Exhibit 10.1


 


THE SECURITIES REPRESENTED BY THIS DOCUMENT
AND THE SHARES ISSUABLE UPON CONVERSION 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 MAKER A CUSTOMARY REPRESENTATION LETTER.  HEDGING TRANSACTIONS INVOLVING THOSE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES
ACT.


 


SENIOR SECURED CONVERTIBLE
PROMISSORY NOTE


 


$         
          , 2010


 


FOR VALUE RECEIVED, the undersigned TechniScan, Inc.,
a Delaware corporation (“Maker”), does hereby promise, in accordance
with the Note and Warrant Purchase Agreement dated as of the date hereof (the “Purchase
Agreement”), to pay to the order of
         (together with his heirs,  successors and assigns, “Payee”) at
the address of Payee set forth in the Purchase Agreement (or at such other
place as Payee may designate from time to time in writing to Maker, in
immediately available funds of official currency of the United States, the
principal sum of         Dollars
($      ), or so much as may be outstanding
hereunder from time to time, together with interest thereon from the date of
this Senior Secured Convertible Promissory Note (this “Note”), as
provided herein.  Capitalized terms used
and not otherwise defined herein have the meanings set forth in the Purchase
Agreement.


 


This Note is one of a series of
convertible promissory notes of like tenor and ranking (except as otherwise
provided in the Purchase Agreement and the Security Documents) (collectively,
the “Notes”) made by Maker in favor of certain investors (collectively,
the “Investors”).  This Note is
one of the Second Lien Notes referenced in the Purchase Agreement.


 


By acceptance of this Note, Payee
agrees that it will promptly deliver and surrender this Note (or a lost Note
affidavit in the form attached hereto as Exhibit A) to Maker upon full
payment thereof.


 


1.             Principal Balance.  This Note evidences a loan up to the maximum
principal sum specified above, less the aggregate amount of all principal
repayments made under this Note by Maker to Payee.


 


2.             Interest Rate.  Interest
shall be payable on the unpaid principal balance of this Note, as the same may
exist from time to time, from the date of issuance until paid or converted in
full, in accordance with the terms herein and shall be payable (i) on the
Maturity Date (as defined below), (ii) on any earlier date of payment or
conversion of principal (in whole or in part and, if in part, as to the portion
paid or converted) and (iii) following the Maturity Date or any earlier
date of demand for payment or conversion of principal in accordance with the
terms hereof (each, an “Initial Interest Payment Date”), on the last day of
each calendar quarter (each of the foregoing an “Interest Payment Date”),
provided that if any such day is not a business day, the interest payment due
on such date shall be payable on (and shall include interest accrual through)
the next succeeding business day. 
Interest accruing on any portion of the principal of this Note (from the
date of issuance hereof) as to which Maker does not timely satisfy its payment
or conversion obligations in accordance with the terms hereof shall at the
option of Payee be paid in additional Notes (each of which, if Payee is a
Priority Investor, shall be a First Lien Note) having terms identical


 

















 


to this Note (and providing for
immediate effectiveness of all provisions hereof that are applicable hereunder
on or after the Maturity Date), provided that Maker shall have the right to
satisfy the interest accrued through the Initial Interest Payment Date in cash,
provided that timely payment is made, notwithstanding any exercise of such
option by Payee. Payee may with respect to any Interest Payment Date after the
Initial Interest Payment Date elect payment of interest in additional Notes
even if cash payment of such interest is tendered by Maker.  Interest shall accrue on the unpaid principal
balance hereof at the rate of 10% per annum from and including the date hereof
to but excluding the Maturity Date. 
Interest shall accrue on any principal balance that is not paid on the
earlier of the Maturity Date and the date of an Event of Default shall accrue
at the rate of 24% per annum (the “Default Rate”) from and including the
Maturity Date or the date of such Event of Default to but excluding the date of
payment.  Notwithstanding the foregoing,
if any portion of the unpaid principal balance of this Note is converted into
shares (“Shares”) of Maker’s common stock, par value of $0.001 per share
(“Common Stock”) pursuant to the terms hereof, interest shall be payable
with respect to such principal portion at the rate of 12% per annum from and
including the date hereof to but excluding the earlier of the Maturity Date and
the date of conversion, provided that any principal amount that is not
converted on or prior to the earlier of the Maturity Date and the date of an
Event of Default shall be payable at the Default Rate from and including the
Maturity Date or the date of such Event of Default to but excluding the date of
conversion.  In no event, however, shall
interest be payable at a rate higher than the highest rate permitted by
applicable law.  Interest on the
principal balance outstanding will be calculated on the basis of the actual
number of days elapsed over an assumed year consisting of 365 days, to the date
of receipt by Payee at the place of payment designated herein of any interest
and/or principal.


 


3.             Payment Terms.  Any outstanding principal balance and accrued
unpaid interest shall be paid to Payee in full no later than January 31,
2011; provided, however, at the option of Maker, if prior to January 31,
2011 Maker (a) issues to Payee shares of Common Stock equal to 10% of the
then outstanding principal sum under this Note, as evidenced by a stock
certificate in Payee’s name representing such shares, having the same
restrictions on sale or transfer as the shares of Common Stock issued to the
Lead Investor on October 28, 2010 and (b) delivers to Payee a Warrant
to purchase such number of shares of Common Stock equal to the then outstanding
principal sum under this Note divided by the then current Warrant Price (as
defined in Warrant #       in the name of Payee),
then any outstanding principal balance and accrued unpaid interest shall be
paid to Payee in full no later than April 15, 2011 (the “Maturity Date”).


 


4.             Conversion Rights.


 


(a)           In
the event Maker consummates a Qualified prior to the Maturity Date, Maker has
the option, upon written notice to Payee prior to the first closing of the Qualified
Financing and each subsequent closing of the Qualified Financing, to:  (i) require Payee to convert the
principal amount of this Note and accrued and unpaid interest thereon (the “Convertible
Amount”) in whole or in part into QF Securities (as defined below) at the same
price and on the same terms as other investors in the Qualified Financing in
lieu of having Maker repay this Note pursuant to Section 3 above; (ii) immediately
repay any portion of the unconverted principal amount of this Note and pay
accrued and unpaid interest thereon to the date of payment; and/or (iii) require
Payee to continue to hold the portion of this Note that is not required to be
converted or repaid.  For purposes
herein, a “Qualified Financing” shall mean the sale by Maker of either Shares
and/or other securities that are convertible into or exercisable for Shares
(collectively, “QF Securities”) for cash for investment purposes, pursuant to
which Maker receives gross proceeds (subject only to customary selling
commissions and transaction expenses) of not less than FIVE MILLION DOLLARS
($5,000,000) at the first closing thereof (of which a majority of the amount
invested at such first closing and in the aggregate must be invested by persons
unaffiliated with Maker).  For the
avoidance of doubt, if Payee is required to convert any portion of the
Convertible Amount pursuant to clause (i) above, Payee shall be entitled
to receive the number and type of QF Securities as would be received in
exchange for a cash investment in the Qualified Financing equal to the
Convertible Amount and shall be entitled to retain the warrants being acquired
by Payee pursuant to the Purchase Agreement. 
No fractional QF Securities will be issued in connection with any
conversion of the Conversion Amount, but instead will be rounded up to the
nearest whole QF Security.  The date
notice of conversion of all or any portion of the Note (is given by Maker to
Payee pursuant to this Section 4(a) or given by Payee to Maker as
elsewhere provided in the Note) is referred to as the “Conversion Date”.


 


(b)           Beginning
on the day following the Maturity Date, the Convertible Amount is convertible
at any time at the option of Payee by notice to Maker into that number of
Shares equal to the Convertible Amount 


 

















 


divided by $2.68, subject to
adjustment as provided in the remaining provisions of this Note (the “Conversion
Price”).  The Shares or other
securities into which this Note is convertible (and any Shares issued upon
conversion or exercise of any such other securities) are referred to as the “Conversion
Securities”.  Except in connection
with a Qualified Financing, Payee may elect to convert this Note in part under
any provision hereof permitting conversion and may elect multiple conversions,
provided that Payee shall not without Maker’s consent be permitted to convert
less than the lesser of (i) $100,000 in principal and (ii) the
remaining unconverted principal amount of this Note, in each case together with
all accrued and unpaid interest on such principal amount to be converted.


 


(c)           Beginning
on the day following the Maturity Date, in the event that the Maker’s Shares,
on the Trading Day prior to any Conversion Date, closed at a price per Share
that is lower than ten percent (10%) higher than the then applicable Conversion
Price, then Payee shall have the right exercisable by notice to Maker to
convert the Convertible Amount into Shares at the lower of the then applicable
Conversion Price and a price per Share that is twenty percent (20%) lower than
the arithmetic mean of the three lowest prices at which any Shares are traded
during ten consecutive Trading Days ending on the Trading Day prior to the
Conversion Date (or, if the Shares did not trade on any such Trading Day, the
arithmetic mean of the three lowest prices at which any Shares are traded
during the most recent ten Trading Days on which the Shares traded, provided
that no Trading Day that is more than 20 Trading Days prior to the Conversion
Date shall be taken into account).  If
there has been no trading in the Shares during the 20 Trading Days prior to the
Conversion Date, in the event that the Maker’s Shares, on the Trading Day prior
to the Conversion Date, closed at a price per Share that is lower than ten
percent (10%) higher than the then applicable Conversion Price, then Payee
shall have the right exercisable by notice to Maker to convert the Convertible
Amount into Shares at the lower of the then applicable Conversion Price and a
price per Share that is twenty percent (20%) lower than the fair market value
of one Share as determined in good faith by the Board and the Lead
Investor.  As used herein, “Trading
Day” means (i) a day on which the Common Stock is traded on a national
securities exchange or quoted on the OTC Bulletin Board, or (ii) if the Common
Stock is not traded on a national securities exchange or quoted on the OTC
Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices) or in the “pink sheets”; provided, however, that in the event
that the Common Stock is not listed or quoted as set forth in (i) or (ii) hereof,
then Trading Day shall mean any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government action to close.


 


(d)           Upon
conversion of any portion of this Note and delivery of the Conversion
Securities in accordance with the terms hereof, the portion of the principal
balance of this Note so converted and all accrued interest due thereon as of
the date of conversion will be deemed paid in full, and upon conversion of all
outstanding principal and interest the Note will be deemed cancelled and of no
force or effect.


 


(e)           Not
later than three (3) Trading Days after any Conversion Date, Maker or its
designated transfer agent, as applicable, shall, if requested by Payee, issue
and deliver to the Depository Trust Company (“DTC”) account on Payee’s
behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as
specified in the conversion notice, registered in the name of Payee or its
designee, the number of Conversion Securities to which Payee shall be
entitled.  Otherwise, not later than three (3) Trading Days
after any Conversion Date, Maker shall deliver to Payee by express courier a
certificate or certificates representing the number of Conversion Securities
being acquired upon the conversion (the “Delivery Date”), which shall be
free of restrictive legends unless the Conversion Securities have not been
registered for resale and are not eligible for resale pursuant to Rule 144
without regard to volume limitations, manner-of-sale restrictions or current
public information requirements.  If in the case of any Conversion
Notice the Conversion Securities are not delivered to or as directed by Payee
by the Delivery Date, Payee shall be entitled by written notice to Maker at any
time on or before its receipt of such Conversion Securities thereafter, to
rescind such conversion, whereupon Maker and Payee shall each be restored to
their respective positions immediately prior to the Conversion Date, except
that any amounts described in Section 4(f) shall be payable through
the date notice of rescission is given to Maker and any amounts described in Section 4
(g) shall nevertheless be payable.


 


(f)            Maker
understands that a delay in the delivery of the Conversion Securities upon
conversion of this Note beyond the Delivery Date could result in economic loss
to Payee.  If Maker fails to deliver to Payee such Conversion
Securities via DWAC (or, if applicable, certificates) by the Delivery Date,
Maker shall 


 

















 


pay to Payee, in cash, an amount per
Trading Day for each Trading Day until such Conversion Securities are delivered
via DWAC or certificates are delivered, together with interest on such amount
at a rate of 10% per annum, accruing until such amount and any accrued interest
thereon is paid in full, equal to (A) 1% of the aggregate principal amount
of the Note requested to be converted for the first five (5) Trading Days
after the Delivery Date and (ii) 2% of the aggregate principal amount of
the Note requested to be converted for each Trading Day thereafter (payable as
liquidated damages and not as a penalty).  Nothing herein shall limit
Payee’s right to pursue actual damages for Maker’s failure to deliver
certificates representing Conversion Securities upon conversion within the
period specified herein and Payee shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief).


 


(g)           In
addition to any other rights available to Payee, if Maker fails to cause its
transfer agent to transmit via DWAC or, if applicable, transmit to Payee a
certificate or certificates representing the shares of Common Stock issuable
upon conversion of this Note on or before the Delivery Date, and if after such
date Payee is required by its broker to purchase (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
Payee of Conversion Securities issuable upon conversion of this Note which
Payee anticipated receiving upon such exercise (a “Buy-In”), then Maker
shall (1) pay in cash to Payee the amount by which (x) Payee’s total
purchase price (including brokerage commissions, if any) for the Conversion
Securities so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Conversion Securities issuable upon conversion of this Note that
Maker was required to deliver to Payee in connection with the conversion at
issue times (B) the price(s) at which the sell order(s) giving
rise to such purchase obligation were executed, and (2) at the option of
Payee, either reinstate the portion of the Note for which such conversion was
not honored or deliver to Payee the number of Conversion Securities that would
have been issued had Maker timely complied with its conversion and delivery
obligations hereunder.  For example, if Payee purchases Conversion
Securities having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion into Conversion Securities with an aggregate
sale price giving rise to such purchase obligation of $10,000, under clause (1) of
the immediately preceding sentence the Issuer shall be required to pay Payee
$1,000.  Payee shall provide Maker
written notice indicating the amounts payable to Payee in respect of the Buy-In,
together with applicable confirmations and other evidence reasonably requested
by Maker.  Nothing herein shall limit Payee’s right to pursue any
other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to Maker’s failure to timely deliver certificates representing
Conversion Securities upon conversion of this Note as required pursuant to the
terms hereof.


 


(h)           Notwithstanding
anything to the contrary set forth in this Note, at no time may Payee convert
all or a portion of this Note if the number of Conversion Securities to be
issued pursuant to such conversion would exceed, when aggregated with all other
Conversion Securities owned by Payee at such time, the number of Conversion
Securities which would result in Payee beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder)
more than 4.9% of all of the Common Stock outstanding at such time; provided,
however, that upon Payee providing Maker with sixty-one (61) days’
notice that Payee would like to waive this Section 4(h) with regard
to any or all Conversion Securities issuable upon conversion of this Note, this
Section 4(h) will be of no force or effect with regard to all or a
portion of the Note referenced in such notice.


 


(i)            Notwithstanding
anything to the contrary set forth in this Note, at no time may Payee convert
all or a portion of this Note if the number of Conversion Securities to be issued
pursuant to such conversion, when aggregated with all other Conversion
Securities owned by Payee at such time, would result in Payee beneficially
owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 9.9% of all of the
Common Stock outstanding at such time; provided, however, that
upon Payee providing Maker with sixty-one (61) days’ notice that Payee would
like to waive Section 4(i) of this Note with regard to any or all
Conversion Securities issuable upon conversion of this Note, this Section 4(i) shall
be of no force or effect with regard to all or a portion of the Note referenced
in such notice.


 


5.             Additional Matters Relating to Conversion; Inability to Convert. (a) Until the Note has been paid in full or converted
in full, the Conversion Price shall be subject to adjustment from time to time
as follows (but shall not be increased, other than pursuant to Section 5(a)(i) hereof):


 

















 


(i) If
Maker shall effect a stock split of the outstanding Common Stock, the
applicable Conversion Price in effect immediately prior to the stock split
shall be proportionately decreased. If Maker shall combine the outstanding
shares of Common Stock, the applicable Conversion Price in effect immediately
prior to the combination shall be proportionately increased.


 


(ii) If
the Maker shall at any time make or issue or set a record date for the
determination of holders of securities entitled to receive a dividend or other
distribution payable in shares of Common Stock, then, and in each event, the
applicable Conversion Price in effect immediately prior to such event shall be
decreased as of the time of such issuance or, in the event such record date
shall have been fixed, as of the close of business on such record date, by
multiplying, the applicable Conversion Price then in effect by a fraction:


 


(1) the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; and


 


(2) the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.


 


(iii) If
the Maker shall at any time make or issue or set a record date for the
determination of holders of securities entitled to receive a dividend or other
distribution or securities or other property other than as described in
paragraph (ii) above or in paragraph (vii) below, then, and in each
event, an appropriate revision to the applicable Conversion Price shall be made
and provision shall be made (by adjustments of the Conversion Price or otherwise)
so that Payee shall receive upon conversion hereof, in addition to the number
of Shares receivable thereon, the securities (of Maker or any other applicable
issuer) and other property which they would have received had this Note been
converted on the date of such event and had they thereafter, during the period
from the date of such event to and including the Conversion Date, retained such
securities and other property (together with any distributions payable thereon
during such period), giving application to all adjustments called for during
such period under this Section 5(a) with respect to the rights of
Payee.


 


(iv) If
the Shares issuable upon conversion of this Note shall be changed to the same
or different number of shares of any class or classes of stock or other
securities, whether by reclassification, exchange, substitution or otherwise
(other than as provided in paragraphs (i) through (iii) above or (v) below),
then an appropriate revision to the Conversion Price shall be made and provisions
shall be made (by adjustments of the Conversion Price or otherwise) so that
Payee shall have the right thereafter to convert this Note into the kind and
amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of Shares into which such Note might have been converted immediately
prior to such reclassification, exchange, substitution or other change, all
subject to further adjustment as provided herein.


 


(v) If
at any time or form time to time there shall be a capital reorganization of
Maker (other than as described in paragraphs (i) through (iv) above)
or there shall be a Liquidity Event (as defined below), then without limitation
of Maker’s obligations under Section 6(a), as a part of such capital
reorganization or Liquidity Event, provision shall be made (by adjustments of
the Conversion Price or otherwise) so that Payee shall have the right
thereafter to convert this Note into the kind and amount of shares of stock and
other securities or property of Maker or any successor corporation that would
have been receivable in respect of the aggregate Shares into which such 


 

















 


Note
might have been converted immediately prior to such capital reorganization or
Liquidity Event, all subject to further adjustment as provided herein.


 


(vi) In
the event Maker, shall, at any time, from time to time, issue or sell any
additional shares of Common Stock (other than as provided in paragraphs (i) through
(v) above, but including in any Qualified Financing) (“Additional
Shares of Common Stock”), at a price per share less than the Conversion
Price then in effect or without consideration, then the Conversion Price upon
each such issuance shall be reduced to a price equal to the consideration per
share paid for such Additional Shares of Common Stock.  No adjustment of the Conversion Price shall
be made under this Section 5(a)(vi) upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the exercise or
conversion of any Common Stock Equivalents if any such adjustment shall
previously have been made upon the issuance of such Common Stock Equivalents or
upon the issuance of any warrant or other rights therefor pursuant to Section 4(a)(vii).


 


(vii) If
(A) Maker shall issue or sell (including in any Qualified Financing) any
securities convertible into or exchangeable for, directly or indirectly, Common
Stock (“Convertible Securities”) or (B) any rights or warrants or
options to purchase any such Common Stock or Convertible Securities
(collectively, the “Common Stock Equivalents”) shall be issued or sold,
and the price per share for which Additional Shares of Common Stock may be
issuable pursuant to any such Common Stock Equivalent shall be less than the
applicable Conversion Price then in effect, or if, after any such issuance of
Common Stock Equivalents, the price per share for which Additional Shares of
Common Stock may be issuable thereafter is amended or adjusted, and such price
as so amended shall be less than the applicable Conversion Price in effect at
the time of such amendment or adjustment, then the applicable Conversion Price
upon each such issuance or amendment shall be reduced to a price equal to the
lowest price per share for which Additional Shares of Common Stock may be
issuable pursuant to such Common Stock Equivalent.


 


(viii) 
If, at any time after any adjustment of the Conversion Price then in effect
shall have been made pursuant to Section 4(a)(vii) as the result of
any issuance of warrants, other rights or Common Stock Equivalents, and such
warrants or other rights, or the right of conversion or exchange in such other
Common Stock Equivalents, shall expire, and all or a portion of such warrants
or other rights, or the right of conversion or exchange with respect to all or
a portion of such other Common Stock Equivalents, as the case may be shall not
have been exercised, such previous adjustment shall be rescinded and annulled
and the Additional Shares of Common Stock which were deemed to have been issued
by virtue of the computation made in connection with the adjustment so
rescinded and annulled shall no longer be deemed to have been issued by virtue
of such computation. Upon the occurrence of an event set forth in this Section 4(a)(viii),
there shall be a recomputation made of the effect of such Common Stock
Equivalents on the basis of treating the number of Additional Shares of Common
Stock or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or other rights or any
such right of conversion or exchange, as having been issued on the date or
dates of any such exercise and for the consideration actually received and
receivable therefor.


 


(ix)   If Maker shall, directly or indirectly
through a Subsidiary or otherwise, purchase, redeem or otherwise acquire any
shares of Common Stock at a price per share greater than the Per Share Market
Value, then the Conversion Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Conversion Price by a fraction (i) the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
purchase, redemption or acquisition minus the number of shares of Common Stock
which the aggregate consideration for the total number of such shares of Common
Stock so 


 

















 


purchased,
redeemed or acquired would purchase at the Per Share Market Value; and (ii) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such purchase, redemption or acquisition. For the purposes of
this subsection 4(a)(ix), a purchase, redemption or acquisition of a Common
Stock Equivalent shall be deemed to be a purchase of the underlying Common
Stock, and the computation herein required shall be made on the basis of the
full exercise, conversion or exchange of such Common Stock Equivalent on the
date as of which such computation is required hereby to be made, whether or not
such Common Stock Equivalent is actually exercisable, convertible or
exchangeable on such date.  For purposes
of this Agreement, “Per Share Market Value” means on any particular date
(a) the last trading price on any national securities exchange on which
the Common Stock is listed, or, if there is no such price, the closing bid
price for a share of Common Stock in the over-the-counter market, as reported
by the OTC Bulletin Board or in the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (b) if the Common Stock is not
then traded on any national securities exchange or reported by the OTC Bulletin
Board or the National Quotation Bureau Incorporated (or similar organization or
agency succeeding to its functions of reporting prices), then the average of
the “Pink Sheet” quotes for the Common Stock on such date, or (c) if the
Per Share Market Value cannot be determined as aforesaid, the fair market value
of a share of Common Stock on such date as determined by the Board of Directors
of Maker and the Lead Investor in good faith, without discount for lack of
liquidity or minority interest.


 


(x) 
In case any Shares or any Common Stock Equivalents shall be issued or sold in
connection with any merger or consolidation in which Maker is the surviving
corporation (other than any consolidation or merger in which the previously
outstanding Shares shall be changed to or exchanged for the stock or other
securities of another corporation), the amount of consideration therefor shall
be, deemed to be the fair value, as determined reasonably and in good faith by
the Board of Directors of Maker, of such portion of the assets and business of
the nonsurviving corporation as such Board may determine to be attributable to
such Shares or Common Stock Equivalents.


 


(xi) 
Anything herein to the contrary notwithstanding, Maker shall not be required to
make any adjustment to the Conversion Price in connection with a Permitted
Financing.


 


(xii) 
To the extent that any Additional Shares of Common Stock or any Common Stock
Equivalents (or any warrants or other rights therefor) shall be issued for cash
consideration, the consideration received by Maker therefor shall be the amount
of the cash received by Maker therefor, or, if such Additional Shares of Common
Stock or Common Stock Equivalents are offered by Maker for subscription, the
subscription price, or, if such Additional Shares of Common Stock or Common
Stock Equivalents are sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or accrued
dividends and without taking into account any compensation, discounts or expenses
paid or incurred by Maker for and in the underwriting of, or otherwise in
connection with, the issuance thereof). To the extent that such issuance shall
be for a consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to be the
fair value of such consideration at the time of such issuance as mutually
determined in good faith by the Board of Directors of Maker and the Lead
Investor. The consideration for each Additional Share of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase the same
shall be the consideration received by Maker for issuing all such warrants or
other rights divided by the number of shares of Common Stock issuable upon the exercise
of such warrants or 


 

















 


rights;
plus the additional consideration payable to Maker upon exercise of such
warrant or other right for one share of Common Stock. The consideration for any
Additional Shares of Common Stock issuable pursuant to the terms of any Common
Stock Equivalents shall be the consideration received by Maker for issuing such
Common Stock Equivalent, divided by the number of shares of Common Stock
issuable upon the conversion or other exercise of such Common Stock Equivalent,
plus the additional consideration, if any, payable to Maker upon the exercise
of the right of conversion or exchange in such Common Stock Equivalent for one
share of Common Stock. In case of the issuance at any time of any Additional
Shares of Common Stock or Common Stock Equivalents in payment or satisfaction
of any dividends upon any class of stock other than Common Stock, Maker shall
be deemed to have received for such Additional Shares of Common Stock or Common
Stock Equivalents a consideration equal to the amount of such dividend so paid
or satisfied.


 


(xiii) 
If Maker shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or distribution or subscription or
purchase rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no adjustment
shall be required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.


 


(b) 
Maker shall not, by amendment of its certificate of incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by Maker, but will at all times in good faith, assist in
the carrying out of all the provisions of this Note, including the conversion
provisions hereof.  If any event shall
occur which is dilutive to the holder of this Note but which is not accounted
for in the preceding provisions of this Section 5, the principles of this Section 5
shall be applied to that event in as nearly an equivalent manner as may be
practicable in order to confer upon Payee the protections intended to be
provided hereby.


 


(c) Upon
occurrence of each adjustment or readjustment of the Conversion Price or number
of Shares issuable upon conversion of this Note, Maker at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to Payee a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. Notwithstanding the foregoing, Maker shall not be
obligated to deliver a certificate unless such certificate would reflect an
increase or decrease of at least one percent (1%) of such adjusted amount (but
such increase or decrease shall nevertheless be efffective).


 


(d) Maker
shall pay any and all issue and other taxes, excluding federal, state or local
income taxes, that may be payable in respect of any issue or delivery of Shares
on conversion of this Note pursuant thereto; provided, however, that Maker
shall not be obligated to pay any transfer taxes resulting from any transfer
requested by Payee in connection with any such conversion.


 


(e) Maker shall at all times
when this Note shall be outstanding, reserve and keep available out of its
authorized but unissued Common Stock the total number of Shares for which this
Note and all interest accrued thereon are at any time convertible (without
regard to limitations on exercisability set forth in Sections 4(h) and
4(i)).


 


(f) 
If, upon Maker’s receipt of a conversion notice, Maker cannot issue Conversion
Shares registered for resale under the Registration Statement for any reason in
full satisfaction of such conversion, including, without limitation, because
Maker (w) does not have a sufficient number of Shares authorized and
available, (x) is otherwise prohibited by applicable law or by the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over Maker or any of its
securities from issuing all of the Shares 


 

















 


which
are to be issued to Payee pursuant to a conversion notice or (y) fails to
have a sufficient number of Shares registered for resale under the Registration
Statement, then Maker shall issue as many registered Shares as it is able to
issue in accordance with Payee’s conversion notice and, with respect to the
unconverted portion of this Note, Payee, solely at Payee’s option, can elect
to:


 


(i) require
Maker to prepay that portion of this Note for which Maker is unable to issue
registered Shares in accordance with Payee’s conversion notice at a price per
share equal to the Triggering Event Prepayment Price (as defined below) as of
the requested conversion date;


 


(ii) if
Maker’s inability to fully convert is pursuant to clause (y) above,
require Maker to issue restricted Shares;


 


(iii) rescind
its conversion notice and retain the Note; and


 


(iv) exercise
Buy-In rights in accordance with the terms of Section 4(g) of this
Note.


 


6.             Additional Prepayment Provisions.  (a)  Notwithstanding anything contained
herein to the contrary, this Note is subject to prepayment in whole at any time
at the sole and absolute option of Maker, upon five Trading Days’ prior written
notice to Payee provided that the Equity Conditions are satisfied at the time
the prepayment notice is given to Payee and continue to be satisfied during
such five Trading Day Period.  The
conversion rights of Payee shall continue to be exercisable during such five
Trading Day Period and thereafter until payment is made.  In the event of prepayment pursuant to this Section 6(a),
Maker shall pay to Payee 110% of the outstanding principal balance of the Note,
plus any accrued interest due thereon as of the date of such prepayment.  Any prepayment by Maker pursuant to this Section 6(a) must
be made in connection with the prepayment in whole of all Notes issued by
Maker.  As used herein, “Equity
Conditions” means during the period in question that (i) Maker shall
have duly honored all conversions as to which a Conversion Notice was given by
Payee, (ii) (A) there is an effective Registration Statement pursuant
to which Payee is permitted to utilize the prospectus thereunder to resell all
of the Conversion Securities or (B) all of the Registrable Securities may
be resold pursuant to Rule 144 without volume limitations, manner-of-sale
restrictions or current public information requirements as determined by the
counsel to Maker pursuant to a written opinion letter to such effect, addressed
and acceptable to the Transfer Agent and Payee, (iii) the Common Stock is
listed 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. and all of the Registrable
Securities are listed or quoted for trading on such market (and Maker believes,
in good faith, that trading of the Common Stock on at least one such market
will continue uninterrupted for the foreseeable future), (iv) there is a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the Registrable Securities, (v) the
issuance of the shares in question to Payee would not violate the limitations
set forth in Section 4(h) and 4(i) herein and (vi) Payee is
not in possession of any information provided by Maker that constitutes, or may
constitute, material non-public information. 
Prepayment under any provision of this Note shall not impair Payee’s
right to liquidated damages or other amounts due in excess of the prepayment
amount and all such amounts must be paid as part of the prepayment.


 

















 


(b)  After a Triggering Event
(as defined below), Payee shall have the right, at Payee’s option, to require
Maker to prepay (a “Triggering Event Repayment”) all or a portion of
this Note in cash at a price equal to the sum of (i) the greater of (A) one
hundred and twenty five percent (125%) of the aggregate principal amount of
this Note plus all accrued and unpaid interest and (B) the aggregate
principal amount of this Note plus all accrued but unpaid interest hereon,
divided by the Conversion Price on (x) the date Triggering Event
Prepayment is demanded or otherwise due or (y) the date the Triggering
Event Prepayment is made in full, whichever is less, multiplied by the VWAP on (x) the
date Triggering Event Prepayment is demanded or otherwise due or (y) the
date the Triggering Event Prepayment is made in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in
respect of this Note and the other Transaction Documents (the “Triggering
Event Prepayment Price”).  Maker
acknowledges that to the extent the Triggering Event Prepayment Price exceeds
the then outstanding principal of and accrued and unpaid interest under this
Note, such excess shall be paid as liquidated damages, and not as a penalty, in
recognition of the uncertainty inherent in calculating the damages suffered by
Payee upon the occurrence of a Triggering Event.  For purposes of this Note, “VWAP”
means, for any date, (i) the daily volume weighted average price of the
Common Stock for such date on a national securities exchange or the OTC
Bulletin Board as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (ii) if
the Common Stock is not then listed or quoted on a national securities exchange
or the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (iii) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Lead Investor and
reasonably acceptable to Maker.  A “Triggering
Event” shall be deemed to have occurred at the time of any of the following
events:


 


(i) the
failure of the Common Stock to be listed 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.;


 


(ii) Maker
fails to or is unable to (including by reason of Maker having insufficient
authorized capital), or notifies Payee, including by way of public
announcement, at any time, that it does not intend to, comply with proper
requests for conversion of Notes or the exercise of warrants acquired by the
Investors under the Purchase Agreement;


 


(iii) the
Maker’s failure to comply with a Conversion Notice tendered in accordance with
the provisions of this Note within three (3) Trading Days after the
Conversion Notice is given;


 


(iv) (A) Maker
fails to be subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act or otherwise to comply with any of the conditions set forth in
Rule 144(i) under the Securities Act, (B) on or after the
Maturity Date, the Common Stock is not registered under Section 12(g) of
the Exchange Act or (C) on or after Maturity Date, there is not 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;


 
















 


(v) the
Registration Statement fails to become effective for any reason prior to the
Maturity Date;


 


(vi)   so long as any Notes are outstanding, the
effectiveness of the Registration Statement, after it becomes effective, (a) lapses
for any reason (including, without limitation, the issuance of a stop order) or
(b) after the Registration Statement becomes effective, it is unavailable
to the Holder for sale of the shares of Common Stock, and such lapse or
unavailability continues for a period of five (5) consecutive Trading Days
or for more than an aggregate of ten (10) Trading Days in any 365-day
period;


 


(vii) any
event described in clause (w), (x) or (y) of Section 5(f).


 


(c)  If Maker shall fail to
make any prepayment required to be made pursuant to Section 4(a), Section 5(f),
Section 6(b) or Section 7 within five (5) business days
following Maker’s receipt of Payee’s notice requesting prepayment, or if Maker
fails to prepay the Note within five (5) business days following Payee’s
receipt of Maker’s notice electing prepayment pursuant to Section 6(a), in
addition to any remedy Payee may have under this Note and the Purchase
Agreement, such unpaid amount shall bear interest at the rate of two percent
(2%) per month (prorated for partial months) until paid in
full.  Until the prepayment is made in full to Payee, Payee shall not
be prevented from converting the Note into Conversion Securities by virtue of
any prepayment demand or election (whether Payee or Maker is in possession of
the Note).


 


7.             Liquidity Event.  If a Liquidity Event (as defined herein)
occurs while this Note is outstanding, Maker will pay to Payee 110% of the
outstanding principal balance of the Note, plus any accrued interest due
thereon as of the date of the closing of such Liquidity Event.  For purposes herein, a “Liquidity Event”
shall mean any of the following:  (a) a
merger of Maker with or into any other Person (as defined herein), if, and only
if, after such merger holders of a majority of the Maker’s voting securities
immediately prior to the merger do not hold a majority of the voting securities
of the successor entity; (b) a sale or conveyance of all or substantially
all of Maker’s assets or common stock to any other Person; or (c) the
closing of a purchase, tender or exchange offer made to the holders of more
than fifty percent (50%) of the outstanding shares of Common Stock in which
more than fifty percent (50%) of the outstanding shares of Common Stock were
tendered and accepted.  For purposes
herein, “Person” is defined as an individual, partnership, corporation,
business trust, limited liability company, limited liability partnership, joint
stock company, trust, unincorporated association, joint venture, or
governmental body.


 


8.             Events of Default.  Any of the following shall constitute an “Event of Default”
under this Note, and shall give rise to the remedies provided in Section 9
herein.


 


(a)           Maker
defaults in the payment of principal of or
interest on this Note when due, including upon any prepayment provided for
herein.


 


(b)           The
failure of any applicable Registration Statement (as defined in the
Registration Rights Agreement) to be filed with the Commission on or prior to
the date that is ten (10) days after the applicable Filing Deadline (as
defined in the Registration Rights Agreement) or the failure of the applicable
Registration 


 

















 


Statement to be declared effective
by the Commission on or prior to the date that is ten (10) days after the
applicable Effectiveness Date (as defined in the Registration Rights
Agreement).


 


(c)           While
the applicable Registration Statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness
of the applicable Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or such Registration
Statement (or the prospectus contained therein) is unavailable to any holder of
Registrable Securities (as defined in the Registration Rights Agreement) for
sale of all of such holder’s Registrable Securities in accordance with the
terms of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five (5) consecutive Trading Days or for more
than an aggregate of ten (10) Trading Days in any 365-day period.


 


(d)           The
failure of the Common Stock to be listed 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.
for a period of five (5) consecutive Trading Days or for more than an
aggregate of ten (10) Trading Days in any 365-day period.


 


(e)           Maker
fails to or is unable to (including by reason of Maker having insufficient
authorized capital), or notifies Payee, including by way of public announcement,
at any time, that it does not intend to, comply with proper requests for
conversion of Notes or the exercise of warrants acquired by the Investors under
the Purchase Agreement.


 


(f)            Maker
fails to instruct its transfer agent to remove any legends from Conversion
Securities eligible to be sold under Rule 144 of the Securities Act and
issue such unlegended certificates to Payee (or Payee’s transferee, if such
request is made in connection with a transfer of Conversion Securities), or to
cause to be provided to such transfer agent any opinion of counsel and/or
certification of Maker required in order for such transfer agent to comply with
such instructions, within three (3) Trading Days of Payee’s request so
long as Payee has provided a customary representation letter to Maker that
provides a reasonable basis to conclude, to the extent such conclusion is
dependent upon matters to be confirmed by the Investor, that such shares of
Common Stock can be sold pursuant to Rule 144.


 


(g)           Any
provision of any Transaction Document shall at any time for any reason (other
than pursuant to the express terms thereof) in any material respect cease to be
valid and binding on or enforceable against the parties thereto, or the
validity or enforceability thereof shall be contested by any party thereto, or
a proceeding shall be commenced by Maker or any subsidiary of Maker or any
governmental authority having jurisdiction over any of them, seeking to
establish the invalidity or unenforceability thereof, or Maker or any subsidiary
of Maker shall deny in writing that it has any liability or obligation
purported to be created under any Transaction Document.


 


(h)           The
Security Documents shall for any reason fail or cease to create (i) a
valid and perfected first priority security interest in the Collateral (as
defined in the Security Agreement) in favor of the Collateral Agent on behalf
of the First Lien Noteholders or (ii) a valid and perfected second
priority security interest in the Collateral in favor of the Collateral Agent
on behalf of the Second Lien Noteholders.


 


(i)            Maker
or any of its subsidiaries shall be a party to or otherwise participate in or
recommend a transaction that, if consummated, would constitute a Liquidity
Event in which holders of Shares are to receive or may elect to receive
consideration other than cash or securities of a publicly traded corporation
whose common stock is quoted or listed for trading 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. or in which the Successor Entity has not agreed to assume
in writing all obligations of Maker hereunder; or, other than pursuant to a
permitted Liquidity Event, Maker or any of its subsidiaries shall 


 

















 


directly or indirectly transfer
sell, lease  or otherwise dispose of any
of its assets or rights other than sales of inventory in the ordinary course of
business.  For purposes herein, “Successor
Entity” means the Person (or,
if so elected by Payee, the parent entity) formed by, resulting from or
surviving any Liquidity Event or the Person (or, if so elected by Payee, the
parent entity) with which such Liquidity Event shall have been or is
anticipated to be entered into.


 


(j)            Maker
defaults in the compliance with any other
term contained in this Note or any other Transaction Document (which default is
not described in paragraphs (a) through (i) above) and such default
is not remedied or waived within 10 business days after receipt by Maker of
notice from Payee of such default.


 


(k)           Maker
or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of
Regulation S-X) shall be subject to a Bankruptcy Event.  For purposes hereof, “Bankruptcy Event”
means any of the following events: (a) Maker or any Significant Subsidiary
thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
relating to Maker or any Significant Subsidiary thereof, (b) there is
commenced against Maker or any Significant Subsidiary thereof any such case or
proceeding that is not dismissed within 60 days after commencement, (c) Maker
or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or
any order of relief or other order approving any such case or proceeding is
entered, (d) Maker or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 calendar days after such
appointment, (e) Maker or any Significant Subsidiary thereof makes a
general assignment for the benefit of creditors, (f) Maker or any
Significant Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts, or (g) Maker
or any Significant Subsidiary thereof, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the foregoing
or takes any corporate or other action for the purpose of effecting any of the
foregoing.


 


(l)            A
final judgment or judgments for the payment of money aggregating in excess of
$150,000 are rendered against Maker and/or any subsidiary of Maker and which
judgments are not, within thirty (30) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within thirty (30)
days after the expiration of such stay; provided, however, any judgment which
is covered by insurance or an indemnity from a credit worthy party shall not be
included in calculating the $150,000 amount set forth above so long as Maker
provides the Holder a written statement from such insurer or indemnity provider
(which written statement shall be reasonably satisfactory to the Holder) to the
effect that such judgment is covered by insurance or an indemnity and Maker or
such subsidiary of Maker (as the case may be) will receive the proceeds of such
insurance or indemnity within thirty (30) days of the issuance of such
judgment.


 


(m)          The
Company and/or any subsidiary of Maker, individually or in the aggregate,
either (i) fails to pay, when due, or within any applicable grace period,
any payment with respect to any Indebtedness in excess of $150,000 due to any
third party (other than, with respect to unsecured Indebtedness only, payments contested
by Maker and/or such subsidiary of Maker (as the case may be) in good faith by
proper proceedings and with respect to which adequate reserves have been set
aside for the payment thereof in accordance with GAAP) or is otherwise in
breach or violation of any agreement for monies owed or owing in an amount in
excess of $150,000, which breach or violation permits the other party thereto
to declare a default or otherwise accelerate amounts due thereunder, or (ii) suffer
to exist any other circumstance or event that would, with or without the
passage of time or the giving of notice, result in a default or event of
default under any agreement binding Maker or any subsidiary of Maker, which
default or event of default would or is likely to have a material adverse
effect on the business, assets, operations (including results thereof),
liabilities, properties, condition (including financial condition) or prospects
of Maker or any of its Subsidiaries, individually or in the aggregate.


 

















 


9.             Remedies on Event of Default; Power to Confess Judgment.  (a)  If any Event of Default will occur,
Payee shall, in addition to any and all other available rights and remedies,
have the right, at Payee’s option, to: (a) declare the entire unpaid
outstanding principal balance of this Note, together with all interest accrued
thereon, and all other sums due by Maker hereunder (including without
limitation any applicable prepayment premium or liquidated damages if such
Event of Default is an event otherwise giving rise to payment of such
prepayment premium or liquidated damages), to be immediately due and payable
without presentment, demand, protest, or notice, all of which are hereby
expressly unconditionally and irrevocably waived by Maker, provided that upon
the occurrence of an Event of Default described in Section 8(k), the
entire unpaid outstanding principal balance of this Note, together with all
interest accrued thereon, and all other sums due by Maker hereunder, shall be
immediately due and payable without any declaration or other act by Payee; and (b) pursue
any and all available remedies for the collection of such principal and
interest and all other sums due by Maker hereunder and to enforce its rights as
described herein and in the Security Documents; and in such case Payee may also
recover all costs of suit and other expenses in connection therewith, including
reasonable attorney’s fees for collection and the right to equitable relief to
enforce Payee’s rights as set forth herein without the requirement to post any
bond or other financial surety.  The
remedies provided in this Note may be exercised by Payee without notice to
Maker (to the extent permitted by law and except as notice is herein expressly
required), and will be in addition to and not in substitution for the rights
and remedies which would otherwise be vested in Payee for the recovery of
damages or otherwise in the event of a breach of any of the undertakings of
Maker hereunder.  No failure by Payee to
exercise and no delay in exercising any right, power or privilege under this
Note will operate as a waiver thereof, nor will any single or partial exercise
of any right, power or privilege hereunder preclude any other, further or
additional exercise thereof. 
Notwithstanding the foregoing, the exercise of remedies by Payee shall
in all respects be subject to Sections 7.16 through 7.18 of the Purchase Agreement.


 


(b) Maker hereby empowers any attorney
of any court of record, after the occurrence of any Event of Default hereunder,
to appear for Maker and, with or without complaint filed, confess judgment, or
a series of judgments, against the Maker in favor of Payee or any holder hereof
for the entire principal balance of this Note, all accrued interest and all
other amounts due hereunder, together with costs of suit and an attorney’s
commission equal to twenty (20%) of such principal and interest added as a
reasonable attorneys’ fee (provided, however, that Payee shall only seek to
recover those reasonable attorneys’ fees incurred by it from time to time), and
for doing so, this Note or a copy verified by affidavit shall be a sufficient
warrant.  Maker hereby forever waives and
releases all errors in said proceedings and all rights of appeal and all relief
from any and all appraisement, stay or exemption laws of any state now in force
or hereafter enacted.  Interest on any
such judgment shall accrue at the Default Rate


 


No single exercise of the foregoing
power to confess judgment, or a series of judgments, shall be deemed to exhaust
the power, whether or not any such exercise shall be held by any court to be
invalid, voidable, or void, but the power shall continue undiminished and it
may be exercised from time to time as often as Payee shall elect until such
time as Payee shall have received payment in full of the debt, interest and
costs.  Notwithstanding the attorney’s
commission provided for in the preceding paragraph (which is included in the warrant
for purposes of establishing a sum certain), the amount of attorneys’ fees that
Payee may recover from Maker shall not exceed the actual attorneys’ fees
incurred by Payee.


 


10.          Governing Law; Venue; Waiver of Jury Trial.   This Note 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 Maker with respect to this Note or any related agreement may be
brought in any court located in the State of Delaware, United States of
America, and, by execution and delivery of this Note, Maker 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 this Note.  Maker 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 Maker 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 Payee to bring proceedings against
Maker in the courts of any other jurisdiction. 
Maker 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 Maker against
Payee involving, directly or indirectly, any matter or claim in any way arising
out of, related to or connected with this Note or any related agreement, shall
be brought only in a federal or state court located in the State of Delaware.


 


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.


 


11.          Amendment.  Neither
any provision of this Note nor any performance hereunder may be amended or
waived orally, but only by an agreement in writing and signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.


 


12.          Security Interest.  This Note is secured by the Security
Documents.


 


13.          Binding Effect.  The rights and obligations of Maker under
this Note will be binding upon its successors, assigns, heirs, administrators
and transferees.


 


14.          Notices.  All notices and other communications required
or permitted hereunder will be provided and become effective as set forth in Section 7.4
of the Purchase Agreement.


 


EXECUTED as of the date first set forth above.


 


	
   

  	
  MAKER:

  
	
   

  	
   

  
	
   

  	
  TECHNISCAN, INC., a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Steven K. Passey

  
	
   

  	
   

  	
  Steven K. Passey, Chief Financial
  Officer