Exhibit 4.1


 


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 September 30,
2010 (the “Maturity Date”).


 


4.             Conversion Rights.


 


(a)           In the event Maker consummates a Qualified Financing,
Maker shall provide notice (“Maker’s Notice”) to Payee within three
business days after the first closing of the Qualified Financing and within
three business days after each subsequent closing of the Qualified Financing,
and Payee shall, without limitation of Payee’s rights under the remaining
provisions of this Section 4, have the right by notice to Maker to elect
in connection with each such closing to: (i) 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) require
Maker to immediately repay any portion of the unconverted principal amount of
this Note and pay accrued and unpaid interest thereon to the date of payment
(the “Payoff Amount”); and/or (iii) 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 elects 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.  If Payee does
not provide written notice to Maker of Payee’s election to covert any portion
of the Note in accordance with clause (i) above or have Maker repay any
unconverted portion of this Note in accordance with clause (ii) above
within 20 days of receipt of Maker’s Notice, Payee shall be deemed to have
elected to continue to hold such unpaid and unconverted portion of this Note as
provided in clause (iii) above, in which event Maker shall repay Payee
pursuant to Section 3 or as otherwise provided herein.  Maker shall deliver to Payee the applicable
number and type of QF Securities within three Trading Days of receipt of Payee’s
election pursuant to clause (i) above and shall deliver to Payee the
Payoff Amount within five business days of receipt of Payee’s election pursuant
to clause (ii) above.  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 Payee to Maker (pursuant to this Section 4(a) or
as elsewhere provided in the Note) is referred to as the “Conversion Date”.


 


(b)           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 $0.67, 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 October 1, 2010, the Common Stock
is not registered under Section 12(g) of the Exchange Act or (C) on
or after October 1, 2010, 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 Maker shall fail to file the Registration
Statement on or before May 31, 2010 or the Registration Statement fails to
become effective for any reason on or before July 30, 2010, if the
Registration Statement receives full review by the Securities and Exchange
Commission, on or before September 15, 2010, or Maker shall fail to
respond to comments from the Securities and Exchange Commission within 30 days
of the receipt of the same;


 

















 


(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:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  David
  C. Robinson, CEO

  



 

















 


Exhibit A


 


Form of Lost Note
Affidavit


 


STATE
OF                 


 


COUNTY
OF                 


 


                 
(herein called “Affiant”), being duly sworn on oath, deposes and says:


 


1.  That the Affiant is the lawful owner of, and
is entitled to possession of a Senior Secured Convertible Promissory Note of
TechniScan, Inc. (“Maker”) dated                     ,
2010 in the original principal amount of $                 
(the “Lost Original Instrument”).


 


2.  Affiant states that said Lost Original
Instrument has been lost, mislaid, stolen or destroyed and cannot now be
produced.


 


3.  Said Lost Original Instrument was not
endorsed.  Neither said Lost Original
Instrument nor the rights of Affiant in said Lost Original Instrument have, in
whole or in part, been cashed, negotiated, sold, assigned, transferred,
hypothecated, pledged, deposited under any agreement or otherwise disposed of,
and to the knowledge of Affiant no claim of right, title or interest, adverse
to Affiant in or to said Lost Original Instrument has been made or advanced by
any person.


 


4.  In consideration for full payment of all
amounts outstanding under or in respect of the Lost Original Instrument,
Affiant and its successors and assigns, agrees to indemnify, protect and save
harmless (as a continuing obligation under which successive recoveries may be
had) Maker, its successors and assigns, from and against all loss, cost, damage
or expense (including court costs and attorneys fees) to which they may be
subject or liable in respect of the Lost Original Instrument described above.


 


IN
WITNESS WHEREOF, I hereunto subscribe my name this            
day of                      


 


 


	
   

  	
   

  	
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  (Affiant)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  NOTARY PUBLIC

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  My
  commission expires