ASSIGNMENT OR
TRANSFER, AN AFFILIATE OF THE HOLDER OF THIS NOTE, OR (II) UNLESS THE HOLDER
PROVIDES THE COMPANY WITH ASSURANCE (REASONABLY SATISFACTORY TO THE COMPANY)
THAT SUCH NOTE OR THE SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION OF THE
NOTE CAN BE SOLD, ASSIGNED OR TRANSFERRED PURSUANT TO RULE 144.

ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING, WITHOUT LIMITATION, SECTIONS 3(c)(iii) AND 13(a) HEREOF. THE
PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

Notwithstanding anything herein to the contrary, the rights and remedies granted
to the Holder pursuant to this Note, the lien and security interest granted to
the Agent securing this Note and the exercise of any right or remedy by the
Holder or Agent relating to this Note are subject to the provisions of the
Subordination and Intercreditor Agreement dated as of June 26, 2015 (as amended,
amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof, the “Intercreditor Agreement”), among PDL
INVESTMENT HOLDINGS, LLC (as assignee of PDL BioPharma, Inc.) and EACH OF THE
NOTE INVESTORS PARTY TO THAT CERTAIN NOTE AND WARRANT PURCHASE AGREEMENT DATED
AS OF APRIL 21, 2011, AS subsequently amended, and certain other persons party
or that may become party thereto from time to time. In the event of any conflict
between the terms of the Intercreditor Agreement and this Note, the Purchase
Agreement and the other Transaction Documents (as defined in the Purchase
Agreement), the terms of the Intercreditor Agreement shall govern and control.

IN ADDITION, THE RIGHTS AND REMEDIES GRANTED to THE HOLDER PURSUANT TO THIS
NOTE, THE LIEN AND SECURITY INTEREST GRANTED TO HEALTHCOR PARTNERS FUND, L.P., A
DELAWARE LIMITED PARTNERSHIP, AS AGENT FOR THE INVESTORS UNDER THE SECURITY
AGREEMENT (“AGENT”) SECURING THIS NOTE AND THE EXERCISE OF ANY RIGHT OR REMEDY
BY THE HOLDER OR AGENT RELATING TO THIS NOTE ARE further SUBJECT TO THE
PROVISIONS OF SECTIONS 3 AND 4 OF THE NINTH AMENDMENT, DATED AS OF JULY 10,
2018, TO THE PURCHASE AGREEMENT (AS DEFINED HEREIN).

 

 

 

 

No. F-[__]

CAREVIEW COMMUNICATIONS, INC.

SENIOR SECURED CONVERTIBLE NOTE

Issuance Date:  July 13, 2018 Principal Amount:  U.S. $[__________]   (subject
to Section 3(c)(iii) hereof)

 

FOR VALUE RECEIVED, CareView Communications, Inc., a Nevada corporation (the
“Company”), hereby promises to pay to [______________] or the registered
assign(s) thereof (“Holder”) the principal amount set forth above (as increased
and/or decreased pursuant to the terms hereof by reason of the accrual of
Interest, partial conversion or otherwise, and together with the principal
amount of any additional convertible debt instruments issued by the Company to
the Holder in accordance herewith, the “Principal”) when due, whether upon the
Maturity Date, acceleration or otherwise (in each case in accordance with the
terms hereof), together with accrued interest (“Interest”) on any outstanding
Principal at the First Five Year Interest Rate or the Second Five Year Interest
Rate, as applicable, from the date hereof (the “Issuance Date”) until the same
becomes due and payable, whether upon the Maturity Date, acceleration,
conversion or otherwise (in each case, in accordance with the terms hereof).
This Senior Secured Convertible Note (this “Note”) is being issued pursuant to
that certain Note and Warrant Purchase Agreement, dated as of April 21, 2011, as
amended by a Note and Warrant Amendment Agreement entered into as of December
30, 2011, a Second Amendment to Note and Warrant Purchase Agreement dated as of
January 31, 2012, a Third Amendment to Note and Warrant Purchase Agreement dated
as of August 20, 2013, a Fourth Amendment to Note and Warrant Purchase Agreement
dated as of January 16, 2014, a Fifth Amendment to Note and Warrant Purchase
Agreement dated as of December 15, 2014, a Sixth Amendment to Note and Warrant
Purchase Agreement dated as of March 31, 2015, a Seventh Amendment to Note and
Warrant Purchase Agreement dated as of June 26, 2015, an Eighth Amendment to
Note and Warrant Purchase Agreement dated as of February 23, 2018, a Ninth
Amendment to Note and Warrant Purchase Agreement dated as of July 10, 2018 and a
Tenth Amendment to Note and Warrant Purchase Agreement dated as of July 13, 2018
by and among the Company, the Holder and the other Investors named therein (the
“Purchase Agreement”), and is entitled to the benefits of, and evidences
obligations incurred under, the Purchase Agreement and the other Transaction
Documents (as defined in the Purchase Agreement), to which reference is made for
a description of the security for this Note and for a statement of the terms and
conditions on which the Company is permitted and required to make prepayments
and repayments of principal of the obligations evidenced hereby and on which
such obligations may be declared to be immediately due and payable. This Note
represents a full recourse obligation of the Company.

Certain capitalized terms used herein are defined in Section 23.

(1)               MATURITY. On the Maturity Date, the Holder shall surrender
this Note to the Company and the Company shall pay to the Holder an amount in
cash representing all outstanding Principal, accrued and unpaid Interest and
accrued and unpaid Late Charges (as defined in Section 19(b)), if any. The
“Maturity Date” shall be July 12, 2028.

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(2)               INTEREST; INTEREST RATE.

(a)               So long as no Event of Default has occurred and is continuing,
the outstanding Principal balance of this Note shall accrue Interest from the
Issuance Date through July 12, 2023 (the “First Five Year Note Period”), at the
rate of twelve and one-half percent (12.5%) per annum (based on a 360-day year
and the actual number of days elapsed in any partial year) (the “First Five Year
Interest Rate”), compounding quarterly, which accrued Interest shall be added to
the outstanding Principal balance of this Note on the last day of each calendar
quarter and shall thereafter itself, as part of such Principal balance, accrue
Interest at the First Five Year Interest Rate (and, during the Second Five Year
Note Period (as defined below), at the Second Five Year Interest Rate (as
defined below)), compounding quarterly. All such accrued Interest added to the
outstanding Principal balance pursuant to the immediately preceding sentence
shall be payable on the same terms and subject to the same conditions set forth
herein. Upon the occurrence of an Event of Default, Interest shall be calculated
at the Default Rate as set forth in Section 2(c) below.

(b)               So long as no Event of Default has occurred and is continuing,
the outstanding Principal balance of this Note shall accrue Interest from and
after the end of the First Five Year Note Period through the Maturity Date (the
“Second Five Year Note Period”), at the rate of ten percent (10%) per annum
(based on a 360-day year and the actual number of days elapsed in any partial
year) (the “Second Five Year Interest Rate”). The Interest accruing during the
Second Five Year Note Period may be paid quarterly in arrears in cash or, at the
Company’s option, such Interest may be added to the outstanding Principal
balance of the Note on the last day of each calendar quarter and shall
thereafter itself, as part of such Principal balance, accrue Interest at the
Second Five Year Interest Rate, compounding quarterly. All such accrued Interest
added to the outstanding Principal balance pursuant to the immediately preceding
sentence shall be payable on the same terms and subject to the same conditions
set forth herein. Upon the occurrence of an Event of Default, Interest shall be
calculated at the Default Rate as set forth in Section 2(c) below.

(c)               From and after the date such Event of Default occurred, the
First Five Year Interest Rate or the Second Five Year Interest Rate, whichever
is then applicable, shall be increased by five percent (5%) and otherwise
applied consistently with the provisions of Sections 2(a) and 2(b) (the “Default
Rate”).

 2 

 

 

(d)                

(i)                 In addition to the foregoing, if any Major Event occurs at
any time during the First Five Year Note Period, then all amounts of Interest
that are then scheduled to be paid or accrued pursuant to Section 2(a) through
and including the last day of the First Five Year Note Period, but that have not
yet been paid pursuant to Section 2(a) (such amount, the “First Five Year Major
Event Interest Amount”), will accelerate and become immediately due and payable
by the Company by the issuance to the Holder of an additional convertible debt
instrument with the same terms as this Note, in a principal amount equal to the
First Five Year Major Event Interest Amount, and, at any time from and after the
occurrence of the Major Event, the Holder may, at its option, elect to (A)
convert this Note and such convertible debt instrument at the then effective
Conversion Rate or (B) redeem all or any portion of the outstanding Principal
balance of this Note and such convertible debt instrument, provided that for so
long as this Note or such convertible debt instrument remain outstanding,
subject to Section 2(d)(ii) below, no additional Interest shall accrue on this
Note or such additional convertible debt instrument until the commencement of
the Second Five Year Note Period. If any Major Event occurs at any time during
the Second Five Year Note Period, then all amounts of Interest that are then
scheduled to be paid or accrued pursuant to Section 2(b) through and including
the last day of the Second Five Year Note Period (assuming for this purpose that
the Company would elect to pay all such Interest in cash), but that have not yet
been paid pursuant to Section 2(b) (such amount, the “Second Five Year Major
Event Interest Amount”), will accelerate and become immediately due and payable
by the Company by the issuance to the Holder of an additional convertible debt
instrument with the same terms as this Note and in a principal amount equal to
the Second Five Year Major Event Interest Amount or, at the Company’s option, by
cash payment in immediately available funds of an amount equal to the Second
Five Year Major Event Interest Amount paid within five (5) Business Days of the
occurrence of the Major Event. At any time following the occurrence of the Major
Event, the Holder may, at its option, elect to (X) convert this Note and such
convertible debt instrument (if any) at the then effective Conversion Rate or
(Y) redeem all or any portion of the outstanding Principal balance of this Note
and such convertible debt instrument (if any), provided that, for so long as
this Note or any such convertible debt instrument remain outstanding, subject to
Section 2(d)(ii) below, no additional Interest shall accrue on this Note or such
additional convertible debt instrument for the duration of the Second Five Year
Note Period. For purposes of this Note, the term “Major Event” shall mean the
occurrence of (i) the signing of a definitive agreement or a series of
agreements for the transfer, sale, lease or license of all or substantially all
of the Company’s assets or capital securities; (ii) the signing of a definitive
agreement to consolidate or merge with or into another Person (whether or not
the Company is the Successor Entity) that results or would result, after giving
effect to the consummation of the transactions contemplated by such agreement,
in such other Person (or the holders of such other Person’s capital stock
immediately prior to the transaction) (other than the Holder or its Affiliates)
being or becoming the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty-five percent (35%) or more of any
class of the Company’s or the Successor Entity’s outstanding capital securities;
(iii) the signing of a definitive agreement or a series of agreements to
consummate a stock acquisition or sale or other business combination (including,
without limitation, a reorganization, recapitalization, or spin-off), or series
thereof, with any other Person or Persons (other than the Holder or its
Affiliates) that results or would result, after giving effect to the
consummation of the transactions contemplated by such agreement or agreements,
in such other Person or Persons being or becoming the beneficial owner (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five
percent (35%) or more of any class of the Company’s outstanding capital
securities; (iv) the commencement or other public announcement by any Person
(other than the Company, the Holder or the Holder’s Affiliates) of a purchase,
tender or exchange offer for 35% or more of the outstanding shares of Common
Stock (not including any shares of Common Stock held by the Person or Persons
making or party to, or associated or affiliated with the Persons making or party
to, such purchase, tender or exchange offer), (v) any “person” or “group” (as
these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act) (other than the Holder or its Affiliates) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of either (x) 35% or more of the aggregate ordinary voting power
represented by issued and outstanding Common Stock or (y) 35% or more of the
aggregate ordinary voting power represented by issued and outstanding Common
Stock not held by such Person or Persons as of the date hereof or (vi) the
public announcement by any Person, Persons or group (other than the Company, the
Holder or the Holder’s Affiliates) of a bona fide intention to enter into any of
the agreements or to engage in or commence any of the actions described in
clauses (i) through (v) above, or otherwise reflecting an intent to acquire the
Company or all or substantially all of its assets or capital securities, or the
public announcement by the Company of its receipt of a communication from such a
Person, Persons or group evidencing the same.

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(ii)              Notwithstanding the foregoing, in the event that, following a
Major Event, an Event of Default occurs during the First Five Year Note Period
while any portion of this Note and/or any convertible debt instrument issued
pursuant to Section 2(d)(i) remains outstanding (such outstanding portion, the
“Post EOD Principal”), the Company shall issue to the Holder an additional
convertible debt instrument with the same terms as this Note and with a face
principal amount equal to the difference (to the extent such difference is
positive) between (A) the applicable EOD Accelerated Interest (as defined in
Section 4(b)) on such Post EOD Principal, and (B) the First Five Year Major
Event Interest Amount attributable to the Post EOD Principal and paid under
Section 2(d)(i), and at any time following the occurrence of the Event of
Default, the Holder may, at its option, elect to convert such additional
convertible debt instrument at the then effective Conversion Rate or redeem all
or any portion of the outstanding Principal balance of such convertible debt
instrument. In the event that, following a Major Event, an Event of Default
occurs during the Second Five Year Note Period while any Post EOD Principal
remains outstanding, the Company shall issue to the Holder an additional
convertible debt instrument with the same terms as this Note and with a face
principal amount equal to the difference (to the extent such difference is
positive) between (X) the applicable EOD Accelerated Interest attributable to
such Post EOD Principal and (Y) the Second Five Year Major Event Interest Amount
attributable to the Post EOD Principal and paid under Section 2(d)(i), and at
any time following the occurrence of the Event of Default, the Holder may, at
its option, elect to convert such additional convertible debt instrument at the
then effective Conversion Rate or redeem all or any portion of the outstanding
Principal balance of such convertible debt instrument, provided, however, that
the Company shall also have the option of paying the foregoing amount in cash
upon the occurrence of such Event of Default during the Second Five Year Note
Period.

(e)               Notwithstanding any other provision of this Note, the
aggregate annual interest rate payable with respect to this Note (including all
charges and fees deemed to be interest pursuant to applicable law) shall not
exceed the maximum annual rate permitted by applicable law. In the event the
aggregate annual interest rate payable with respect to this Note (including all
charges and fees deemed to be interest under applicable laws) exceeds the
maximum legal rate, the Company shall only pay Interest to the Holder at the
maximum permitted rate and the Company shall continue to make such Interest
payments at the maximum permitted rate until all amounts, fees and obligations
required to be paid hereunder have been paid in full.

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(f)                This Note is one of a series of notes issued by the Company
pursuant to the Purchase Agreement. Such Notes are referred to herein as the
“Notes,” and the holders thereof (including the Holder) are referred to herein
as the “Investors.” The Notes initially issued in calendar years 2011 and 2012
are senior in right of payment to the Notes initially issued after calendar year
2012 (including this Note, the “Subsequent Tranche Notes”), as more fully set
forth in the Purchase Agreement. The right of an Investor to receive payments of
Principal and Interest under this Note shall be pari passu with the rights of
the other Investors to receive payments of Principal and Interest under their
respective Subsequent Tranche Notes, and the Company covenants that any payments
made by it with respect to the Subsequent Tranche Notes shall be made pro rata
among the Investors determined based on the ratio of the outstanding balance of
Principal and Interest under each Subsequent Tranche Note divided by the
aggregate outstanding balance of Principal and Interest under all Subsequent
Tranche Notes.  By the Holder’s acceptance of this Note, the Holder agrees to
the foregoing sentence.

(3)               CONVERSION OF NOTE. This Note shall be convertible into shares
of Common Stock, on the terms and conditions set forth in this Section 3.

(a)               Conversion Right. At any time or times on or after the
Issuance Date, the Holder shall be entitled to convert any portion of the
outstanding and unpaid Conversion Amount (as defined below) into fully paid and
nonassessable shares of Common Stock in accordance with Section 3(c), at the
Conversion Rate (as defined below). The Company shall not issue any fraction of
a share of Common Stock upon any conversion. If any conversion would result in
the issuance of a fraction of a share of Common Stock, the Company shall round
such fraction of a share of Common Stock to the nearest whole share but shall
have no obligation to pay the Holder for any fraction of a share of Common Stock
forfeited as a result of such rounding. The Company shall pay any and all stock
transfer, stamp, documentary and similar taxes (excluding any taxes on the
income or gain of the Holder) that may be payable with respect to the issuance
and delivery of shares of Common Stock to the Holder upon conversion of any
Conversion Amount. To the extent permitted by law, the Company and
the Holder acknowledge and agree that any conversion of all or any portion of
the Conversion Amount into shares of Common Stock pursuant to the terms of
this Section 3(a) will not be treated as a taxable transaction and the Company
and the Holder agree to report any such conversion in a manner consistent with
the foregoing treatment.

(b)               Conversion Rate. The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 3(a) (the
“Conversion Rate”) shall be determined by dividing (x) such Conversion Amount by
(y) the Conversion Price.

(i)                 “Conversion Amount” means the sum of (A) the portion of the
Principal to be converted with respect to which this determination is being
made, (B) accrued and unpaid Interest with respect to such Principal and (C)
accrued and unpaid Late Charges with respect to such Principal and Interest.

(ii)              “Conversion Price” means $0.05, subject to adjustment as
provided herein (including, without limitation, adjustment pursuant to Section
6).

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(c)               Mechanics of Conversion.

(i)                 Optional Conversion. To convert any Conversion Amount into
shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior to 4:00
p.m., Dallas, TX time, on such date, a copy of an executed notice of conversion
in the form attached hereto as Exhibit I (the “Conversion Notice”) to the
Company and (B) if required by Section 3(c)(iii), cause this Note to be
delivered to the Company as soon as practicable on or following such date. On or
before 4:00 p.m., Dallas, TX time, on the first (1st) Business Day following the
date of receipt of a Conversion Notice, the Company shall transmit by facsimile
a confirmation of receipt of such Conversion Notice to the Holder (at the
facsimile number provided in the Conversion Notice) and the Company’s transfer
agent, if any (the “Transfer Agent”). On or before 4:00 p.m., Dallas, TX time,
on the third (3rd) Business Day following the date of receipt of a Conversion
Notice (the “Share Delivery Date”), the Company shall (X) provided the Transfer
Agent is participating in the DTC Fast Automated Securities Transfer Program,
cause the Transfer Agent to credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit/Withdrawal At Custodian (“DWAC”)
system, or (Y) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, or if the Holder otherwise requests,
issue and deliver to the address as specified in the Conversion Notice, a
certificate, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. If this
Note is physically surrendered for conversion as required by Section 3(c)(iii)
and the outstanding Principal of this Note is greater than the Principal portion
of the Conversion Amount being converted, then the Company shall as soon as
practicable and in no event later than three (3) Business Days after receipt of
this Note and at its own expense, issue and deliver to the Holder a new Note (in
accordance with Section 13(d)), representing the outstanding Principal not
converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the Conversion Date.

(ii)              Company’s Failure to Timely Convert. If, at any time, the
Company shall fail to credit the Holder’s balance account with DTC or issue a
certificate to the Holder, as the case may be, upon conversion of any Conversion
Amount on or prior to the date which is seven (7) Business Days after the
Conversion Date (a “Conversion Failure”), then (A) the Company shall pay damages
to the Holder for each day of such Conversion Failure in an amount equal to 1.5%
of the product of (I) the sum of the number of shares of Common Stock not issued
to the Holder on or prior to the Share Delivery Date and to which the Holder is
entitled, and (II) the Closing Sale Price of the Common Stock on the Share
Delivery Date and (B) the Holder, upon written notice to the Company, may void
its Conversion Notice with respect to, and retain or have returned, as the case
may be, any portion of this Note that has not been converted pursuant to such
Conversion Notice; provided that the voiding of a Conversion Notice shall not
affect the Company’s obligations to make any payments which have accrued prior
to the date of such notice pursuant to this Section 3(c)(ii) or otherwise.

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(iii)            Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to
the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting physical
surrender and reissue of this Note. The Holder and the Company shall maintain
records showing the Principal, Interest and Late Charges converted and the dates
of such conversions or shall use such other method, reasonably satisfactory to
the Holder and the Company, so as not to require physical surrender of this Note
upon conversion.

(iv)             Disputes. In the event of a dispute between the Company and the
Holder of this Note as to the number of shares of Common Stock issuable to the
Holder in connection with a conversion of this Note, the Company shall issue to
the Holder the number of shares of Common Stock not in dispute and resolve such
dispute in accordance with Section 18.

(4)               RIGHTS UPON EVENT OF DEFAULT.

(a)               Event of Default. Each of the following events shall
constitute an “Event of Default”:

(i)                 the Company’s failure to pay to the Investors any amount of
Principal when and as due under the Notes (including, without limitation, upon a
redemption request pursuant to Section 2(d));

(ii)              the Company’s failure to pay to the Investors any amount of
Interest, Late Charges or other amounts (other than the amounts specified in
clause (i)) when and as due under the Notes if such failure continues for a
period of at least three (3) Business Days;

(iii)            any acceleration prior to maturity of any Indebtedness referred
to in clause (a) or (b) of the definition thereof of the Company or any of its
Subsidiaries consisting of principal individually or in the aggregate equal to
or greater than $500,000;

(iv)             the Company or any of its Subsidiaries, pursuant to or within
the meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law
for the relief of debtors (collectively, “Bankruptcy Law”), (A) commences a
voluntary case, (B) consents to the entry of an order for relief against it in
an involuntary case, (C) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official (a “Custodian”), (D) makes a general
assignment for the benefit of its creditors or (E) admits in writing that it is
generally unable to pay its debts as they become due;

(v)               a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that is not vacated, set aside or reversed within sixty
(60) days that (A) is for relief against the Company or any of its Subsidiaries
in an involuntary case, (B) appoints a Custodian of the Company or any of its
Subsidiaries or (C) orders the liquidation of the Company or any of its
Subsidiaries;

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(vi)             a final judgment or judgments for the payment of money
aggregating in excess of $2,000,000 are rendered against the Company or any of
its Subsidiaries and which judgments are not, within sixty (60) days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within sixty (60) days after the expiration of such stay; provided,
however, that any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $2,000,000 amount
set forth above so long as the Company provides the Holder a written statement
from such insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Holder) to the effect that such judgment is
covered by insurance or an indemnity and the Company will receive the proceeds
of such insurance or indemnity within sixty (60) days of the issuance of such
judgment;

(vii)          the Company or any Subsidiary breaches any negative covenant in
any Transaction Document;

(viii)        the Company breaches any affirmative covenant or agreement or
materially breaches any representation or warranty in any Transaction Document,
and such breach continues for a period of at least thirty (30) days;

(ix)             if at any time while any portion of the Notes remain
outstanding (x) the Board of Directors fails to include one (1) Director
designated by the Holder(s) of at least a majority of the Principal amount of
the Notes outstanding, voting as a separate class (the “Noteholder Director”),
provided that the Company shall have thirty (30) Business Days following the
resignation, removal or death or disability of the Noteholder Director to
appoint a successor Noteholder Director designated by the Holder(s) of at least
a majority of the Principal amount of the Notes outstanding, voting as a
separate class, unless such failure is the result of the failure by such Holders
to notify the Company of the name of the replacement Noteholder Director, in
which event the thirty (30) Business Day period shall be extended until a date
which is ten (10) Business Days after notice of the name and background of the
replacement Noteholder Director is given to the Company, or (y) without the
consent of the Noteholder Director (or, in the absence of a Noteholder Director,
the Holder(s) of at least a majority of the Principal amount of the Notes
outstanding), the Board of Directors exceeds seven (7) directors, or the
Compensation Committee or Nominating Committee (or other committees serving
similar functions) of the Board of Directors exceeds three (3) members, or (z)
the Noteholder Director is not afforded the right to serve as a member of each
of the Compensation Committee and Nominating Committee (or committees serving
similar functions);

(x)               the failure of the Company for a period of ninety (90) days
following the resignation and/or departure of Steven Johnson to engage a
replacement therefor that is reasonably acceptable to Investors holding at least
a majority of the Principal amount of the Notes outstanding (the “Majority
Investors”);

(xi)             [Intentionally omitted];

(xii)          the Company or any Subsidiary shall fail to make any payment
(whether of principal, interest or otherwise and regardless of amount) in
respect of any Indebtedness in excess of $500,000 (“Material Indebtedness”),
when and as the same shall become due and payable, after giving effect to any
grace period with respect thereto;

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(xiii)        any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause such Material Indebtedness to become due, or to require
the prepayment, repurchase, redemption or defeasance thereof, prior to its
scheduled maturity;

(xiv)         there shall occur any material loss theft, damage or destruction
of any Collateral (as defined in the Security Agreement) not fully covered
(subject to such reasonable deductibles as the Holder shall have approved) by
insurance; or

(xv)           either (a) the Company’s Board of Directors, a committee of the
Board of Directors or the officer or officers of the Company authorized to take
such action if board action is not required, concludes that any previously
issued financial statements, including interim periods, should no longer be
relied upon because of an error in such financial statements as addressed in
FASB Accounting Standards Codification Topic 250, as may be modified,
supplemented or succeeded, or (b) the Company is advised by, or receives notice
from, its independent accountant that disclosure should be made or action should
be taken to prevent future reliance on a previously issued audit report or
completed interim review related to previously issued financial statements, and
in either case the amended financial statements required in order to permit
reliance on such financial statements for the affected periods have not been
filed with the SEC within ninety (90) days of the earliest such event; provided,
however that if the facts and/or circumstances underlying the Event of Default
described in this Section 4(a)(xv) would also create or constitute a separate
Event of Default under this Note, the cure period set forth in this Section
4(a)(xv) shall not supersede or prevent the application of any shorter cure
period associated with such other applicable Event of Default, which may be
enforced separately and independently.

(b)               Rights Upon Event of Default. Promptly after the occurrence of
an Event of Default, the Company shall deliver written notice thereof (an “Event
of Default Notice”) to the Holder, and the Majority Investors may, at their
option, by notice to the Company (an “Event of Default Acceleration Notice”),
declare the Default Amount to be due and payable upon demand (an
“Acceleration”), provided that upon the occurrence of an Event of Default
described in Sections 4(a)(iv) and 4(a)(v) above, such Acceleration shall occur
automatically without requiring the delivery of an Event of Default Acceleration
Notice, such that the Default Amount shall automatically become immediately due
and payable without any further notice, demand or other action. For purposes
hereof, the “Default Amount” shall equal the entire unpaid Principal balance
under this Note, plus all previously accrued and unpaid Interest and Late
Charges, together with all future Interest (calculated at the Default Rate
pursuant to Section 2(c)) scheduled to accrue during the First Five Year Note
Period (if such Acceleration occurred during the First Five Year Note Period) or
the Second Five Year Note Period (if such Acceleration occurred during the
Second Five Year Note Period) (such future Interest amount the “EOD Accelerated
Interest”), in each case without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Company. Following an
Acceleration (other than an Acceleration based on an Event of Default described
in Sections 4(a)(iv) and 4(a)(v) above), the Holder shall have the right, but
not the obligation, to demand payment in full of the Default Amount at any time
prior to the original Maturity Date of this Note upon written notice to the
Company (a “Demand Notice”). In the event a Demand Notice is not immediately
given upon the occurrence of an Event of Default, or the Company otherwise does
not immediately pay the Default Amount when due, interest shall continue to
accrue on the Note as provided herein, provided that (i) upon an Acceleration
that occurs during the First Five Year Note Period, such Default Amount shall
not accrue additional Interest until the commencement of the Second Five Year
Note Period, and (ii) upon an Acceleration that occurs during the Second Five
Year Note Period, such Default Amount shall not accrue any additional Interest
for the duration of the Second Five Year Note Period. The Company shall deliver
the applicable Default Amount to the Holder (x) in the case of an Event of
Default under Section 4(a)(iv) or 4(a)(v), immediately, and (y) in the case of
any other Event of Default, within five (5) Business Days after the Company’s
receipt of the Demand Notice. In the event the Company fails to deliver the
Default Amount as described above, the Holder shall be permitted to exercise
such rights as a secured party or otherwise hereunder or under the other
Transaction Documents to the extent permitted by applicable law.

 9 

 

(5)               RIGHTS UPON A CHANGE OF CONTROL.

(a)               Assumption. The Company shall not enter into or be party to a
transaction resulting in a Change of Control unless the Successor Entity assumes
in writing all of the obligations of the Company under this Note and the other
Transaction Documents in accordance with the provisions of this Section 5(a)
pursuant to written agreements on or prior to the consummation of such Change of
Control, including the agreement to deliver to the Holder of this Note in
exchange for this Note a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Note, including,
without limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of this Note (the “Successor Note”).
Upon the occurrence of any Change of Control, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of such Change of
Control, the provisions of this Note referring to the “Company” shall refer
instead to the Successor Entity), and may exercise every right and power of the
Company and shall assume all of the obligations of the Company under this Note
with the same effect as if such Successor Entity had been named as the Company
herein, until such time as the Successor Note is delivered. Upon consummation of
a Reclassification or Change of Control as a result of which holders of Common
Stock shall be entitled to receive stock, securities, cash, assets or any other
property with respect to or in exchange for such Common Stock, the Company or
Successor Entity, as the case may be, shall deliver to the Holder confirmation
that there shall be issued upon conversion of this Note at any time after the
consummation of such Reclassification or Change of Control, in lieu of the
shares of Common Stock (or other securities, cash, assets or other property)
issuable upon the conversion of this Note prior to such Reclassification or
Change of Control, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Reclassification or Change of Control had this Note been converted
immediately prior to such Reclassification or Change of Control, as adjusted in
accordance with the provisions of this Note. The provisions of this Section 5(a)
shall apply similarly and equally to successive Change of Control transactions
and shall be applied without regard to any limitations on the conversion of this
Note.

 10 

 

(6)               RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

(a)               Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities, then
such record date will be deemed to be the date of the issue or sale of the
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution, as the case may be.

(b)               Adjustment of Conversion Rate upon Subdivision or Combination
of Common Stock; Stock Dividends. If the Company at any time, or from time to
time, subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Company at any time, or
from time to time, combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased. Any adjustment under this Section
6(b) shall become effective at the close of business on the date the subdivision
or combination becomes effective or, in the case of a stock dividend, the date
of such event.

(c)               (i) Adjustment of Conversion Rate upon Cash Dividends and
Distributions. If the Company at any time, or from time to time, pays a dividend
or makes a distribution in cash to the record holders of any class of Common
Stock, then immediately after the close of business on the day that the Common
Stock trades ex-distribution, the Conversion Price then in effect shall be
reduced to an amount equal to the product of (i) the Conversion Price in effect
immediately prior to such dividend or distribution and (ii) the quotient
determined by dividing (A) the Closing Sale Price of the Common Stock on the day
that the Common Stock trades ex-distribution by (B) the sum of (1) the Closing
Sale Price of the Common Stock on the day that the Common Stock trades
ex-distribution plus (2) the amount per share of such dividend or distribution.
The Company shall not be required to give effect to any adjustment in the
Conversion Price pursuant to this Section 6(c) unless and until the net effect
of one or more adjustments (each of which shall be carried forward until counted
toward an adjustment), determined in accordance with this Section 6(c), shall
have resulted in a change of the Conversion Price by at least 1%, and when the
cumulative net effect of more than one adjustment so determined shall be to
change the Conversion Price by at least 1%, such change in the Conversion Price
shall then be given effect.

(ii)       Adjustment of Conversion Rate upon Distributions of Capital Stock,
Indebtedness or Other Non-Cash Assets. If the Company at any time, or from time
to time, distributes any shares of capital stock of the Company (other than
Common Stock), evidences of indebtedness or other non-cash assets (including
securities of any person other than the Company but excluding (1) dividends or
distributions paid exclusively in cash or (2) dividends or distributions
referred to in Section 6(b)) to the record holders of any class of Common Stock,
then the Conversion Price then in effect shall be reduced to an amount equal to
the product of (A) the Conversion Price then in effect and (B) a fraction of
which the numerator shall be the Closing Sale Price per share of the Common
Stock on the record date fixed for determination of stockholders entitled to
receive such distribution less the fair market value on such record date (as
determined by the Board of Directors) of the portion of the capital stock,
evidences of indebtedness or other non-cash assets so distributed applicable to
one share of Common Stock (determined on the basis of the number of shares of
Common Stock outstanding on the record date) and of which the denominator shall
be the Closing Sale Price per share of the Common Stock on such record date.

 11 

 

 

(d)               [Intentionally omitted.]

(e)               Other Events; Other Dividends and Distributions. If any event
occurs of the type contemplated by the provisions of this Section 6 but not
expressly provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Company’s Board of Directors shall, in good faith,
make an adjustment in the Conversion Price so as to protect the rights of the
Holder under this Note; provided that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section 6.

(f)                Notice of Adjustment. Whenever the Conversion Price is
adjusted pursuant to this Section 6, the Company shall promptly mail notice of
such adjustment to the Holder, which notice shall set forth the Conversion Price
after adjustment, the date on which such adjustment became effective and a brief
statement of the facts resulting in such adjustment.

(7)               NONCIRCUMVENTION. The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.

(8)               RESERVATION OF AUTHORIZED SHARES.

(a)               Reservation. The Company shall at all times reserve out of its
authorized and unissued shares of Common Stock a number of shares of Common
Stock equal to 100% of the Conversion Rate with respect to the full Conversion
Amount of this Note, solely for the purpose of effecting the conversion of this
Note (the “Required Reserve Amount”).

(b)               Insufficient Authorized Shares. If at any time while this Note
remains outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve the
Required Reserve Amount (an “Authorized Share Failure”), then the Company shall
take all action necessary to increase the Company’s authorized shares of Common
Stock to an amount sufficient to allow the Company to reserve the Required
Reserve Amount. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than seventy-five (75) days after the occurrence
of such Authorized Share Failure, the Company shall hold a meeting of its
stockholders for the approval of an increase in the number of authorized shares
of Common Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its commercially reasonable
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

 12 

 

(9)               VOTING RIGHTS. The Holder shall have no voting rights as the
Holder of this Note, except as required by law, including, but not limited to,
the General Corporation Law of the State of Nevada, and as expressly provided in
this Note, the Company’s Charter or any of the other Transaction Documents.

(10)           OTHER COVENANTS.

(a)               Listing. The Company shall promptly secure the listing of all
of the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system, if any,
upon which the Common Stock is then listed (subject to official notice of
issuance) and shall maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company
shall maintain the Common Stock’s authorization for quotation on the principal
exchange or market in which it is listed. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the principal market in
which it is listed, other than in connection with a transfer of listing to an
Eligible Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 10(a).

(b)               Quarterly Report of Outstanding Principal and Interest. The
Company covenants to deliver to the Holder, within 30 days following the end of
each calendar quarter while any portion of this Note remains outstanding, a
written statement signed by an authorized officer of the Company certifying (i)
the amount of the outstanding Principal balance of this Note, including any
Interest added to Principal pursuant to Section 2(a) and 2(b) above, and (ii)
all accrued but unpaid Interest on such outstanding Principal balance, and (iii)
all remaining scheduled payments of Interest through the Maturity Date, in each
case as of the end of such calendar quarter. The parties agree that the
scheduled Interest payments through the Maturity Date will be calculated in the
same manner as in the Notes issued prior to the date hereof.

(c)               Waiver of Usury Defense. The Company covenants (to the extent
that it may lawfully do so) that it shall not assert, plead (as a defense or
otherwise) or in any manner whatsoever claim (and shall actively resist any
attempt to compel it to assert, plead or claim) in any action, suit or
proceeding that the interest rate on this Note violates present or future usury
or other laws relating to the interest payable on any Indebtedness and shall not
otherwise avail itself (and shall actively resist any attempt to compel it to
avail itself) of the benefits or advantages of any such laws.

 13 

 

(d)               Registration Rights. The Company agrees that the Holder, as a
holder of Registrable Securities (as defined in the Registration Rights
Agreement, dated as of April 21, 2011, by and among the Company and the
Investors identified therein, as may be amended and/or restated from time to
time (the “Registration Rights Agreement”)), is entitled to the benefits of the
Registration Rights Agreement. Further, if (i) the Registration Statement (as
defined in Registration Rights Agreement) required by Section 2(a) of the
Registration Rights Agreement, covering the Registrable Securities required to
be covered thereby is (A) not filed with the SEC on or before thirty (30)
calendar days after the applicable Registration Request (as defined in
Registration Rights Agreement) (a “Filing Failure”) or (B) not declared
effective by the SEC on or before the date that is one hundred and eighty (180)
calendar days after the applicable Registration Request, in each case to the
extent required under the Registration Rights Agreement (an “Effectiveness
Failure”) or (ii) after the effective date of any Registration Statement, after
the second (2nd) consecutive Business Day (other than during an allowable
blackout period pursuant to Section 3(g) of the Registration Rights Agreement
(“Blackout Period”)) on which sales of all of the Registrable Securities
required to be included on such Registration Statement cannot be made pursuant
to such Registration Statement (including, without limitation, because of a
failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement, or to maintain a listing of the Common Stock required for sales to be
made under the Registration Statement) (a “Maintenance Failure”), then, as
relief for the damages to the Holder by reason of any such delay in or reduction
of its ability to sell the Registrable Securities, the Company shall pay to the
Holder an amount in cash equal to (A) one percent (1%) of the outstanding
Principal balance of this Note on each of the following dates: (i) the day of a
Filing Failure; (ii) the day of an Effectiveness Failure; and (iii) the initial
day of a Maintenance Failure, and (B) one percent (1%) of the outstanding
Principal balance of this Note on each of the following dates: (i) on every
thirtieth (30th) day after the initial day of a Filing Failure (prorated for
periods totaling less than thirty (30) days) until such Filing Failure is cured;
(ii) on every thirtieth (30th) day after the initial day of an Effectiveness
Failure (prorated for periods totaling less than thirty (30) days) until such
Effectiveness Failure is cured; (iii) on every thirtieth (30th) day after the
initial day of a Maintenance Failure (prorated for periods totaling less than
thirty (30) days) until such Maintenance Failure is cured. The payments to which
the Holder shall be entitled pursuant to this Section 10(d) are referred to
herein as “Registration Default Payments.” Registration Default Payments shall
be paid on the earlier of (I) the last day of the calendar month during which
such Registration Default Payments are incurred and (II) the third (3rd)
Business Day after the event or failure giving rise to the Registration Default
Payments is cured. In the event the Company fails to make Registration Default
Payments in a timely manner, such Registration Default Payments shall bear
interest at the rate of one and one-half percent (1.5%) per month (prorated for
partial months) until paid in full. If the Company has declared a Blackout
Period, a Maintenance Failure shall be deemed not to have occurred and be
continuing in relation to the Registration Statement during the period specified
in Section 3(g) of the Registration Rights Agreement. Registration Default
Payments shall be payable from the first day any Blackout Period exceeds the
period specified in Section 3(g) of the Registration Rights Agreement.
Registration Default Payments shall cease to accrue at the end of the
Effectiveness Period (as defined in Registration Rights Agreement); provided
that the foregoing shall not affect the Company’s obligation to make
Registration Default Payments for any period prior to such time. Whenever in
this Note there is mentioned, in any context, the payment of interest on, or in
respect of, this Note, such mention shall be deemed to include mention of the
payment of liquidated damages on this Note to the extent that, in such context,
such liquidated damages are, were or would be payable in respect thereof
pursuant to this Section 10(d). For the avoidance of doubt, the Registrable
Securities required to be included in any Registration Statement referred to in
this Section 10(d) shall be determined according to the provisions of the
Registration Rights Agreement, including all references to exceptions therein in
such provisions related to the “Rule 415 Amount,” as applicable.

 14 

 

(11)           VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTE. Any provision of
this Note may be amended, waived or modified only upon the written consent of
both the Company and the Majority Investors; provided, that no amendment or
waiver may (a) extend the Maturity Date of this Note, (b) decrease the
Conversion Price or Conversion Rate of this Note, (c) reduce the rate or extend
the time for payment of any Interest on this Note, or (d) reduce the percentage
of Notes required for consent to any modifications of the Notes, without the
consent of the Holder of this Note.

(12)           TRANSFER. This Note and the shares of Common Stock issuable upon
conversion of this Note may not be offered for sale, sold, transferred or
assigned (i) in the absence of (a) an effective registration statement for this
Note or the shares of Common Stock issuable upon conversion of this Note, as
applicable, or (b) an opinion of counsel (selected by the Holder and reasonably
acceptable to the Company), in a form reasonable acceptable to the Company, that
this Note and the shares of Common Stock issuable upon conversion of this Note
may be offered for sale, sold, assigned or transferred pursuant to an exemption
from registration; provided that such opinion of counsel shall not be required
in connection with any such sale, assignment or transfer to an institutional
accredited investor that is, prior to such sale, assignment or transfer, an
affiliate of the Holder, or (ii) unless the Holder provides the Company with
assurance (reasonably satisfactory to the Company) that such Note or the shares
of Common Stock issuable upon the conversion of this Note can be sold, assigned
or transferred pursuant to Rule 144.

(13)           REISSUANCE OF THIS NOTE.

(a)               Transfer. This Note is issued in registered form pursuant to
Treasury Regulations section 1.871-14(c)(1). The Company (or its agent) will
maintain a record of the Holder of this Note, and of Principal and Interest
hereon as required by that regulation. This Note may be transferred or otherwise
assigned only by surrender of this Note and issuance of a new Note in accordance
with this Section 13, and neither this Note nor any interest herein may be sold,
transferred or assigned to any Person except upon satisfaction of the conditions
specified in this Section 13. If this Note is to be transferred or assigned, the
Holder shall surrender this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note (in
accordance with Section 13(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less than the entire outstanding Principal is being transferred, a new Note (in
accordance with Section 13(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
3(c)(iii) following conversion of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.

(b)               Lost, Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary form
and, in the case of mutilation, upon surrender and cancellation of this Note,
the Company shall execute and deliver to the Holder a new Note (in accordance
with Section 13(d)) representing the then outstanding Principal.

 15 

 

(c)               Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 13(d) and in
Principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

(d)               Issuance of New Notes. Whenever the Company is required to
issue a new Note pursuant to the terms of this Note, such new Note (i) shall be
of like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 13(a) or Section 13(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent
accrued Interest and Late Charges on the Principal and Interest of this Note,
from the Issuance Date.

(14)           REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder’s right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

(15)           PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors’ rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
but not limited to, reasonable attorneys’ fees and disbursements.

 16 

 

(16)           CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and the Holder of this Note and shall not be construed
against any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.

(17)           FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.

(18)           DISPUTE RESOLUTION. In the case of a dispute as to the arithmetic
calculation of the Conversion Rate, the Company shall submit the disputed
arithmetic calculations via facsimile within three (3) Business Days of receipt,
or deemed receipt, of the Conversion Notice, as the case may be, to the Holder.
If the Holder and the Company are unable to agree upon such calculation within
five (5) Business Days of such disputed arithmetic calculation being submitted
to the Holder, then the Company shall, within one Business Day submit via
facsimile the disputed arithmetic calculation of the Conversion Rate to the
Company’s independent, outside accountant. The Company, at the Company’s
expense, shall cause the accountant, as the case may be, to perform the
calculations and notify the Company and the Holder of the results no later than
ten (10) Business Days from the time it receives the disputed calculations. Such
accountant’s calculation, as the case may be, shall be binding upon all parties
absent demonstrable error.

(19)           NOTICES; PAYMENTS.

(a)               Notices. Whenever notice is required to be given under this
Note, unless otherwise provided herein, such notice shall be given in accordance
with the Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Note, including in
reasonable detail a description of such action and the reason therefor. Without
limiting the generality of the foregoing, the Company will give written notice
to the Holder of any adjustment of the Conversion Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment.

(b)               Payments. Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the initial Holder of this Note, shall initially be as set forth
on the signature page to the Purchase Agreement); provided that the Holder may
elect to receive a payment of cash via wire transfer of immediately available
funds by providing the Company with prior written notice setting out such
request and the Holder’s wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day. Any amount of Principal or other amounts due under the this Note
or the Transaction Documents, other than Interest, which is not paid when due
shall result in a late charge being incurred and payable by the Company in an
amount equal to interest on such amount at the rate of five percent (5%) per
annum from the date such amount was due until the same is paid in full (“Late
Charge”).

 17 

 

(20)           CANCELLATION. After all Principal, accrued Interest and other
amounts at any time owed on this Note have been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

(21)           WAIVER OF NOTICE. To the extent permitted by law, the Company
hereby waives demand, notice, presentment, protest and all other demands and
notices (other than the notices expressly provided for in this Note) in
connection with the delivery, acceptance, default or enforcement of this Note
and the Purchase Agreement.

(22)           GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.

(23)           CERTAIN DEFINITIONS. For purposes of this Note, the following
terms shall have the following meanings:

(a)               [Intentionally omitted.]

(b)               “Business Day” means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

(c)               “Change of Control” means the consummation of any transaction
described in clauses (i) through (v) of the definition of “Major Event” in
Section 2(d)(i).

(d)               “Closing Sale Price” means, as of any date, the last closing
trade price for the Common Stock on the Eligible Market representing the
principal securities exchange or trading market for the Common Stock, as
reported by Bloomberg, or, if such Eligible Market begins to operate on an
extended hours basis and does not designate the closing trade price, then the
last trade price of such security prior to 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no Eligible Market is the principal securities
exchange or trading market for the Common Stock, the last closing trade price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last trade price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg, or,
if no last trade price is reported for such security by Bloomberg, the average
of the ask prices of any market makers for such security as reported in the
“pink sheets” by OTC Markets Group, Inc. or any successor thereto. If the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Sale Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
Holder.

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(e)               “Common Stock” means the shares of the Company’s common stock,
par value $0.001 per share, and any other securities of the Company which may be
issued or issuable with respect to, in exchange for, or in substitution of, such
shares of common stock (including without limitation, by way of
recapitalization, reclassification, reorganization, merger or otherwise).

(f)                “Contingent Obligation” means, as to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect to
any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

(g)               “Convertible Securities” means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.

(h)               “Eligible Market” means The New York Stock Exchange (NYSE),
the NYSE American, or The Nasdaq Stock Market, or their successors.

(i)                 “Exchange Act” means the United States Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder.

(j)                 “GAAP” means United States generally accepted accounting
principles, consistently applied, or successor conventions.

(k)               “Indebtedness” of any Person means, without duplication (a)
all indebtedness for borrowed money, (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services including,
without limitation, “capital leases” in accordance with GAAP (other than trade
payables entered into in the ordinary course of business), (c) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (d) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (e) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (f) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (g) any amount raised by acceptance under any
acceptance credit facility, (h) receivables sold or discounted (other than
within the framework of factoring, securitization or similar transaction where
recourse is only to such receivables or proceeds), (i) any derivative
transaction, (j) any counter-indemnity obligation in respect of a guarantee,
indemnity, bond, standby or documentary letter of credit or any other instrument
issued by a bank or financial institution (excluding commercial letters of
credit issued in the ordinary course of business), (k) all indebtedness referred
to in clauses (a) through (j) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (l) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (a) through (k) above.

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(l)                 “Options” means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.

(m)             “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

(n)               “Reclassification” means any reclassification or change of
shares of Common Stock issuable upon conversion of this Note (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination).

(o)               “Rule 144” means Rule 144 promulgated under the Securities Act
and any successor provision thereto.

(p)               “SEC” means the United States Securities and Exchange
Commission.

(q)               “Securities Act” means the Securities Act of 1933, as amended.

(r)                “Subsidiary” means with respect to any Person, any
corporation, association or other business entity of which 50% or more of the
total voting power of equity entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees or other
governing body thereof is at the time owned or controlled by such Person
(regardless of whether such equity is owned directly or through one or more
other Subsidiaries of such Person or a combination thereof).

(s)                “Successor Entity” means the Person, which may be the
Company, formed by, resulting from or surviving any Change of Control or the
person with which such Change of Control transaction shall have been made. In
the event that the Person resulting from or surviving any Change of Control is a
Subsidiary, Successor Entity shall be the parent of such Subsidiary.

(t)                 “Transaction Documents” has the meaning given to such term
in the Purchase Agreement.

[Signature page follows]

 20 

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

 

  CareView Communications, Inc.   By:_________________________________    Name:
Steven G. Johnson   Title: President

 

 

 

 

 

EXHIBIT I

CAREVIEW COMMUNICATIONS, INC.
CONVERSION NOTICE

Reference is made to the Convertible Note (the “Note”) issued to the undersigned
by CareView Communications, Inc. (the “Company”). In accordance with and
pursuant to the Note, the undersigned hereby elects to convert the Conversion
Amount (as defined in the Note) of the Note indicated below into shares of
Common Stock par value $0.001 per share (the “Common Stock”) of the Company, as
of the date specified below.

Date of Conversion:   Aggregate Conversion Amount to be converted:   Please
confirm the following information: Conversion Price:   Number of shares of
Common Stock to be issued:   Please issue the Common Stock into which the Note
is being converted in the following name and to the following address: Issue to:
  Facsimile Number:   Authorization:   By:   Title:   Dated:   Account Number:  
  (if electronic book entry transfer)   Transaction Code Number:     (if
electronic book entry transfer)