EX-10.1






NOTE AND WARRANT PURCHASE AGREEMENT




This NOTE AND WARRANT PURCHASE AGREEMENT dated as of March 30, 2010 (this “Agreement”)
is by and among TechniScan, Inc., a Delaware corporation (the “Issuer”), and each of the
purchasers of the senior secured convertible promissory notes and warrants of the Issuer whose
names are set forth on Exhibit A attached hereto (each a “Investor” and collectively, the
"Investors”).



The parties hereto agree as follows:



ARTICLE I




PURCHASE AND SALE OF NOTES AND WARRANTS




Section 1.1 Purchase and Sale of Notes and Warrants. Upon the following terms and
conditions, the Issuer shall issue and sell to the Investors, and the Investors shall purchase from
the Issuer, severally and not jointly in accordance with Exhibit A, (i) secured convertible
promissory notes in substantially the form attached hereto as Exhibit B-1 (the “First Lien
Notes”), in the case of Biotex Pharma Investments LLC (the “Lead Investor”) and, to the
extent purchasing Notes having an aggregate principal amount not in excess of $100,000, any other
purchasers of First Lien Notes identified on Exhibit A (together with the Lead Investor, the
"First Lien Investors”), or Exhibit B-2 (the “Second Lien Notes”), in the case of
the other Investors (the “Second Lien Investors”) and (ii) warrants in substantially the
form attached hereto as Exhibit C (the “Warrants”) for the purchase of shares of the
Issuer’s common stock, par value $.001 per share (the “Common Stock”). The Issuer and the
Investors are executing and delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded by Section 4(2) of the U.S. Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder (the “Securities Act”),
including Regulation D (“Regulation D”), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect to any or all of
the investments to be made hereunder.



Section 1.2 Closing. The closing under this Agreement (the “Closing”) shall
take place on March 30 , 2010 (the “Closing Date”) at the offices of Akerman
Senterfitt LLP, 335 Madison Avenue, Suite 2600, New York, 10:00 a.m. New York time; provided, that
all of the conditions set forth in Article IV hereof shall have been fulfilled or waived in
accordance herewith. Subject to the terms and conditions of this Agreement, at the Closing the
Issuer shall deliver or cause to be delivered to each Investor (x) Notes for the principal amount
set forth opposite the name of such Investor on Exhibit A hereto and (y) Warrants to purchase such
number of shares of Common Stock as is set forth opposite the name of such Investor on Exhibit A
attached hereto. At the Closing, each Investor shall deliver funds equal to the principal amount
set forth opposite its name on Exhibit A by check or wire transfer of immediately available funds
to the Issuer.



Section 1.3 Conversion Shares /Warrant Shares. On an after the Closing Date, the
Issuer shall reserve (and hereby covenants to continue to reserve), free of preemptive rights and
other similar contractual rights, a number of its authorized but unissued shares of Common Stock
equal to the total number of shares of Common Stock required for the conversion of the Notes and
any interest accrued and outstanding thereon and exercise of the Warrants. Any shares of Common
Stock issuable upon conversion of the Notes and any interest accrued and outstanding on the Notes
are herein referred to as the “Conversion Shares”. Any shares of Common Stock issuable
upon exercise of the Warrants (and such shares when issued) are herein referred to as the
"Warrant Shares”. The Notes, the Warrants, the Conversion Shares and the Warrant Shares
are sometimes collectively referred to herein as the “Securities”.



ARTICLE II





1






REPRESENTATIONS AND WARRANTIES




Section 2.1 Representations and Warranties of the Issuer. The Issuer hereby
represents and warrants to the Investors, as of the Closing Date (except as set forth on the
Schedule of Exceptions attached hereto with each numbered Schedule corresponding to the section
number herein), as follows:



(a) Organization, Good Standing and Power. The Issuer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power to own, lease and operate its properties and assets and to conduct
its business as it is now being conducted. The Issuer does not have any direct or indirect
Subsidiaries or own securities of any kind in any other entity. The Issuer is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction in which the
nature of the business conducted or property owned by it makes such qualification necessary except
for any jurisdiction(s) (alone or in the aggregate) in which the failure to be so qualified will
not have a Material Adverse Effect. For the purposes of this Agreement, “Subsidiary” shall mean any
corporation or other entity of which at least a majority of the securities or other ownership
interest having ordinary voting power (absolutely or contingently) for the election of directors or
other persons performing similar functions are at the time owned directly or indirectly by the
Issuer and/or any of its other Subsidiaries. For the purposes of this Agreement, “Material
Adverse Effect” means any material adverse effect on the business, operations, properties, or
financial condition of the Issuer and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Issuer to perform any of its
obligations under this Agreement or any of the Transaction Documents in any material respect; other
than effects, conditions, circumstances or situations arising out of or resulting from (1) changes
in the financial, banking or securities markets; (2) changes in United States generally accepted
accounting principles; (3) changes in the Issuer’s general industry or the economy of the U.S. as a
whole; or (4) adverse changes or effects arising from the announcement or consummation of the
transactions contemplated hereby, provided, further, however, that changes
set forth in clause (1), (2) and (3) above may be taken into account in determining whether there
has been or is a Material Adverse Effect to the extent such changes have a materially
disproportionate effect on the Issuer as compared to other participants in the industry in which
the Issuer operates.



(b) Authorization; Enforcement. The Issuer has the requisite corporate power and
authority to enter into and perform this Agreement, the Notes, the Warrants, the Registration
Rights Agreement by and among the Issuer and the Investors dated as of the date hereof (the
"Registration Rights Agreement”), the Security Agreement by and among the Issuer and the
Lead Investor dated as of the date hereof (the “Security Agreement”), the Patent, Trademark
and Copyright Security Agreement by and among the Issuer and the Lead Investor dated as of the date
hereof (the “IP Security Agreement”), the Officer’s Certificate to be delivered by the
Issuer, dated as of the Closing Date, substantially in the form of Exhibit D attached hereto (the
"Officer’s Certificate”) and the Irrevocable Transfer Agent Instructions (as defined in
Section 3.13 hereof) (collectively, the “Transaction Documents”) and to issue and sell the
Securities in accordance with the terms hereof. The execution, delivery and performance of the
Transaction Documents by the Issuer and the consummation by it of the transactions contemplated
thereby have been duly and validly authorized by all necessary corporate action, and no further
consent or authorization of the Issuer, its Board of Directors or stockholders is required. When
executed and delivered by the Issuer, each of the Transaction Documents shall constitute a valid
and binding obligation of the Issuer enforceable against the Issuer in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the
enforcement of, creditor’s rights and remedies or by other equitable principles of general
application.



(c) Capitalization. The authorized capital stock and the issued and outstanding
shares of capital stock of the Issuer as of the Closing Date is set forth on Schedule 2.1(c)
hereto. All of the outstanding shares of the Common Stock and any other outstanding security of
the Issuer have been duly and validly authorized. Except as set forth on Schedule 2.1(c), no
shares of Common Stock or any other security of the Issuer are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to,
call or commitments of any character whatsoever relating to, or securities or rights convertible
into, any shares of capital stock of the Issuer. There are no contracts, commitments,
understandings, or arrangements by which the Issuer is or may become bound to issue additional
shares of the capital stock of the Issuer or options, securities or rights convertible into shares
of capital stock of the Issuer. The Issuer is not a party to or bound by any agreement or
understanding granting registration or anti-dilution rights to any person with respect to any of
its equity or debt securities. Except as set forth on Schedule 2.1(c), the Issuer is not a party
to, and it has no knowledge of, any agreement or understanding restricting the voting or transfer
of any shares of the capital stock of the Issuer.



(d) Issuance of Securities. The Notes and the Warrants to be issued at the Closing
have been duly authorized by all necessary corporate action and, when paid for or issued in
accordance with the terms hereof, the Notes shall be validly issued and outstanding, free and clear
of all liens, encumbrances and rights of refusal of any kind. When the Conversion Shares and
Warrant Shares are issued and paid for in accordance with the terms of this Agreement and as set
forth in the Notes and Warrants, such shares will be duly authorized by all necessary corporate
action and validly issued and outstanding, fully paid and nonassessable, free and clear of all
liens, encumbrances and rights of refusal of any kind and the holders shall be entitled to all
rights accorded to a holder of Common Stock.



(e) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Issuer, the performance by the Issuer of its obligations under the Notes and the
consummation by the Issuer of the transactions contemplated hereby and thereby, and the issuance of
the Securities as contemplated hereby, do not and will not (i) violate or conflict with any
provision of the Issuer’s Certificate of Incorporation (the “Certificate”) or Bylaws (the
"Bylaws”), each as amended to date, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which
the Issuer is a party or by which the Issuer’s properties or assets are bound, (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable to the Issuer or by
which any property or asset of the Issuer are bound or affected, or (iv) create or impose a lien,
mortgage, security interest, charge or encumbrance of any nature on any property or asset of the
Issuer under any agreement or any commitment to which the Issuer is a party or by which the Issuer
is bound or by which any of its properties or assets are bound. The issuer is not required under
federal, state, foreign or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under the Transaction Documents or issue and
sell the Securities in accordance with the terms hereof (other than any filings, consents and
approvals which may be required to be made by the Issuer under applicable state and federal
securities laws, rules or regulations or any registration provisions provided in the Registration
Rights Agreement).



(f) Commission Documents, Financial Statements. The Issuer has timely filed all
reports, schedules, forms, statements and other documents required to be filed by it with the
Commission pursuant to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) (all of the foregoing including filings incorporated by
reference therein being referred to herein as the “Commission Documents”) during the
previous 12 months. At the times of their respective filings, the Commission Documents complied in
all material respects with the requirements of the Exchange Act and the rules and regulations of
the Commission promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were made, not misleading.
As of their respective dates, the financial statements of the Issuer included in the Commission
Documents complied as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the Commission or other applicable rules and regulations
with respect thereto. Such financial statements have been prepared in accordance with generally
accepted accounting principles (“GAAP”) applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements or the notes
thereto or (ii) in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all material respects
the financial position of the Issuer and its Subsidiaries as of the dates thereof and the results
of operations and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). No event or circumstance has occurred or exists
with respect to the Issuer or their respective businesses, properties, prospects, operations or
financial condition, which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Issuer but which has not been so publicly announced or disclosed.



(g) No Material Adverse Change. Since December 31, 2009, the Issuer has not
experienced or suffered any Material Adverse Effect.



(h) No Undisclosed Liabilities. The Issuer has not incurred any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise) other than those incurred in the ordinary course of the Issuer’s
business.



(i) Indebtedness. Schedule 2.1(i) hereto sets forth as of the date hereof all
outstanding secured and unsecured Indebtedness of the Issuer, or for which the Issuer has
commitments. For the purposes of this Agreement, “Indebtedness” shall mean (a) any
liabilities for borrowed money or amounts owed (other than trade accounts payable incurred in the
ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be reflected in the
Issuer’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary course of business;
and (c) the present value of any lease payments due under leases required to be capitalized in
accordance with GAAP. The Issuer is not in default with respect to any Indebtedness.



(j) Title to Assets. The Issuer has good and valid title to all of its real and
personal property reflected in the Commission Documents, free and clear of any mortgages, pledges,
charges, liens, security interests or other encumbrances.



(k) Actions Pending. Except as set forth on Schedule 2.1(k), there is no action,
suit, claim, investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Issuer, threatened against the Issuer which
questions the validity of this Agreement or any of the other Transaction Documents or any of the
transactions contemplated hereby or thereby or any action taken or to be taken pursuant hereto or
thereto. Except as set forth on Schedule 2.1(k) hereto, there is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other proceeding pending or,
to the knowledge of the Issuer, threatened against or involving the Issuer or any of its properties
or assets. There are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Issuer or any officers or
directors of the Issuer in their capacities as such.



(l) Compliance with Law. The business of the Issuer has been and is presently being
conducted in accordance with all applicable federal, state and local governmental laws, rules,
regulations and ordinances, except such that, individually or in the aggregate, the noncompliance
therewith could not reasonably be expected to have a Material Adverse Effect. The Issuer has all
franchises, permits, licenses, consents and other governmental or regulatory authorizations and
approvals necessary for the conduct of its business as now being conducted by it unless the failure
to possess such franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.



(m) Taxes. The Issuer has accurately prepared in all material respects and filed all
federal, state and other tax returns required by law to be filed by it, has paid or made provisions
for the payment of all taxes shown to be due and all additional assessments, and adequate
provisions have been and are reflected in the financial statements of the Issuer for all current
taxes and other charges to which the Issuer is subject and which are not currently due and payable.
To the best of the Issuer’s knowledge, none of the federal income tax returns of the Issuer have
been audited by the Internal Revenue Service. The Issuer has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state) of any nature
whatsoever, whether pending or threatened against the Issuer for any period, nor of any basis for
any such assessment, adjustment or contingency.



(n) Certain Fees. Except as set forth on Schedule 2.1(n) hereto, the Issuer has not
employed any broker or finder or incurred any liability for any brokerage or investment banking
fees, commissions, finders’ structuring fees, financial advisory fees or other similar fees in
connection with the Transaction Documents.



(o) Disclosure. Neither this Agreement or the Schedules hereto nor any other
documents, certificates or instruments furnished to the Investors by or on behalf of the Issuer in
connection with the transactions contemplated by this Agreement contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made herein or therein,
not misleading. Except for the transactions contemplated by this Agreement, the Issuer confirms
that neither it nor any other person acting on its behalf has provided any of the Investors or
their agents or counsel with any information that constitutes or might constitute material,
nonpublic information. Within four business days of the Closing, the Issuer shall file a Form 8-K
disclosing the material terms of the Transaction Agreements (the “Form 8-K”) such that
following such filing the Investors will not possess any information that constitutes or might
constitute material, nonpublic information.



(p) Intellectual Property. The Issuer owns or possesses the rights to all patents,
trademarks, domain names (whether or not registered) and any patentable improvements or
copyrightable derivative works thereof, websites and intellectual property rights relating thereto,
service marks, trade names, copyrights, licenses and authorizations which are necessary for the
conduct of its business as now conducted without any conflict with the rights of others. All
patent applications filed with the United States Patent and Trademark Office within 18 months prior
to March 23, 2010 in which the Issuer has or is entitled or intended to have (by virtue of inventor
assignments or otherwise) any rights are listed on Schedule 2.1(p).



(q) Environmental Compliance. The Issuer has obtained all material approvals,
authorization, certificates, consents, licenses, orders and permits or other similar authorizations
of all governmental authorities, or from any other person, that are required under any
Environmental Laws. “Environmental Laws” shall mean all applicable laws relating to the protection
of the environment including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, materials or wastes, whether solid, liquid or gaseous in nature, into the air, surface
water, groundwater or land, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, material or wastes, whether solid, liquid or gaseous
in nature. The Issuer has all necessary governmental approvals required under all Environmental
Laws as necessary for the Issuer’s business. The Issuer is also in compliance with all other
limitations, restrictions, conditions, standards, requirements, schedules and timetables required
or imposed under all Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or in any way affecting the Issuer that
violate or may violate any Environmental Law after the Closing Date or that may give rise to any
environmental liability, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation (i) under any Environmental Law, or (ii) based on or
related to the manufacture, processing, distribution, use, treatment, storage (including without
limitation underground storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.



(r) Books and Records; Internal Accounting Controls. The records and documents of the
Issuer and its Subsidiaries accurately reflect in all material respects the information relating to
the business of the Issuer, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the Issuer. The Issuer is in
material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to
it as of the Closing Date. The Issuer 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 Issuer has established disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) for the Issuer and designed such disclosure controls and
procedures to ensure that information required to be disclosed by the Issuer 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. Since the date of the most recent
Commission Document disclosing an evaluation of internal controls over financial reporting, there
have been no changes in the Issuer’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 Issuer’s internal control over financial reporting.



(s) Transactions with Affiliates. Except as set forth on Schedule 2.1(s), there are
no loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions between (a) the Issuer or any of its customers or suppliers on the
one hand, and (b) on the other hand, any officer, employee, consultant or director of the Issuer or
any person owning at least 5% of the outstanding capital stock of the Issuer or any member of the
immediate family of such officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director or stockholder.



(t) Securities Act of 1933. The Issuer has complied and will comply with all
applicable federal and state securities laws in connection with the offer, issuance and sale of the
Securities hereunder. Neither the Issuer nor anyone acting on its behalf, directly or indirectly,
has or will sell, offer to sell or solicit offers to buy any of the Securities or similar
securities to, or solicit offers with respect thereto from, or enter into any negotiations relating
thereto with, any person, or has taken or will take any action so as to bring the issuance and sale
of any of the Securities under the registration provisions of the Securities Act and applicable
state securities laws, and neither the Issuer nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Securities Act) in connection with the offer or sale of any
of the Securities. Neither the Issuer nor any person acting on its behalf has directly or
indirectly made any offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offering of the Securities pursuant to this Agreement to
be integrated with prior offerings by the Issuer for purposes of the Securities Act which would
prevent the Issuer from selling the Securities pursuant to Regulation D and Rule 506 thereof under
the Securities Act, or any applicable exchange-related stockholder approval provisions, nor will
the Issuer or any of its affiliates take any action or steps that would cause the offering of the
Securities to be integrated with other offerings if to do so would prevent the Issuer from selling
Securities pursuant to Regulation D and Rule 506 thereof under the Securities Act or otherwise
prevent a completed offering of Securities hereunder. The Issuer does not have any registration
statement pending before the Commission or currently under the Commission’s review and since
September 26, 2009, except as set forth on Schedule 2.1(t), the Issuer has not offered or sold any
shares of its Common Stock or any equity securities or debt securities convertible into shares of
Common Stock.



(u) Key Personnel. No officer, consultant or employee of the Issuer whose termination,
either individually or in the aggregate, would be reasonably likely to have a Material Adverse
Effect, has terminated or, to the knowledge of the Issuer, has any present intention of terminating
his or her employment or engagement with the Issuer.



(v) Governmental Approvals. Except for the filing of any notice prior or subsequent
to the Closing that may be required under applicable state and/or federal securities laws (which if
required, shall be filed on a timely basis) and the declaration of the effectiveness of any
registration statements filed by the Issuer pursuant to the Transaction Documents, no
authorization, consent, approval, license, exemption of, filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign,
is or will be necessary for, or in connection with, the execution or delivery of the Preferred
Shares and the Warrants, or for the performance by the Issuer of its obligations under the
Transaction Documents.



Section 2.2 Representations and Warranties of the Investors. Each of the Investors
hereby represents and warrants to the Issuer with respect solely to itself and not with respect to
any other Investor as follows as of the date hereof and as of the Closing Date:



(a) Organization and Standing of the Investors. If the Investor is an entity, such
Investor is a corporation, limited liability company or partnership duly incorporated or organized,
validly existing and in good standing under the laws of the jurisdiction of its incorporation or
organization.



(b) Authorization and Power. Each Investor has the requisite power and authority to
enter into and perform the Transaction Documents and to purchase the Securities being sold to it
hereunder. The execution, delivery and performance of the Transaction Documents by each Investor
and the consummation by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or authorization of such Investor
or its Board of Directors, stockholders, or partners, as the case may be, is required. When
executed and delivered by the Investors, the other Transaction Documents shall constitute valid and
binding obligations of each Investor enforceable against such Investor in accordance with their
terms, except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to,
or affecting generally the enforcement of, creditor’s rights and remedies or by other equitable
principles of general application.



(c) Acquisition for Investment. Each Investor is purchasing the Securities solely for
its own account and not with a view to or for sale in connection with distribution. Each Investor
does not have a present intention to sell any of the Securities, nor a present arrangement (whether
or not legally binding) or intention to effect any distribution of any of the Securities to or
through any person or entity; provided, however, that by making the representations herein, such
Investor does not agree to hold the Securities for any minimum or other specific term and reserves
the right to dispose of the Securities at any time in accordance with Federal and state securities
laws applicable to such disposition. Each Investor is an “accredited investor” (as defined in Rule
501 of Regulation D). Each Investor acknowledges that it (i) has such knowledge and experience in
financial and business matters such that Investor is capable of evaluating the merits and risks of
Investor’s investment in the Issuer and (ii) is able to bear the financial risks associated with an
investment in the Securities.



(d) Rule 144. Each Investor understands that the Securities must be held indefinitely
unless such Securities are registered under the Securities Act or an exemption from registration is
available. Each Investor acknowledges that such person is familiar with Rule 144 of the rules and
regulations of the Commission, as amended, promulgated pursuant to the Securities Act (“Rule
144”), and that such Investor has been advised that Rule 144 permits resales only under certain
circumstances. Each Investor understands that to the extent that Rule 144 is not available, such
Investor will be unable to sell any Securities without either registration under the Securities Act
or the existence of another exemption from such registration requirement.



(e) General. Each Investor understands that the Securities are being offered and sold
in reliance on a transactional exemption from the registration requirements of federal and state
securities laws and the Issuer is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of such Investor set forth herein in
order to determine the applicability of such exemptions and the suitability of such Investor to
acquire the Securities. Each Investor understands that no United States federal or state agency or
any government or governmental agency has passed upon or made any recommendation or endorsement of
the Securities. Commencing on the date that the Investors were initially contacted regarding an
investment in the Securities, none of the Investors has engaged in any short sale of the Common
Stock and will not engage in any short sale of the Common Stock prior to the consummation of the
transactions contemplated by this Agreement.



(f) No General Solicitation. Each Investor acknowledges that the Securities were not
offered to such Investor by means of any form of general or public solicitation or general
advertising, or publicly disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any newspaper, magazine, or
similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which such
Investor was invited by any of the foregoing means of communications. Each Investor, in making the
decision to purchase the Securities, has relied upon independent investigation made by it and has
not relied on any information or representations made by third parties.



(g) Certain Fees. The Investors have not employed any broker or finder or incurred
any liability for any brokerage or investment banking fees, commissions, finders’ structuring fees,
financial advisory fees or other similar fees in connection with the Transaction Documents.



ARTICLE III




COVENANTS




Unless otherwise specified in this Section, for so long as any Notes have not been paid in
full or converted in full and for so long as any Warrants remain unexercised, the Issuer covenants
with each Investor as follows, which covenants are for the benefit of each Investor and their
respective permitted assignees.



Section 3.1 Securities Compliance. The Issuer shall notify the Commission and
applicable state securities regulators in accordance with its rules and regulations, of the
transactions contemplated by any of the Transaction Documents and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule and regulation, for
the legal and valid issuance of the Securities to the Investors, or their respective subsequent
holders.



Section 3.2 Registration and Listing. The Issuer shall at all times remain subject to
the reporting requirements of Sections 13 and 15(d) of the Exchange Act, cause its Common Stock to
continue to be registered under Section 12(g) of the Exchange Act no later than October 1, 2010,
comply in all respects with its reporting and filing obligations under the Exchange Act, comply
with all requirements related to any registration statement filed pursuant to the Transaction
Documents, not take any action or file any document (whether or not permitted by the Securities Act
or the Exchange Act or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the Exchange Act or
Securities Act and, no later than October 1, 2010, cause to be available with respect to the Common
Stock in each State of the United States an exemption from all blue sky and other trading
limitations for secondary transactions and provide evidence thereof to any Investor upon request.
The Issuer will take all action necessary to continue the listing or trading of its Common Stock at
all times on at least one of the OTC Bulletin Board, the American Stock Exchange, the Nasdaq Global
Select Market, the Nasdaq Select Market, the Nasdaq Capital Market or The New York Stock Exchange,
Inc. If required, the Issuer will promptly file the “Listing Application” for, or in connection
with, the issuance and delivery of the Conversion Shares and the Warrant Shares.



Section 3.3 Information Rights. The Issuer shall permit each Investor, upon two
business days’ prior written notice and during normal working hours, for purposes reasonably
related to such Investor’s interests as a Securityholder, to examine the publicly available,
non-confidential records and books of account of, and visit and inspect the properties, assets,
operations and business of the Issuer, and to discuss the publicly available, non-confidential
affairs, finances and accounts of the Issuer with any of its officers, consultants, directors, and
key employees. In addition, the Issuer shall (i) upon request confirm to each Investor that is
selling any Conversion Shares or Warrant Shares that there is no material, non-public information
regarding the Issuer that has not been disclosed in the applicable prospectus or a document
incorporated by reference or deemed incorporated by reference therein and (ii) if any distribution
of Conversion Shares or Warrant Shares is to be effected in an underwritten offering, or if an
Investor is deemed by the Commission to be an underwriter in connection with the resale of any
Conversion Shares or Warrant Shares, cause to be delivered to the underwriters or such Investor, as
applicable, upon request, one or more customary “comfort letters” of the Issuer’s independent
accountants and one or more legal opinions (including negative 10b-5 assurance) of the Issuer’s
outside legal counsel and provide such underwriters or Investor, as applicable, with access to the
Issuer’s records, books of account, assets, operations and business for purposes of conducting a
due diligence investigation of the Issuer. Without limitation of Section 3.2, if the Issuer ceases
to file its periodic reports with the Commission, the Issuer shall provide each Investor with (i)
quarterly and annual financial statements of a scope and in accordance with a schedule comparable
to the financial statement disclosure (including timeliness thereof) that would have been required
for the Issuer to comply with the reporting requirements applicable to public companies and (ii)
all other information concerning the Issuer and its business that is reasonably requested by such
Investor.



Section 3.4 Compliance with Laws. The Issuer shall comply, and cause each Subsidiary
to comply, with all applicable laws, rules, regulations and orders, noncompliance with which would
be reasonably likely to have a Material Adverse Effect.



Section 3.5 Keeping of Records and Books of Account. The Issuer shall keep adequate
records and books of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Issuer, and in which, for each
fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes,
bad debts and other purposes in connection with its business shall be made.



Section 3.6 Other Agreements. The Issuer shall not enter into any agreement in which
the terms of such agreement would restrict or impair the right or ability to perform of the Issuer
under any Transaction Document.



Section 3.7 Use of Proceeds. The proceeds from the sale of the Securities hereunder
shall be used by the Issuer for general corporate purposes, including the continued development and
deployment of the SVARA WBU system, general administrative purposes and expenses associated with
its business. In no event shall the proceeds be used to redeem any Common Stock or securities
convertible, exercisable or exchangeable into Common Stock.



Section 3.8 Disclosure of Material Information. The Issuer covenants and agrees that
neither it nor any other person acting on its behalf has provided or will provide any Investor or
its agents or counsel with any information that the Issuer believes constitutes material non-public
information except as otherwise required by Section 3.3, in which event the Issuer shall identify
any such material non-public information prior to disclosure to any Investor. The Issuer
understands and confirms that each Investor shall be relying on the foregoing representations in
effecting transactions in securities of the Issuer. In the event of any disclosure of material
non-public information pursuant to Section 3.3 or in the event of a breach of the foregoing
covenant by the Issuer or any of its officers, directors, employees and agents, in addition to any
other remedy provided herein or in the Transaction Documents, the Issuer shall publicly disclose
any material, non-public information in a Form 8-K within four (4) business days of the date that
it discloses such information to any Investor (or, with the consent of such Investor, in the
applicable Registration Statement (as defined in the Registration Rights Agreement)). In the event
that the Issuer discloses any material, non-public information to a Investor and fails to make
public disclosure in accordance with the above, an Investor shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise, of such material,
nonpublic information without the prior approval by the Issuer or any of its officers, directors,
employees or agents. No Investor shall have any liability to the Issuer or any of its officers,
directors, employees, stockholders, agents or affiliates for any such disclosure.



Section 3.9 Pledge of Securities. The Issuer acknowledges that the Securities may be
pledged by an Investor in connection with a bona fide margin agreement or other loan or financing
arrangement that is secured by the Securities. The pledge of Securities shall not be deemed to be
a transfer, sale or assignment of the Securities hereunder, and no Investor effecting a pledge of
the Securities shall be required to provide the Issuer with any notice thereof or otherwise make
any delivery to the Issuer pursuant to this Agreement or any other Transaction Document; provided
that an Investor and its pledgee shall be required to comply with the provisions of Article V
hereof in order to effect a sale, transfer or assignment of Securities to such pledgee. At the
Investors’ expense, the Issuer hereby agrees to execute and deliver such documentation as a pledgee
of the Securities may reasonably request in connection with a pledge of the Securities to such
pledgee by an Investor.



Section 3.10 Amendments. The Issuer shall not amend or waive any provision of the
Certificate or Bylaws of the Issuer in any way that would adversely affect exercise rights, voting
rights (to the extent applicable), conversion rights, prepayment rights or redemption rights of the
holder of the Notes or the Warrants.



Section 3.11 Distributions. So long as any Notes remain outstanding, the Issuer
agrees that it shall not (i) declare or pay any dividends or make any distributions to any
holder(s) of Common Stock (or security convertible into or exercisable for Common Stock) or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common Stock or other equity
security of the Issuer.



Section 3.12 Reservation of Shares. So long as any of the Notes or Warrants remain
outstanding, the Issuer shall take all action necessary to at all times have authorized and
reserved for the purpose of issuance, one hundred percent (100%) of the aggregate number of shares
of Common Stock needed to provide for the issuance of the Conversion Shares and the Warrant Shares.



Section 3.13 Transfer Agent Instructions. (a) The Issuer shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Investor or its respective nominee(s), for the Conversion Shares and
the Warrant Shares (or, to the extent specified by such Investor in accordance with the terms of a
Note or Warrant, deliver such shares via the Deposit Withdrawal Agent Commission System) in such
amounts as are specified from time to time by each Investor to the Issuer upon conversion of the
Notes or exercise of the Warrants in the form of Exhibit E attached hereto (the “Irrevocable
Transfer Agent Instructions”). The Issuer warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 3.13 will be given by the
Issuer to its transfer agent except as otherwise contemplated by the Transaction Documents or
consented to by the Lead Investor and that the Conversion Shares and Warrant Shares shall otherwise
be freely transferable on the books and records of the Issuer as and to the extent provided in the
Transaction Documents.



(b) The Issuer covenants that it will take such action as the Investors may reasonably
request to the extent required from time to time to enable the Investors to sell the Securities
without registration under the Securities Act within the limitations of Rule 144 promulgated under
the Securities Act. Without limitation, the Issuer shall instruct its transfer agent to remove any
legends from certificates for Conversion Shares and/or Warrant Shares eligible to be sold under
Rule 144 and issue such unlegended certificates to the transferee, and shall cause to be provided
to such transfer agent (at the Issuer’s expense) any opinion of counsel and/or Issuer certification
required in order for such transfer agent to comply with such instructions, within three (3)
Trading Days of such Investor’s request so long as such Investor has provided a customary
representation letter to the Issuer that provides a reasonable basis to conclude, to the extent
such conclusion is dependent upon matters to be confirmed by the Investor, that such Conversion
Shares and/or Warrant Shares can be sold pursuant to Rule 144. Upon the request of an Investor, the
Issuer shall deliver to such Investor a written certification of a duly authorized officer as to
whether it has complied with the requirements of Rule 144.



(c) In addition, the Issuer will provide, at the Issuer’s expense, such transfer agent
instructions and legal opinions in the future as are reasonably necessary for the issuance and
resale of the Conversion Shares and the Warrant Shares pursuant to any effective registration
statement or any exemption from registration pursuant to which an Investor proposes to sell
securities within three (3) Trading Days of an Investor’s request. Furthermore, if a registration
statement is in effect covering the sale of any Conversion Shares or Warrant Shares, or if any
Conversion Shares or Warrant Shares are eligible for sale pursuant to Rule 144 without regard to
volume limitations, manner-of-sale restrictions or current public information requirements, the
Issuer will instruct its transfer agent to remove any legends from certificates for such Conversion
Shares or Warrant Shares and issue such unlegended certificates to the Investor (or the transferee
if in connection with a transfer) and shall cause to be provided to such transfer agent (at the
Issuer’s expense) any opinion of counsel and/or Issuer certification required in order for such
transfer agent to comply with such instructions, within three (3) Trading Days of such Investor’s
request.



(d) The Issuer acknowledges that a breach by it of its obligations under this Section 3.13
will cause irreparable harm to the Investors by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Issuer acknowledges that the remedy at law for a breach of
its obligations under this Section 3.13 will be inadequate and agrees, in the event of a breach or
threatened breach by the Issuer of the provisions of this Section 3.13, that the Investors shall be
entitled, in addition to all other available remedies, to an order and/or injunction restraining
any breach and requiring immediate issuance and transfer, without the necessity of showing economic
loss and without any bond or other security being required. Nothing in this Section 3.13 shall
restrict the Issuer from changing transfer agents if it desires to do so so long as it complies
with the Issuer’s obligations under this Section 3.13, and otherwise under the Transaction
Documents, in relation to the new transfer agent.



Section 3.14 Form S-1 Eligibility; Opinions. The Issuer currently meets, and will
take all necessary action to continue to meet, the “registrant eligibility” and transaction
requirements set forth in the general instructions to Form S-1 applicable to “resale” registrations
on Form S-1 during the Effectiveness Period (as defined in the Registration Rights Agreement) and
the Issuer shall file all reports required to be filed by the Issuer with the Commission in a
timely manner so as to maintain such eligibility for the use of Form S-1.



Section 3.15 Acquisition of Assets; Formation of Subsidiaries. For so long as any
Note is outstanding, in the event the Issuer acquires any assets or other properties, such assets
or properties shall constitute a part of the Collateral (as defined in the Security Agreement) and
the Issuer shall take all action necessary to perfect the Investors’ security interests in such
assets or properties pursuant to the Security Agreement. Without limitation of the foregoing, if
the Issuer forms a Subsidiary, the Issuer shall as promptly as practicable (i) enter into any
supplement to the Security Agreement (including any freestanding pledge agreement) and take all
other actions requested by the Lead Investor to perfect the security interests of the Investors in
the ownership interests of the Subsidiary held by the Issuer or any other Subsidiary, (ii) cause
such Subsidiary to enter into any supplement to the Security Agreement (including any freestanding
pledge agreement) and take all other actions requested by the Lead Investor to perfect the security
interests of the Investors in the assets and other properties of such Subsidiary and (iii) cause
such Subsidiary to enter into a guaranty of the Transaction Documents in form and scope
satisfactory to the Lead Investor.



Section 3.16



2



Subsequent Financings.



(a) For so long as any Notes remain outstanding and until the second anniversary of the
Closing, if later), the Issuer covenants and agrees to promptly notify (in no event later than five
(5) business days after making or receiving an applicable offer) in writing (a “Rights Notice”) the
Investors of the terms and conditions of any proposed offer or sale to, or exchange with (or other
type of distribution to) any third party (a “Subsequent Financing”), of Common Stock or any
securities convertible, exercisable or exchangeable into Common Stock, including convertible debt
securities (collectively, the “Financing Securities”). The Rights Notice shall describe, in
reasonable detail, the proposed Subsequent Financing, the proposed closing date of the Subsequent
Financing, which shall be within thirty (30) calendar days from the date of the Rights Notice, and
all of the material terms and conditions thereof and proposed definitive documentation to be
entered into in connection therewith. The Rights Notice shall provide each Investor an option (the
“Rights Option”) during the ten (10) Trading Days following delivery of the Rights Notice (the
“Option Period”) to inform the Issuer whether such Investor will purchase up to such Investor’s pro
rata share of the securities in such Subsequent Financing in accordance with such terms and
conditions. If any Investor elects not to participate in such Subsequent Financing, the other
Investors may take up all or any portion of such Investor’s pro rata share so long as the
participation in the aggregate of all Investors does not exceed the aggregate pro rata shares of
all Investors. For purposes of this Section, all references to “pro rata” means, for any Investor
electing to participate in such Subsequent Financing, the percentage obtained by dividing (x) the
principal amount of the Notes purchased by such Investor at the Closing by (y) the total principal
amount of all of the Notes purchased by all of the Investors at the Closing. Delivery of any
Rights Notice constitutes a representation and warranty by the Issuer that there are no other
material terms and conditions, arrangements, agreements or otherwise except for those disclosed in
the Rights Notice, including to provide additional compensation to any party participating in any
proposed Subsequent Financing, any type of reset or adjustment of a purchase or conversion price or
any agreement to issue additional securities at any time after the closing date of a Subsequent
Financing. If the Issuer does not receive notice of exercise of the Rights Option from the
Investors within the Option Period, the Issuer shall have the right to close the Subsequent
Financing with a third party; provided that all of the material terms and conditions of the closing
are substantially the same as those provided to the Investors in the Rights Notice. If the closing
of the proposed Subsequent Financing does not occur within 30 days from the end of the Option
Period, any closing of the contemplated Subsequent Financing shall be subject to all of the
provisions of this Section 3.16(a), including, without limitation, the delivery of a new Rights
Notice. The provisions of this Section 3.16(a) shall not apply to issuances of securities in a
Permitted Financing.



(b) For purposes of this Agreement, a “Permitted Financing” shall mean (1) issuances
of shares of Common Stock or options to employees, officers, directors or consultants of the Issuer
pursuant to any stock or option plan duly adopted by a majority of the independent, non-employee
members of the Board of Directors of the Issuer or a majority of the members of a committee of
independent, non-employee directors established for such purpose; (2) issuances of securities upon
the exercise or exchange of or conversion of any securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise, exchange or conversion price of any such
securities (including the Notes and Warrants issued to the Investors pursuant to this Agreement);
and (3) securities issued pursuant to acquisitions or strategic transactions approved by a majority
of the independent, disinterested directors, but not including a transaction with an entity whose
primary business is investing in securities or a transaction the primary purpose of which is to
raise capital.



(c) So long as the Notes are outstanding and the Issuer has not completed a Qualified
Financing, the Issuer shall not without the consent of the Lead Investor enter into any Subsequent
Financing that is not a Qualified Financing (as defined in the Notes), provided that the Issuer
may, without the consent of the Lead Investor, sell up to an additional $1.15 million in Second
Lien Notes (for a total of $3.0 million in Notes including the $1.85 million in Notes being sold
on the date hereof), with accompanying Warrants, on the terms set forth herein and in the other
Transaction Documents.



Section 3.17 Variable Rate Securities. For so long as any Notes have not been paid in
full or converted in full, notwithstanding whether or not an issuance of securities is a Permitted
Financing, the Issuer shall not issue or sell, or agree to issue or sell Variable Equity Securities
(as defined below) other than the Notes (the “Variable Equity Securities Lock-Up”), without
obtaining the prior written approval of the Lead Investor, with the exception of any such
agreements or transactions that (x) exist as of the date hereof and (y) are not amended or modified
after the date hereof. For purposes hereof, the following shall be collectively referred to herein
as, the “Variable Equity Securities”: (A) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive additional shares
of Common Stock either (1) at any conversion, exercise or exchange rate or other price that is
based upon and/or varies with the trading prices of or quotations for Common Stock at any time
after the initial issuance of such debt or equity security, or (2) with a fixed conversion,
exercise or exchange price that is subject to being reset at some future date at any time after the
initial issuance of such debt or equity security due to a change in the market price of the
Issuer’s Common Stock since date of initial issuance, or (B) any amortizing convertible security
which amortizes prior to its maturity date, where the Issuer is required to or has the option to
(or the investor in such transaction has the option to require the Issuer to) make such
amortization payments in shares of Common Stock (whether or not such payments in stock are subject
to certain equity conditions), or (C) any transaction involving a written agreement between the
Issuer and an investor or underwriter whereby the Issuer has the right to “put” its securities to
the investor or underwriter over an agreed period of time and at an agreed price or price formula.



ARTICLE IV




CONDITIONS




Section 4.1 Conditions Precedent to the Obligation of the Issuer to Close and to Sell the
Securities. The obligation hereunder of the Issuer to close and issue and sell the Securities
to the Investors at the Closing is subject to the satisfaction or waiver, at or before the Closing
of the conditions set forth below. These conditions are for the Issuer’s sole benefit and may be
waived by the Issuer at any time in its sole discretion.



(a) Accuracy of the Investors’ Representations and Warranties. The representations
and warranties of each Investor shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.



(b) Performance by the Investors. Each Investor shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Investors at or prior to the Closing
Date.



(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.



(d) Delivery of Purchase Price. The Purchase Price for the Securities shall have been
delivered to the Issuer on the Closing Date.



(e) Delivery of Transaction Documents. The Transaction Documents shall have been duly
executed and delivered by the Investors to the Issuer.



Section 4.2 Conditions Precedent to the Obligation of the Investors to Close and to
Purchase the Securities. The obligation hereunder of the Investors to purchase the Securities
and consummate the transactions contemplated by this Agreement is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below. These conditions are
for the Investors’ sole benefit and may be waived by the Lead Investor at any time in its sole
discretion (and without liability to any other Investor), provided that the condition in (g) below
may only be waved by the Investors severally.



(a) Accuracy of the Issuer’s Representations and Warranties. Each of the
representations and warranties of the Issuer in this Agreement and the other Transaction Documents
shall be true and correct in all material respects as of the Closing Date, except for
representations and warranties that speak as of a particular date, which shall be true and correct
in all material respects as of such date.



(b) Performance by the Issuer. The Issuer shall have performed, satisfied and complied
in all material respects with all covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Issuer at or prior to the Closing Date.



(c) No Suspension, Etc. Trading in the Common Stock shall not have been suspended by
the Commission or the OTC Bulletin Board, and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets (“Bloomberg”) shall not have been
suspended or limited, or minimum prices shall not have been established on securities whose trades
are reported by Bloomberg, or on the New York Stock Exchange, nor shall a banking moratorium have
been declared either by the United States or New York State authorities, nor shall there have
occurred any material outbreak or escalation of hostilities or other national or international
calamity or crisis of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of such Investor, makes it impracticable or
inadvisable to purchase the Securities.



(d) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.



(e) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator
or any governmental authority shall have been commenced, and no investigation by any governmental
authority shall have been threatened, against the Issuer, or any of the officers, directors or
affiliates of the Issuer seeking to restrain, prevent or change the transactions contemplated by
this Agreement, or seeking damages in connection with such transactions.



(f) Opinion of Counsel. The Investors shall have received an opinion of counsel to
the Issuer, dated the date of the Closing, substantially in the form of Exhibit F hereto, with such
exceptions and limitations as shall be reasonably acceptable to counsel to the Investors.



(g) Notes and Warrants. At or prior to the Closing, the Issuer shall have delivered
to the Investors the Notes (in such denominations as each Investor may request) and the Warrants
(in such denominations as each Investor may request).



(h) Secretary’s Certificate. The Issuer shall have delivered to the Investors a
secretary’s certificate, dated as of the Closing Date, as to (i) the resolutions adopted by the
Board of Directors approving the transactions contemplated hereby, (ii) the Certificate, (iii) the
Bylaws, each as in effect at the Closing, and (iv) the authority and incumbency of the officers of
the Issuer executing the Transaction Documents and any other documents required to be executed or
delivered in connection therewith.



(i) Officer’s Certificate. On the Closing Date, the Issuer shall have delivered to
the Investors a certificate signed by an executive officer on behalf of the Issuer, dated as of the
Closing Date, confirming the accuracy of the Issuer’s representations, warranties and covenants as
of such Closing Date and confirming the compliance by the Issuer with the conditions precedent set
forth in paragraphs (a)-(e) and (k) of this Section 4.2 as of the Closing Date (provided that, with
respect to the matters in paragraphs (d) and (e) of this Section 4.2, such confirmation shall be
based on the knowledge of the executive officer after due inquiry).



(j) Other Transaction Documents. As of the Closing Date, all other the Transaction
Documents (including the confession of judgment contemplated by the Security Agreement) shall have
been duly executed and delivered by the Investors to the Issuer.



(k) Material Adverse Effect. No Material Adverse Effect shall have occurred.



(l) Transfer Agent Instructions. The Irrevocable Transfer Agent Instructions, in the
form of Exhibit E attached hereto, shall have been delivered to and executed by the Issuer’s
transfer agent, and delivered to the Lead Investor’s counsel to be held in escrow pending the
Closing.



(m) Minimum Investment. Investors with investments hereunder aggregating at least
$1.85 million shall have tendered performance at the Closing.



(n) UCC Financing Statements. The Issuer shall have pre-filed all UCC financing
statements in form and substance satisfactory to the Investors at the appropriate offices
(including without limitation the United States Patent and Trademark Office) to create a valid and
perfected security interest in the Collateral (as defined in the Security Agreement) and provided
evidence of such filing to the Investors.



ARTICLE V




CERTIFICATE LEGEND




Section 5.1 Legend. Each certificate representing the Securities shall be stamped or
otherwise imprinted with a legend substantially in the following form:




THE SECURITIES REPRESENTED BY THIS DOCUMENT [AND THE SHARES ISSUABLE UPON
CONVERSION/EXERCISE THEREOF] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”) OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OR AN
EXEMPTION THEREFROM AS CONFIRMED BY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID SECURITIES ACT,
PROVIDED THAT NO SUCH OPINION WILL BE REQUIRED IN CONNECTION WITH A SALE PURSUANT TO RULE
144 UNDER THE SECURITIES ACT IF THE HOLDER PROVIDES TO THE ISSUER A CUSTOMARY REPRESENTATION
LETTER. HEDGING TRANSACTIONS INVOLVING THOSE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE SECURITIES ACT.



The Issuer agrees to issue or reissue, or cause to be issued or reissued, certificates
representing any of the Conversion Shares and the Warrant Shares without the legend set forth above
under the circumstances described in Section 3.13.



ARTICLE VI




INDEMNIFICATION




Section 6.1 General Indemnity. (a) The Issuer agrees to indemnify and hold harmless
the Investors (and their respective directors, officers, affiliates, agents, successors and
assigns) from and against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys’ fees, charges and disbursements)
incurred by the Investors (and such persons) as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Issuer in the Transaction Documents.



(b) Each Investor agrees, severally and not jointly, to indemnify and hold harmless the
Issuer and its directors, officers, affiliates, agents, successors and assigns from and against any
and all losses, liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys’ fees, charges and disbursements) incurred by the Issuer (and such
persons) as a result of any inaccuracy in or breach of the representations, warranties or covenants
made by the Issuer in Section 2.2 of this Agreement.



Section 6.2 Indemnification Procedure. Any party entitled to indemnification under
this Article VI (an “indemnified party”) will give written notice to the indemnifying party of any
matter giving rise to a claim for indemnification; provided, that the failure of any party entitled
to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying
party of its obligations under this Article VI except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action, proceeding or claim
is brought against an indemnified party in respect of which indemnification is sought hereunder,
the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment
of the indemnifying party a conflict of interest between it and the indemnified party exists with
respect to such action, proceeding or claim (in which case the indemnifying party shall be
responsible for the reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to the indemnified
party. In the event that the indemnifying party advises an indemnified party that it will contest
such a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its
defense at any time after it commences such defense), then the indemnified party may, at its
option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume the defense of any
such claim, proceeding or action, the indemnified party’s costs and expenses arising out of the
defense, settlement or compromise of any such action, claim or proceeding shall be losses subject
to indemnification hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim by the indemnifying
party and shall furnish to the indemnifying party all information reasonably available to the
indemnified party which relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend any such action or
claim, then the indemnified party shall be entitled to participate in such defense with counsel of
its choice at its sole cost and expense. The indemnifying party shall not be liable for any
settlement of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VI to the contrary, the indemnifying party shall not,
without the indemnified party’s prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof which imposes any future obligation on the indemnified
party or which does not include, as an unconditional term thereof, the giving by the claimant or
the plaintiff to the indemnified party of a release from all liability in respect of such claim.
The indemnification obligations to defend the indemnified party required by this Article VI shall
be made by periodic payments of the amount thereof during the course of investigation or defense,
as and when bills are received or expense, loss, damage or liability is incurred, so long as the
indemnified party shall refund such moneys if it is ultimately determined by a court of competent
jurisdiction that such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar rights of the
indemnified party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.



ARTICLE VII




MISCELLANEOUS




Section 7.1 Fees and Expenses. Each party shall pay the fees and expenses of its
advisors, counsel, accountants and other experts, if any, and all other expenses, incurred by such
party incident to the negotiation, preparation, execution, delivery and performance of this
Agreement; provided, however, that the Issuer shall pay all actual and reasonable attorneys’ fees
and expenses (including disbursements and out-of-pocket expenses) incurred by the Lead Investors in
connection with the preparation, negotiation, execution and delivery of the Transaction Documents
and the transactions contemplated thereunder, which payment shall be made at Closing and shall
equal $50,000 (which payment may be withheld from the amount delivered to the Issuer by the Lead
Investor on Closing). In addition, the Issuer shall pay all reasonable fees and expenses incurred
by the Investors in connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys’ fees and expenses.



Section 7.2 Specific Performance. The Issuer and the Investors acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of this Agreement or
the other Transaction Documents were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent or cure breaches of the provisions of this Agreement or the other
Transaction Documents and to enforce specifically the terms and provisions hereof or thereof, this
being in addition to any other remedy to which any of them may be entitled by law or equity.



Section 7.3 Entire Agreement; Amendment. This Agreement and the Transaction Documents
contain the entire understanding and agreement of the parties with respect to the matters covered
hereby and, except as specifically set forth herein or in the other Transaction Documents, neither
the Issuer nor any Investor make any representation, warranty, covenant or undertaking with respect
to such matters, and they supersede all prior understandings and agreements with respect to said
subject matter, all of which are merged herein. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the Issuer and the Lead Investor. Any
amendment or waiver effected in accordance with this Section 7.3 shall be binding upon each
Investor (and their permitted assigns) and the Issuer.



Section 7.4 Notices. All notices and other communications required or permitted
hereunder or under the other Transaction Documents will be in writing and: (i) delivered personally
by hand or a nationally-recognized overnight courier; (ii) mailed by registered or certified mail
(postage prepaid), return receipt requested; (iii) sent via facsimile; or (iv) sent via email
delivery of a “.pdf” format data file to the appropriate party. If the notice or communication is
to an investor, it will be delivered to such address as indicated on such Investor’s signature
pages hereto or to such other address as such Investor will have furnished to Issuer in writing,
with a copy, in the case of the Lead Investor, to Akerman Senterfitt LLP, 335 Madison Avenue, New
York, New York 10017, Fax: (212) 880-8965, Attention: Kenneth G. Alberstadt, Esq., Email:
kenneth.alberstadt@akerman.com. If the notice or communication is to the Issuer, it will be
delivered to: TechniScan, Inc., a Delaware corporation located at 3216 South Highland Drive, Suite
200, Salt Lake City, Utah 84106, Fax: (801) 747-1099, Attn: Dave Robinson, Email:
drobinson@techniscanmedical.com, or to such other address as the Issuer will have furnished
to Subscriber in writing. All such notices and other written communication will be effective: (x)
if delivered personally or mailed, upon delivery; and (y) if sent via facsimile or via email
delivery of “.pdf” format data file, upon confirmation of receipt.



Section 7.5 Waivers. No waiver by any party of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay
or omission of any party to exercise any right hereunder in any manner impair the exercise of any
such right accruing to it thereafter.



Section 7.6 Headings. The article, section and subsection headings in this Agreement
are for convenience only and shall not constitute a part of this Agreement for any other purpose
and shall not be deemed to limit or affect any of the provisions hereof.



Section 7.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns. After the Closing, the assignment by
a party to this Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement. The Investors may assign the Securities and its rights under this Agreement
and the other Transaction Documents and any other rights hereto and thereto without the consent of
the Issuer.



Section 7.8 No Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns and, except as set
forth in Article VI, is not for the benefit of, nor may any provision hereof be enforced by, any
other person.



Section 7.9 Certain Disputes. In the case of a dispute as to the determination of the
VWAP or the arithmetic calculation of the Conversion Price (as such terms are defined in the Notes)
or the Warrant Price (as defined in the Warrants), any adjustment to the Conversion Price or the
Warrant Price or the number of shares issuable upon exercise of the Warrants, the arithmetic
calculation of any liquidated damages amount, interest or dividend, or any redemption price,
redemption amount, adjusted Conversion Price, or similar calculation, or as to whether a subsequent
issuance of securities is prohibited under the Transaction Documents or would lead to an adjustment
to the Conversion Price, the Warrant Price or the number of shares issuable upon exercise of the
Warrants, the Issuer shall submit the disputed determinations or arithmetic calculations via
facsimile or email within five (5) business days of receipt, or deemed receipt, of the Conversion
Notice, exercise notice, redemption notice, default notice or other event giving rise to such
dispute, as the case may be, to the Lead Investor. If the Lead Investor and the Issuer are unable
to agree upon such determination or calculation within five (5) business days of such disputed
determination or arithmetic calculation being submitted to the Lead Investor, then the Issuer
shall, within three (3) business days from the end of such five (5) business day period submit via
facsimile (a) the disputed determination of the VWAP to an independent, nationally or regionally
recognized investment bank selected by the Issuer and approved by the Lead Investor, which approval
shall not be unreasonably withheld, (b) the disputed arithmetic calculation of the Conversion
Price, adjusted Conversion Price, Warrant Price, adjusted Warrant Price, number of securities
issuable upon exercise of the Warrants or any redemption price, redemption amount or default amount
to an independent, nationally or regionally recognized accounting firm selected by the Issuer and
approved by the Lead Investor, which approval shall not be unreasonably withheld, or (c) the
disputed facts regarding whether a subsequent issuance of securities is prohibited hereunder or
would lead to an adjustment to the Conversion Price (or any of the other above described facts not
expressly designated to the investment bank or accountant), to an expert attorney from a nationally
recognized outside law firm (having at least 100 attorneys and having with no prior relationship
with the Issuer) selected by the Issuer and approved by the Lead Investor, which approval shall not
be unreasonably withheld.  The Issuer, at the Issuer’s expense, shall cause the investment bank,
the accountant, the law firm, as the case may be, to perform the determinations or calculations and
notify the Issuer and the Lead Investor of the results no later than ten (10) business days from
the time it receives the disputed determinations or calculations. Such investment bank’s,
accountant’s or attorney’s determination or calculation, as the case may be, shall be binding upon
all parties absent demonstrable error. The calculation of liquidated damages shall not be tolled
during the pendency of the foregoing procedures. Nothing in this Section 7.9 shall prevent any
party from seeking provisional remedies in relation to such dispute to the extent that such
remedies may be available as a matter of law.



Section 7.10 Governing Law; Jurisdiction. This Agreement and each of the other
Transaction Documents shall be governed by and construed in accordance with the laws of the State
of Delaware applied to contracts to be performed wholly within the State of Delaware, without
regard to conflicts of laws principles. Any judicial proceeding brought against the Issuer with
respect to Agreement or any other Transaction Document or any related agreement may be brought in
any court located in the County and State of Delaware, United States of America, and, by execution
and delivery of Agreement or any other Transaction Document, The Issuer accepts for itself and in
connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of
the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in
connection with Agreement or any other Transaction Document. The Issuer hereby waives personal
service of any and all process upon it and consents that all such service of process may be made by
registered mail (return receipt requested) directed to The Issuer at its address set forth in the
Note Purchase Agreement and service so made shall be deemed completed five (5) days after the same
shall have been so deposited in the mails of the United States of America. Nothing herein shall
affect the right to serve process in any manner permitted by law or shall limit the right of an
Investor to bring proceedings against The Issuer in the courts of any other jurisdiction. The
Issuer waives any objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.
Any judicial proceeding by The Issuer against an Investor involving, directly or indirectly, any
matter or claim in any way arising out of, related to or connected with Agreement or any other
Transaction Document or any related agreement, shall be brought only in a federal or state court
located in the City of Delaware, State of Delaware. The Issuer and the Investors hereby agree that
the prevailing party in any suit, action or proceeding arising out of or relating to the
Securities, this Agreement or the other Transaction Documents, shall be entitled to reimbursement
for reasonable legal fees from the non-prevailing party.



MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING UNDER THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR NOTE EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR
THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS NOTE MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS
OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.



Section 7.11 Survival. The representations and warranties of the Issuer and the
Investors shall survive the execution and delivery hereof and the Closing until the second
anniversary of the Closing Date.



Section 7.12 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same instrument and shall
become effective when counterparts have been signed by each party and delivered to the other
parties hereto, it being understood that all parties need not sign the same counterpart.



Section 7.13 Publicity. The Issuer agrees that it will not disclose, and will not
include in any public announcement, the names of the Investors without the consent of the
Investors, which consent shall not be unreasonably withheld or delayed, or unless and until such
disclosure is required by law, rule or applicable regulation, including without limitation any
disclosure pursuant to the Registration Statement, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Investors consent to being identified in any filings the Issuer
makes with the Commission to the extent required by law or the rules and regulations of the
Commission.



Section 7.14 Severability. The provisions of this Agreement are severable and, in the
event that any court of competent jurisdiction shall determine that any one or more of the
provisions or part of the provisions contained in this Agreement shall, for any reason, be held to
be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of this Agreement and
this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent possible.



Section 7.15 Further Assurances. From and after the date of this Agreement, upon the
request of the Investors or the Issuer, the Issuer and each Investor shall execute and deliver such
instruments, documents and other writings as may be reasonably necessary or desirable to confirm
and carry out and to effectuate fully the intent and purposes of this Agreement and the other
Transaction Documents



Section 7.16 Lead Investor.



(a) Appointment. Each Investor hereby appoints the Lead Investor as the Collateral
Agent under the Security Agreement and the IP Security Agreement (collectively, the “Security
Documents”) and each Investor authorizes the Collateral Agent to take such action as agent on
its behalf and to exercise such powers under the Security Documents as are delegated to the
Collateral Agent under such agreements and to exercise such powers as are reasonably incidental
thereto. Without limiting the foregoing, each Investor hereby authorizes the Collateral Agent to
execute and deliver, and to perform its obligations under, each of the documents to which the
Collateral Agent is a party relating to security for the obligations under the Notes, to exercise
all rights, powers and remedies that the Collateral Agent may have under such Security Documents
and, in the case of the Security Documents, to act as agent for the Investors under such
Transaction Documents. The Collateral Agent shall not be required to exercise any discretion or
take any action during such time as the First Lien Notes are outstanding other than upon the
instructions of First Lien Investors holding at least 51% of the aggregate amount of the First Lien
Notes then outstanding (even if the Collateral Agent holds such requisite amount of First Lien
Notes), but shall be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of First Lien Investors holding at least
51% of the aggregate amount of the First Lien Notes then outstanding, and such instructions shall
be binding upon all Investors; provided, however, that the Collateral Agent shall not be required
to take any action that (i) the Collateral Agent in good faith believes exposes it to personal
liability unless the Collateral Agent receives an indemnification satisfactory to it in its sole
discretion from the Investors with respect to such action or (ii) is contrary to this Agreement or
applicable law. Upon the repayment or conversion in full of all First Lien Notes, the Collateral
Agent shall not be required to exercise any discretion or take any action other than upon the
instructions of Investors holding at least 51% of the aggregate amount of the Notes then
outstanding, but shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of Investors holding at least 51% of
the aggregate amount of the Notes then outstanding, and such instructions shall be binding upon all
Investors; provided, however, that the Collateral Agent shall not be required to take any action
that (i) the Collateral Agent in good faith believes exposes it to personal liability unless the
Collateral Agent receives an indemnification satisfactory to it in its sole discretion from the
Investors with respect to such action or (ii) is contrary to this Agreement or applicable law.
Except as aforesaid, the Collateral Agent shall not be required to take any action to enforce the
Security Documents or to realize upon any Collateral (as defined in the Security Documents).



(b) Duties are Administrative in Nature. In performing its functions and duties under
the Security Documents and the other documents required to be executed or delivered in connection
therewith, the Collateral Agent is acting solely on behalf of the Investors and its duties are
entirely administrative in nature. The Collateral Agent does not assume and shall not be deemed to
have assumed any obligation other than as expressly set forth herein. The Collateral Agent may
perform any of its duties under any Security Document by or through its agents or employees. The
Collateral Agent shall not be responsible in any manner to any Investor for the effectiveness,
enforceability, genuineness, validity or due execution of the Notes, the Security Documents or any
certificate, report, financial statement or other document issued under or in connection with any
thereof or be under any obligation to any Investor to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions thereof on the part of the Issuer. The
Collateral Agent shall be entitled to rely on any letter, statement or other document believed by
it to be genuine and correct and to have been signed and sent by the proper person or persons and,
in respect of legal matters, upon the opinion of counsel selected by the Collateral Agent.



(c) No Liability. None of the Collateral Agent, any of its affiliates or any of their
respective directors, officers, agents or employees shall be liable for any action taken or omitted
to be taken by it, him, her or them under or in connection with the Security Documents, except for
its, his, her or their own gross negligence or willful misconduct.



(d) Investigation. Each Investor acknowledges that it shall, independently and
without reliance upon the Collateral Agent or any other Investor conduct its own independent
investigation of the financial condition and affairs of the Issuer in connection with the issuance
of the Securities. Each Investor also acknowledges that it shall, independently and without
reliance upon the Collateral Agent or any other Investor and based on such documents and
information as it shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and other Transaction Documents.



(e) Indemnification. Each Investor agrees to indemnify the Collateral Agent and each
of its affiliates, and each of their respective directors, officers, employees, agents and advisors
(to the extent not reimbursed by the Issuer), from any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements (including fees,
expenses and disbursements of financial and legal advisors) of any kind or nature whatsoever that
may be imposed on, incurred by, or asserted against, the Collateral Agent or any of its affiliates,
directors, officers, employees, agents and advisors in any way relating to or arising out of the
Security Documents or any action taken or omitted by the Collateral Agent under the Security
Documents or the document related thereto; provided, however, that no Investor shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Collateral Agent’s or such Affiliate’s
gross negligence or willful misconduct. Without limitation of the foregoing, each Investor agrees
to reimburse the Collateral Agent in the amount of such Investor’s pro rata share (based on
the original principal amounts of the Notes acquired hereunder) for all expenses (including counsel
fees) incurred by the Collateral Agent in connection with the administration of the Collateral and
the enforcement of the Security Documents to the extent that the Collateral Agent is not reimbursed
for such expenses by the Issuer.



(f) Resignation. The Collateral Agent may resign at any time by giving written notice
thereof to the Issuer. The Issuer shall notify the Investors promptly of such resignation. Upon
any such resignation, the Investors shall have the right to appoint a successor Collateral Agent.
If no successor Collateral Agent shall have been so appointed by the Investors, and shall have
accepted such appointment, within 30 days after the retiring Collateral Agent’s giving of notice of
resignation, then the retiring Collateral Agent may, on behalf of the Investors, appoint a
successor Collateral Agent, selected from among the Investors. Upon the acceptance of any
appointment as Collateral Agent by a successor Collateral Agent, such successor Collateral Agent
shall succeed to, and become vested with, all the rights, powers, privileges and duties of the
retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties
and obligations under this Agreement, the Transaction Documents and any other documents required to
be executed or delivered in connection therewith. Prior to any retiring Collateral Agent’s
resignation hereunder as Collateral Agent, the retiring Collateral Agent shall take such action as
may be reasonably necessary to assign to the successor Collateral Agent its rights as Collateral
Agent under the Transaction Documents. After such resignation, the retiring Collateral Agent shall
continue to have the benefit of this Agreement as to any actions taken or omitted to be taken by it
while it was Collateral Agent under this Agreement, the Security Documents and any other documents
required to be executed or delivered in connection therewith.



(g) Binding. Each Investor agrees that any action taken by the Collateral Agent in
accordance with the provisions of this Agreement or of the other document relating thereto, and the
exercise by the Collateral Agent or the Investors of the powers set forth herein or therein,
together with such other powers as are reasonably incidental thereto, shall be authorized and
binding upon all of the Investors.



(h) Releases. Each of the Investors hereby directs, in accordance with the terms
hereof, the Collateral Agent to release (or in the case of clause (ii) below, release or
subordinate) any Lien held by the Collateral Agent for the benefit of the Investors against any of
the following: (i) all of the Collateral upon payment and satisfaction in full of all obligations
under the Notes and all other obligations under the Transaction Documents that the Collateral Agent
has been notified in writing are then due and payable; (ii) any assets that are subject to a Lien;
and (iii) any part of the Collateral sold or disposed of by the Issuer if such sale or disposition
is permitted by this Agreement and the other Transaction Documents (or permitted pursuant to a
waiver or consent of a transaction otherwise prohibited by this Agreement and the other Transaction
Documents). Each of the Investors hereby directs the Collateral Agent to execute and deliver or
file such termination and partial release statements and do such other things as are necessary to
release Liens to be released pursuant to this Section 7.15 promptly upon the effectiveness of any
such release.



(i) Lead Investor Instructions. The Lead Investor in its capacity as such is entitled
to make or participate in certain decisions or exercise certain consent rights, alone or together
with the Issuer, as to matters specified in the Transaction Documents. Each Investor acknowledges
that the Lead Investor shall have no obligation or liability whatsoever to the other Investors with
respect to any such decision or consent, or as a result of failing to make any such decision or
consent. If the Lead Investor notifies the Issuer that it does not intend to take any action with
respect to any such decision or consent, the Issuer shall permit such decision or consent to be
made or exercised by holders of a majority in principal amount of the outstanding Notes or, if no
Notes shall be outstanding, by a majority in interest of the holders of Warrants, in each case
excluding the Lead Investor.



Section 7.17 Representation of Lead Investor. It is acknowledged by the Issuer and
each Investor that the Lead Investor has retained Akerman Senterfitt LLP to act as its counsel in
connection with the transactions contemplated by the Transaction Documents and that Akerman
Senterfitt LLP has not acted as counsel for any Investor, other than the Lead Investor, in
connection with the transactions contemplated by the Transaction Documents and that none of such
Investors has the status of a client for conflict of interest or any other purposes as a result
thereof.



Section 7.18 Subordination; Intercreditor Arrangements.



(a) Any and all claims of each Second Lien Investor against the Issuer in respect of the
Second Lien Notes or the indebtedness represented thereby, now or hereafter existing, are, and
shall be at all times, subject and subordinate to any and all claims, now or hereafter existing
which the First Lien Investors may have against the Issuer in respect of the First Lien Notes or
the indebtedness represented thereby.



(b) Without limitation of Section 7.18(a):



(i) All collateral subject to the liens and security interests of the Security Documents (the
“Collateral”) shall be held by the Collateral Agent on behalf of and for the benefit of the
Noteholders as hereinafter provided in this Agreement. Any proceeds received by the Collateral
Agent from the collection, foreclosure, sale or other disposition of or any other realization
whatsoever on any of the Collateral and any other proceeds received by the Collateral Agent
pursuant to the terms hereof or of the Security Documents, including, without limitation, insurance
proceeds, shall be applied by the Collateral Agent as follows: FIRST, to the payment of all costs
and expenses of the Collateral Agent incurred in connection with the collection of such proceeds or
the protection of the rights and interests of the Collateral Agent; SECOND, to the payment of (A)
accrued and unpaid interest on the First Lien Notes, (B) the unpaid principal amount of the First
Lien notes and (C) all liquidated damages and other amounts of any kind or nature whatsoever due
with respect to the First Lien Notes, until the indebtedness evidenced by the First Lien Notes and
all other obligations under the Transaction Documents with respect to the First Lien Notes are
irrevocably paid in full (collectively, the “First Lien Note Obligations”); THIRD, to the
payment of (A) accrued and unpaid interest on the Second Lien Notes, (B) the unpaid principal
amount of the Second Lien notes and (C) all liquidated damages and other amounts of any kind or
nature whatsoever due with respect to the Second Lien Notes, until the indebtedness evidenced by
the Second Lien Notes and all other obligations under the Transaction Documents with respect to the
Second Lien Notes are irrevocably paid in full (collectively, the “Second Lien Note
Obligations” and, together with the First Lien Note Obligations, the “Obligations”);
and FOURTH, the balance, if any, shall be paid to the Company or to or as directed by a court of
competent jurisdiction.



(ii) Each Second Lien Investor agrees that (A) if at any time such Second Lien Investor
receives the proceeds of any Collateral (other than through application by the Collateral Agent in
accordance with Section 7.18(b)(i)), such Second Lien Investor shall promptly turn the same over to
the Collateral Agent for application in accordance with Section 7.18(b)(i); and (B) such Second
Lien Investor will not take or cause to be taken any action, including, without limitation, the
commencement of any legal or equitable proceedings, the purpose of which is or could be to give
such Second Lien Investor any preference or priority against the First Lien Investors with respect
to the Collateral. Each Investor acknowledges that the Collateral Agent, as the secured party
under the Security Documents, shall have the sole right to exercise remedies with respect to the
Collateral. Nothing contained in this Agreement shall prevent any Investor (without limitation of
the subordination provisions set forth above and the right of the Collateral Agent to exercise
exclusive control over remedies against the Collateral) from taking or causing to be taken any
action to accelerate the maturity of the Obligations owing to it under any Note or from waiving any
default thereunder and, except as otherwise expressly set forth in the Transaction Documents with
respect to the Lead Investor, no such action or waiver shall affect the rights of the other
Investors against the Issuer.



(iii) In case of any assignment for the benefit of creditors by the Issuer or in case any
proceedings under the United States Bankruptcy Code are instituted by or against the Issuer, or in
case of the appointment of any receiver for the Issuer’s business or assets, or in case of any
dissolution or winding up of the affairs of the Issuer: (i) the Issuer and any assignee, trustee
in bankruptcy, receiver, debtor in possession or other person or persons in charge are hereby
directed to pay to the Collateral Agent the full amount of the First Lien Note Obligations and
Second Lien Note Obligations for allocation by the Collateral Agent in accordance with the
foregoing provisions of this Section 7.18. Insofar as may be necessary for that purpose, each
Investor hereby assigns and transfers to the Collateral Agent all security or the proceeds thereof,
and all rights to any payments, dividends or other distributions, and each Investor hereby
irrevocably constitutes and appoints the Collateral Agent its true and lawful attorney to act in
its name and stead: (A) to file the appropriate claim or claims on behalf of such Investor in
respect of the Notes if such Investor does not do so prior to five (5) days before the expiration
of the time to file claims in such proceeding and if the Collateral Agent elects at its sole
discretion to file such claim or claims and (B) to accept or reject any plan of reorganization or
arrangement on behalf of each Investor, and to otherwise vote each Investor’s claim in respect of
the Issuer under or with respect to the Transaction Documents in any manner the Collateral Agent
deems appropriate for the benefit and protection of the Investors to the extent and with the
priority, and subject to the qualifications and limitations, set forth above if such Investor does
not do so within five (5) days prior to the expiration of the time to accept or reject such plan or
cast such vote and if the Collateral Agent elects at its sole discretion to take such action.



[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




IN WITNESS WHEREOF, the parties hereto have caused this Note and Warrant Purchase
Agreement to be duly executed by their respective authorized officers as of the date first above
written.



	 	 	 
	TECHNISCAN, INC.
	By:

	 	/s/ David C. Robinson
	
 
	 	 
	Name:

Title:

	 	David C. Robinson

Chief Executive Officer






3




	 	 	 
	INVESTORS:	 
	By:	 	Biotex Pharma Investments LLC	 
	Name:	 	/s/ Robert Kessler	 
	Title:	 	Member	 
	By:	 	Danal International Trading Corp.	 
	Name:	 	/s/ Viktor Kordash	 
	Title:	 	President	 
	By:	 	/s/ Kenneth G. Hungerford II	 
	Name:	 	Kenneth G. Hungerford II	 
	By:	 	/s/ Richard J. Stanley	 
	Name:	 	 	 
	 	 	Richard J. Stanley	 
	By:	 	/s/ Michael J. Jandernoa	 
	Name:	 	 	 
	 	 	Michael J. Jandernoa	 
	 	 	 	 	 	EXHIBIT A





LIST OF INVESTORS




First Lien Investors



	 	 	 	 	 	 	 	 	 
	Names and Addresses	 	Investment Principal Amount and Number of Warrants
	 	 	 
	Biotex Pharma Investments LLC
	 	$	1,000,000	 	 	 	1,492,537	 
	36 Village Road
Manhasset, NY  10030
Attn: Robert Kessler
	 	 	 	 	 	 	 	 
	Danal International Trading Corp.
	 	$	100,000	 	 	 	149,253	 
	17 West 45th Street
Suite 805
New York, NY 10036
	 	 	 	 	 	 	 	 
	Second Lien Investors
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Names and Addresses	 	Investment Principal Amount and Number of Warrants
	 	 	 
	Kenneth G. Hungerford II
	 	$	250,000	 	 	 	373,134	 
	2741 Riveredge SE
Grand Rapids, MI 49546
	 	 	 	 	 	 	 	 
	Richard J. Stanley
	 	$	250,000	 	 	 	373,134	 
	366 Ardsley Street
Staten Island, NY 10306
	 	 	 	 	 	 	 	 
	Michael J. Jandernoa
	 	$	250,000	 	 	 	373,134	 






333 Bridge Street NW


Suite 800


Grand Rapids, MI 49504




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