Document:

Exhibit 10.2 to CapSource Financial, Inc. Form 8-K dated December 4, 2007

Exhibit 10.2

 

PROMISSORY NOTE

 

	
            $85,000
 	
            December 4, 2007
 

 

FOR VALUE RECEIVED, the undersigned, CapSource Financial, Inc.,
a Colorado corporation (the “Borrower”), with its principal executive office at 2305 Canyon Boulevard,
Suite 103, Boulder, CO 80302, hereby promises to pay to the order of Randolph M. Pentel, (the “Lender”) or
its assigns, at its offices at 715 Eaton Street, St. Paul, MN 55107 or at such other place as the Lender may designate by written
notice to the Borrower, the principal sum of EIGHTY FIVE THOUSAND DOLLARS ($85,000), pursuant to the terms of that certain Master
Term Loan Agreement between the parties (the “Loan Agreement”), together with Basic Interest at the rate of 9.50%
per annum thereon from the date each advance is made until paid in full, and Default Interest as set forth in Section 2.8 of the
Loan Agreement. Payments of principal and interest shall be made in immediately available funds in lawful money of the United
States. Capitalized terms not otherwise defined herein shall have the meaning given them in the Loan Agreement.  

 

1.             Payment of Principal and Interest

 

(a) Borrower shall pay accrued Basic Interest (and Default Interest, if applicable) on the outstanding principal balance under this Note at maturity. Interest on this Note shall be calculated on the basis of a 360 day year and for the actual number of calendar days elapsed.

 

(b) The entire unpaid principal balance, together with the accrued but unpaid interest and other unpaid charges or fees hereunder, shall be due and payable in full on December 4,2008 (the “Maturity Date”). 

 

(c) The Borrower shall have the right to prepay this Note, in whole or in part, pursuant to the terms of the Loan Agreement. Any prepayments shall be applied first to accrued Basic Interest, accrued Default Interest until the entire amount thereof has been paid and next to principal.

 

(d) Notwithstanding anything herein to the contrary, if any amount of principal or interest becomes due on a day that is not a Business Day, the due date thereof shall be extended to the immediately succeeding day which is a Business Day, and Basic Interest (and Default Interest, if applicable) thereon shall accrue during the period of such extension at the rate provided for herein.

 

2.             Events of Default. If an Event of Default shall occur, the Lender shall have such rights and remedies as are set forth in Section 6.1 of the Loan Agreement. The term “Event of Default” shall have the meaning ascribed to it in the Loan Agreement.

 

3.             Amendments. Changes in or additions to this Note may be made, or compliance with any term, covenant, agreement, condition or provision set forth herein may be omitted or waived (either generally or in a particular instance and either retroactively or prospectively), only in writing.

4.             Waiver. The failure of the Lender to insist, in any one or more instances, on performance of any of the terms, covenants and conditions hereof shall not be construed as a waiver or relinquishment of any rights granted hereunder or of the future performance of any such terms, covenants or conditions, but the obligation of the Borrower with respect thereto shall continue to be in full force and effect.

 

5.             Benefits; Assignment. The rights and benefits of the Lender hereunder shall inure to the benefit of its successors and assigns, and Borrower acknowledges that Lender may pledge this Note to its lenders. The Borrower may not assign any rights or obligations hereunder without the prior written consent of the Lender, and any such attempted assignment shall be null and void and of no force or effect.

 

6.             Notices. All notices, requests and demands to or upon the parties hereto shall be deemed to have been given or made when deposited in the mail, certified or registered, postage prepaid, addressed to the address of the party set forth in the Loan Agreement or such other address as any party may request by notice given as aforesaid.

 

7.             Collection. The Borrower agrees to pay any costs and
expenses (including reasonable attorneys’ fees and disbursements) incurred by the Lender in the collection of any and all
amounts due under this Note that are not paid when due and payable and the enforcement of the Lender’s rights under this Note.

 

8.             Governing Law. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Minnesota, without giving effect to the principles of conflict of laws thereof.

 

9.            Severability. The holding of any provision of this Note to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision hereof and all other provisions hereof shall remain in full force and effect.

 

[Signature Page Follows]

IN WITNESS WHEREOF, this Promissory Note has been executed and delivered on the date first above written by the undersigned Borrower.

 

 

	
             
 	
             
 	
            CAPSOURCE FINANCIAL, INC.
 
	
              
 	
             
 	
            By:
 	
            
 /s/ Steven E. Reichert
 
	
             
 	
             
 	
             
 	
             
 
	
             
 	
             
 	
            Its
 	
            Vice PresidentExhibit 10.1

                              HC INNOVATIONS, INC.

              SUBSCRIPTION AGREEMENT FOR THE PURCHASE OF SECURITIES

         HC  INNOVATIONS,  INC.,  a Delaware  corporation  (the  "COMPANY"),  is
offering (this  "OFFERING")  for sale to  "ACCREDITED  INVESTORS" as the term is
defined under  Regulation D  promulgated  under the  Securities  Act of 1933, as
amended  (the  "ACT"),  up to  $7,000,000  of its (a)  Twelve-Month  10% Secured
Convertible Notes  (collectively,  the "Notes") and (b) warrants  (collectively,
the  "Warrants") to purchase  shares of the Company's  Common Stock,  $0.001 par
value per share ("Common Stock").

         WHEREAS,  the Company issued two (2)  promissory  notes to investors in
October 2007 ("October  Investors"),  each promissory note in the principal face
amount of $500,000 ("October Notes"). A copy of the September Notes are attached
hereto on Schedule I; and

         WHEREAS,  in connection with the Offering,  the Company and the October
Investors  agreed to tender  the  outstanding  principal  balance  plus  accrued
interest  under the October  Notes as  consideration  to purchase  the Notes and
Warrants being offered and sold in the Offering.

                             SUBSCRIPTION PROCEDURES

         (a)      The undersigned hereby subscribes to purchase  [$____________]
prinicpal  amount of the Notes and  Warrants  to  purchase  ___ shares of Common
Stock (the "SUBSCRIPTION AMOUNT").

         (b)      To subscribe, the undersigned must:

                  (i)      complete and sign this Subscription Agreement;

                  (ii)     complete  and  sign  the  accompanying   Confidential
                           Prospective Purchaser Questionnare; and

                  (iii)    complete  and  sign  the  accompanying   Registration
                           Rights Agreement,  (Subscription Agreement,  together
                           with   the   Confidential    Prospective    Purchaser
                           Questionnare  and the  Registration  Rights Agreement
                           collectively   referred   to  as  the   "SUBSCRIPTION
                           DOCUMENTS"); and

                  (iv)     complete and sign the accompanying Note.

         return the completed and signed Subscription Documents on behalf of the
Company at the following address:

<PAGE>

                               Gersten Savage LLP
                         600 Lexington Avenue, 9th Floor
                             New York, NY 10022-6018
                            Attn: Peter Gennuso, Esq.

                  (iv)     Deliver  to  the  Company,  a  check  payable  to "HC
                           Innovations,   Inc."  for  an  amount  equal  to  the
                           aggregate  principal amount of Note subscribed for in
                           this offering (the "Subscription Amount").

                              Or wire the funds to:

                           Citibank F.S.B Connecticut
                                 1275 Post Road
                               Fairfield, CT 06824
                                 ABA# 221172610
                                 Acct# 45342661
                                   Account of:
                              HC Innovations, Inc.

         (c)      Unless  terminated   sooner  by  the  Company,   in  its  sole
discretion,  the Offering is  scheduled to terminate on December 31, 2007,  5:00
p.m., New York time and in the Company's sole  discretion  without notice may be
extended until February 28, 2008 (the "OFFERING PERIOD").

         (d)      The  Company  will hold a  closing  on and issue the Notes and
Warrants upon the receipt and acceptance of the  Subscription  Documents and the
Subcription Amount (each a "CLOSING"). The date of each such Closing is referred
to herein as the Closing Date.

         (e)      All subscription proceeds will be immediately available to the
Company.  In the  event  that an  investor's  subscription  is  rejected  by the
Company,  or this  Offering  is  terminated  for any  reason  without a closing,
subscription  proceeds will be promptly  refunded  without  interest  thereon or
deduction therefrom.

         PROSPECTIVE  INVESTORS SHOULD RETAIN THEIR OWN PROFESSIONAL ADVISORS TO
REVIEW AND EVALUATE THE ECONOMIC,  TAX, AND OTHER  CONSEQUENCES OF AN INVESTMENT
IN THE COMPANY.

THE  SECURITIES  OFFERED  HEREBY,  HAVE NOT BEEN  FILED  OR  REGISTERED  WITH OR
APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE  "COMMISSION"),  NOR HAS
THE COMMISSION  PASSED UPON THE ACCURACY OR ADEQUACY OF THE OFFERING  MATERIALS.
NO STATE  SECURITIES LAW  ADMINISTRATOR  HAS PASSED ON OR ENDORSED THE MERITS OF

                                     - 2 -
<PAGE>

THIS  OFFERING OR THE ACCURACY OR THE ADEQUACY OF THE  OFFERING  MATERIALS.  ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

IT IS INTENDED  THAT THE  SECURITIES  OFFERED  HEREBY WILL BE MADE  AVAILABLE TO
ACCREDITED INVESTORS,  AS DEFINED IN REGULATION D AND RULE 501 PROMULGATED UNDER
THE  SECURITIES  ACT OF 1933,  AS  AMENDED  (THE  "ACT")  AND UP TO  THIRTY-FIVE
NON-ACCREDITED  INVESTORS.  THE  SECURITIES  OFFERED  HEREBY  ARE BEING  OFFERED
PURSUANT  TO AN  EXEMPTION  FROM THE  REGISTRATION  REQUIREMENTS  OF THE ACT AND
APPLICABLE STATE SECURITIES LAWS FOR NONPUBLIC OFFERINGS.  SUCH EXEMPTIONS LIMIT
THE  NUMBER  AND  TYPES OF  INVESTORS  TO WHICH  THE  OFFERING  WILL BE MADE AND
RESTRICT SUBSEQUENT TRANSFERS OF THE INTERESTS.

THE  SECURITIES  OFFERED  HEREBY  SHOULD BE  CONSIDERED  ONLY BY PERSONS WHO CAN
AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT.  INVESTORS WILL BE REQUIRED
TO  REPRESENT  THAT  THEY ARE  FAMILIAR  WITH AND  UNDERSTAND  THE TERMS OF THIS
OFFERING.

NO SECURITIES MAY BE RESOLD OR OTHERWISE  DISPOSED OF BY AN INVESTOR UNLESS,  IN
THE  OPINION OF COUNSEL  SATISFACTORY  TO THE  COMPANY,  REGISTRATION  UNDER THE
APPLICABLE  FEDERAL OR STATE  SECURITIES  LAWS IS NOT REQUIRED OR  COMPLIANCE IS
MADE WITH SUCH REGISTRATION REQUIREMENTS.

THE OFFEREE, BY ACCEPTING DELIVERY OF THE OFFERING  MATERIALS,  AGREES TO RETURN
THE OFFERING  MATERIALS AND ALL ACCOMPANYING OR RELATED DOCUMENTS TO THE COMPANY
UPON  REQUEST IF THE OFFEREE  DOES NOT AGREE TO PURCHASE  ANY OF THE  SECURITIES
OFFERED HEREBY.

ANY OFFERING MATERIALS SUBMITTED IN CONNECTION WITH THE PRIVATE PLACEMENT OF THE
SECURITIES  DO  NOT  CONSTITUTE  AN  OFFER  OR  SOLICITATION  BY  ANYONE  IN ANY
JURISDICTION  IN WHICH  SUCH AN OFFER OR  SOLICITATION  IS NOT  AUTHORIZED.  ANY
REPRODUCTION OR  DISTRIBUTION OF ANY OFFERING  MATERIALS IN WHOLE OR IN PART, OR
THE DIVULGENCE OF ANY OF THEIR  CONTENTS,  WITHOUT THE PRIOR WRITTEN  CONSENT OF
THE  COMPANY,  IS  PROHIBITED.  ANY  PERSON  ACTING  CONTRARY  TO THE  FOREGOING
RESTRICTIONS  MAY PLACE  HIM/HERSELF  AND THE COMPANY IN VIOLATION OF FEDERAL OR
STATE SECURITIES LAWS.

                                     - 3 -
<PAGE>

                              NASAA UNIFORM LEGEND

IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE  COMPANY  AND THE TERMS OF THE  OFFERING,  INCLUDING  THE  MERITS  AND RISKS
INVOLVED.  THESE  SECURITIES  HAVE NOT BEEN  RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES  COMMISSION  OR  REGULATORY  AUTHORITY.  FURTHERMORE,  THE  FOREGOING
AUTHORITIES  HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED  THE ADEQUACY OF THIS
DOCUMENT.  ANY  REPRESENTATION  TO THE  CONTRARY  IS A CRIMINAL  OFFENSE.  THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED  OR RESOLD EXCEPT AS PERMITTED  UNDER THE ACT, AND THE APPLICABLE
STATE  SECURITIES  LAWS,  PURSUANT  TO  REGISTRATION  OR  EXEMPTION   THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

         THE UNDERSIGNED  ACKNOWLEDGES THAT NEITHER (a) THE NOTE AND THE WARRANT
OFFERED  HEREBY NOR (b) THE COMMON STOCK  ISSUABLE  UPON THE  CONVERSION  OF THE
NOTES NOR (c) THE COMMON  STOCK  ISSUABLE  UPON THE EXERCISE OF THE WARRANTS ARE
REGISTERED  UNDER THE ACT, OR THE SECURITIES  LAWS OF ANY STATE,  THAT ABSENT AN
EXEMPTION  FROM  REGISTRATION  CONTAINED IN THOSE LAWS, THE ISSUANCE AND SALE OF
SUCH NOTES OR WARRANTS, AS APPLICABLE, WOULD REQUIRE REGISTRATION,  AND THAT THE
COMPANY'S   RELIANCE  UPON  SUCH  EXEMPTION  IS  BASED  UPON  THE  UNDERSIGNED'S
REPRESENTATIONS,  WARRANTIES, AND AGREEMENTS CONTAINED IN THE OFFERING MATERIALS
(AS DEFINED BELOW).

         1.       The undersigned represents, warrants, and agrees as follows:

         (a)      The undersigned agrees that this Subscription Agreement is and
shall be irrevocable.

         (b)      The   undersigned   has  carefully   read  this   Subscription
Agreement,  the Note,  the Warrant,  the Security  Agreement,  the  Confidential
Prospective  Purchaser  Questionnaire,  and the  Registration  Rights  Agreement
(collectively   the  "OFFERING   MATERIALS"),   all  of  which  the  undersigned
acknowledges  have been provided to the  undersigned.  The  undersigned has been
given the  opportunity to ask questions of, and receive answers from the Company
concerning the terms and conditions of this Offering and the Offering  Materials
and to obtain such  additional  written  information,  to the extent the Company
possesses  such  information  or can acquire it without  unreasonable  effort or
expense, necessary to verify the accuracy of the same as the undersigned desires
in order to evaluate the investment.  The undersigned further  acknowledges that
the undersigned  fully understands the Offering  Materials,  and the undersigned
has had the  opportunity to discuss any questions  regarding any of the Offering
Materials with the undersigned's  counsel or other advisor.  Notwithstanding the
foregoing,  the only  information  upon which the undersigned has relied is that
set

                                     - 4 -
<PAGE>

forth  in  the  Offering   Materials  and  the   undersigned's  own  independent
investigation. The undersigned acknowledges that the undersigned has received no
representations  or warranties from the Company or its employees,  director,  or
agents  in  making  this  investment  decision  other  than as set  forth in the
Offering Materials.

         (c)      The  undersigned  is aware that the  purchase of the Notes and
Warrants is a  speculative  investment  involving a high degree of risk and that
there is no  guarantee  that the  undersigned  will  realize  any gain from this
investment,  and  that  the  undersigned  could  lose the  total  amount  of the
undersigned's investment.

         (d)      The  undersigned  understands  that no federal or state agency
has made any finding or determination regarding the fairness of this Offering of
the Notes and Warrants for investment,  or any  recommendation or endorsement of
this Offering of the Notes.

         (e)      The  undersigned is an  "accredited  investor" as that term is
defined in Rule 501(a) of Regulation D under the 1933 Act. The  undersigned  has
such  knowledge  and  experience  in financial  and business  matters that it is
capable of  evaluating  the merits and risks of the  purchase  of the Note,  the
Warrant,  and the Common Stock issuable upon  conversion  and/or exercise of the
Notes and Warrant,  as the case may be. The  undersigned  is not registered as a
broker or dealer under Section 15(a) of the 1934 Act, affiliated with any broker
or dealer  registered  under  Section  15(a) of the 1934 Act, or a member of the
National Association of Securities Dealers, Inc.

         (f)      Each of this  Agreement and the Offering  Materials  have been
duly and validly authorized, executed and delivered on behalf of the undersigned
and is a valid and binding agreement of the undersigned  enforceable against the
undersigned  in accordance  with their terms,  subject as to  enforceability  to
general  principles  of  equity  and  to  applicable   bankruptcy,   insolvency,
reorganization,  moratorium,  liquidation and other similar laws relating to, or
affecting  generally,  the  enforcement  of  applicable  creditors'  rights  and
remedies.  The  undersigned  has the requisite  corporate power and authority to
enter into and perform its  obligations  under this  Agreement  and the Offering
Materials  and each  other  agreement  entered  into by the  parties  hereto  in
connection with the transactions contemplated by this Agreement.

         (g)      The execution,  delivery and performance of this Agreement and
the  Offering   Materials  by  the  undersigned  and  the  consummation  by  the
undersigned  of the  transactions  contemplated  hereby and thereby will not (i)
result in a violation  of the  certificate  of  incorporation,  by-laws or other
documents of organization of the undersigned,  (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default)  under,   or  give  others  any  rights  of   termination,   amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the  undersigned  is bound,  or (iii)  result in a violation  of any law,  rule,
regulation or decree applicable to the undersigned.

                                     - 5 -
<PAGE>

         (h)      The  undersigned  understands  that there is no public trading
market for the Notes or Warrant,  that none is expected to develop, and that the
Notes and Warrant must be held indefinitely  unless and until such Notes and the
Warrant,  or if  applicable,  the Common Stock issuable upon  conversion  and/or
exercise of the Notes and Warrants, as the case may be, are registered under the
1933 Act or an exemption from  registration  is available.  The  undersigned has
been advised or is aware of the  provisions  of Rule 144  promulgated  under the
1933 Act.

         (i)      The undersigned  understands that the Note and the Warrant are
being  offered  and  sold in  reliance  on a  transactional  exemption  from the
registration  requirements  of Federal  and state  securities  laws and that the
Company  is  relying  upon  the  truth  and  accuracy  of  the  representations,
warranties,  agreements,  acknowledgments  and understandings of the undersigned
set forth herein in order to determine the  applicability of such exemptions and
the suitability of the Undersigned to acquire the Note and the Warrant,  and the
Common Stock issuable upon conversion and/or exercise of the Notes and Warrants,
as the case may be.

         (j)      The  undersigned  is  purchasing  the Note and Warrant for the
undersigned's  own account,  with the intention of holding the Note and Warrant,
with no present  intention of dividing or allowing others to participate in this
investment or of reselling or otherwise  participating,  directly or indirectly,
in a distribution of the Note or Warrant, and shall not make any sale, transfer,
or  pledge  thereof  without  registration  under  the Act  and  any  applicable
securities  laws of any  state or  unless  an  exemption  from  registration  is
available under those laws.

         (k)      The  undersigned  represents  that  the  undersigned,   if  an
individual,  has adequate  means of providing  for his or her current  needs and
personal  and  family  contingencies  and  has no  need  for  liquidity  in this
investment  in the  Note and the  Warrant.  The  undersigned  has no  reason  to
anticipate any material  change in his or her personal  financial  condition for
the foreseeable future.

         (l)      The undersigned is financially  able to bear the economic risk
of  this  investment,  including  the  ability  to hold  the  Note  and  Warrant
indefinitely or to afford a complete loss of the undersigned's investment in the
Notes.

         (m)      The  undersigned  represents  that the  undersigned's  overall
commitment to this investment is not  disproportionate  to the undersigned's net
worth, and the  undersigned's  investment in the Note and Warrant will not cause
such overall  commitment to become excessive.  The undersigned  understands that
the  statutory  basis  on  which  the Note and  Warrant  are  being  sold to the
undersigned  and others  would not be  available  if the  undersigned's  present
intention  were to hold the Note and  Warrant  for a fixed  period  or until the
occurrence of a certain event. The undersigned  realizes that in the view of the
Commission,  a  purchase  now with a  present  intent  to  resell by reason of a
foreseeable  specific contingency or any anticipated change in the market value,
or in the  condition  of the  Company,  or that of the  industry  in  which  the
business  of the  Company  is  engaged  or in  connection  with  a  contemplated
liquidation,

                                     - 6 -
<PAGE>

or settlement of any loan obtained by the undersigned for the acquisition of the
Note and Warrant, and for which such Note and Warrant may be pledged as security
or as  donations  to religious  or  charitable  institutions  for the purpose of
securing a  deduction  on an income tax  return,  would,  in fact,  represent  a
purchase with an intent  inconsistent with the undersigned's  representations to
the Company and the  Commission  would then regard such sale as a sale for which
the exemption from  registration  is not  available.  The  undersigned  will not
pledge, transfer, or assign this Agreement.

         (n)      The  undersigned  represents  that the funds provided for this
investment are either separate property of the undersigned,  community  property
over which the undersigned  has the right of control,  or are otherwise funds as
to which the undersigned has the sole right of management.

         (o)      FOR  PARTNERSHIPS,  CORPORATIONS,  TRUSTS,  OR OTHER  ENTITIES
ONLY: If the undersigned is a partnership,  corporation, trust, or other entity,
(i) the undersigned has enclosed with this  Subscription  Agreement  appropriate
evidence  of  the  authority  of  the  individual  executing  this  Subscription
Agreement to act on its behalf (e.g.,  if a trust, a certified copy of the trust
agreement;  if a corporation,  a certified corporate resolution  authorizing the
signature  and a  certified  copy  of the  articles  of  incorporation;  or if a
partnership,   a  certified  copy  of  the  partnership  agreement),   (ii)  the
undersigned represents and warrants that it was not organized or reorganized for
the specific purpose of acquiring the Notes and Warrants,  (iii) the undersigned
has the full power and  authority  to execute  this  Subscription  Agreement  on
behalf of such entity and to make the representations and warranties made herein
on its behalf,  and (iv) this  investment in the Company has been  affirmatively
authorized,  if  required,  by the  governing  board of such  entity  and is not
prohibited by the governing documents of the entity.

         (p)      The address shown under the undersigned's signature at the end
of this Subscription Agreement is the undersigned's principal residence if he or
she is an  individual,  or its principal  business  address if a corporation  or
other entity.

         (q)      The undersigned has such knowledge and experience in financial
and business  matters as to be capable of evaluating  the merits and risks of an
investment in the Note and Warrant.

         (r)      The undersigned  acknowledges  that the  certificates  for the
securities  comprising  the Note and  Warrant,  and the Common Stock issued upon
conversion  and/or  exercise of the Note and Warrant,  as the case may be, which
the undersigned will receive will contain a legend substantially as follows:

         "THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE
         NOT BEEN  REGISTERED  UNDER  THE  SECURITIES  ACT OF 1933,  AS
         AMENDED,  AND MAY NOT BE SOLD,  TRANSFERRED,  HYPOTHECATED  OR
         OTHERWISE  DISPOSED  OF UNTIL A  REGISTRATION

                                     - 7 -
<PAGE>

         STATEMENT  WITH RESPECT  THERETO IS DECLARED  EFFECTIVE  UNDER
         SUCH ACT,  OR THE  COMPANY  RECEIVES AN OPINION OF COUNSEL FOR
         THE  COMPANY   THAT  AN   EXEMPTION   FROM  THE   REGISTRATION
         REQUIREMENTS OF SUCH ACT IS AVAILABLE."

         (s)      The undersigned agrees that it will neither sell the Company's
stock short nor direct,  instruct or otherwise  influence any of its affiliates,
principals or advisors to sell the Company's stock short.

         The undersigned further acknowledges that (i) if the Company's Notes or
Warrants  become  publicly  traded,  any necessary stop transfer  orders will be
placed upon the Company's Notes and Warrants, as applicable,  in accordance with
the Act, and (ii) the Company is under no obligation to aid the  undersigned  in
obtaining any exemption from the registration requirements.

         2.       The  undersigned  expressly  acknowledges  and agrees that the
Company is  relying  upon the  undersigned's  representations  contained  in the
Offering Materials.

         3.       The undersigned  acknowledges that the undersigned understands
the meaning and legal consequences of the  representations  and warranties which
are contained herein and hereby agrees to indemnify,  save and hold harmless the
Company and its officers,  directors  and counsel,  from and against any and all
claims or actions  arising  out of a breach of any  representation,  warranty or
acknowledgment  of the undersigned  contained in any of the Offering  Materials.
Such  indemnification   shall  be  deemed  to  include  not  only  the  specific
liabilities or obligations with respect to which such indemnity is provided, but
also all  reasonable  costs,  expenses,  counsel fees and expenses of settlement
relating  thereto,  whether or not any such  liability or obligation  shall have
been  reduced to  judgment.  In  addition,  the  undersigned's  representations,
warranties, and indemnification contained herein shall survive the undersigned's
purchase  of the  Note  and  Warrant  hereunder.  The  undersigned  specifically
acknowledges that he has reviewed the risks set forth in the Offering Materials,
as well as the financial statements included therein.

         4.       The Company represents, warrants, and agrees as follows:

         (a)      That it has been duly and validly  incorporated and is validly
existing and in good  standing as a  corporation  under the laws of the State of
Delaware and is in good  standing and  qualified to do business in every foreign
jurisdiction where such qualification is required except where the failure to be
so qualified or authorized and in good standing could not reasonably be expected
to have a material adverse effect on the business and financial condition of the
Company and its subsidiaries, taken as a whole ("Material Adverse Effect").

         (b)      That  it has  all  requisite  power  and  authority,  and  all
necessary authorizations, approvals and orders required as of the date hereof to
own its properties and conduct its business and to enter into this  Subscription
Agreement and the other Offering Materials and to be bound by the provisions and
conditions hereof or therein.

                                     - 8 -
<PAGE>

         (c)      That the securities  offered hereby are being offered pursuant
to an exemption  from the  registration  requirements  of the Act and applicable
state securities laws for nonpublic offerings.

         (d)      Since the filing of its Annual  Report on Form  10-KSB for the
fiscal  year  ended  December  31,  2006,  the  Company  has filed all  reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 ACT") and has filed a Registration Statement on Form
SB-2,  declared  effective by the SEC on October 24, 2007 (all of the  foregoing
filed prior to the date hereof and all exhibits  included  therein and financial
statements and schedules thereto and documents incorporated by reference therein
being  hereinafter  referred  to as  the  "SEC  DOCUMENTS").  To  the  Company's
knowledge,  as of their  respective  dates,  the SEC  Documents  complied in all
material respects with the requirements of the 1934 Act and the Act, as the case
may  be,  and the  rules  and  regulations  of the  SEC  promulgated  thereunder
applicable to the SEC Documents and none of the SEC Documents,  at the time they
were filed with the SEC,  contained  any untrue  statement of a material fact or
omitted to state a material fact  required to be stated  therein or necessary in
order to make the statements  therein, in light of the circumstances under which
they were made, not misleading.

         (e)      No   representation   or  warranty  by  the  Company  in  this
Agreement,  nor  in  any  certificate,  schedule,  document,  exhibit  or  other
instrument  delivered or to be delivered pursuant to this Agreement or otherwise
in connection  with the  transactions  contemplated  by the Offering  Documents,
contains or will contain any untrue  statement of material fact or omits or will
omit to state a material fact necessary to make the statements  contained herein
or therein not  misleading  or necessary to in order fully and fairly to provide
the  information  required  to be provided  in any such  certificate,  schedule,
document,  exhibit or other  instrument.  To the knowledge of the Company at the
time of the execution of this Agreement,  there is no information concerning the
Company which has not heretofore been disclosed to the undersigned (or disclosed
in the Company's SEC Documents) that would have a Material Adverse Effect.

         (f)      The  Company  currently  maintains  a key man  life  insurance
policy on David Chess, its Chief Executive Officer,  with $5 million of coverage
("$5 Million Key Man Policy"). In connection with the transactions  contemplated
herein,  the Company agrees that within ninety (90) days from the first Closing,
it shall obtain an additional key man life insurance  policy on David Chess such
that the aggregate  amount of insurance  covering David Chess is no less than $7
million  ("Additional  Key Man Policy").  Further,  within fifteen (15) business
days  from  the  first  Closing,  the  Company  shall  provide  for  appropriate
collateral  assignments of the $5 Million Key Man Policy, naming the undersigned
as assignee,  and any collateral  assignment  shall be only to the extent of the
undersigned's investment in the Note and Warrant.  Additionally,  within fifteen
(15) business days from the securing the Additional Key Man Policy,  the Company
shall provide for appropriate  collateral  assignments of the Additional Key Man
Policy, naming the undersigned as assignee,  and any collateral assignment shall
be only to the extent of the undersigned's investment in the Note and Warrant.

                                     - 9 -
<PAGE>

         (g)      The  Company's  representations,  warranties,  and  agreements
contained  herein  shall  survive  the  undersigned's  purchase  of the Note and
Warrant  hereunder  and  shall  remain in force and  effect  until the  complete
conversion of the Note and complete exercise of the Warrant.

         5.       The undersigned  agrees and acknowledges  that the Company has
the right to utilize  the  services of a placement  agent and if  utilized,  may
receive a cash commission, at a rate that is compatible with industry standards,
from the Notes sold by such placement agent.

         6.       The undersigned's rights to have the shares of Company's Notes
issuable under the Offering  Materials and the shares of Company's  Common Stock
issuable upon conversion  and/or  exercise of the Note and Warrant,  as the case
may be, registered are set forth in a separate  Registration Rights Agreement of
even date  herewith  by and among the  Company  and the  holders of the Note and
Warrant.

         7.       The  proceeds to the Company  from the sale of the Notes shall
be used for working capital and general corporate purposes. The Company will not
incur new lines of credit,  credit  facilities or otherwise incur any additional
indebtedness  without  the  consent of the  undersigned,  which  consent  may be
withheld in the sole discretion of the undersigned; provided, however, that such
prohibition  shall  not apply to the  Qualified  Financing,  and trade  payables
incurred  in the  ordinary  course  of  business.  As of the  date  hereof,  the
approximate amount of the Company's existing secured debt is scheduled below.

   Secured Debt:
   Citibank SBA Loan - $ 40,000
   Citibank LOC      - $ 50,000
   Peoples Bank LOC  - $150,000
                       --------
         Total         $240,000

         8.       Except as otherwise  specifically  provided for hereunder,  no
party shall be deemed to have waived any of his, her, or its rights hereunder or
under  any other  agreement,  instrument,  or papers  signed by any of them with
respect to the subject matter hereof unless such waiver is in writing and signed
by the party waiving said right. Except as otherwise  specifically  provided for
hereunder,  no delay or  omission  by any party in  exercising  any  right  with
respect to the subject  matter hereof shall operate as a waiver of such right or
of any such  other  right.  A waiver on any one  occasion  with  respect  to the
subject  matter  hereof  shall not be  construed  as a bar to, or waiver of, any
right or remedy on any future occasion.  All rights and remedies with respect to
the subject matter hereof,  whether  evidenced hereby or by any other agreement,
instrument,  or paper,  will be cumulative,  and may be exercised  separately or
concurrently.

         9.       The parties have not made any  representations  or  warranties
with  respect  to the  subject  matter  hereof  not set forth  herein,  and this
Subscription  Agreement,  together with any instruments executed  simultaneously
herewith,

                                     - 10 -
<PAGE>

constitutes the entire agreement between them with respect to the subject matter
hereof.  All  understandings  and  agreements  heretofore  existing  between the
parties  with  respect  to  the  subject   matter  hereof  are  merged  in  this
Subscription Agreement and any such instrument, which alone fully and completely
express their agreement.

         10.      This  Subscription  Agreement  may not be  changed,  modified,
extended, terminated, or discharged orally, but only by an agreement in writing,
which is signed by all of the parties to this Subscription Agreement.

         11.      The  parties  agree  to  execute  any and all such  other  and
further instruments and documents,  and to take any and all such further actions
reasonably required to effectuate this Subscription Agreement and the intent and
purposes hereof.

         12.      If any  provision  or any  portion  of any  provision  of this
Subscription  Agreement or the  application of any such provision or any portion
thereof to any person or circumstance,  shall be held invalid or  unenforceable,
the  remaining  portion  of such  provision  and the  remaining  portion of such
provision as is held invalid or unenforceable to persons or circumstances  other
than  those  as to which  it is held  invalid  or  unenforceable,  shall  not be
affected thereby.

         13.      This Subscription Agreement shall be governed by and construed
in  accordance  with the laws of the State of  Delaware  and the Company and the
undersigned  hereby  consents to the  jurisdiction of the courts of the State of
New York and/or the United States  District  Court for the Southern  District of
New York.

                                     - 11 -
<PAGE>

                ALL SUBSCRIBERS MUST COMPLETE A COPY OF THIS PAGE

                           --------------------------
                           (Print Name of Subscriber)

         IN WITNESS  WHEREOF,  the  undersigned  has executed this  Subscription
Agreement on this ____ day of ________, 200_.

                  Notes and Warrant Subscription Amount $______

         1.       |__|     Individual

         2.       |__|     Joint Tenants with Right of Survivorship

         3.       |__|     Community Property

         4.       |__|     Tenants in Common

         5.       |__|     Corporation/Partnership

         6.       |__|     IRA of________________

         7.       |__|     Trust

                           Date Opened ___________

         8.       |__|     As A Custodian For________________

                           Under the Uniform Transfer to Minors Act of the

                           State of ___________

         9.       |__|     Married with Separate

                           Property

         10.      |__|     Keogh of ____________

                                     - 12 -
<PAGE>

                 EXECUTION BY SUBSCRIBER WHO IS A NATURAL PERSON

         --------------------------------------------------------------
                     Exact Name in Which Title is to be Held

         --------------------------------------------------------------
                                  (Signature)

         --------------------------------------------------------------
                               Name (Please Print)

         --------------------------------------------------------------
                       Title of Person Executing Agreement

         --------------------------------------------------------------
                           Address: Number and Street

         --------------------------------------------------------------
                  City                State           Zip Code

         --------------------------------------------------------------
                             Social Security Number

         Accepted this ___ day of _____, 200_, on behalf of HC INNOVATIONS, INC.

                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

                                     - 13 -
<PAGE>

                 EXECUTION BY SUBSCRIBER WHICH IS A CORPORATION,
                              PARTNER, TRUST, ETC.

         --------------------------------------------------------------
                     Exact Name in Which Title is to be Held

         --------------------------------------------------------------
                                   (Signature)

         --------------------------------------------------------------
                               Name (Please Print)

         --------------------------------------------------------------
                       Title of Person Executing Agreement

         --------------------------------------------------------------
                           Address: Number and Street

         --------------------------------------------------------------
                  City                State           Zip Code

         --------------------------------------------------------------
                            Tax Identification Number

         Accepted this ___ day of _______, 200_on behalf of HC INNOVATIONS, INC.

                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

                                     - 14 -
<PAGE>

                                   Schedule I

                                     - 15 -

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