---

---

Careview Communications, Inc. 8-K

 

NOTE AND WARRANT PURCHASE AGREEMENT

 

This Note and Warrant Purchase Agreement (this “ Agreement ”), dated as of April 21, 2011, is made by and among CareView Communications, Inc., a Nevada corporation (the “ Company ”), and the investors identified on Annex I attached hereto (together with their respective successors and permitted assigns, the “ Investors ”).

 

WHEREAS, the Company and the Investors are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D (“ Regulation D ”), as promulgated by the U.S. Securities and Exchange Commission (the “ Commission ”) under the Securities Act of 1933, as amended (the “ Act ”); and

 

WHEREAS, the Investors wish to purchase from the Company, and the Company wishes to sell and issue to the Investors, upon the terms and conditions stated in this Agreement, (i) senior secured convertible notes in the form attached hereto as Exhibit A in the initial aggregate principal amount of $20,000,000 (the “ Notes ”), and (ii) warrants to purchase an aggregate of up to 11,782,859   shares of the Company’s common stock, $0.001 par value per share (the “ Common Stock ”), at an exercise price per share equal to the lesser of (i) the closing price of the Common Stock as quoted on the OTCQB   Market on the Business Day immediately preceding the Closing Date (as defined below) or (ii) $1.40, in each case subject to adjustment as described therein, in the form attached hereto as Exhibit B (the “ Warrants ,” and together with the Notes, the “ Closing Securities ”); and

 

WHEREAS, contemporaneously with the sale of the Closing Securities, the parties hereto will execute and deliver a (i) Registration Rights Agreement, in the form attached hereto as Exhibit C (the “ Registration Rights Agreement ”), pursuant to which the Company will agree to provide the Investors with certain registration rights under the Act, and the rules and regulations promulgated thereunder, and applicable state securities laws, (ii) a Pledge and Security Agreement, in the form attached hereto as Exhibit D (the " Security Agreement "), pursuant to which the Company and certain of its Subsidiaries will grant the Investors a security interest in the Company's and such Subsidiaries’ tangible and intangible assets securing the Company's performance of its obligations under the Notes, and (iii) an Intellectual Property Security Agreement, in the form attached hereto as Exhibit E (the " IP Security Agreement ").

 

NOW, THEREFORE, in consideration of the mutual promises, representations, warranties and covenants herein contained, which represent integral components of the transactions contemplated hereby and shall be fully enforceable by the parties hereto, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investors mutually agree as follows.  Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Notes.

 

ARTICLE 1

 

PURCHASE OF THE NOTES AND THE WARRANTS

 

1.1            Issuance of Closing Securities .  Subject to the terms and conditions of this Agreement, on the Closing Date, each of the Investors listed on Annex I shall severally, and not

 

jointly, purchase from the Company, and the Company shall sell and issue to each Investor, the Closing Securities in the respective amounts set forth opposite each such Investor’s name on Annex I in exchange for a cash payment by each Investor of the respective amounts set forth opposite each such Investor’s name on Annex I (the “ Purchase Price ”).

 

1.2            Closing .  The closing (the “ Closing ”) of the purchase and sale of the Closing Securities shall take place simultaneously with the execution of this Agreement or at such other time as the Company and the Investors may mutually agree (the date on which the Closing occurs, the “ Closing Date ”) at the offices of Edwards Angell Palmer & Dodge LLP, 111 Huntington Avenue, Boston, Massachusetts, 02199, or at such other location as the Company and the Investors shall mutually agree.  At the Closing, the Company shall deliver to the Investors the Notes and the Warrants, each registered in such name or names as the Investors may designate.  On the Closing Date, the Investors shall deliver the Purchase Price to the Company, payable by wire transfer in same day funds to an account specified by the Company in writing.

 

ARTICLE 2

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to the Investors that, except as set forth in the disclosure letter delivered to the Investors by the Company concurrently with the Closing (the " Disclosure Letter ") the statements contained in this Article 2 are true and correct as of the Closing Date as though made as of the Closing Date, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties are true and correct as of such other specified date).  The Disclosure Letter shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Article 2 , but any information disclosed under any section or subsection of the Disclosure Letter shall be deemed to be disclosed into any other section or subsection to the extent that such other section or subsection is reasonably cross-referenced or the relevance to such other section or subsection is reasonably apparent on the face of the disclosure.

 

2.1            Organization, Qualifications and Corporate Power .  The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Nevada and, except as set forth in Section 2.1 of the Disclosure Letter, is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification.  The Company and each of its Subsidiaries has the corporate power and authority to own and hold its properties and to carry on its business as now conducted and as proposed to be conducted, and to execute, deliver and perform its obligations under this Agreement, the Notes, the Warrants, the Security Agreement, the IP Security Agreement, the Registration Rights Agreement, and any other agreements contemplated or necessitated hereby to which it is a party (collectively, the “ Transaction Documents ”).  The Company has the corporate power and authority to issue, sell and deliver the Closing Securities, to issue and deliver the shares of Common Stock issuable upon conversion of the Notes (the

 

“ Note Shares ”) and to issue and deliver the shares of Common Stock issuable upon exercise of the Warrants (the “ Warrant Shares ”).

 

2.2            Authorization .

 

(a)           The execution and delivery by the Company of the Transaction Documents, the performance by the Company of its obligations thereunder, the issuance, sale and delivery of the Closing Securities by the Company and the reservation of the Note Shares and Warrant Shares by the Company have been duly authorized by all requisite corporate action and will not (i) violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation of the Company, as amended to date (the “ Charter ”), or the By-laws of the Company, as amended to date (the “ By-laws ”), or any provision of any indenture, agreement or other instrument to which the Company or any of its Subsidiaries is a party or by which any of its properties or assets is bound, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or (iii) result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of the Company or any of its Subsidiaries.

 

(b)           The Closing Securities have been duly authorized and, when issued and delivered pursuant to this Agreement, will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject, as to enforcement, to (i) bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and (ii) general equity principles.

 

(c)           The execution and delivery by each Subsidiary of the Company of the Transaction Documents to which it is a party, and the performance by such Subsidiary of its obligations thereunder, have been duly authorized by all requisite corporate action and will not (i) violate any provision of law, any order of any court or other agency of government, the organizational documents of such Subsidiary, as amended to date, or any provision of any indenture, agreement or other instrument to which such Subsidiary is a party or by which any of its properties or assets is bound, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or (iii) result in the creation or imposition of any lien, charge, restriction, claim or encumbrance of any nature whatsoever upon any of the properties or assets of such Subsidiary.

 

2.3            Capitalization .

 

(a)           The Company is authorized by its Charter to issue up to 320,000,000 shares of capital stock, of which 300,000,000 shares are designated as Common Stock and 20,000,000 shares are designated as preferred stock, par value $0.001 per share (the “ Preferred Stock ”).  As of the Closing Date, there are 129,583,045 shares of Common Stock issued and outstanding and there are no shares of Preferred Stock issued and outstanding.  All of the issued shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the Note Shares and Warrant Shares issuable upon

 

conversion of the Notes and exercise of the Warrants, respectively, have been duly authorized and reserved for issuance and, when issued, delivered and paid for in accordance with the provisions of the Notes and the Warrants, respectively, will be validly issued, fully paid and non-assessable; and the issuance of Note Shares and Warrant Shares upon conversion of the Notes and exercise of the Warrants, respectively, will not be subject to any preemptive or similar rights.

 

(b)           The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of each class and series of authorized capital stock of the Company are as set forth in the Company’s Charter, and all such designations, powers, preferences, rights, qualifications, limitations and restrictions are valid, binding and enforceable and in accordance with all applicable laws.  Except as set forth in Section 2.3(b) of the Disclosure Letter, there is no commitment by the Company or any of its Subsidiaries to issue shares, subscriptions, warrants, options, convertible securities, or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset.  Except as provided for in the Company’s Charter or as set forth in Section 2.3(b) of the Disclosure Letter, (i) no Person owns of record or is known to the Company to own beneficially any share of Common Stock, (ii) no subscription, warrant, option, convertible security, or other right (contingent or other) to purchase or otherwise acquire equity securities of the Company or any of its Subsidiaries is authorized or outstanding and (iii) neither the Company nor any of its Subsidiaries has any obligation (contingent or other) to purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof.  Except as set forth in Section  2.3(b) of the Disclosure Letter, to the Company’s knowledge there are no voting trusts or agreements, stockholders’ agreements, pledge agreements, buy-sell agreements, rights of first refusal, preemptive rights or proxies relating to any securities of the Company or any of its Subsidiaries (whether or not the Company or such Subsidiaries is a party thereto).  All of the outstanding securities of the Company were issued in compliance with all applicable federal and state securities laws.

 

(c)           The outstanding shares of Common Stock are traded on the OTCQB Market.

 

(d)           Except as set forth in Section 2.3(d) of the Disclosure Letter, the Company has not granted registration rights to any holder of Common Stock or any holder of any right to acquire Common Stock (whether by subscription right, warrant, option, convertible security or other right (contingent or otherwise)), that would be triggered by the consummation of the transactions contemplated in this Agreement or any of the other Transaction Documents, or the performance of the Company’s obligations hereunder or thereunder, in each case that have not been satisfied or waived prior to the Closing Date.

 

2.4            Subsidiaries .  Except as set forth in Section 2.4 of the Disclosure Letter, the Company has no direct or indirect Subsidiaries.  Each direct or indirect Subsidiary of the Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite power and authority to carry on its business as presently conducted and as proposed to be conducted.  Each direct or indirect Subsidiary of the Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a MAC.  Except as set forth in Section 2.4 of the

 

Disclosure Letter, each direct or indirect Subsidiary of the Company is directly or indirectly wholly-owned by the Company.

 

2.5            Legal Proceedings .  Except as set forth in Section 2.5 of the Disclosure Letter, there are no actions, suits or proceedings at law or in equity or by or before any governmental instrumentality or other agency or regulatory authority now pending, or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries which, if adversely determined, would materially and adversely affect the business, assets, operations or condition, financial or otherwise, of the Company or any of its Subsidiaries.  There is no action, suit or proceeding by the Company or any of its Subsidiaries currently pending or that the Company or any of its Subsidiaries currently intends to initiate.

 

2.6            SEC Documents; Financial Statements .  Except as set forth in Section 2.6 of the Disclosure Letter, during the five (5) years prior to the date hereof, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the " Exchange Act ") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “ SEC Documents ”). Except for those portions of exhibits to documents filed with the Commission with respect to which the Company requested confidential treatment under the rules of the Commission, the Company has delivered to the Investors and/or their representatives true, correct and complete copies of the SEC Documents not available on the EDGAR system. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, or as of the date of the last amendment thereof, if amended after filing, 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 the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto. All such financial statements filed with the Commission have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (“ GAAP ”) (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

 

2.7            Absence of Changes . Since December 31, 2010, (a) there has not been any change, effect, event or occurrence resulting in a material adverse effect on the business, financial condition or results of operations of the Company or any of its Subsidiaries that has not been disclosed in the Company’s reports filed with the Commission prior to the date of this Agreement, and (b) neither the Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets, individually or in the aggregate, in excess of $100,000 outside of

 

the ordinary course of business or (iii) had capital expenditures outside of the ordinary course of business in excess of $250,000 individually or in the aggregate (provided that, for the avoidance of doubt, purchases of cable boxes and related equipment for installation of the Company's products in hospitals shall be considered capital expenditures within the ordinary course of the Company’s business).  Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company and its Subsidiaries, individually and on a consolidated basis, are not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing, will not be Insolvent. For purposes of this Section 2.7 , “ Insolvent ” means, with respect to any Person, (w) the present fair saleable value of such Person’s assets is less than the amount required to pay such Person’s total indebtedness (other than any future lease liabilities as such exist on the date hereof), (x) the Person is unable to pay its debts and liabilities (other than any future lease liabilities as such exist on the date hereof), subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (y) such Person intends to incur or believes that it will incur debts (other than any future lease liabilities as such exist on the date hereof) that would be beyond its ability to pay as such debts mature or (z) such Person has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted.

 

2.8            Title to Assets; Sufficiency of Assets . Except as set forth in Section 2.8 of the Disclosure Letter, the Company and its Subsidiaries have good, valid and marketable title to all real property and good, valid and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances and material defects except for Permitted Encumbrances and except such as would not materially affect the value of such property to, or materially interfere with the use made and currently proposed to be made of such property by, the Company and its Subsidiaries taken as a whole. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.  The rights, properties and other assets presently owned, leased or licensed by the Company and its Subsidiaries include all rights, properties and other assets necessary to permit the Company and its Subsidiaries to conduct the business in the same manner as such business is currently being conducted and is currently proposed to be conducted.

 

2.9            Intellectual Property Rights . Except as set forth in Section 2.9 of the Disclosure Letter, the Company and its Subsidiaries own or possess adequate rights or licenses to use (A) patents (and any renewals and extensions thereof), patent rights (and any applications therefor), rights of priority and other rights in inventions; (B) trademarks, service marks, trade names and trade dress, and all registrations and applications therefor and all legal and common-law equivalents of any of the foregoing; (C) copyrights and rights in mask works (and any applications or registrations for the foregoing, and all renewals and extensions thereof), common-law copyrights and rights of authorship including all rights to exploit any of the foregoing in any media and by any manner and means now known or hereafter devised; (D) industrial design rights, and all registrations and applications therefor; (E) rights in data,

 

collections of data and databases, and all legal or common-law equivalents thereof; (F) rights in domain names and domain name reservations; (G) rights in trade secrets, proprietary information and know-how (collectively, “ Intellectual Property Rights ”), collectively with all licenses and other agreements providing the Company or its Subsidiaries the Intellectual Property Rights material to the operation of their businesses as now conducted and as described in the SEC Documents. Except as set forth in Section 2.9 of the Disclosure Letter, none of the Company or any of its Subsidiaries has knowledge that any of them has infringed on any of the Intellectual Property Rights of any Person or has knowledge that the Company or any of its Subsidiaries is infringing on any of the Intellectual Property Rights of any Person. There is no action, suit, hearing, claim, notice of violation, arbitration or other proceeding, hearing or investigation that is pending, or to the Company’s knowledge, is threatened against, the Company or any of its Subsidiaries regarding the infringement of any of the Intellectual Property Rights. Neither the Company nor any of its Subsidiaries is, to its knowledge, making unauthorized use of any confidential information or trade secrets of any third party, and the neither Company nor any of its Subsidiaries has received any notice of any asserted infringement (nor is the Company aware of any reasonable basis for any third party asserting an infringement) by the Company or any of its Subsidiaries of, any rights of a third party with respect to any Intellectual Property Rights that if proven would have or result in a MAC. The Company and its Subsidiaries have taken reasonable measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.

 

2.10            Subsidiary Rights . Except as provided in Section 2.10 of the Disclosure Letter, the Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or such Subsidiary.

 

2.11            Internal Accounting and Disclosure Controls . Except as set forth in Section 2.11 of the Disclosure Letter, the Company and each of its Subsidiaries maintain a system of internal control over financial reporting sufficient to provide reasonable assurance (i) that the records are maintained in reasonable detail to accurately and fairly reflect the transactions and dispositions of the assets of the Company and its Subsidiaries (ii) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (iii) that receipts and expenditures of the Company and its Subsidiaries are being made only in accordance with authorizations of management and directors of the Company and its Subsidiaries and (iv) regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s and its Subsidiaries’ assets that could have a material effect on the financial statements of the Company.  Except as set forth in Section 2.11 of the Disclosure Letter or as disclosed in the SEC Documents, the Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 promulgated under the Exchange Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Commission, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure.

 

2.12            Insurance .  The Company and its Subsidiaries have in full force and effect fire and casualty insurance policies with extended coverage, sufficient in amount (subject to reasonable deductions) to allow them to replace any of their properties that might be damaged or destroyed.   Section 2.12 of the Disclosure Letter sets forth a true, correct and complete list of all insurance policies maintained as of the Closing by or on behalf of the Company and its Subsidiaries, indicating the type of coverage, name of insured, name of insurance carrier or underwriter, premium thereon, policy limits, deductibles/retentions and expiration date of each policy, and sets forth a list of all claims made under such policies for the previous three (3) years.  All such insurance policies are in full force and effect, and neither the Company nor any of its Subsidiaries is in default with respect to any material obligations under any such insurance policy so as to cause a loss of coverage, including nonpayment of premiums.  Neither the Company nor any Subsidiary has received written notice of cancellation, non-renewal or termination in respect of any such policy, and neither the Company nor any Subsidiary has knowledge of any basis for such cancellation, non-renewal, termination or loss of coverage.  There have been no time periods in the last twenty-four (24) months in which the Company or its Subsidiaries have lacked its customary coverage under its insurance policies, as in effect from time to time during its existence.

 

2.13            Brokers and Finders .  Except as set forth in Section 2.13 of the Disclosure Letter, no agent, broker, investment banker, person or firm acting on behalf of or under the authority of the Company or any of its Subsidiaries is or will be entitled to any broker’s or finder’s fee or any other commission or similar fee directly or indirectly from the Company or any of its Subsidiaries in connection with any of the transactions contemplated by this Agreement or any of the Transaction Documents.

 

2.14            Material Contracts .  Except as set forth in Section 2.14 of the Disclosure Letter, neither the Company nor any of its Subsidiaries has, or is bound by:

 

(a)           any agreement, contract or commitment relating to the employment of any person by the Company or any of its Subsidiaries, or any bonus, deferred compensation, pension, profit sharing, stock option, employee stock purchase, retirement or other employee benefit plan;

 

(b)           any agreement, indenture or other instrument which contains restrictions with respect to payment of dividends or any other distribution in respect of its capital stock;

 

(c)           any loan or advance to, or investment in, any individual, partnership, joint venture, corporation, trust, unincorporated organization, government or other entity or any agreement, contract or commitment relating to the making of any such loan, advance or investment;

 

(d)           any guarantee or other contingent liability in respect of any indebtedness or obligation of any Person (other than the endorsement of negotiable instruments for collection in the ordinary course of business);

 

(e)           any management service, consulting or any other similar type contract;

 

(f)           any agreement, contract or commitment limiting the freedom of the Company or any of its Subsidiaries to engage in any line of business or to compete with any Person;

 

(g)           any agreement, contract or commitment not entered into in the ordinary course of business which involves $100,000 or more and is not cancelable without penalty or premium within 30 days; or

 

(h)           any agreement, contract or commitment that might reasonably be expected to have a potential adverse impact on the business or operations of the Company or any of its Subsidiaries other than as a result of the application and enforcement of any default provisions thereunder.

 

 

Each contract or agreement to which the Company or any of its Subsidiaries is a party or by which it is bound, whether or not required to be set forth in Section 2.14 of the Disclosure Letter, is in full force and effect and there exists no default or event of default or event, occurrence, condition or act (including the consummation of the transactions contemplated hereby) which, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default or event of default thereunder.  Neither the Company nor any of its Subsidiaries has violated any of the terms or conditions of any contract or agreement to which it is a party or by which it is bound, whether or not required to be set forth in Section 2.14 of the Disclosure Letter, in any material respect, and, to the Company’s knowledge, all of the covenants to be performed by any other party thereto have been fully performed.

2.15            Taxes .  Except as set forth in Section 2.15 of the Disclosure Letter, the Company and its Subsidiaries have filed or caused to be filed, within the times and within the manner prescribed by law, all federal, state, local and foreign tax returns and tax reports which are required to be filed by, or with respect to the Company and its Subsidiaries. Such returns and reports reflect accurately all liability for taxes of the Company and its Subsidiaries for the periods covered thereby. Except as set forth in Section 2.15 of the Disclosure Letter, all federal, state, local and foreign income, profits, franchise, employment, sales, use, occupancy, excise and other taxes and assessments, stock and transfer taxes (including interest and penalties) payable by, or due from, the Company and its Subsidiaries have been fully paid and fully provided for in the books and financial statements of the Company. No examination of any tax return of the Company or any of its Subsidiaries is currently in progress. There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any tax return of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is a party to any tax sharing contracts, agreements or arrangements.

 

2.16            Disclosure . All disclosure provided to the Investors regarding the Company and its Subsidiaries, their business and the transactions contemplated hereby, including in the Disclosure Letter, taken as a whole, furnished by or on behalf of the Company, is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each press release issued by the Company during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in

 

the light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or information exists (other than the consummation of the transactions contemplated hereby) with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed.

 

ARTICLE 3

 

REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

 

Each Investor, severally and not jointly, represents and warrants to the Company that the statements contained in this Article 3 are true and correct as of the Closing Date as though made as of the Closing Date, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties are true and correct as of such other specified date).

 

3.1           Investor is an “accredited investor” as defined by Rule 501 of Regulation D, and Investor is capable of evaluating the merits and risks of its investment in the Closing Securities and has the ability and capacity to protect its interests.

 

3.2           Investor understands that, except as provided in the Registration Rights Agreement, the Closing Securities, the Note Shares and the Warrant Shares have not been registered under the Act on the ground that the issuance thereof is exempt under Section 4(2) of the Act and/or Regulation D as a transaction by an issuer not involving any public offering and that, in the view of the Commission, the statutory basis for the exception claimed would not be present if any of the representations and warranties of Investor contained in this Agreement are untrue or, notwithstanding the Investor’s representations and warranties, the Investor currently has in mind acquiring any of the Closing Securities for resale upon the occurrence or non-occurrence of some predetermined event.

 

3.3           Investor is purchasing the Closing Securities and, in the event that the Investor should acquire any Note Shares or Warrant Shares, will be acquiring such Note Shares or Warrant Shares, as applicable, as principal for its own account, and not for the benefit of any other Person, for investment purposes and not with a view to distribution or resale, nor with the intention of selling, transferring or otherwise disposing of all or any part thereof for any particular price, or at any particular time, or upon the happening of any particular event or circumstance, except selling, transferring, or disposing of the Closing Securities, Note Shares and Warrant Shares, as applicable, in full compliance with all applicable provisions of the Act, the rules and regulations promulgated by the Commission thereunder, and applicable state securities laws; and that an investment in the Closing Securities, Note Shares and Warrant Shares is not a liquid investment.

 

3.4           Investor confirms that Investor has had the opportunity to ask questions of, and receive answers from, the Company or any authorized Person acting on its behalf concerning the Company and its business and to obtain any additional information, to the extent possessed by the Company (or to the extent it could have been acquired by the Company without unreasonable effort or expense) necessary to verify the accuracy of the information received by Investor.  In

 

connection therewith, Investor acknowledges that Investor has had the opportunity to discuss the Company’s business, management and financial affairs with the Company’s management or any authorized Person acting on its behalf.  Investor has received and reviewed all the information concerning the Company and the Closing Securities, both written and oral, that Investor desires.  Without limiting the generality of the foregoing, Investor has been furnished with or has had the opportunity to acquire, and to review all information, both written and oral, that Investor desires with respect to the Company’s business, management, financial affairs and prospects.  In determining whether to make this investment, Investor has relied solely on Investor’s own knowledge and understanding of the Company and its business based upon Investor’s own due diligence investigations and the Company’s filings with the Commission.

 

3.5           Investor has all requisite legal and other power and authority to execute and deliver this Agreement and to carry out and perform its obligations under the terms of this Agreement.  This Agreement constitutes a valid and legally binding obligation of Investor enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

 

3.6           Investor has carefully considered and has discussed with its legal, tax, accounting and financial advisors, to the extent the Investor has deemed necessary, the suitability of this investment and the transactions contemplated by this Agreement for the Investor’s particular federal, state, provincial, local and foreign tax and financial situation and has independently determined that this investment and the transactions contemplated by this Agreement are a suitable investment for the Investor.  Investor understands that it (and not the Company) shall be responsible for Investor’s own tax liability that may arise as a result of the investment in the Closing Securities or the transactions contemplated by this Agreement, except as provided in Section 7.2(c) .

 

3.7           Investor acknowledges that an investment in the Closing Securities is speculative and involves a high degree of risk and that Investor can bear the economic risk of the acceptance of the Closing Securities, including a total loss of its investment.  Investor recognizes and understands that no federal, state, provincial or foreign agency has recommended or endorsed the purchase of the Closing Securities.  Investor acknowledges that it has such knowledge and experience in financial and business matters that Investor is capable of evaluating the merits and risks of an investment in the Closing Securities and of making an informed investment decision with respect thereto.

 

3.8           The principal place of business of the Investor is correctly set forth below the Investor’s name on the signature page hereto.

 

ARTICLE 4

 

CONDITIONS RELATING TO THE CLOSING

 

4.1            Conditions to the Obligations of the Investors at the Closing .  The several obligations of each Investor to consummate the transactions contemplated hereby on the Closing

 

Date are subject to the satisfaction of the following conditions as of the Closing Date, unless any such conditions are waived by such Investor prior to or on the Closing Date:

 

(a)            Investor Approvals .  The Investors shall have received all requisite approvals to consummate the transactions contemplated by this Agreement, including from their respective investment committees.

 

(b)            Due Diligence .  The Investors shall have completed all business, legal, accounting and technical due diligence to their sole satisfaction.

 

(c)            Transaction Documents .  The Company shall have delivered to the Investors a counterpart of each of the Transaction Documents, in each case duly executed by an authorized representative of the Company, with each such Transaction Document to be in a form mutually satisfactory to the Company and the Investors.  The Subsidiaries of the Company shall have delivered to the Investors a counterpart of each of the Transaction Documents to which each such Subsidiary is a party, in each case duly executed by and authorized representative of such Subsidiary, with each such Transaction Document to be in a form mutually satisfactory to such Subsidiary and the Investors.

 

(d)            Absence of Certain Changes .

 

(i)           The Company shall have delivered to the Investors a certificate of a duly appointed and acting officer of the Company, dated as of the Closing Date, certifying on behalf of the Company the absence of:

 

(A)           any event that has occurred or circumstance that exists which has had or could reasonably be expected to result in a MAC; and

 

(B)           any event that has occurred or circumstance that exists which has had or could reasonably be expected to result in a Market MAC.

 

(ii)           The Investors shall not have become aware of any information that, in the good faith determination of the Investors, could reasonably be deemed to be materially unfavorable to the Company or any of its Subsidiaries.

 

(e)            Consents, Permits, and Waivers .  The Company shall have obtained any and all approvals, consents, permits and waivers necessary or appropriate for the consummation of the transactions contemplated by this Agreement and the other Transaction Documents.

 

(f)            Authorizations .  All authorizations, approvals or permits, if any, of any governmental authority or regulatory body that are required in connection with the lawful issuance and sale of the Closing Securities pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing Date.

 

(g)            Representations, Warranties and Covenants .  The representations and warranties made by the Company in Article 2 hereof and in the other Transaction Documents shall be true and correct when made, and shall be true and correct as of the Closing Date with

 

the same force and effect as if they had been made on and as of that date.  The Company shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by itj on or prior to the Closing Date.  As of the Closing Date, Company shall have delivered a certificate to the foregoing effect to the Investors, duly executed on behalf of the Company by an authorized officer thereof.

 

(h)            Secretary's Certificate .  The Company and each of its wholly-owned Subsidiaries shall have delivered to the Investors a certificate of the Company’s or such Subsidiary’s Secretary dated as of the Closing Date, certifying on behalf of the Company or such Subsidiary, as applicable, the following:

 

(i)           Copies of all of the Company’s or such Subsidiary’s resolutions adopted by the Company’s or such Subsidiary’s Board of Directors approving and authorizing the transactions contemplated hereby and the other Transaction Documents and, with respect to the Company, the issuance and sale of the Closing Securities;

 

(ii)           Attesting as to the incumbency and signature of the officers of the Company or such Subsidiary who have authority to execute this Agreement and the other Transaction Documents;

 

(iii)           Certifying as being complete and correct the copies attached to such certificate of the Company's Charter and Bylaws or such Subsidiary’s organizational documents; and

 

(iv)           A Certificate of Good Standing of the Company or such Subsidiary from the Secretary of State of their respective states of organization, dated as of a date not earlier than three (3) days prior to the Closing Date.

 

(i)            Insurance Certificates .  The Company shall have delivered to the Investors evidence of all insurance policies and endorsements thereto required by Section 5.10 of this Agreement.

 

(j)            Account Control Agreements .  The Company and each of its wholly-owned Subsidiaries shall have obtained account control agreements from each depository bank where the Company or such wholly-owned Subsidiary maintains a bank account, in each case for the benefit of the Investors, in form and substance reasonably acceptable to the Investors, which shall become operative on the Closing Date.

 

(k)            Other Documents .  The Company shall have delivered to the Investors such other documents and instruments relating to the transactions contemplated by this Agreement as the Investors or their counsel may reasonably request.

 

(l)            Opinion of Counsel to the Company .  The Investors shall have received an opinion of counsel to the Company reasonably satisfactory to the Investors.

 

ARTICLE 5

 

AFFIRMATIVE COVENANTS

 

For so long as any Note or Warrant remains outstanding or any Investor holds any Note Shares or Warrant Shares, the Company shall comply with each of the following affirmative covenants, unless, in any given instance, any such affirmative covenant is waived in writing by the Investors:

 

5.1            Board of Directors; Director Designation Rights .

 

(a)           The Company shall cause the board of directors of the Company (the “ Board of Directors ”) to consist of no more than seven (7) directors, and shall cause the compensation committee and nominating committee (or committees serving similar functions) of the Board of Directors to consist of no more than three (3) directors, in each case without the Investors’ express written consent.

 

(b)           The Investors holding at least a majority of the Principal amount of the Notes outstanding, voting as a separate class, shall have the right to designate one (1) representative (the “ Investor Designee ”) to serve as a member of the Company’s Board of Directors and as a member of the compensation committee, if any, and nominating committee, if any (or committees serving similar functions, if any) of the Board of Directors, who shall initially be Jeff Lightcap.

 

(c)           The Investor Designee shall only be removed from the Board of Directors by written request of the Investors holding at least a majority of the Principal amount of the Notes outstanding, unless such removal is for cause, provided that upon any resignation, removal, death or disability of the Investor Designee, the Investors holding at least a majority of the Principal amount of the Notes outstanding shall be entitled to designate a replacement Investor Designee.

 

(d)           In the event that the Investor Designee is removed in accordance with Section 5.1(c) or for any reason ceases to serve as a member of the Board of Directors during his/her term of office, the resulting vacancy on the Board of Directors shall be filled by the Investors in accordance with the terms of Section 5.1(b) hereof.

 

(e)           Unless otherwise determined by the vote of a majority of the directors then in office, the Board of Directors shall meet at least quarterly in accordance with an agreed-upon schedule.

 

(f)           The Company shall pay the reasonable out-of-pocket travel, lodging and other related expenses of the Investor Designee that are incurred in connection with attendance at meetings of the Board of Directors or any committee thereof or otherwise in connection with service thereon.

 

(g)           The Company shall obtain, within thirty (30) days of the Closing Date, from financially sound and reputable insurers satisfactory to the Board of Directors, Directors and Officers liability insurance in an amount and on terms and conditions satisfactory to the

 

Board of Directors, and the Company will use commercially reasonable efforts to cause such insurance policies to be maintained until such time as the Board of Directors determines that such insurance should be discontinued.  In the event the Company merges with another entity and is not the survivor of such merger, or in the event the Company transfers all or substantially all of its assets, proper provision shall be made so that the successor to the Company shall assume the Company's obligations with respect to the indemnification of the Company's officers and directors.

 

(h)           The Company shall provide at least thirty (30) days’ prior written notice of all intended mailings of notices to the stockholders of the Company for a meeting at which directors are to be elected (or an action by written consent pursuant to which directors are to be elected), and the Investors shall notify the Company in writing, at least ten (10) days prior to such mailing, of the person designated as the Investor Designee for election as a director in accordance with this Section 5.1 .  If the Investors shall fail to give notice to the Company as provided above, it shall be deemed that the Investor Designee then serving as a director shall be the Investors’ nominee for re-election.

 

(i)           The Investors agree to execute any written consents required to effectuate the obligations of this Agreement.

 

(j)           The Company shall take such action as is necessary to convene meetings of its Board of Directors and meetings for the election of the directors (or to act by written consent) in order to elect and re-elect the Investor Designee in accordance with this Section 5.1 .

 

(k)           The Company hereby represents and warrants that as of the date hereof the transactions contemplated hereby are not inconsistent with the Company’s Charter or By-laws and agrees that until such time as the obligations under this Section 5.1 have expired, the Company will not take any action or amend its Charter or By-laws in a manner inconsistent with or in derogation of this Agreement.  The Company shall at the next meeting of stockholders of the Company recommend that the Charter be amended to the extent necessary to implement the provisions of this Article 5 , including, without limitation, to set a maximum board size of seven (7) members and provide that one (1) member of the Board of Directors is to be elected by the Investors holding at least a majority of the Principal amount of the Notes outstanding, voting as a separate class.  The Company shall take such action as is reasonably necessary to amend its By-laws to implement the provisions of this Article 5 and the Charter amendments described in this Section 5.1(k) .

 

(l)           Neither the Investors nor any affiliate of the Investors, shall have any liability as a result of designating a person for election as a director or for any act or omission by such Investor Designee in his or her capacity as a director of the Company, nor shall the Investors have any liability as a result of voting for any such Investor Designee in accordance with the provisions of this Agreement.

 

5.2            Information Rights .  For so long as the Investors have the right to appoint a member of the Board of Directors pursuant to Section 5.1 of this Agreement, the Company shall furnish to the Investors: (a) as soon as practicable following the conclusion of each month, an

 

unaudited, consolidated income statement and statement of cash flows for such month, and an unaudited, consolidated balance sheet and statement of stockholders’ equity as of the end of such month, which monthly financial statements the Investors hereby acknowledge may not be prepared in accordance with GAAP, together with a management report with respect thereto and such other information as the Investors may reasonably request; and (b) as soon as practicable following the conclusion of each quarter, an unaudited, consolidated income statement and statement of cash flows for such quarter, and an unaudited, consolidated balance sheet and statement of stockholders’ equity as of the end of such quarter, prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP), together with a management report with respect thereto and such other information as the Investors may reasonably request.  In addition to the foregoing, the Investors, or representatives thereof, shall have the right, upon advance notice and during normal business hours, to inspect the books and records of the Company for any proper purpose.

 

5.3            Minimum Cash Balance . The Company shall at all times maintain a minimum cash balance of $5,000,000 in one or more financial institutions; provided, that in the event the Company’s cash balance falls below such amount, the Company shall have thirty (30) days to cure the resulting default and deposit sufficient funds to restore the requisite minimum cash balance (it being understood, for the avoidance of doubt, that so long as any Notes are outstanding, such thirty day period shall run concurrently and not consecutively with any similar cure period afforded under the Notes, and shall not extend any period under the Notes for purposes of determining whether an Event of Default, as defined in the Notes, has occurred).

 

5.4            Preemptive Rights .

 

(a)           In the event of any offering of New Securities (as defined below) by the Company, each Investor, for so long as the Notes, the Warrants or any Note Shares or Warrant Shares remain outstanding, shall have the right to purchase a percentage of the New Securities being offered that is equal to the percentage of the outstanding Common Stock of the Company owned by such Investor on an as-converted basis (treating for this purpose as outstanding all shares of Common Stock issuable upon the full exercise of the Warrants and full conversion of the Notes then outstanding, including conversion of the maximum amount of Interest scheduled to accrue during the First Five Year Note Period (as defined in the Notes)); provided , however , that this right shall not apply to (i) equity compensation grants to employees, consultants, or directors pursuant to plans or other arrangements approved by the Board of Directors of the Company, (ii) securities issued upon the conversion or exercise of any convertible or exercisable securities that are outstanding as of the date hereof on the terms in effect on such date, (iii) the issuance of securities in connection with any underwritten public offering (excluding, for the avoidance of doubt, registered direct offerings); (iv) securities issued upon any split, dividend, combination or other similar event with respect to the capital stock of the Company; (v) securities subsequently issued upon conversion, exercise or exchange of those securities that have been issued in compliance with, or on issuance were exempt from the preemptive rights provided for in this Section 5.4 , and (vi) shares of Common Stock or convertible securities issued or issuable in connection with mergers, acquisitions, strategic transactions and debt financings approved by the Board of Directors of the Company, including the Investor Designee; provided , further , that in connection with any

 

underwritten public offering, the Company will use reasonable best efforts to allow each Investor to purchase a sufficient amount of such offered securities so as to maintain as closely as possible such Investor’s proportionate interest in the Company on an as-converted basis as described above (disregarding any allocations of such offered securities that may be made by the underwriters to Affiliates of any Investor in the ordinary course investment business of such Affiliates).  An Investor shall be deemed to have waived its rights under this Section 5.4 if such Investor shall have not delivered to the Company its written election to purchase such securities within ten (10) Business Days of receipt of the Company’s notice of such offering describing the material terms thereof (such ten (10) Business Day period, the “ Offer Period ”).  If the Investors fail to exercise their purchase right pursuant to this Section 5.4 , then the Company shall have the right, until the expiration of one hundred eighty (180) days commencing upon the expiration of the Offer Period, to issue such New Securities to one (1) or more third parties on terms no more favorable to the purchasers thereof than the terms specified in the Company’s notice of such offering to the Investors, after which the terms of this Section 5.4 shall again apply to the Company’s offering of such New Securities.

 

(b)           For purposes of this Agreement, the term “ New Securities ” shall mean securities, contract rights, notes, obligations, options, warrants, or other rights that are directly or indirectly exercisable for, convertible into, or exchangeable for shares of Common Stock or other capital or voting stock of the Company.

 

5.5            Use of Proceeds .  The Company will use the net proceeds from the sale of the Closing Securities to (a) obtain the Revolving Debt Facility; (b) recruit and employ executives and sales personnel with experience in the healthcare/hospital space to establish contracts and pilot programs with hospitals, (c) expand the Company's intellectual property portfolio, (d) repay in full certain outstanding Indebtedness identified in Section 5.5 of the Disclosure Letter, and (e) fund working capital for general corporate purposes.  Pending the Company’s application of such net proceeds for the aforementioned purposes, the Company shall be allowed to invest such proceeds only in short-term, interest-bearing, investment-grade marketable securities or money market obligations (“ Permitted Investments ”).

 

5.6            Corporate Existence .   The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and the corporate existence, rights and franchises of its Subsidiaries; provided that the Company shall not be required to preserve any such Subsidiary’s corporate existence, rights or franchises if the Company shall determine that the preservation thereof is no longer desirable in the conduct of such Subsidiary’s business and that the loss thereof is not disadvantageous in any material respect to the Investors.

 

5.7            Reports by the Company .  The Company covenants to make available to the Investors, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act, or if the Company is not required to file information, documents, or reports pursuant to either of such sections, then to deliver to the Investors, in accordance with rules and regulations prescribed from time to time by the

 

Commission, such of the supplementary and periodic information, documents, and reports which may be required pursuant to Section 13 of the Exchange Act; or, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations.  At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon request of the Investors, the Company will promptly furnish or cause to be furnished to the Investors, copies of the information required to be delivered to the Investors pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by holders of securities such as the Closing Securities or the shares of Common Stock issuable thereunder.  The Company will pay the expenses of printing and distributing to the Investors all such documents.  Delivery of such reports, information and documents to the Investors is for informational purposes only and the Investors’ receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder.  The Investors acknowledge that the Company’s provision of such documents on the Commission’s Electronic Data Gathering and Retrieval (EDGAR) website shall be deemed “delivery” of said documents for purposes of this Section 5.7 .

 

5.8            Reservation of Shares .  The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, not less than 120% of the number of shares of Common Stock issuable upon full conversion of the Notes and exercise of the Warrants (the “ Required Reserve Amount ”).  If at any time while any Note and/or Warrant remains outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve the Required Reserve Amount (an “ Authorized Share Failure ”), then the Company shall take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than seventy-five (75) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its commercially reasonable efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

 

5.9            Registration Rights .  The Investors shall have the registration rights set forth in the Registration Rights Agreement and the Company shall comply in all respects with all of its obligations thereunder.

 

5.10            Insurance .  The Company and its Subsidiaries shall maintain, with financially sound, reputable and solvent companies, insurance policies reasonably acceptable to the Investors (a) insuring their assets against loss by fire, theft and other risks and casualties as are customarily insured against by companies engaged in the same or a similar business, (b) insuring them against liability for personal injury and property damages relating to their assets, such policies to be in such amounts and covering such risks as are usually insured against by companies engaged in the same or a similar business, and insuring such other matters as may

 

from time to time be requested by the Investors, and (c) insuring them against business interruption in such amounts as the Investors shall deem appropriate in the Investors’ reasonable discretion.  All general liability insurance policies shall be endorsed in favor of the Investors as additional insureds, and all casualty policies shall be endorsed in favor of the Investors as loss payees.  The Company and its Subsidiaries shall provide copies of all such insurance policies (or evidence thereof acceptable to the Investor) to the Investors within ten (10) Business Days following the Investors’ request for the same.  The Company and its Subsidiaries shall (i) deliver all such policies to the Investors promptly upon the Company’s or any such Subsidiary’s receipt thereof, (ii) pay, or cause to be paid, all premiums for such insurance on or before the date upon which such premiums become due, (iii) upon the Investors’ request furnish to the Investors satisfactory proof of the timely making of such payments, (iv) deliver all renewal policies to the Investors promptly upon receipt thereof, and (v) use its commercially reasonable efforts to cause such policies to require the insurer to give notice to the Investors of termination of any such policy at least thirty (30) days before such termination is to be effective.  If the Company or any of its Subsidiaries fails to provide and pay for any such insurance, the Investors may, at their option, but shall not be required to, pay the same and charge the Company or the applicable Subsidiary therefor.

 

5.11            Listing .  The Company shall promptly secure the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall maintain such listing of all such Registrable Securities from time to time issuable under the terms of the Transaction Documents. The Company shall maintain the Common Stock’s authorization for quotation on the OTCQB Market at any time during which its Common Stock is not listed on a registered national securities exchange.  Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the OTCQB Market, except in connection with a transfer to a registered national securities exchange.  The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 5.11 .

 

5.12            Satisfaction of Certain Liens and Encumbrances .  The Company shall, within one hundred and eighty (180) days following the Closing Date, cause to be paid in full all amounts necessary to satisfy and discharge those liens and encumbrances set forth in Section 5.12 of the Disclosure Letter; provided , however , that the foregoing condition shall be deemed satisfied if, and solely to the extent that, the Company provides evidence to the Investors within such one hundred and eighty (180) day period, which evidence is acceptable to the Investors in their sole discretion, that demonstrates that the Company does not have, or has otherwise been released from, any liability with respect to such liens and encumbrances.

 

5.13            Compliance With Laws .  The Company and its Subsidiaries shall at all times be in compliance with the Foreign Corrupt Practices Act; the PATRIOT Act, and all other applicable U.S. and non-U.S. anti-money laundering laws and regulations; and the laws, regulations and Executive Orders and sanctions programs administered by the OFAC, including, without limitation, the Anti-Money Laundering/OFAC Laws

 

5.14            Form D and Blue Sky . The Company agrees to file a Form D with respect to the Closing Securities as required under Regulation D and to provide a copy thereof to the Investors promptly after such filing. The Company shall, on or before the Closing Date, take such action as is necessary in order to obtain an exemption for or to qualify the Closing Securities for sale to the Investors at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the State of New York, and shall provide evidence of any such exemption or qualification so taken to the Investors on or prior to the Closing Date. The Company shall make all filings and reports relating to the offer and sale of the Closing Securities required under applicable securities or “Blue Sky” laws of the State of New York following the Closing Date.

 

5.15            Acknowledgement and Undertaking .  The Company agrees and acknowledges that the transactions described in Article 1 and the issuance of shares of Common Stock upon exercise or conversion of the Closing Securities are intended to be exempt from Section 16(b) of the Exchange Act pursuant to one or more rules promulgated thereunder, applicable law and the Commission’s releases and interpretations, and will, from time to time as and when requested by the Investors, and will cause its successors and assigns to, execute and deliver or cause to be executed and delivered, to the extent it may lawfully do so, all such documents and instruments and take, or cause to be taken, to the extent it may lawfully do so, all such further actions as the Investors may reasonably deem necessary and desirable to facilitate and effect any such exemption.

 

ARTICLE 6

 

NEGATIVE COVENANTS

 

For so long as any Note or Warrant remains outstanding or any Investor holds any Note Shares or Warrant Shares, the Company shall comply with each of the following negative covenants, unless, in any given instance, any such negative covenant is waived in writing by the Investors:

 

6.1            Amendments .  The Company shall not amend, restate, modify, repeal or waive any provision of the Company’s Charter or Bylaws.

 

6.2            Change in Operations .  The Company shall not change the nature or strategy of its principal business as it exists on the Closing Date.

 

6.3            Defaults and Breaches .  The Company shall not permit to exist any default or breach of any contract provision beyond any grace period provided for in any contract if the breach or default may result in any liability on the part of the Company in excess of $50,000 or an amount in excess of $50,000 becoming due and payable by the Company prior to its contractually stated maturity.

 

6.4            Investments and Acquisitions .  Other than Permitted Investments, the Company shall not invest in, acquire any interest in (including the acquisition of assets out of the ordinary course of business), or otherwise divert any of the funds of the Company to, any Person.

 

6.5            Certain Debt .  Except for Permitted Indebtedness and Indebtedness evidenced in favor of the Investors, the Company shall not incur or suffer to exist any Indebtedness without the prior approval of the Investors.

 

6.6            Liens and Encumbrances .  The Company shall not create, incur, assume or suffer to exist any Lien on its assets or properties now owned or hereafter acquired other than Permitted Encumbrances and other than pursuant to the transactions contemplated by the Transaction Documents.

 

6.7            Sale-Leaseback Transactions .  The Company shall not enter into directly or indirectly any sale-leaseback transactions with any other Person without the prior approval of the Investors.

 

6.8            Guarantees and Loans .  The Company shall not guarantee or endorse any obligation of, or make any advance or loan to, any Person, or assume any contingent liability of any Person.

 

6.9            Related Party Transactions .  The Company shall not enter into or commit directly or indirectly to any transaction, agreement or arrangement with any Affiliate of the Company or to any manager, member, shareholder, officer, director or employee of the Company or any Affiliate of the Company unless such transaction, agreement or arrangement is consummated on arms-length terms and is approved by the Company’s Board of Directors.

 

6.10            Distributions; Redemptions .  The Company shall not directly or indirectly (a) declare or pay any dividend or distribution to any equityholder of the Company or (b) redeem, purchase, retire or otherwise extinguish any shares of the Company’s capital stock or securities convertible into shares of the Company’s capital stock (except as required by any of the Transaction Documents) except that the Company may repurchase outstanding shares of its capital stock pursuant to a stock repurchase program approved by the Board of Directors, including the Investor Designee, and provided each such repurchase is in compliance with the Company's covenants under the Revolving Debt Facility and any other Indebtedness.

 

6.11            Gross Income Interest Rights .  The Company shall not elect to purchase the gross income interest rights held by Tommy G. Thompson, Gerald L. Murphy, or Dennis Langley (collectively, the “ GIIR Holders ”) with Common Stock without the prior approval of the Investors, unless the Company is required by the GIIR Holders pursuant to their contractual rights to purchase such gross income interest rights and the Company does not have sufficient cash available at the time such purchase is required to purchase such gross income interest rights with cash.

 

6.12            Equity Issuance .  The Company shall not issue any capital stock or debt or equity securities convertible into capital stock without the Investors’ prior written consent, which consent shall not be unreasonably withheld; provided , that the Company shall be permitted to issue shares of Common Stock without requiring such consent to (a) employees, consultants and advisors of the Company pursuant to incentive equity arrangements that are approved by the compensation committee of the Board of Directors, if any, or the Board of Directors and (b) holders of Options or Convertible Securities that are outstanding on the Closing Date, upon the

 

exercise or conversion of such Options or Convertible Securities, upon the terms of such securities existing on the date of this Agreement.

 

6.13            Sale of Assets .  The Company shall not sell, lease or otherwise transfer any assets used or held for use in the Company’s business outside of the ordinary course of business.

 

6.14            Capital Expenditures .  The Company shall not incur or contract to incur any capital expenditures outside of the ordinary course of the Company’s business in excess of $250,000 individually or in the aggregate over any twelve (12) month period (provided that, for the avoidance of doubt, purchases of cable boxes and related equipment for installation of the Company's products in hospitals shall be considered capital expenditures within the ordinary course of the Company’s business).

 

6.15            Certain Business Practices .  The Company shall not (a) use any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to political activity; (b) make any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violate any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (c) make any other unlawful payment in connection with the Company’s business.

 

6.16            Loss of Collateral .  The Company shall not incur the loss, theft, damage or destruction of an aggregate of more than One Hundred Thousand Dollars ($100,000) in fair market value of its assets, which loss, theft, damage or destruction is not covered by insurance.

 

6.17            Subsidiaries .  The Company shall not create, establish or acquire any direct or indirect Subsidiary.

 

6.18            Liquidation .  The Company shall not liquidate, dissolve or effect a sale or reorganization in any form of transaction or otherwise alter its legal status.

 

6.19            Equipment .  The Company shall not (a) permit any of its assets to become fixtures to real property unless such real property is owned by the Company and is subject to a first mortgage in favor of the Investors, or if such real property is leased, is subject to a landlord’s agreement in favor of the Investors on terms acceptable to the Investors, or (b) permit any of its assets to become an accession to any other personal property unless such personal property is subject to a first priority lien in favor of the Investors.

 

6.20            Subsidiary Actions .  The Company shall not cause or permit any of its Subsidiaries to take any actions or permit to exist any circumstances that the Company would be prohibited from taking or permitting to exist directly pursuant to this Article 6 , provided that such Subsidiaries shall be entitled to declare and pay dividends to the Company notwithstanding the restrictions set forth in Section 6.10 .

 

ARTICLE 7

 

MISCELLANEOUS

 

7.1            Definitions .  As used herein, the following terms shall have the respective meanings set forth below or provided for in the section of this Agreement referred to below (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

 

(a)           “ Affiliate ” shall mean any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, another Person or a Subsidiary of such other Person.  A Person shall be deemed to control another Person if the controlling Person owns (on a fully diluted basis) ten percent (10%) or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of Indebtedness or equity securities, by contract or otherwise.

 

(b)           “ Capital Lease ” means a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

 

(c)           “ Capital Lease Obligation ” means, with respect to any Person, the amount of the obligation of such Person as the lessee under a Capital Lease which would, in accordance with GAAP, appear as a liability on the balance sheet of such Person

 

(d)           “ Charges ” means all federal, state, county, city, municipal, local, foreign or other governmental taxes, levies, assessments, charges or claims, in each case then due and payable, upon or relating to (a) any property of the Company or any of its Subsidiaries, (b) the Notes, (c) the Company’s or any of its Subsidiaries' employees, payroll, income or gross receipts, (d) the Company’s or any of its Subsidiaries' ownership or use of any of its property, or (e) any other aspect of the Company’s or any of its Subsidiaries' business.

 

(e)           “ knowledge ” shall mean, and shall for all purposes be construed as, the collective knowledge of the directors, officers, and management personnel of the Company after reasonable investigation.

 

(f)           “ Lien ” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, priority, security interest, lien (statutory or otherwise), claim or encumbrance, or preference, priority or other security arrangement held or asserted in respect of any asset, contractual deposit arrangement, whether imposed by statute or otherwise, or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction) and any contingent or other agreement to provide any of the foregoing or any other type of preferential arrangement for the purpose, or having the effect of, protecting a creditor against loss or securing the payment or performance of any obligation.

 

(g)           “ MAC ” shall mean a material adverse effect or change (a) on the business, operations, properties, assets or condition (financial or otherwise) of the Company or its Subsidiaries, (b) on the ability of the Company or its Subsidiaries to pay or perform their respective obligations under this Agreement or any of the other Transaction Documents, or

 

(c) on the rights, privileges, attributes and remedies of any holder of the Notes or any of the other Transaction Documents.

 

(h)           “ Market MAC ” shall mean (i) any material disruption or material adverse change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls; (ii) any suspension or material limitation of trading in securities generally on the New York Stock Exchange or the NASDAQ Stock Market, or any setting of minimum or maximum prices for trading on such exchange; (iii)  any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (iv) any banking moratorium declared by any U.S. federal or New York authorities; or (v) any material disruption of settlements of securities, payment or clearance services in the United States.

 

(i)           “ Material Contracts ” shall mean all contracts of the Company and its Subsidiaries that are disclosed or are required to be disclosed in Section 2.14 of the Disclosure Letter.

 

(j)           “ Permitted Encumbrances ” means (a) Liens in favor and for the benefit of the Investors; (b) Liens in favor and for the benefit of the lenders under the Revolving Debt Facility, (c) non-exclusive licenses of the Company’s or its Subsidiaries' intellectual property granted to hospitals in the ordinary course of the Company’s or its Subsidiaries' business pursuant to the Company's or its Subsidiaries' hospital contracts; (d) non-exclusive licenses of the Company’s or its Subsidiaries' intellectual property granted to Subsidiaries of the Company in connection with existing joint venture transactions and future joint venture transactions entered into by the Company or its Subsidiaries to the extent involving new hospitals, new businesses or international markets; (e) Liens in favor and for the benefit of joint venture partners arising from joint venture transactions entered into by the Company or its Subsidiaries to the extent involving new hospitals, new businesses or international markets; (f) Liens for Charges not delinquent or being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been established by the Company on its financial statements in accordance with GAAP; (g) deposits or pledges to secure obligations under workers’ compensation, social security or similar laws, or with respect to unemployment insurance; (h) bonded and statutory Liens of landlords, mechanics, workers, materialmens or other like Liens arising in the ordinary course of the business with respect to obligations which are not delinquent; (i) Liens placed upon tangible assets hereafter acquired to secure payment of the purchase price thereof, provided that any such Lien shall not encumber any other property of the Company or its Subsidiaries; and (j) zoning restrictions and easements, licenses, covenants and other restrictions that do not individually, or in the aggregate, materially and adversely affect the use of the Company’s or its Subsidiaries’ owned, leased or licensed real property for its intended purpose in connection with the business.

 

(k)           “ Permitted Indebtedness ” shall mean (i) the Revolving Debt Facility, and (ii) purchase money indebtedness (including, but not limited to, mortgages, credit card indebtedness and automobile loans) of the Company or its Subsidiaries or Capital Lease Obligations not to exceed the amount of $2,000,000.00 in the aggregate.

 

(l)           " Person " shall mean an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof

 

(m)           “ Revolving Debt Facility ” shall mean a single senior secured loan or commercial bank or similar financing, or a series thereof, of up to an aggregate of $50,000,000 for use solely for the purpose of purchasing cable boxes and related equipment for installation of the Company's products in hospitals.

 

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

 

7.2            Expenses .

 

(a)           The Company will pay and bear full responsibility for the reasonable legal fees and other out-of-pocket costs and expenses of the Investors attributable to the negotiation and consummation of the transactions contemplated hereby and in the other Transaction Documents, including without limitation all costs and expenses attributable to legal due diligence, intellectual property due diligence and healthcare regulatory due diligence, up to an aggregate amount of $150,000.  All legal fees and other out-of-pocket costs and expenses in excess of $150,000 shall only be the responsibility of the Company to the extent the Company provides its written consent to the same, which consent shall not be unreasonably withheld, delayed or conditioned.

 

(b)           The Company further agrees that it will pay, and will save the Investors harmless from, any and all liabilities, costs and expenses incurred by the Investors in connection with the ownership of the Closing Securities including, without limitation, any amendment or waiver of, or enforcement of, any Transaction Document relating to the transactions contemplated hereby.

 

(c)           The Company further agrees that it will pay, and will save the Investors harmless from, any and all Liabilities with respect to any stamp or similar taxes which may be determined to be payable in connection with the execution and delivery and performance of the Transaction Documents or any modification, amendment or alteration of the terms or provisions of the Transaction Documents (excluding any taxes on the income or gain of the Investors).

 

7.3            Further Assurances .  The Company shall duly execute and deliver, or cause to be duly executed and delivered, at its own cost and expense, such further instruments and documents and to take all such action, in each case as may be necessary or proper in the reasonable judgment of the Investors to carry out the provisions and purposes of this Agreement and the other Transaction Documents.

 

7.4            Remedies .  In case any one or more of the representations, warranties, covenants and/or agreements set forth in this Agreement or any other Transaction Documents shall have

 

been breached by a party, the other parties may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Agreement or any of the other Transaction Documents, and may exercise all remedies under the Closing Securities.

 

7.5            Survival .  The representations, warranties, covenants and agreements made herein shall survive any investigation made by any party hereto, the execution and delivery of this Agreement and the closing of the transactions contemplated hereby.

 

7.6            Successors and Assigns .  This Agreement shall bind and inure to the benefit of the Company and the Investors and their respective successors and permitted assigns.  Subject to applicable federal, state and provincial securities laws and regulations, the Investors may freely assign either this Agreement or any of their rights, interests, or obligations hereunder without the prior written approval of the Company.

 

7.7            Entire Agreement .  This Agreement and the other writings referred to herein or delivered pursuant hereto (including the other Transaction Documents) which form a part hereof contain the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto.

 

7.8            Notices .  All notices, requests, demands, claims, consents and other communications delivered hereunder (whether or not required to be delivered hereunder) shall be deemed to be sufficient and duly given if contained in a written instrument (a) personally delivered, (b) sent by fax, (c) sent by nationally-recognized overnight courier guaranteeing next business day delivery or (d) sent by first class registered or certified mail, postage prepaid, return receipt requested, in each case addressed as follows:

 

(i)           if to the Company, to:

 

CareView Communications, Inc.

405 State Highway 121

Suite B-240

Lewisville, TX 75067

 

Attention:  Chief Executive Officer

 

Fax:  (972) 403-7659

 

with a copy to:

 

Law Offices of Carl A. Generes

4358 Shady Bend Drive

Dallas, Texas 75244-7447

Attn: Carl A. Generes

Fax: (972) 715-5700

 

and

 

(ii)           if to the Investors, to the addresses set forth on the signature page hereto

 

with a copy to:

Edwards Angell Palmer & Dodge LLP

2800 Financial Plaza

Providence RI 02903

Attn:  Eugene W. McDermott, Jr.

Fax: (888) 325-9069  

or to such other address as the party to whom such notice or other communication is to be given may have furnished to each other party in writing in accordance herewith.  Any such notice or communication shall be deemed to have been received (A) when delivered, if personally delivered, (B) when sent, if sent by telecopy on a business day (or, if not sent on a business day, on the next business day after the date sent by telecopy), (C) on the next business day after dispatch, if sent by nationally recognized, overnight courier guaranteeing next business day delivery, and (D) on the fifth (5 th ) business day following the date on which the piece of mail containing such communication is posted, if sent by mail.

 

7.9            Amendments, Modifications, Terminations and Waivers .  The terms and provisions of this Agreement and the Closing Securities may not be modified, amended or terminated, nor may any of the provisions hereof be waived, temporarily or permanently, except pursuant to a written instrument executed by both the Company and the Investors.  The parties expressly acknowledge and agree that the representations and warranties and the covenants contained herein constitute an integral component of the transactions contemplated by the this Agreement and the Transaction Documents and the parties hereto shall be entitled to withhold their consent in their sole and absolute discretion with respect to any future requests for waivers of and/or modifications to such representations, warranties and covenants (it being understood and affirmed that it is the intent of the parties that the affirmative and negative covenants of the Company in Articles 5 and 6 shall continue to apply following the conversion of the Notes and exercise of the Warrants, for so long as any Investor continues to hold Note Shares or Warrant Shares, as the case may be).

 

7.10            Governing Law; Waiver of Jury Trial .

 

(a)           All questions concerning the construction, interpretation and validity of this Agreement shall be governed by and construed and enforced in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether in the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.  In furtherance of the foregoing, the internal law of the State of Delaware will control the interpretation and construction of this Agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily or necessarily apply.

 

(b)           BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.  THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS RELATED HERETO.

 

7.11            No Third Party Reliance .  Anything contained herein to the contrary notwithstanding, the representations and warranties of the Company contained in this Agreement (a) are being given by the Company as an inducement to the Investors to enter into this Agreement and the other Transaction Documents (and the Company acknowledges that the Investors have expressly relied thereon) and (b) are solely for the benefit of the Investors.  Accordingly, no third party (including, without limitation, any holder of capital stock of the Company) or anyone acting on behalf of any holder thereof other than the Investors shall be a third-party or other beneficiary of such representations and warranties and no such third party shall have any rights of contribution against the Investors or the Company with respect to such representations or warranties or any matter subject to or resulting in indemnification under this Agreement or otherwise.

 

7.12            Publicity .  Neither the Investors nor the Company shall issue any press release or make any public disclosure regarding the transactions contemplated hereby unless such press release or public disclosure is approved by the Investors and those parties mentioned in such press release or public disclosure in advance.  Notwithstanding the foregoing, the parties hereto may, in documents required to be filed by it with the Commission or other regulatory bodies, make such statements with respect to the transactions contemplated hereby as each may be advised by counsel is legally necessary or advisable.

 

7.13            Severability .  It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permissible under the law and public policies applied in each jurisdiction in which enforcement is sought.  Accordingly, in the event that any provision of this Agreement would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any jurisdiction.  Notwithstanding the foregoing, if such provision could be more narrowly drawn so as to not be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

 

7.14            Independence of Agreements, Covenants, Representations and Warranties .  All agreements and covenants hereunder shall be given independent effect so that if a certain action or condition constitutes a default under a certain agreement or covenant, the fact that such action or condition is permitted by another agreement or covenant shall not affect the occurrence of

 

such default, unless expressly permitted under an exception to such covenant.  In addition, all representations and warranties hereunder shall be given independent effect so that if a particular representation or warranty proves to be incorrect or is breached, the fact that another representation or warranty concerning the same or similar subject matter is correct or is not breached will not affect the incorrectness of or a breach of a representation and warranty hereunder.  The annexes, exhibits and schedules attached hereto are hereby made part of this Agreement in all respects.

 

7.15            Construction .  The Company and the Investors acknowledge that the Company and its independent counsel and the Investors and their independent counsel have jointly reviewed and drafted this document, and agree that any rule of construction and interpretation to the effect that drafting ambiguities are to be resolved against the drafting party shall not be employed.

 

7.16            Counterparts; Facsimile and Electronic Signatures .  This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement.  Counterpart signatures to this Agreement delivered by facsimile or other electronic transmission shall be acceptable and binding.

 

7.17            Headings .  The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

*    *    *    *    *

 

IN WITNESS WHEREOF , each of the undersigned has duly executed this Note and Warrant Purchase Agreement as of the date first written above.

 

	COMPANY:
	CareView Communications, Inc.
	By:	/s/ Steven Johnson
		Name:		Steven Johnson
		Title:		President/COO
	INVESTORS:
	HealthCor Partners Fund, L.P.
	By:	HealthCor Partners Management L.P., as Manager
	By:	HealthCor Partners Management, G.P., LLC, as General Partner
	By:	/s/ Jeffrey C. Lightcap
		Name:		Jeffrey C. Lightcap
		Title:		Senior Managing Director
	Address:		HealthCor Partners
			Carnegie Hall Towers
			152 West 57th Street
			New York, NY 10019
	HealthCor Hybrid Offshore Master Fund, L.P.
	By:	HealthCor Hybrid Offshore G.P., LLC, as General Partner
	By:	/s/ Steven J. Musumeci
		Name:		Steven J. Musumeci
		Title:		Chief Operating Officer
	Address:		HealthCor Partners
			Carnegie Hall Towers
			152 West 57th Street
			New York, NY 10019

---

---

Careview Communications, Inc. 8-K

 

 

Exhibit 10.73

SENIOR SECURED CONVERTIBLE NOTE

 

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

 

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

CAREVIEW COMMUNICATIONS, INC.

 

SENIOR SECURED CONVERTIBLE NOTE

 

Issuance Date :  April 21, 2011	Principal Amount:  U.S. $9,316,000
	(subject to Section 3(c)(iii) hereof)

FOR VALUE RECEIVED, CareView Communications, Inc., a Nevada corporation (the “ Company ”), hereby promises to pay to HealthCor Partners Fund, L.P. or the registered assign(s) thereof (“ Holder ”) the principal amount set forth above (as increased and/or decreased pursuant to the terms hereof by reason of the accrual of Interest, partial conversion or otherwise, and together with the principal amount of any additional convertible debt instruments issued by the Company to the Holder in accordance herewith, the “ Principal ”) when due, whether upon the Maturity Date, acceleration or otherwise (in each case in accordance with the terms hereof), together with accrued interest (“ Interest ”) on any outstanding Principal at the First Five Year Interest Rate or the Second Five Year Interest Rate, as applicable, from the date hereof (the “ Issuance Date ”) until the same becomes due and payable, whether upon the Maturity Date, acceleration, conversion or otherwise (in each case, in accordance with the terms hereof).  This Senior Secured Convertible Note (this “ Note ”) is being issued pursuant to that certain Note and Warrant Purchase Agreement, dated as of the date hereof, by and between the Company and the Holder (the “ Purchase Agreement ”), and is entitled to the benefits of, and evidences obligations incurred under, the Purchase Agreement and the other Transaction Documents (as defined in the Purchase Agreement), to which reference is made for a description of the security for this Note and for a statement of the terms and conditions on which the Company is permitted and required to make prepayments and repayments of principal of the obligations evidenced hereby and on which such obligations may be declared to be immediately due and payable.  This Note represents a full recourse obligation of the Company.

 

Certain capitalized terms used herein are defined in Section 23.

 

(1)            MATURITY .  On the Maturity Date, the Holder shall surrender this Note to the Company and the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 19(b)), if any.  The “ Maturity Date ” shall be April 20, 2021.

 

(2)            INTEREST; INTEREST RATE .

 

(a)           So long as no Event of Default has occurred and is continuing, the outstanding Principal balance of this Note shall accrue Interest from the Issuance Date through April 20, 2016 (the “ First Five Year Note Period ”), at the rate of twelve and one-half percent (12.5%) per annum (based on a 360-day year and the actual number of days elapsed in any partial year) (the “ First Five Year Interest Rate ”), compounding quarterly, which accrued Interest shall be added to the outstanding Principal balance of this Note on the last day of each calendar quarter and shall thereafter itself, as part of such Principal balance, accrue Interest at the First Five Year Interest Rate (and, during the Second Five Year Note Period (as defined below), at the Second Five Year Interest Rate (as defined below)), compounding quarterly.  All such

 

accrued Interest added to the outstanding Principal balance pursuant to the immediately preceding sentence shall be payable on the same terms and subject to the same conditions set forth herein.  Upon the occurrence of an Event of Default, Interest shall be calculated at the Default Rate as set forth in Section 2(c) below.

 

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

 

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

 

(d)

 

(i)           In addition to the foregoing, if any Major Event occurs at any time during the First Five Year Note Period, then all amounts of Interest that are then scheduled to be paid or accrued pursuant to Section 2(a) through and including the last day of the First Five Year Note Period, but that have not yet been paid pursuant to Section 2(a) (such amount, the “ First Five Year Major Event Interest Amount ”), will accelerate and become immediately due and payable by the Company by the issuance to the Holder of an additional convertible debt instrument with the same terms as this Note, in a principal amount equal to the First Five Year Major Event Interest Amount, and, at any time from and after the occurrence of the Major Event, the Holder may, at its option, elect to (A) convert this Note and such convertible debt instrument at the then effective Conversion Rate or (B) redeem all or any portion of the outstanding Principal balance of this Note and such convertible debt instrument, provided that for so long as this Note or such convertible debt instrument remain outstanding, subject to Section 2(d)(ii) below, no additional Interest shall accrue on this Note or such additional convertible debt instrument until the commencement of the Second Five Year Note Period.  If any Major Event occurs at any time during the Second Five Year Note Period, then all amounts of Interest that are then scheduled to be paid or accrued pursuant to Section 2(b) through and including the last day of the Second Five Year Note Period (assuming for this purpose that the Company would elect to pay all such Interest in cash), but that have not yet been paid pursuant to Section 2(b) (such amount, the “ Second Five Year Major Event Interest Amount ”), will accelerate and become immediately due and payable by the Company by the issuance to the Holder of an additional convertible debt instrument with the same terms as this

Note and in a principal amount equal to the Second Five Year Major Event Interest Amount or, at the Company’s option, by cash payment in immediately available funds of an amount equal to the Second Five Year Major Event Interest Amount paid within five (5) Business Days of the occurrence of the Major Event.  At any time following the occurrence of the Major Event, the Holder may, at its option, elect to (X) convert this Note and such convertible debt instrument (if any) at the then effective Conversion Rate or (Y) redeem all or any portion of the outstanding Principal balance of this Note and such convertible debt instrument (if any), provided that, for so long as this Note or any such convertible debt instrument remain outstanding, subject to Section 2(d)(ii) below, no additional Interest shall accrue on this Note or such additional convertible debt instrument for the duration of the Second Five Year Note Period.  For purposes of this Note, the term “ Major Event ” shall mean the occurrence of (i) the signing of a definitive agreement or a series of agreements for the transfer, sale, lease or license of all or substantially all of the Company’s assets or capital securities; (ii) the signing of a definitive agreement to consolidate or merge with or into another Person (whether or not the Company is the Successor Entity) resulting, after giving effect to the consummation of the transactions contemplated by such agreement, in such other Person (or the holders of such other Person’s capital stock immediately prior to the transaction) (other than the Holder) being or becoming the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent (35%) or more of any class of the Company’s or the Successor Entity’s outstanding capital securities; (iii) the signing of a definitive agreement or a series of agreements to consummate a stock acquisition or sale or other business combination (including, without limitation, a reorganization, recapitalization, or spin-off), or series thereof, with any other Person or Persons (other than the Holder) that results, after giving effect to the consummation of the transactions contemplated by such agreement or agreements, in such other Person or Persons being or becoming the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent (35%) or more of any class of the Company’s outstanding capital securities; or (iv) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 35% of the outstanding shares of Common Stock (other than the Holder) (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer),  or (v) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) (other than the Holder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of either (x) 35% or more of the aggregate ordinary voting power represented by issued and outstanding Common Stock or (y) 35% or more of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held by the such Person or Persons as of the date hereof.

 

(ii)           Notwithstanding the foregoing, in the event that, following a Major Event, an Event of Default occurs during the First Five Year Note Period while any portion of this Note and/or any convertible debt instrument issued pursuant to Section 2(d)(i) remains outstanding (such outstanding portion, the “ Post EOD Principal ”), the Company shall issue to the Holder an additional convertible debt instrument with the same terms as this Note and with a face principal amount equal to the difference (to the extent such difference is positive) between (A) the applicable EOD Accelerated Interest (as defined in Section 4(b)) on such Post EOD Principal, and (B) the First Five Year Major Event Interest Amount attributable to the Post EOD Principal and paid under Section 2(d)(i), and at any time following the occurrence of the

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

 

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

 

(f)           This Note is one of a series of notes issued by the Company pursuant to the Purchase Agreement containing substantially identical terms and conditions. Such Notes are referred to herein as the "Notes ," and the holders thereof (including the Holder) are referred to herein as the "Investors." The right of an Investor to receive payments of Principal and Interest under this Note shall be pari passu with the rights of the other Investors to receive payments of Principal and Interest under their respective Notes, and the Company covenants that any payments made by it with respect to the Notes shall be made pro rata among the Investors determined based on the ratio of the outstanding balance of Principal and Interest under each Note divided by the aggregate outstanding balance of Principal and Interest under all Notes.  By the Holder’s acceptance of this Note, the Holder agrees to the foregoing sentence.

 

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

 

(a)            Conversion Right .  At any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below).  The Company shall not issue any fraction of a share of Common Stock upon any conversion.  If any conversion would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock to the nearest whole share but shall have no obligation

 

to pay the Holder for any fraction of a share of Common Stock forfeited as a result of such rounding.  The Company shall pay any and all stock transfer, stamp, documentary and similar taxes (excluding any taxes on the income or gain of the Holder) that may be payable with respect to the issuance and delivery of shares of Common Stock to the Holder upon conversion of any Conversion Amount.  To the extent permitted by law, the Company and the Holder acknowledge and agree that any conversion of all or any portion of the Conversion Amount into shares of Common Stock pursuant to the terms of this Section 3(a) will not be treated as a taxable transaction and the Company and the Holder agree to report any such conversion in a manner consistent with the foregoing treatment.

 

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

 

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

 

(ii)          “ Conversion Price ” means $1.25, subject to adjustment as provided herein (including, without limitation, adjustment pursuant to Section 6).

 

(c)            Mechanics of Conversion .

 

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

 

to the Holder a new Note (in accordance with Section 17(d)), representing the outstanding Principal not converted.  The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

 

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

 

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

 

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

 

(4)            RIGHTS UPON EVENT OF DEFAULT .

 

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

 

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

 

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

(iii)         any acceleration prior to maturity of any Indebtedness referred to in clause (a) or (b) of the definition thereof of the Company or any of its Subsidiaries consisting of principal individually or in the aggregate equal to or greater than $250,000;

 

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

 

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

 

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

 

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

 

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

 

(ix)          if at any time while any portion of this Note remains outstanding (x) the Board of Directors fails to include one (1) Director designated by the Holder(s) of at least a majority of the Principal amount of the Notes outstanding, voting as a separate class (the “ Noteholder Director ”), provided that the Company shall have thirty (30) Business Days following the resignation, removal or death or disability of the Noteholder Director to appoint a successor Noteholder Director designated by the Holder(s) of at least a majority of the Principal amount of the Notes outstanding, voting as a separate class, unless such failure is the result of the failure by such Holders to notify the Company of the name of the replacement Noteholder Director, in which event the thirty (30) Business Day period shall be extended until a date which is ten (10) Business Days after notice of the name and background of the replacement Noteholder Director is given to the Company, or (y) without the consent of the Noteholder Director (or, in the absence of a Noteholder Director, the Holder(s) of at least a

 

majority of the Principal amount of the Notes outstanding), the Board of Directors exceeds seven (7) directors, or the Compensation Committee or Nominating Committee (or other committees serving similar functions) of the Board of Directors exceeds three (3) members, or (z) the Noteholder Director is not afforded the right to serve as a member of each of the Compensation Committee and Nominating Committee (or committees serving similar functions);

 

(x)           the failure of the Company for a period of ninety (90) days following the resignation and/or departure of either Samuel Greco or Steven Johnson to engage a replacement thereof that is reasonably acceptable to the Holder;

 

(xi)          the failure of the Company to achieve a listing on an Eligible Market within three (3) years after the Issuance Date;

 

(xii)         the Company or any Subsidiary shall fail to make any payment (whether of principal, interest or otherwise and regardless of amount) in respect of any Indebtedness in excess of $250,000 (“ Material Indebtedness ”), when and as the same shall become due and payable, after giving effect to any grace period with respect thereto;

 

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

 

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

 

(xv)         either (a) the Company's Board of Directors, a committee of the Board of Directors or the officer or officers of the Company authorized to take such action if board action is not required, concludes that any previously issued financial statements, including interim periods, should no longer be relied upon because of an error in such financial statements as addressed in Accounting Principles Board Opinion No. 20, as may be modified, supplemented or succeeded, or (b) the Company is advised by, or receives notice from, its independent accountant that disclosure should be made or action should be taken to prevent future reliance on a previously issued audit report or completed interim review related to previously issued financial statements, and in either case the amended financial statements required in order to permit reliance on such financial statements for the affected periods have not been filed with the SEC within ninety (90) days of the earliest such event;   provided , however that if the facts and/or circumstances underlying the Event of Default described in this Section 4(a)(xv) would also create or constitute a separate Event of Default under this Note, the cure period set forth in this Section 4(a)(xv) shall not supersede or prevent the application of any shorter cure period associated with such other applicable Event of Default, which may be enforced separately and independently.

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

 

(5)            RIGHTS UPON A CHANGE OF CONTROL .

 

(a)            Assumption .  The Company shall not enter into or be party to a transaction resulting in a Change of Control unless the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5(a) pursuant to written agreements on or prior to the consummation of such Change of Control, including the agreement to deliver to the Holder of this Note in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of this Note (the “ Successor Note ”).  Upon the occurrence of any Change of Control, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Change of Control, the provisions of this Note referring to the “Company” shall refer instead to

 

the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note with the same effect as if such Successor Entity had been named as the Company herein, until such time as the Successor Note is delivered.  Upon consummation of a Reclassification or Change of Control as a result of which holders of Common Stock shall be entitled to receive stock, securities, cash, assets or any other property with respect to or in exchange for such Common Stock, the Company or Successor Entity, as the case may be, shall deliver to the Holder confirmation that there shall be issued upon conversion of this Note at any time after the consummation of such Reclassification or Change of Control, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) issuable upon the conversion of this Note prior to such Reclassification or Change of Control, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Reclassification or Change of Control had this Note been converted immediately prior to such Reclassification or Change of Control, as adjusted in accordance with the provisions of this Note.  The provisions of this Section 5(a) shall apply similarly and equally to successive Change of Control transactions and shall be applied without regard to any limitations on the conversion of this Note.

 

(6)            RIGHTS UPON ISSUANCE OF OTHER SECURITIES .

 

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

 

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

 

(c)           (i)            Adjustment of Conversion Rate upon Cash Dividends and Distributions .  If the Company at any time, or from time to time, pays a dividend or makes a distribution in cash to the record holders of any class of Common Stock, then immediately after the close of business on the day that the Common Stock trades ex-distribution, the Conversion Price then in effect shall be reduced to an amount equal to the product of (i) the Conversion Price in effect immediately prior to such dividend or distribution and (ii) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock on the day that the Common Stock trades ex-distribution by (B) the sum of (1) the Closing Sale Price of the Common Stock on the

 

day that the Common Stock trades ex-distribution plus (2) the amount per share of such dividend or distribution.  The Company shall not be required to give effect to any adjustment in the Conversion Price pursuant to this Section 6(c) unless and until the net effect of one or more adjustments (each of which shall be carried forward until counted toward an adjustment), determined in accordance with this Section 6(c), shall have resulted in a change of the Conversion Price by at least 1%, and when the cumulative net effect of more than one adjustment so determined shall be to change the Conversion Price by at least 1%, such change in the Conversion Price shall then be given effect.

 

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

 

(d)            Adjustment of Conversion Rate Upon Issuance of Additional Shares of Common Stock .

 

(i)           In the event the Company shall, at any time after the Issuance Date and prior to the first anniversary thereof (the “ First Anniversary ”), issue or be deemed to issue Additional Shares of Common Stock without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such issuance, then the Conversion Price shall be reduced, concurrently with such issuance, to the consideration per share received by the Company for such issuance of the Additional Shares of Common Stock; provided that if such issuance was without consideration, then the Company shall be deemed to have received an aggregate of $0.001 of consideration for all such Additional Shares of Common Stock issued.

 

(ii)          In the event the Company shall at any time on or after the First Anniversary issue or be deemed to issue Additional Shares of Common Stock without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such issuance, then the Conversion Price shall be reduced, concurrently with such issuance, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:

 

CP2 = CP1* (A + B) ÷ (A + C).

For purposes of the foregoing formula, the following definitions shall apply:

 

(A)           “ CP 2 ” shall mean the Conversion Price in effect immediately after such issuance of Additional Shares of Common Stock

 

(B)           “ CP 1 ” shall mean the Conversion Price in effect immediately prior to such issuance of Additional Shares of Common Stock;

 

(C)           “ A ” shall mean the number of shares of Common Stock outstanding immediately prior to such issuance of Additional Shares of Common Stock;

 

(D)           “ B ” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP 1 (determined by dividing the aggregate consideration received by the Company in respect of such issuance by CP 1 ); and

 

(E)           “ C ” shall mean the number of such Additional Shares of Common Stock issued or deemed to be issued in such transaction.

 

(iii)            Determination of Consideration .  For purposes of this Section 6(d) , the consideration received by the Company for the issuance of any Additional Shares of Common Stock shall be computed as follows:

 

(A)           Cash and Property: Such consideration shall:

 

(1)           insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company, excluding amounts paid or payable for accrued interest;

 

(2)           insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issuance, as determined in good faith by the Board of Directors of the Company; and

 

(3)           in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received for the Additional Shares of Common Stock, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Company.

 

(B)            Options and Convertible Securities .  The consideration per share received by the Company for Additional Shares of Common Stock consisting of Options and Convertible Securities, shall be determined by dividing: (1) the total amount, if any, received or receivable by the Company as consideration for the issuance of such Options or Convertible Securities, plus the minimum aggregate amount of additional

consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (2) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

 

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

 

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

 

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

 

(8)            RESERVATION OF AUTHORIZED SHARES .

 

(a)            Reservation .  The Company shall at all times reserve out of its authorized and unissued shares of Common Stock a number of shares of Common Stock equal to 120% of the Conversion Rate with respect to the full Conversion Amount of this Note, solely for the purpose of effecting the conversion of this Note (the “ Required Reserve Amount ”).

 

(b)            Insufficient Authorized Shares .  If at any time while this Note remains outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve the Required Reserve Amount (an “ Authorized Share Failure ”), then the Company shall take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than seventy-five (75) days after the occurrence of such Authorized

Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its commercially reasonable efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

 

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

 

(10)          OTHER COVENANTS .

 

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

 

(b)            Quarterly Report of Outstanding Principal and Interest .  The Company covenants to deliver to the Holder, within 30 days following the end of each calendar quarter while any portion of this Note remains outstanding, a written statement signed by an authorized officer of the Company certifying (i) the amount of the outstanding Principal balance of this Note, including any Interest added to Principal pursuant to Section 2(a) and 2(b) above, and (ii) all accrued but unpaid Interest on such outstanding Principal balance, and (iii) all remaining scheduled payments of Interest through the Maturity Date, in each case as of the end of such calendar quarter.  The parties agree that the scheduled Interest payments through the Maturity Date as of the Issuance Date are reflected in Exhibit II attached hereto (which schedule is based on the assumptions outlined therein) and that each such quarterly statement delivered by the Company under this Section 10(b) shall update such schedule to take into account any conversions, Events of Default, Major Events or other events.

 

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

 

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

liquidated damages on this Note to the extent that, in such context, such liquidated damages are, were or would be payable in respect thereof pursuant to this Section 10(d).  For the avoidance of doubt, the Registrable Securities required to be included in any Registration Statement referred to in this Section 10(d) shall be determined according to the provisions of the Registration Rights Agreement, including all references to exceptions therein in such provisions related to the “Rule 415 Amount,” as applicable.

 

(11)            VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTE .  Any provision of this Note may be amended, waived or modified only upon the written consent of both the Company and the Holder.

 

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

 

(13)           REISSUANCE OF THIS NOTE.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(19)            NOTICES; PAYMENTS .

 

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

 

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

 

 

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

 

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

 

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

 

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

 

(a)           “ Additional Shares of Common Stock ” shall mean all shares of Common Stock issued and all shares of Common Stock issuable upon conversion of any Options or Convertible Securities issued by the Company after the Issuance Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities:

 

(i)           shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, combination or other distribution or recapitalization on shares of Common Stock that is covered by Section 6(b) or 6(c) of this Note; and

 

(ii)          shares of Common Stock, Options or Convertible Securities issued to employees or directors of, or consultants or advisors to, the Company or any of its Subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Company.

 

For the avoidance of doubt, shares of Common Stock issuable upon conversion or exericse of any Option or Convertible Security shall be deemed to have been issued, for the consideration described in Section 6(d)(iii)(B), on the date of issuance of the Option or Convertible Security, as the case may be.

 

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

 

(c)           “ Change of Control ” means the consummation of any Major Event.

 

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

 

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

 

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

 

(g)           “ Eligible Market ” means The New York Stock Exchange, Inc. (“NYSE”), including the NYSE Amex, or The Nasdaq Stock Market, or their successors.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

[Signature Page Follows]

 

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

 

 

		CareView Communications, Inc.
		By:	/s/ Steven Johnson
		Name:	Steven Johnson
		Title:	President/COO

 

EXHIBIT I

 

CAREVIEW COMMUNICATIONS, INC.

CONVERSION NOTICE

 

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

 

Date of Conversion:

Aggregate Conversion Amount to be converted:

Please confirm the following information:
Conversion Price:

Number of shares of Common Stock to be issued:

Please issue the Common Stock into which the Note is being converted in the following name and to the following address:
Issue to:

Facsimile Number:

Authorization:

By:

Title:

Dated:

Account Number:
(if electronic book entry transfer)
Transaction Code Number:
(if electronic book entry transfer)

EXHIBIT II

SCHEDULE INTEREST PAYMENTS AS OF ISSUANCE DATE

See attached.

---

---

Careview Communications, Inc. 8-K

 

 

Exhibit 10.74

SENIOR SECURED CONVERTIBLE NOTE

 

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

 

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

CAREVIEW COMMUNICATIONS, INC.

 

SENIOR SECURED CONVERTIBLE NOTE

 

Issuance Date :  April 21, 2011	Principal Amount:  U.S. $10,684,000
	(subject to Section 3(c)(iii) hereof)

 

 

Certain capitalized terms used herein are defined in Section 23.

 

(1)            MATURITY .  On the Maturity Date, the Holder shall surrender this Note to the Company and the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in Section 19(b)), if any.  The “ Maturity Date ” shall be April 20, 2021.

 

(2)            INTEREST; INTEREST RATE .

 

(a)           So long as no Event of Default has occurred and is continuing, the outstanding Principal balance of this Note shall accrue Interest from the Issuance Date through April 20, 2016 (the “ First Five Year Note Period ”), at the rate of twelve and one-half percent (12.5%) per annum (based on a 360-day year and the actual number of days elapsed in any partial year) (the “ First Five Year Interest Rate ”), compounding quarterly, which accrued Interest shall be added to the outstanding Principal balance of this Note on the last day of each calendar quarter and shall thereafter itself, as part of such Principal balance, accrue Interest at the First Five Year Interest Rate (and, during the Second Five Year Note Period (as defined below), at the Second Five Year Interest Rate (as defined below)), compounding quarterly.  All such

 

accrued Interest added to the outstanding Principal balance pursuant to the immediately preceding sentence shall be payable on the same terms and subject to the same conditions set forth herein.  Upon the occurrence of an Event of Default, Interest shall be calculated at the Default Rate as set forth in Section 2(c) below.

 

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

 

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

 

(d)

 

(i)           In addition to the foregoing, if any Major Event occurs at any time during the First Five Year Note Period, then all amounts of Interest that are then scheduled to be paid or accrued pursuant to Section 2(a) through and including the last day of the First Five Year Note Period, but that have not yet been paid pursuant to Section 2(a) (such amount, the “ First Five Year Major Event Interest Amount ”), will accelerate and become immediately due and payable by the Company by the issuance to the Holder of an additional convertible debt instrument with the same terms as this Note, in a principal amount equal to the First Five Year Major Event Interest Amount, and, at any time from and after the occurrence of the Major Event, the Holder may, at its option, elect to (A) convert this Note and such convertible debt instrument at the then effective Conversion Rate or (B) redeem all or any portion of the outstanding Principal balance of this Note and such convertible debt instrument, provided that for so long as this Note or such convertible debt instrument remain outstanding, subject to Section 2(d)(ii) below, no additional Interest shall accrue on this Note or such additional convertible debt instrument until the commencement of the Second Five Year Note Period.  If any Major Event occurs at any time during the Second Five Year Note Period, then all amounts of Interest that are then scheduled to be paid or accrued pursuant to Section 2(b) through and including the last day of the Second Five Year Note Period (assuming for this purpose that the Company would elect to pay all such Interest in cash), but that have not yet been paid pursuant to Section 2(b) (such amount, the “ Second Five Year Major Event Interest Amount ”), will accelerate and become immediately due and payable by the Company by the issuance to the Holder of an additional convertible debt instrument with the same terms as this

Note and in a principal amount equal to the Second Five Year Major Event Interest Amount or, at the Company’s option, by cash payment in immediately available funds of an amount equal to the Second Five Year Major Event Interest Amount paid within five (5) Business Days of the occurrence of the Major Event.  At any time following the occurrence of the Major Event, the Holder may, at its option, elect to (X) convert this Note and such convertible debt instrument (if any) at the then effective Conversion Rate or (Y) redeem all or any portion of the outstanding Principal balance of this Note and such convertible debt instrument (if any), provided that, for so long as this Note or any such convertible debt instrument remain outstanding, subject to Section 2(d)(ii) below, no additional Interest shall accrue on this Note or such additional convertible debt instrument for the duration of the Second Five Year Note Period.  For purposes of this Note, the term “ Major Event ” shall mean the occurrence of (i) the signing of a definitive agreement or a series of agreements for the transfer, sale, lease or license of all or substantially all of the Company’s assets or capital securities; (ii) the signing of a definitive agreement to consolidate or merge with or into another Person (whether or not the Company is the Successor Entity) resulting, after giving effect to the consummation of the transactions contemplated by such agreement, in such other Person (or the holders of such other Person’s capital stock immediately prior to the transaction) (other than the Holder) being or becoming the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent (35%) or more of any class of the Company’s or the Successor Entity’s outstanding capital securities; (iii) the signing of a definitive agreement or a series of agreements to consummate a stock acquisition or sale or other business combination (including, without limitation, a reorganization, recapitalization, or spin-off), or series thereof, with any other Person or Persons (other than the Holder) that results, after giving effect to the consummation of the transactions contemplated by such agreement or agreements, in such other Person or Persons being or becoming the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent (35%) or more of any class of the Company’s outstanding capital securities; or (iv) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 35% of the outstanding shares of Common Stock (other than the Holder) (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer),  or (v) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) (other than the Holder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of either (x) 35% or more of the aggregate ordinary voting power represented by issued and outstanding Common Stock or (y) 35% or more of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held by the such Person or Persons as of the date hereof.

 

(ii)           Notwithstanding the foregoing, in the event that, following a Major Event, an Event of Default occurs during the First Five Year Note Period while any portion of this Note and/or any convertible debt instrument issued pursuant to Section 2(d)(i) remains outstanding (such outstanding portion, the “ Post EOD Principal ”), the Company shall issue to the Holder an additional convertible debt instrument with the same terms as this Note and with a face principal amount equal to the difference (to the extent such difference is positive) between (A) the applicable EOD Accelerated Interest (as defined in Section 4(b)) on such Post EOD Principal, and (B) the First Five Year Major Event Interest Amount attributable to the Post EOD Principal and paid under Section 2(d)(i), and at any time following the occurrence of the

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

 

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

 

(f)           This Note is one of a series of notes issued by the Company pursuant to the Purchase Agreement containing substantially identical terms and conditions. Such Notes are referred to herein as the "Notes ," and the holders thereof (including the Holder) are referred to herein as the "Investors." The right of an Investor to receive payments of Principal and Interest under this Note shall be pari passu with the rights of the other Investors to receive payments of Principal and Interest under their respective Notes, and the Company covenants that any payments made by it with respect to the Notes shall be made pro rata among the Investors determined based on the ratio of the outstanding balance of Principal and Interest under each Note divided by the aggregate outstanding balance of Principal and Interest under all Notes.  By the Holder’s acceptance of this Note, the Holder agrees to the foregoing sentence.

 

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

 

(a)            Conversion Right .  At any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below).  The Company shall not issue any fraction of a share of Common Stock upon any conversion.  If any conversion would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock to the nearest whole share but shall have no obligation

 

to pay the Holder for any fraction of a share of Common Stock forfeited as a result of such rounding.  The Company shall pay any and all stock transfer, stamp, documentary and similar taxes (excluding any taxes on the income or gain of the Holder) that may be payable with respect to the issuance and delivery of shares of Common Stock to the Holder upon conversion of any Conversion Amount.  To the extent permitted by law, the Company and the Holder acknowledge and agree that any conversion of all or any portion of the Conversion Amount into shares of Common Stock pursuant to the terms of this Section 3(a) will not be treated as a taxable transaction and the Company and the Holder agree to report any such conversion in a manner consistent with the foregoing treatment.

 

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

 

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

 

(ii)          “ Conversion Price ” means $1.25, subject to adjustment as provided herein (including, without limitation, adjustment pursuant to Section 6).

 

(c)            Mechanics of Conversion .

 

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

 

to the Holder a new Note (in accordance with Section 17(d)), representing the outstanding Principal not converted.  The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

 

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

 

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

 

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

 

(4)            RIGHTS UPON EVENT OF DEFAULT .

 

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

 

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

 

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

(iii)         any acceleration prior to maturity of any Indebtedness referred to in clause (a) or (b) of the definition thereof of the Company or any of its Subsidiaries consisting of principal individually or in the aggregate equal to or greater than $250,000;

 

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

 

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

 

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

 

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

 

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

 

(ix)          if at any time while any portion of this Note remains outstanding (x) the Board of Directors fails to include one (1) Director designated by the Holder(s) of at least a majority of the Principal amount of the Notes outstanding, voting as a separate class (the “ Noteholder Director ”), provided that the Company shall have thirty (30) Business Days following the resignation, removal or death or disability of the Noteholder Director to appoint a successor Noteholder Director designated by the Holder(s) of at least a majority of the Principal amount of the Notes outstanding, voting as a separate class, unless such failure is the result of the failure by such Holders to notify the Company of the name of the replacement Noteholder Director, in which event the thirty (30) Business Day period shall be extended until a date which is ten (10) Business Days after notice of the name and background of the replacement Noteholder Director is given to the Company, or (y) without the consent of the Noteholder Director (or, in the absence of a Noteholder Director, the Holder(s) of at least a

 

majority of the Principal amount of the Notes outstanding), the Board of Directors exceeds seven (7) directors, or the Compensation Committee or Nominating Committee (or other committees serving similar functions) of the Board of Directors exceeds three (3) members, or (z) the Noteholder Director is not afforded the right to serve as a member of each of the Compensation Committee and Nominating Committee (or committees serving similar functions);

 

(x)           the failure of the Company for a period of ninety (90) days following the resignation and/or departure of either Samuel Greco or Steven Johnson to engage a replacement thereof that is reasonably acceptable to the Holder;

 

(xi)          the failure of the Company to achieve a listing on an Eligible Market within three (3) years after the Issuance Date;

 

(xii)         the Company or any Subsidiary shall fail to make any payment (whether of principal, interest or otherwise and regardless of amount) in respect of any Indebtedness in excess of $250,000 (“ Material Indebtedness ”), when and as the same shall become due and payable, after giving effect to any grace period with respect thereto;

 

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

 

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

 

(xv)         either (a) the Company's Board of Directors, a committee of the Board of Directors or the officer or officers of the Company authorized to take such action if board action is not required, concludes that any previously issued financial statements, including interim periods, should no longer be relied upon because of an error in such financial statements as addressed in Accounting Principles Board Opinion No. 20, as may be modified, supplemented or succeeded, or (b) the Company is advised by, or receives notice from, its independent accountant that disclosure should be made or action should be taken to prevent future reliance on a previously issued audit report or completed interim review related to previously issued financial statements, and in either case the amended financial statements required in order to permit reliance on such financial statements for the affected periods have not been filed with the SEC within ninety (90) days of the earliest such event;   provided , however that if the facts and/or circumstances underlying the Event of Default described in this Section 4(a)(xv) would also create or constitute a separate Event of Default under this Note, the cure period set forth in this Section 4(a)(xv) shall not supersede or prevent the application of any shorter cure period associated with such other applicable Event of Default, which may be enforced separately and independently.

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

 

(5)            RIGHTS UPON A CHANGE OF CONTROL .

 

(a)            Assumption .  The Company shall not enter into or be party to a transaction resulting in a Change of Control unless the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5(a) pursuant to written agreements on or prior to the consummation of such Change of Control, including the agreement to deliver to the Holder of this Note in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of this Note (the “ Successor Note ”).  Upon the occurrence of any Change of Control, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Change of Control, the provisions of this Note referring to the “Company” shall refer instead to

 

the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note with the same effect as if such Successor Entity had been named as the Company herein, until such time as the Successor Note is delivered.  Upon consummation of a Reclassification or Change of Control as a result of which holders of Common Stock shall be entitled to receive stock, securities, cash, assets or any other property with respect to or in exchange for such Common Stock, the Company or Successor Entity, as the case may be, shall deliver to the Holder confirmation that there shall be issued upon conversion of this Note at any time after the consummation of such Reclassification or Change of Control, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) issuable upon the conversion of this Note prior to such Reclassification or Change of Control, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Reclassification or Change of Control had this Note been converted immediately prior to such Reclassification or Change of Control, as adjusted in accordance with the provisions of this Note.  The provisions of this Section 5(a) shall apply similarly and equally to successive Change of Control transactions and shall be applied without regard to any limitations on the conversion of this Note.

 

(6)            RIGHTS UPON ISSUANCE OF OTHER SECURITIES .

 

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

 

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

 

(c)           (i)            Adjustment of Conversion Rate upon Cash Dividends and Distributions .  If the Company at any time, or from time to time, pays a dividend or makes a distribution in cash to the record holders of any class of Common Stock, then immediately after the close of business on the day that the Common Stock trades ex-distribution, the Conversion Price then in effect shall be reduced to an amount equal to the product of (i) the Conversion Price in effect immediately prior to such dividend or distribution and (ii) the quotient determined by dividing (A) the Closing Sale Price of the Common Stock on the day that the Common Stock trades ex-distribution by (B) the sum of (1) the Closing Sale Price of the Common Stock on the

 

day that the Common Stock trades ex-distribution plus (2) the amount per share of such dividend or distribution.  The Company shall not be required to give effect to any adjustment in the Conversion Price pursuant to this Section 6(c) unless and until the net effect of one or more adjustments (each of which shall be carried forward until counted toward an adjustment), determined in accordance with this Section 6(c), shall have resulted in a change of the Conversion Price by at least 1%, and when the cumulative net effect of more than one adjustment so determined shall be to change the Conversion Price by at least 1%, such change in the Conversion Price shall then be given effect.

 

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

 

(d)            Adjustment of Conversion Rate Upon Issuance of Additional Shares of Common Stock .

 

(i)           In the event the Company shall, at any time after the Issuance Date and prior to the first anniversary thereof (the “ First Anniversary ”), issue or be deemed to issue Additional Shares of Common Stock without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such issuance, then the Conversion Price shall be reduced, concurrently with such issuance, to the consideration per share received by the Company for such issuance of the Additional Shares of Common Stock; provided that if such issuance was without consideration, then the Company shall be deemed to have received an aggregate of $0.001 of consideration for all such Additional Shares of Common Stock issued.

 

(ii)          In the event the Company shall at any time on or after the First Anniversary issue or be deemed to issue Additional Shares of Common Stock without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such issuance, then the Conversion Price shall be reduced, concurrently with such issuance, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:

 

CP2 = CP1* (A + B) ÷ (A + C).

For purposes of the foregoing formula, the following definitions shall apply:

 

(A)           “ CP 2 ” shall mean the Conversion Price in effect immediately after such issuance of Additional Shares of Common Stock

 

(B)           “ CP 1 ” shall mean the Conversion Price in effect immediately prior to such issuance of Additional Shares of Common Stock;

 

(C)           “ A ” shall mean the number of shares of Common Stock outstanding immediately prior to such issuance of Additional Shares of Common Stock;

 

(D)           “ B ” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP 1 (determined by dividing the aggregate consideration received by the Company in respect of such issuance by CP 1 ); and

 

(E)           “ C ” shall mean the number of such Additional Shares of Common Stock issued or deemed to be issued in such transaction.

 

(iii)            Determination of Consideration .  For purposes of this Section 6(d) , the consideration received by the Company for the issuance of any Additional Shares of Common Stock shall be computed as follows:

 

(A)           Cash and Property: Such consideration shall:

 

(1)           insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company, excluding amounts paid or payable for accrued interest;

 

(2)           insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issuance, as determined in good faith by the Board of Directors of the Company; and

 

(3)           in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received for the Additional Shares of Common Stock, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Company.

 

(B)            Options and Convertible Securities .  The consideration per share received by the Company for Additional Shares of Common Stock consisting of Options and Convertible Securities, shall be determined by dividing: (1) the total amount, if any, received or receivable by the Company as consideration for the issuance of such Options or Convertible Securities, plus the minimum aggregate amount of additional

consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (2) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

 

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

 

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

 

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

 

(8)            RESERVATION OF AUTHORIZED SHARES .

 

(a)            Reservation .  The Company shall at all times reserve out of its authorized and unissued shares of Common Stock a number of shares of Common Stock equal to 120% of the Conversion Rate with respect to the full Conversion Amount of this Note, solely for the purpose of effecting the conversion of this Note (the “ Required Reserve Amount ”).

 

(b)            Insufficient Authorized Shares .  If at any time while this Note remains outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve the Required Reserve Amount (an “ Authorized Share Failure ”), then the Company shall take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than seventy-five (75) days after the occurrence of such Authorized

Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its commercially reasonable efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

 

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

 

(10)          OTHER COVENANTS .

 

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

 

(b)            Quarterly Report of Outstanding Principal and Interest .  The Company covenants to deliver to the Holder, within 30 days following the end of each calendar quarter while any portion of this Note remains outstanding, a written statement signed by an authorized officer of the Company certifying (i) the amount of the outstanding Principal balance of this Note, including any Interest added to Principal pursuant to Section 2(a) and 2(b) above, and (ii) all accrued but unpaid Interest on such outstanding Principal balance, and (iii) all remaining scheduled payments of Interest through the Maturity Date, in each case as of the end of such calendar quarter.  The parties agree that the scheduled Interest payments through the Maturity Date as of the Issuance Date are reflected in Exhibit II attached hereto (which schedule is based on the assumptions outlined therein) and that each such quarterly statement delivered by the Company under this Section 10(b) shall update such schedule to take into account any conversions, Events of Default, Major Events or other events.

 

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

 

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

liquidated damages on this Note to the extent that, in such context, such liquidated damages are, were or would be payable in respect thereof pursuant to this Section 10(d).  For the avoidance of doubt, the Registrable Securities required to be included in any Registration Statement referred to in this Section 10(d) shall be determined according to the provisions of the Registration Rights Agreement, including all references to exceptions therein in such provisions related to the “Rule 415 Amount,” as applicable.

 

(11)            VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTE .  Any provision of this Note may be amended, waived or modified only upon the written consent of both the Company and the Holder.

 

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

 

(13)           REISSUANCE OF THIS NOTE.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(19)            NOTICES; PAYMENTS .

 

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

 

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

 

 

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

 

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

 

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

 

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

 

(a)           “ Additional Shares of Common Stock ” shall mean all shares of Common Stock issued and all shares of Common Stock issuable upon conversion of any Options or Convertible Securities issued by the Company after the Issuance Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities:

 

(i)           shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, combination or other distribution or recapitalization on shares of Common Stock that is covered by Section 6(b) or 6(c) of this Note; and

 

(ii)          shares of Common Stock, Options or Convertible Securities issued to employees or directors of, or consultants or advisors to, the Company or any of its Subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Company.

 

For the avoidance of doubt, shares of Common Stock issuable upon conversion or exericse of any Option or Convertible Security shall be deemed to have been issued, for the consideration described in Section 6(d)(iii)(B), on the date of issuance of the Option or Convertible Security, as the case may be.

 

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

 

(c)           “ Change of Control ” means the consummation of any Major Event.

 

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

 

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

 

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

 

(g)           “ Eligible Market ” means The New York Stock Exchange, Inc. (“NYSE”), including the NYSE Amex, or The Nasdaq Stock Market, or their successors.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

[Signature Page Follows]

 

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

 

 

		CareView Communications, Inc.
		By:	/s/ Steven Johnson
		Name:	Steven Johnson
		Title:	President/COO

 

EXHIBIT I

 

CAREVIEW COMMUNICATIONS, INC.

CONVERSION NOTICE

 

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

 

Date of Conversion:

Aggregate Conversion Amount to be converted:

Please confirm the following information:
Conversion Price:

Number of shares of Common Stock to be issued:

Please issue the Common Stock into which the Note is being converted in the following name and to the following address:
Issue to:

Facsimile Number:

Authorization:

By:

Title:

Dated:

Account Number:
(if electronic book entry transfer)
Transaction Code Number:
(if electronic book entry transfer)

EXHIBIT II

SCHEDULE INTEREST PAYMENTS AS OF ISSUANCE DATE

See attached.

---

---

Careview Communications, Inc. 8-K

 

 

Exhibit 10.75

 

THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD WITHOUT RESTRICTION PURSUANT TO RULE 144, OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

 

SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON APRIL 21, 2021 (THE “ EXPIRATION DATE ”).

 

No. __________

 

CAREVIEW COMMUNICATIONS, INC.

 

 

COMMON STOCK, PAR VALUE $0.001 PER SHARE

 

Section 1.       Registration .  The Company shall maintain books for the transfer and registration of the Warrant.  Upon the initial issuance of this Warrant, the Company shall issue and register the Warrant in the name of the Warrantholder.

 

Section 2.       Transfers .  As provided herein, this Warrant may be transferred only pursuant to a registration statement filed under the Securities Act of 1933, as amended (the “ Securities Act ”), or an exemption from such registration.  Subject to such restrictions, the Company shall transfer this Warrant from time to time upon the books to be maintained by the Company for that purpose, upon surrender hereof for transfer, properly endorsed or accompanied by appropriate instructions for transfer and such other documents as may be reasonably required by the Company, including, if required by the Company, an opinion of its counsel to the effect

 

that such transfer is exempt from the registration requirements of the Securities Act, to establish that such transfer is being made in accordance with the terms hereof, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be canceled by the Company.

 

Section 3.       Exercise of Warrant .  Subject to the provisions hereof, the Warrantholder may exercise this Warrant, in whole or in part, at any time from and after April 21, 2011 and prior to its expiration upon surrender of the Warrant, together with delivery of a duly executed Warrant exercise form, in the form attached hereto as Appendix A (the “ Exercise Agreement ”) and payment by cash, certified check or wire transfer of funds (or, in certain circumstances, by cashless exercise as provided below) of the aggregate Warrant Price for that number of Warrant Shares then being purchased, to the Company during normal business hours on any business day at the Company’s principal executive offices or such other office or agency of the Company as it may designate by notice to the Warrantholder (such date, the “ Exercise Date ”).  The Warrant Shares so purchased shall be deemed to be issued to the Warrantholder or the Warrantholder’s designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered (or the date evidence of loss, theft or destruction thereof and security or indemnity satisfactory to the Company has been provided to the Company), the Warrant Price shall have been paid and the completed Exercise Agreement shall have been delivered.   Execution and delivery of the Exercise Agreement with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or before the first (1 st ) business day following the Exercise Date, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Agreement (or Net Issue Election Notice, if applicable, pursuant to Section 18) to the Warrantholder and the Company’s transfer agent (the “ Transfer Agent ”).  On or before the third (3 rd ) business day following the Exercise Date (the “ Share Delivery Date ”), the Company shall (A) provided that the Transfer Agent is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program, upon the request of the Warrantholder, credit such aggregate number of Warrant Shares to which the Warrantholder is entitled pursuant to such exercise to the Warrantholder’s or its designee’s balance account with DTC through its Deposit Withdrawal At Custodian system, or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver by overnight courier to the address as specified in the Exercise Agreement or Net Issue Election Notice, a certificate, registered in the Company’s share register in the name of the Warrantholder or its designee, for the number of shares of Common Stock to which the Warrantholder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the Transfer Agent and all fees and expenses with respect to the issuance of Warrant Shares via DTC, if any.  Any certificates so delivered shall be in such denominations as may be requested by the Warrantholder and shall be registered in the name of the Warrantholder or such other name as shall be designated by the Warrantholder, as specified in the Exercise Agreement or Net Issue Election Notice, if applicable.  If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates (or of crediting the Warrantholder’s balance account with DTC), deliver to the Warrantholder a new Warrant representing the right to purchase the number of shares with respect to which this Warrant shall not then have been exercised.  As used herein, “ business day ” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.  Each exercise hereof shall constitute the re-affirmation by the Warrantholder that the representations and warranties contained in Section 3 of the Purchase Agreement are true and correct in all material respects with respect to the Warrantholder as of the time of such exercise.

 

If (1) the Company shall fail for any reason or no reason to issue to the Warrantholder within three (3) business days (such third business day, a “ Warrant Share Delivery Date ”) of after the Exercise Date, in compliance with the terms of this Section 3, a certificate for the number of Warrant Shares to which the Warrantholder is entitled and register such shares on the Company’s share register or to credit the Warrantholder’s balance account at DTC for such number of Warrant Shares to which the Warrantholder is entitled upon the exercise of this Warrant, and (2) on or after the Warrant Share Delivery Date, the Warrantholder, or any third party on behalf of the Warrantholder or for the Warrantholder’s account, purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Warrantholder of shares issuable upon exercise that the Warrantholder anticipated receiving from the Company (a “ Buy-In ”), then the Company shall pay in cash to the Warrantholder (for costs incurred either directly by such Warrantholder or on behalf of a third party) the amount by which the total purchase price paid for Common Stock as a result of the Buy-In (including brokerage commissions, if any) exceeds the proceeds received by such Warrantholder as a result of the sale to which such Buy-In relates.  The Warrantholder shall provide the Company written notice indicating the amounts payable to the Warrantholder in respect of the Buy-In.

 

Section 4.       Compliance with the Securities Act . Except as provided in the Purchase Agreement, the Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant, and a similar legend on any security issued or issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary.

 

Section 5.       Payment of Taxes .  The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the Warrantholder in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company’s reasonable satisfaction that such tax has been paid.  The Warrantholder shall be responsible for income taxes due under federal, state or other law, if any such tax is due.

 

Section 6.       Mutilated or Missing Warrants .  In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon surrender and cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company.

 

Section 7.       Reservation of Common Stock .  The Company hereby represents and warrants that there have been reserved, and the Company shall at all applicable times keep reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and unissued shares of Common Stock, sufficient shares to provide for the exercise of the rights of purchase represented by this Warrant.  The Company agrees that all Warrant Shares issued upon due exercise of this Warrant shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company.

 

 

Section 8.       Adjustments .  Subject and pursuant to the provisions of this Section 8, the Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter.

 

(a)           If the Company shall, at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then (i) the Warrant Price in effect immediately prior to the date on which such change shall become effective shall be adjusted by multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such change and the denominator of which shall be the number of shares of Common Stock outstanding immediately after giving effect to such change and (ii) the number of Warrant Shares purchasable upon exercise of this Warrant shall be adjusted by multiplying the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior to the date on which such change shall become effective by a fraction, the numerator of which is shall be the Warrant Price in effect immediately prior to the date on which such change shall become effective and the denominator of which shall be the Warrant Price in effect immediately after giving effect to such change, calculated in accordance with clause (i) above.  Such adjustments shall be made successively whenever any event listed above shall occur.

 

(b)           If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of this Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of this Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof.  The Company shall not effect any such consolidation, merger, sale, transfer or other disposition

unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Warrantholder, at the last address of the Warrantholder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrantholder may be entitled to purchase, and the other obligations under this Warrant.  The provisions of this paragraph (b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions.

 

(c)           In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such payment date shall be determined by multiplying the Warrant Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price (as defined below) per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date.  “ Market Price ” as of a particular date (the “ Valuation Date ”) shall mean the following: (a) if the Common Stock is then listed on Nasdaq or any other national stock exchange, the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on the Pink OTC Market (the “ Bulletin Board ”) or a similar quotation system or association, the closing sale price of one share of Common Stock on the Bulletin Board or such other quotation system or association on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted thereon on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on the Bulletin Board or such other quotation system or association, the fair market value of one share of Common Stock as of the Valuation Date, as determined in good faith by the Board of Directors of the Company and the Warrantholder.  If the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other quotation system or association, the Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrantholder prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company.  In the event that the Board of Directors of the Company and the Warrantholder are unable to agree upon the fair market value in respect of subpart (c) of this paragraph, the Company and the Warrantholder shall jointly select an appraiser, who is experienced in such matters.  The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne equally by the Company and the Warrantholder.  Such adjustment shall be made successively whenever such a payment date is fixed.

(d)           An adjustment to the Warrant Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.

 

(e)           In the event that, as a result of an adjustment made pursuant to this Section 8, the Warrantholder shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant.

 

(f)           If and whenever the Company shall issue or sell, or is, in accordance with any of subsections (f)(l) through (f)(7) hereof, deemed to have issued or sold, any Additional Shares of Common Stock for no consideration or for a consideration per share less than the Warrant Price in effect immediately prior to the time of such issue or sale (such lower price, the “ Dilutive Price ”), then and in each such case (a “ Trigger Issuance ”) the then-existing Warrant Price, shall be reduced, as of the close of business on the effective date of the Trigger Issuance, to a price determined as follows: (i) if the Trigger Issuance occurs any time after the Issuance Date and prior to the first anniversary thereof (the “ First Anniversary ”), the Warrant Price shall be reduced and only reduced to equal the Dilutive Price and (ii) if the Trigger Issuance occurs any time on or after the First Anniversary, the Warrant Price shall be reduced to a price determined according to the following formula:

Adjusted Warrant Price = (A x B) + D

A+C

where

“A” equals the number of shares of Common Stock outstanding immediately preceding such Trigger Issuance;

“B” equals the Warrant Price in effect immediately preceding such Trigger Issuance;

“C” equals the number of Additional Shares of Common Stock issued or deemed issued hereunder as a result of the Trigger Issuance; and

“D” equals the aggregate consideration, if any, received or deemed to be received by the Company upon such Trigger Issuance;

provided, however, that in no event shall the Warrant Price after giving effect to such Trigger Issuance be greater than the Warrant Price in effect prior to such Trigger Issuance.

For purposes of this subsection (f), “Additional Shares of Common Stock” shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this subsection (f), other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities: (x) shares of Common Stock, Options or Convertible Securities

issued by reason of a dividend, stock split, combination or other distribution or recapitalization on shares of Common Stock that is covered by Section 8(a) of this Warrant; and (y) shares of Common Stock, Options or Convertible Securities issued to employees or directors of, or consultants or advisors to, the Company or any of its Subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Company;

 

For purposes of this subsection (f), the following subsections (f)(l) to (f)(7) shall also be applicable:

(f)(1)  Issuance of Rights or Options.  In case at any time the Company shall in any manner grant (directly and not by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called “ Options ” and such convertible or exchangeable stock or securities being called “ Convertible Securities ”) whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus (y) the aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Warrant Price in effect immediately prior to the time of the granting of such Options, then the total number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Price.  Except as otherwise provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities.

(f)(2)  Issuance of Convertible Securities.  In case the Company shall in any manner issue (directly and not by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange

(determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Warrant Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Price, provided that (a) except as otherwise provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and (b) no further adjustment of the Warrant Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Warrant Price have been made pursuant to the other provisions of subsection 8(f).

(f)(3) Change in Option Price or Conversion Rate.  Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subsection 8(f)(l) hereof, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subsections 8(f)(l) or 8(f)(2), or the rate at which Convertible Securities referred to in subsections 8(f)(l) or 8(f)(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Warrant Price in effect at the time of such event shall forthwith be readjusted to the Warrant Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold.  On the termination of any Option for which any adjustment was made pursuant to this subsection 8(f) or any right to convert or exchange Convertible Securities for which any adjustment was made pursuant to this subsection 8(f) (including without limitation upon the redemption or purchase for consideration of such Convertible Securities by the Company), the Warrant Price then in effect hereunder shall forthwith be changed to the Warrant Price which would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination, never been issued.

(f)(4) Stock Dividends.  Subject to the provisions of this Section 8(f), in case the Company shall declare or pay a dividend or make any other distribution upon any stock of the Company (other than the Common Stock) payable in Common Stock, Options or Convertible Securities, then any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration.

 

(f)(5) Consideration for Stock.  In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor, after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith.  In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Company, after deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith.  In case any Options shall be issued in connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Company.  If Common Stock, Options or Convertible Securities shall be issued or sold by the Company and, in connection therewith, other Options or Convertible Securities (the “ Additional Rights ”) are issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value of the Additional Rights (as determined using the Black-Scholes option pricing model or another method mutually agreed to by the Company and the Warrantholder).  The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrantholder as to the fair market value of the Additional Rights.  In the event that the Board of Directors of the Company and the Warrantholder are unable to agree upon the fair market value of the Additional Rights, the Company and the Warrantholder shall jointly select an appraiser, who is experienced in such matters.  The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne evenly by the Company and the Warrantholder.

(f)(6) Record Date.  In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(f)(7) Treasury Shares.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an issue or sale of Common Stock for the purpose of this subsection (f).

(g)           To the extent permitted by applicable law and the listing requirements of any stock market or exchange on which the Common Stock is then listed, the Company from time to time may decrease the Warrant Price by any amount for any period of time if the period is at least twenty (20) days, the decrease is irrevocable during the period and the Board shall have made a determination that such decrease would be in the best interests of the Company, which determination shall be conclusive.  Whenever the Warrant Price is decreased pursuant to the preceding sentence, the Company shall provide written notice thereof to the Warrantholder at least five (5) days prior to the date the decreased Warrant Price takes effect, and such notice shall state the decreased Warrant Price and the period during which it will be in effect.

 

Section 9.       Fractional Interest .  The Company shall not be required to issue fractions of Warrant Shares upon the exercise of this Warrant.  If any fractional share of Common Stock would, except for the provisions of the first sentence of this Section 9, be deliverable upon such exercise, the Company, in lieu of delivering such fractional share, shall pay to the exercising Warrantholder an amount in cash equal to the Market Price of such fractional share of Common Stock on the date of exercise.

 

Section 10.     Extension of Expiration Date .  If the Company fails to cause any Registration Statement covering Registrable Securities (as defined in the Registration Rights Agreement) to be declared effective prior to the applicable dates set forth therein, or if any of the events specified in Section 3(b) of the Registration Rights Agreement occurs, and the Blackout Period (as defined in the Registration Rights Agreement) (whether alone, or in combination with any other Blackout Period) continues for more than 60 days in any 12 month period, or for more than a total of 90 days, then the Expiration Date of this Warrant shall be extended one day for each day beyond the 60-day or 90-day limits, as the case may be, that the Blackout Period continues.

 

Section 11.     Benefits .  Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Warrantholder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrantholder.

 

Section 12.     Notices to Warrantholder .  Upon the happening of any event requiring an adjustment of the Warrant Price, the Company shall promptly give written notice thereof to the Warrantholder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.  Failure to give such notice to the Warrantholder or any defect therein shall not affect the legality or validity of the subject adjustment.

 

Section 13.     Identity of Transfer Agent .  The Transfer Agent for the Common Stock is Holladay Stock Transfer, Inc.  Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company’s capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Company will mail to the Warrantholder a statement setting forth the name and address of such transfer agent.

 

Section 14.     Notices .  Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or facsimile, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier.  All notices shall be addressed as follows: if to the Warrantholder, at its address as set forth in the Company’s books and records and, if to the Company, at the address as follows, or at such other address as the Warrantholder or the Company may designate by ten days’ advance written notice to the other:

 

If to the Company:

 

CareView Communications, Inc.

405 State Highway 121

Suite B-240

Lewisville, TX 75067

Attention:  Chief Executive Officer

Fax:  (972) 403-7659

 

With a copy to:

 

Law Offices of Carl A. Generes

4358 Shady Bend Drive

Dallas, Texas 75244-7447

Attn: Carl A. Generes

Fax: (972) 715-5700

Section 15.     Registration Rights .  The initial Warrantholder is entitled to the benefit of certain registration rights with respect to the shares of Common Stock issuable upon the exercise of this Warrant as provided in the Registration Rights Agreement, and any subsequent Warrantholder may be entitled to such rights.

 

Section 16.     Successors .  All the covenants and provisions hereof by or for the benefit of the Warrantholder shall bind and inure to the benefit of its respective successors and permitted assigns hereunder.

 

Section 17.     Governing Law; Consent to Jurisdiction; Waiver of Jury Trial .  This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without reference to the choice of law provisions thereof.  The Company and, by accepting this Warrant, the Warrantholder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of Delaware and the United States District Court for the District of Delaware for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby.  Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by

the same methods as are specified for the giving of notices under this Warrant.  The Company and, by accepting this Warrant, the Warrantholder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court.  The Company and, by accepting this Warrant, the Warrantholder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

Section 18.     Cashless Exercise.   Notwithstanding any other provision contained herein to the contrary, the Warrantholder may elect to receive, without the payment by the Warrantholder of the aggregate Warrant Price in respect of the shares of Common Stock to be acquired, shares of Common Stock of equal value to the value of this Warrant, or any specified portion hereof, by the surrender of this Warrant (or such portion of this Warrant being so exercised) together with a Net Issue Election Notice, in the form annexed hereto as Appendix B (the “ Net Issue Election Notice ”), duly executed, to the Company.  Thereupon, the Company shall issue to the Warrantholder such number of fully paid, validly issued and nonassessable shares of Common Stock as is computed using the following formula:

 

X = Y (A - B)

A

 

where

 

X =           the number of shares of Common Stock to which the Warrantholder is entitled upon such cashless exercise;

 

Y =           the total number of shares of Common Stock covered by this Warrant for which the Warrantholder has surrendered purchase rights at such time for cashless exercise (including both shares to be issued to the Warrantholder and shares as to which the purchase rights are to be canceled as payment therefor);

 

A =           the “Market Price” of one share of Common Stock as at the date the net issue election is made; and

 

B =           the Warrant Price in effect under this Warrant at the time the net issue election is made.

 

Section 19.    [Intentionally Omitted].

 

Section 20.     No Rights as Shareholder .  Prior to the exercise of this Warrant, the Warrantholder shall not have or exercise any rights as a shareholder of the Company by virtue of its ownership of this Warrant.

 

Section 21.     Amendment; Waiver; Termination .  This Warrant is one of a series of Warrants of like tenor issued by the Company pursuant to the Purchase Agreement and initially

covering an aggregate of up to 11,782,859 shares of Common Stock (collectively, the “ Company Warrants ”).  Any term of this Warrant may be amended or waived (including the adjustment provisions included in Section 8 of this Warrant) and the Warrant may be terminated upon the written consent of the Company and the holders of Company Warrants representing at least a majority of the number of shares of Common Stock then subject to all outstanding Company Warrants; provided , that (x) any such amendment or waiver or termination must apply to all Company Warrants; and (y) except as provided in the adjustment provisions of this Warrant, the number of Warrant Shares subject to this Warrant, the Warrant Price and the Expiration Date may not be amended, and the right to exercise this Warrant may not be altered or waived, without the written consent of the Warrantholder.

 

Section 22.     Section Headings .  The section headings in this Warrant are for the convenience of the Company and the Warrantholder and in no way alter, modify, amend, limit or restrict the provisions hereof.

 

 

[Signature Page Follows.]

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the 21 st day of April, 2011.

 

APPENDIX A

CAREVIEW COMMUNICATIONS, INC.

WARRANT EXERCISE FORM

 

To Careview Communications, Inc.:

 

The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant (“ Warrant ”) for, and to purchase thereunder by the payment of the Warrant Price and surrender of the Warrant, _______________ shares of Common Stock (“ Warrant Shares ”) provided for therein, and requests that certificates for the Warrant Shares be issued as follows:

 

_______________________________

Name

________________________________

Address

________________________________

________________________________

Federal Tax ID or Social Security No.

and delivered by              (certified mail to the above address, or

(electronically (provide DWAC

Instructions:___________________), or

(other (specify): __________________________________________).

and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares purchasable upon exercise of this Warrant be registered in the name of the undersigned Warrantholder or the undersigned’s Assignee as below indicated and delivered to the address stated below.

Dated: ___________________, ____

Signature:___________________________

Note:  The signature must correspond with

the name of the Warrantholder as written

on the first page of the Warrant in every                                               ______________________________

particular, without alteration or enlargement                                         Name (please print)

or any change whatever, unless the Warrant

has been assigned.                                                                                    ______________________________

      ______________________________

  Address

  ______________________________

  Federal Identification or

  Social Security No.

  Assignee:

  _______________________________

  _______________________________

APPENDIX B

CAREVIEW COMMUNICATIONS, INC.

NET ISSUE ELECTION NOTICE

To: CareView Communications, Inc.

Date:[_________________________]

The undersigned hereby elects under Section 18 of this Warrant to surrender the right to purchase [____________] shares of Common Stock pursuant to this Warrant and hereby requests the issuance of [_____________] shares of Common Stock.  The certificate(s) for the shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below.

_________________________________________

Signature

_________________________________________

Name for Registration

_________________________________________

Mailing Address

---

---

Careview Communications, Inc. 8-K

 

 

Exhibit 10.76

 

THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD WITHOUT RESTRICTION PURSUANT TO RULE 144, OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.

 

SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON APRIL 21, 2021 (THE “ EXPIRATION DATE ”).

 

No. __________

 

CAREVIEW COMMUNICATIONS, INC.

 

WARRANT TO PURCHASE 6,294,403 SHARES OF

 

COMMON STOCK, PAR VALUE $0.001 PER SHARE

 

For VALUE RECEIVED, HealthCor Hybrid Offshore Master Fund, L.P. (“ Warrantholder ”), is entitled to purchase, subject to the provisions of this Warrant, from CareView Communications, Inc., a Nevada corporation (“ Company ”), from and after April 21, 2011 and at any time not later than 5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an exercise price per share equal to $1.40   (the exercise price in effect being herein called the “ Warrant Price ”), 6,294,403 shares (“ Warrant Shares ”) of the Company’s Common Stock, par value $0.001 per share (“ Common Stock ”).  The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as described herein.  This Warrant is being issued pursuant to the Note and Warrant Purchase Agreement, dated as of April 21, 2011, as the same may be amended and/or restated from time to time (the “ Purchase Agreement ”), among the Company and the initial holder of the Company Warrants (as defined below).  Capitalized terms used herein have the respective meanings ascribed thereto in the Note and Warrant and Purchase Agreement unless otherwise defined herein.

 

Section 1.       Registration .  The Company shall maintain books for the transfer and registration of the Warrant.  Upon the initial issuance of this Warrant, the Company shall issue and register the Warrant in the name of the Warrantholder.

 

Section 2.       Transfers .  As provided herein, this Warrant may be transferred only pursuant to a registration statement filed under the Securities Act of 1933, as amended (the “ Securities Act ”), or an exemption from such registration.  Subject to such restrictions, the Company shall transfer this Warrant from time to time upon the books to be maintained by the Company for that purpose, upon surrender hereof for transfer, properly endorsed or accompanied by appropriate instructions for transfer and such other documents as may be reasonably required by the Company, including, if required by the Company, an opinion of its counsel to the effect

 

that such transfer is exempt from the registration requirements of the Securities Act, to establish that such transfer is being made in accordance with the terms hereof, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be canceled by the Company.

 

Section 3.       Exercise of Warrant .  Subject to the provisions hereof, the Warrantholder may exercise this Warrant, in whole or in part, at any time from and after April 21, 2011 and prior to its expiration upon surrender of the Warrant, together with delivery of a duly executed Warrant exercise form, in the form attached hereto as Appendix A (the “ Exercise Agreement ”) and payment by cash, certified check or wire transfer of funds (or, in certain circumstances, by cashless exercise as provided below) of the aggregate Warrant Price for that number of Warrant Shares then being purchased, to the Company during normal business hours on any business day at the Company’s principal executive offices or such other office or agency of the Company as it may designate by notice to the Warrantholder (such date, the “ Exercise Date ”).  The Warrant Shares so purchased shall be deemed to be issued to the Warrantholder or the Warrantholder’s designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered (or the date evidence of loss, theft or destruction thereof and security or indemnity satisfactory to the Company has been provided to the Company), the Warrant Price shall have been paid and the completed Exercise Agreement shall have been delivered.   Execution and delivery of the Exercise Agreement with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or before the first (1 st ) business day following the Exercise Date, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Agreement (or Net Issue Election Notice, if applicable, pursuant to Section 18) to the Warrantholder and the Company’s transfer agent (the “ Transfer Agent ”).  On or before the third (3 rd ) business day following the Exercise Date (the “ Share Delivery Date ”), the Company shall (A) provided that the Transfer Agent is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program, upon the request of the Warrantholder, credit such aggregate number of Warrant Shares to which the Warrantholder is entitled pursuant to such exercise to the Warrantholder’s or its designee’s balance account with DTC through its Deposit Withdrawal At Custodian system, or (B) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver by overnight courier to the address as specified in the Exercise Agreement or Net Issue Election Notice, a certificate, registered in the Company’s share register in the name of the Warrantholder or its designee, for the number of shares of Common Stock to which the Warrantholder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the Transfer Agent and all fees and expenses with respect to the issuance of Warrant Shares via DTC, if any.  Any certificates so delivered shall be in such denominations as may be requested by the Warrantholder and shall be registered in the name of the Warrantholder or such other name as shall be designated by the Warrantholder, as specified in the Exercise Agreement or Net Issue Election Notice, if applicable.  If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates (or of crediting the Warrantholder’s balance account with DTC), deliver to the Warrantholder a new Warrant representing the right to purchase the number of shares with respect to which this Warrant shall not then have been exercised.  As used herein, “ business day ” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.  Each exercise hereof shall constitute the re-affirmation by the Warrantholder that the representations and warranties contained in Section 3 of the Purchase Agreement are true and correct in all material respects with respect to the Warrantholder as of the time of such exercise.

 

If (1) the Company shall fail for any reason or no reason to issue to the Warrantholder within three (3) business days (such third business day, a “ Warrant Share Delivery Date ”) of after the Exercise Date, in compliance with the terms of this Section 3, a certificate for the number of Warrant Shares to which the Warrantholder is entitled and register such shares on the Company’s share register or to credit the Warrantholder’s balance account at DTC for such number of Warrant Shares to which the Warrantholder is entitled upon the exercise of this Warrant, and (2) on or after the Warrant Share Delivery Date, the Warrantholder, or any third party on behalf of the Warrantholder or for the Warrantholder’s account, purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Warrantholder of shares issuable upon exercise that the Warrantholder anticipated receiving from the Company (a “ Buy-In ”), then the Company shall pay in cash to the Warrantholder (for costs incurred either directly by such Warrantholder or on behalf of a third party) the amount by which the total purchase price paid for Common Stock as a result of the Buy-In (including brokerage commissions, if any) exceeds the proceeds received by such Warrantholder as a result of the sale to which such Buy-In relates.  The Warrantholder shall provide the Company written notice indicating the amounts payable to the Warrantholder in respect of the Buy-In.

 

Section 4.       Compliance with the Securities Act . Except as provided in the Purchase Agreement, the Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant, and a similar legend on any security issued or issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary.

 

Section 5.       Payment of Taxes .  The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the Warrantholder in respect of which such shares are issued, and in such case, the Company shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company’s reasonable satisfaction that such tax has been paid.  The Warrantholder shall be responsible for income taxes due under federal, state or other law, if any such tax is due.

 

Section 6.       Mutilated or Missing Warrants .  In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon surrender and cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Company.

 

Section 7.       Reservation of Common Stock .  The Company hereby represents and warrants that there have been reserved, and the Company shall at all applicable times keep reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and unissued shares of Common Stock, sufficient shares to provide for the exercise of the rights of purchase represented by this Warrant.  The Company agrees that all Warrant Shares issued upon due exercise of this Warrant shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company.

 

 

Section 8.       Adjustments .  Subject and pursuant to the provisions of this Section 8, the Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter.

 

(a)           If the Company shall, at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then (i) the Warrant Price in effect immediately prior to the date on which such change shall become effective shall be adjusted by multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such change and the denominator of which shall be the number of shares of Common Stock outstanding immediately after giving effect to such change and (ii) the number of Warrant Shares purchasable upon exercise of this Warrant shall be adjusted by multiplying the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior to the date on which such change shall become effective by a fraction, the numerator of which is shall be the Warrant Price in effect immediately prior to the date on which such change shall become effective and the denominator of which shall be the Warrant Price in effect immediately after giving effect to such change, calculated in accordance with clause (i) above.  Such adjustments shall be made successively whenever any event listed above shall occur.

 

(b)           If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation in which the Company is not the survivor, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of this Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of this Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof.  The Company shall not effect any such consolidation, merger, sale, transfer or other disposition

unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the Warrantholder, at the last address of the Warrantholder appearing on the books of the Company, such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Warrantholder may be entitled to purchase, and the other obligations under this Warrant.  The provisions of this paragraph (b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions.

 

(c)           In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such payment date shall be determined by multiplying the Warrant Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price (as defined below) per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date.  “ Market Price ” as of a particular date (the “ Valuation Date ”) shall mean the following: (a) if the Common Stock is then listed on Nasdaq or any other national stock exchange, the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on the Pink OTC Market (the “ Bulletin Board ”) or a similar quotation system or association, the closing sale price of one share of Common Stock on the Bulletin Board or such other quotation system or association on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted thereon on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on the Bulletin Board or such other quotation system or association, the fair market value of one share of Common Stock as of the Valuation Date, as determined in good faith by the Board of Directors of the Company and the Warrantholder.  If the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other quotation system or association, the Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrantholder prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company.  In the event that the Board of Directors of the Company and the Warrantholder are unable to agree upon the fair market value in respect of subpart (c) of this paragraph, the Company and the Warrantholder shall jointly select an appraiser, who is experienced in such matters.  The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne equally by the Company and the Warrantholder.  Such adjustment shall be made successively whenever such a payment date is fixed.

(d)           An adjustment to the Warrant Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.

 

(e)           In the event that, as a result of an adjustment made pursuant to this Section 8, the Warrantholder shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant.

 

(f)           If and whenever the Company shall issue or sell, or is, in accordance with any of subsections (f)(l) through (f)(7) hereof, deemed to have issued or sold, any Additional Shares of Common Stock for no consideration or for a consideration per share less than the Warrant Price in effect immediately prior to the time of such issue or sale (such lower price, the “ Dilutive Price ”), then and in each such case (a “ Trigger Issuance ”) the then-existing Warrant Price, shall be reduced, as of the close of business on the effective date of the Trigger Issuance, to a price determined as follows: (i) if the Trigger Issuance occurs any time after the Issuance Date and prior to the first anniversary thereof (the “ First Anniversary ”), the Warrant Price shall be reduced and only reduced to equal the Dilutive Price and (ii) if the Trigger Issuance occurs any time on or after the First Anniversary, the Warrant Price shall be reduced to a price determined according to the following formula:

Adjusted Warrant Price = (A x B) + D

A+C

where

“A” equals the number of shares of Common Stock outstanding immediately preceding such Trigger Issuance;

“B” equals the Warrant Price in effect immediately preceding such Trigger Issuance;

“C” equals the number of Additional Shares of Common Stock issued or deemed issued hereunder as a result of the Trigger Issuance; and

“D” equals the aggregate consideration, if any, received or deemed to be received by the Company upon such Trigger Issuance;

provided, however, that in no event shall the Warrant Price after giving effect to such Trigger Issuance be greater than the Warrant Price in effect prior to such Trigger Issuance.

For purposes of this subsection (f), “Additional Shares of Common Stock” shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this subsection (f), other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities: (x) shares of Common Stock, Options or Convertible Securities

issued by reason of a dividend, stock split, combination or other distribution or recapitalization on shares of Common Stock that is covered by Section 8(a) of this Warrant; and (y) shares of Common Stock, Options or Convertible Securities issued to employees or directors of, or consultants or advisors to, the Company or any of its Subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Company;

 

For purposes of this subsection (f), the following subsections (f)(l) to (f)(7) shall also be applicable:

(f)(1)  Issuance of Rights or Options.  In case at any time the Company shall in any manner grant (directly and not by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called “ Options ” and such convertible or exchangeable stock or securities being called “ Convertible Securities ”) whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus (y) the aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Warrant Price in effect immediately prior to the time of the granting of such Options, then the total number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Price.  Except as otherwise provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities.

(f)(2)  Issuance of Convertible Securities.  In case the Company shall in any manner issue (directly and not by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange

(determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Warrant Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Price, provided that (a) except as otherwise provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and (b) no further adjustment of the Warrant Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Warrant Price have been made pursuant to the other provisions of subsection 8(f).

(f)(3) Change in Option Price or Conversion Rate.  Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subsection 8(f)(l) hereof, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subsections 8(f)(l) or 8(f)(2), or the rate at which Convertible Securities referred to in subsections 8(f)(l) or 8(f)(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Warrant Price in effect at the time of such event shall forthwith be readjusted to the Warrant Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold.  On the termination of any Option for which any adjustment was made pursuant to this subsection 8(f) or any right to convert or exchange Convertible Securities for which any adjustment was made pursuant to this subsection 8(f) (including without limitation upon the redemption or purchase for consideration of such Convertible Securities by the Company), the Warrant Price then in effect hereunder shall forthwith be changed to the Warrant Price which would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination, never been issued.

(f)(4) Stock Dividends.  Subject to the provisions of this Section 8(f), in case the Company shall declare or pay a dividend or make any other distribution upon any stock of the Company (other than the Common Stock) payable in Common Stock, Options or Convertible Securities, then any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration.

 

(f)(5) Consideration for Stock.  In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor, after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith.  In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Company, after deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith.  In case any Options shall be issued in connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Company.  If Common Stock, Options or Convertible Securities shall be issued or sold by the Company and, in connection therewith, other Options or Convertible Securities (the “ Additional Rights ”) are issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value of the Additional Rights (as determined using the Black-Scholes option pricing model or another method mutually agreed to by the Company and the Warrantholder).  The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Warrantholder as to the fair market value of the Additional Rights.  In the event that the Board of Directors of the Company and the Warrantholder are unable to agree upon the fair market value of the Additional Rights, the Company and the Warrantholder shall jointly select an appraiser, who is experienced in such matters.  The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne evenly by the Company and the Warrantholder.

(f)(6) Record Date.  In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(f)(7) Treasury Shares.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an issue or sale of Common Stock for the purpose of this subsection (f).

(g)           To the extent permitted by applicable law and the listing requirements of any stock market or exchange on which the Common Stock is then listed, the Company from time to time may decrease the Warrant Price by any amount for any period of time if the period is at least twenty (20) days, the decrease is irrevocable during the period and the Board shall have made a determination that such decrease would be in the best interests of the Company, which determination shall be conclusive.  Whenever the Warrant Price is decreased pursuant to the preceding sentence, the Company shall provide written notice thereof to the Warrantholder at least five (5) days prior to the date the decreased Warrant Price takes effect, and such notice shall state the decreased Warrant Price and the period during which it will be in effect.

 

Section 9.       Fractional Interest .  The Company shall not be required to issue fractions of Warrant Shares upon the exercise of this Warrant.  If any fractional share of Common Stock would, except for the provisions of the first sentence of this Section 9, be deliverable upon such exercise, the Company, in lieu of delivering such fractional share, shall pay to the exercising Warrantholder an amount in cash equal to the Market Price of such fractional share of Common Stock on the date of exercise.

 

Section 10.     Extension of Expiration Date .  If the Company fails to cause any Registration Statement covering Registrable Securities (as defined in the Registration Rights Agreement) to be declared effective prior to the applicable dates set forth therein, or if any of the events specified in Section 3(b) of the Registration Rights Agreement occurs, and the Blackout Period (as defined in the Registration Rights Agreement) (whether alone, or in combination with any other Blackout Period) continues for more than 60 days in any 12 month period, or for more than a total of 90 days, then the Expiration Date of this Warrant shall be extended one day for each day beyond the 60-day or 90-day limits, as the case may be, that the Blackout Period continues.

 

Section 11.     Benefits .  Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Warrantholder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrantholder.

 

Section 12.     Notices to Warrantholder .  Upon the happening of any event requiring an adjustment of the Warrant Price, the Company shall promptly give written notice thereof to the Warrantholder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.  Failure to give such notice to the Warrantholder or any defect therein shall not affect the legality or validity of the subject adjustment.

 

Section 13.     Identity of Transfer Agent .  The Transfer Agent for the Common Stock is Holladay Stock Transfer, Inc.  Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Company’s capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Company will mail to the Warrantholder a statement setting forth the name and address of such transfer agent.

 

Section 14.     Notices .  Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or facsimile, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier.  All notices shall be addressed as follows: if to the Warrantholder, at its address as set forth in the Company’s books and records and, if to the Company, at the address as follows, or at such other address as the Warrantholder or the Company may designate by ten days’ advance written notice to the other:

 

If to the Company:

 

CareView Communications, Inc.

405 State Highway 121

Suite B-240

Lewisville, TX 75067

Attention:  Chief Executive Officer

Fax:  (972) 403-7659

 

With a copy to:

 

Law Offices of Carl A. Generes

4358 Shady Bend Drive

Dallas, Texas 75244-7447

Attn: Carl A. Generes

Fax: (972) 715-5700

Section 15.     Registration Rights .  The initial Warrantholder is entitled to the benefit of certain registration rights with respect to the shares of Common Stock issuable upon the exercise of this Warrant as provided in the Registration Rights Agreement, and any subsequent Warrantholder may be entitled to such rights.

 

Section 16.     Successors .  All the covenants and provisions hereof by or for the benefit of the Warrantholder shall bind and inure to the benefit of its respective successors and permitted assigns hereunder.

 

Section 17.     Governing Law; Consent to Jurisdiction; Waiver of Jury Trial .  This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without reference to the choice of law provisions thereof.  The Company and, by accepting this Warrant, the Warrantholder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of Delaware and the United States District Court for the District of Delaware for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby.  Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by

the same methods as are specified for the giving of notices under this Warrant.  The Company and, by accepting this Warrant, the Warrantholder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court.  The Company and, by accepting this Warrant, the Warrantholder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

Section 18.     Cashless Exercise.   Notwithstanding any other provision contained herein to the contrary, the Warrantholder may elect to receive, without the payment by the Warrantholder of the aggregate Warrant Price in respect of the shares of Common Stock to be acquired, shares of Common Stock of equal value to the value of this Warrant, or any specified portion hereof, by the surrender of this Warrant (or such portion of this Warrant being so exercised) together with a Net Issue Election Notice, in the form annexed hereto as Appendix B (the “ Net Issue Election Notice ”), duly executed, to the Company.  Thereupon, the Company shall issue to the Warrantholder such number of fully paid, validly issued and nonassessable shares of Common Stock as is computed using the following formula:

 

X = Y (A - B)

A

 

where

 

X =           the number of shares of Common Stock to which the Warrantholder is entitled upon such cashless exercise;

 

Y =           the total number of shares of Common Stock covered by this Warrant for which the Warrantholder has surrendered purchase rights at such time for cashless exercise (including both shares to be issued to the Warrantholder and shares as to which the purchase rights are to be canceled as payment therefor);

 

A =           the “Market Price” of one share of Common Stock as at the date the net issue election is made; and

 

B =           the Warrant Price in effect under this Warrant at the time the net issue election is made.

 

Section 19.    [Intentionally Omitted].

 

Section 20.     No Rights as Shareholder .  Prior to the exercise of this Warrant, the Warrantholder shall not have or exercise any rights as a shareholder of the Company by virtue of its ownership of this Warrant.

 

Section 21.     Amendment; Waiver; Termination .  This Warrant is one of a series of Warrants of like tenor issued by the Company pursuant to the Purchase Agreement and initially

covering an aggregate of up to 11,782,859 shares of Common Stock (collectively, the “ Company Warrants ”).  Any term of this Warrant may be amended or waived (including the adjustment provisions included in Section 8 of this Warrant) and the Warrant may be terminated upon the written consent of the Company and the holders of Company Warrants representing at least a majority of the number of shares of Common Stock then subject to all outstanding Company Warrants; provided , that (x) any such amendment or waiver or termination must apply to all Company Warrants; and (y) except as provided in the adjustment provisions of this Warrant, the number of Warrant Shares subject to this Warrant, the Warrant Price and the Expiration Date may not be amended, and the right to exercise this Warrant may not be altered or waived, without the written consent of the Warrantholder.

 

Section 22.     Section Headings .  The section headings in this Warrant are for the convenience of the Company and the Warrantholder and in no way alter, modify, amend, limit or restrict the provisions hereof.

 

 

[Signature Page Follows.]

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the 21 st day of April, 2011.

 

APPENDIX A

CAREVIEW COMMUNICATIONS, INC.

WARRANT EXERCISE FORM

 

To Careview Communications, Inc.:

 

The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant (“ Warrant ”) for, and to purchase thereunder by the payment of the Warrant Price and surrender of the Warrant, _______________ shares of Common Stock (“ Warrant Shares ”) provided for therein, and requests that certificates for the Warrant Shares be issued as follows:

 

_______________________________

Name

________________________________

Address

________________________________

________________________________

Federal Tax ID or Social Security No.

and delivered by              (certified mail to the above address, or

(electronically (provide DWAC

Instructions:___________________), or

(other (specify): __________________________________________).

and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares purchasable upon exercise of this Warrant be registered in the name of the undersigned Warrantholder or the undersigned’s Assignee as below indicated and delivered to the address stated below.

Dated: ___________________, ____

Signature:___________________________

Note:  The signature must correspond with

the name of the Warrantholder as written

on the first page of the Warrant in every                                               ______________________________

particular, without alteration or enlargement                                         Name (please print)

or any change whatever, unless the Warrant

has been assigned.                                                                                    ______________________________

      ______________________________

  Address

  ______________________________

  Federal Identification or

  Social Security No.

  Assignee:

  _______________________________

  _______________________________

APPENDIX B

CAREVIEW COMMUNICATIONS, INC.

NET ISSUE ELECTION NOTICE

To: CareView Communications, Inc.

Date:[_________________________]

The undersigned hereby elects under Section 18 of this Warrant to surrender the right to purchase [____________] shares of Common Stock pursuant to this Warrant and hereby requests the issuance of [_____________] shares of Common Stock.  The certificate(s) for the shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below.

_________________________________________

Signature

_________________________________________

Name for Registration

_________________________________________

Mailing Address

---

---

Careview Communications, Inc. 8-K

 

 

Exhibit 10.77

 

---

---

Careview Communications, Inc. 8-K

 

 

Exhibit 10.78

 

PLEDGE AND SECURITY AGREEMENT

 

THIS PLEDGE AND SECURITY AGREEMENT (as it may be amended or modified from time to time, the “ Security Agreement ”) is entered into as of April 21, 2011 by and among CareView Communications, Inc., a Nevada corporation (“ CareView NV ”), CareView Communications, Inc., a Texas corporation (“ CareView TX ”), CareView Operations, LLC, a Texas limited liability company (“ CareView LLC ” and together with CareView NV and CareView TX, collectively referred to herein as the “ Grantor ”), and HealthCor Partners Fund, L.P., a Delaware limited partnership (“ HealthCor Partners ”) and HealthCor Hybrid Offshore Master Fund L.P., a Caymen Islands limited partnership (“ HealthCor Offshore ” and together with HealthCor Partners, the “ Secured Parties ”).

 

PRELIMINARY STATEMENT

 

Reference is hereby made to that certain Note and Warrant Purchase Agreement dated as of April 21, 2011 (as it may be amended or modified from time to time, the “ Purchase Agreement ”) by and among CareView NV and the Secured Parties.  CareView NV is entering into this Security Agreement in order to induce the Secured Parties to enter into, and to advance the Purchase Price to CareView NV under, the Purchase Agreement and to secure all of the obligations of CareView NV to the Secured Parties under the Purchase Agreement and the other Transaction Documents (the “ Obligations ”). CareView TX and CareView LLC are entering into this Security Agreement as a result of the substantial direct and indirect financial benefit they will derive from the Secured Parties’ purchase of the Notes from CareView NV and because the Secured Parties have required them to be parties hereto as a condition precedent to the consummation of the transactions contemplated in the Purchase Agreement.

 

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants set forth herein, the Grantor and the Secured Parties hereby agree as follows:

 

ARTICLE I

DEFINITIONS

1.1.            Terms Defined in Purchase Agreement .  All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Purchase Agreement.

 

1.2.            Terms Defined in UCC .  Terms defined in the UCC which are not otherwise defined in this Security Agreement are used herein as defined in the UCC.

 

1.3.            Definitions of Certain Terms Used Herein .  As used in this Security Agreement, in addition to the terms defined in the Preliminary Statement, the following terms shall have the following meanings:

 

“ Accounts ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Article ” means a numbered article of this Security Agreement, unless another document is specifically referenced.

 

“ Charges ” means all federal, state, county, city, municipal, local, foreign or other governmental taxes, levies, assessments, charges or claims, in each case then due and payable, upon or relating to (a) any property of the Grantor, (b) the Notes, (c) the Grantor’s employees, payroll, income or gross receipts, (d) the Grantor’s ownership or use of any of its property, or (e) any other aspect of the Grantor’s business.

“ Chattel Paper ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Collateral ” shall have the meaning set forth in Article II.

 

“ Commercial Tort Claims ” means “commercial tort claims” as set forth in Article 9 of the UCC and shall include, without limitation, any existing commercial tort claims of the Grantor set forth in Exhibit C-2 attached hereto.

 

“ Contracts ” means, collectively, all of the Grantor’s rights and remedies under, and all moneys and claims for money due or to become due to the Grantor under all contracts and other agreements between the Grantor and any party (other than the Secured Parties) and all amendments, supplements, extensions, and renewals thereof, including all rights and claims of the Grantor now or hereafter existing: (a) under any insurance, indemnities, warranties, and guarantees provided for or arising out of or in connection with any of the foregoing agreements; (b) for any damages arising out of or for breach or default under or in connection with any of the foregoing agreements; (c) to all other amounts from time to time paid or payable under or in connection with any of the foregoing agreements; or (d) to exercise or enforce any and all covenants, remedies, powers and privileges under or in connection with any of the foregoing agreements.

 

“ Control ” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.

 

“ Control Agreement ” means an agreement, in form and substance satisfactory to the Secured Parties, among (i) the Grantor, (ii) a banking institution, securities broker or securities intermediary at which the Grantor maintains a Deposit Account or a securities account, and (iii) the Secured Parties, providing for the Secured Parties to have Control over the funds or securities and other financial assets held in such Deposit Account or securities account.

 

“ Copyrights ” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:  (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations, and copyright applications; (b) all renewals of any of the foregoing; (c) all income, royalties, damages, and payments now or hereafter due and/or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements for any of the foregoing; (d) the right to sue for past, present, and future infringements of any of the foregoing; and (e) all rights corresponding to any of the foregoing throughout the world.

 

“ Default ” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

 

“ Deposit Accounts ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Documents ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Equipment ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Event of Default ” shall have the meaning set forth in Section 5.1.

 

“ Exhibit ” refers to a specific exhibit to this Security Agreement, unless another document is specifically referenced.

 

“ Fixtures ” shall have the meaning set forth in Article 9 of the UCC.

“ General Intangibles ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Goods ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Instruments ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Inventory ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Investment Property ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Letter-of-Credit Rights ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Licenses ” means, with respect to any Person, all of such Person’s right, title, and interest in and to (a) any and all licensing agreements or similar arrangements in and to its Patents, Copyrights, or Trademarks, (b) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future breaches thereof, and (c) all rights to sue for past, present, and future breaches thereof.

 

“ Patents ” means, with respect to any Person, all of such Person’s right, title, and interest in and to:  (a) any and all patents and patent applications; (b) all inventions and improvements described and claimed therein; (c) all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof; (d) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements thereof; and (f) all rights corresponding to any of the foregoing throughout the world.

 

“ Permitted Encumbrances ” means (a) Liens in favor and for the benefit of the Secured Parties; (b) Liens in favor and for the benefit of the lenders under the Revolving Debt Facility (as defined in the Purchase Agreement), (c) non-exclusive licenses of the Grantor’s intellectual property granted to hospitals in the ordinary course of the Grantor’s business pursuant to the Grantor’s hospital contracts; (d) non-exclusive licenses of the Grantor’s intellectual property granted to subsidiaries of the Grantor in connection with existing joint venture transactions and future joint venture transactions entered into by the Grantor to the extent involving new hospitals, new businesses or international markets; (e)   Liens in favor and for the benefit of joint venture partners arising from joint venture transactions entered into by the Grantor to the extent involving new hospitals, new businesses or international markets; (f) Liens for Charges not delinquent or being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been established by the Grantor on its financial statements in accordance with GAAP; (g) deposits or pledges to secure obligations under workers’ compensation, social security or similar laws, or with respect to unemployment insurance; (h) bonded and statutory Liens of landlords, mechanics, workers, materialmens or other like Liens arising in the ordinary course of the business with respect to obligations which are not delinquent; (i) Liens placed upon tangible assets hereafter acquired to secure payment of the purchase price thereof, provided that any such Lien shall not encumber any other property of the Grantor; and (j) zoning restrictions and easements, licenses, covenants and other restrictions that do not individually, or in the aggregate, materially and adversely affect the use of the Grantor’s owned, leased or licensed real property for its intended purpose in connection with the business.

 

“ Pledged Collateral ” means all Instruments, Securities and other Investment Property of the Grantor, whether or not physically delivered to the Secured Parties pursuant to this Security Agreement.

 

“ Receivables ” means, with respect to the Grantor, all rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered, including, without limitation, all such rights constituting or evidenced by an Account, Chattel Paper, Document, Investment Property, Instrument, or any other right or claim to receive money which is a General Intangible or which is otherwise included as Collateral.

 

“ Section ” means a numbered section of this Security Agreement, unless another document is specifically referenced.

 

“ Security ” has the meaning set forth in Article 8 of the UCC.

 

“ Stock Rights ” means all dividends, instruments or other distributions and any other right or property which the Grantor shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for, or in exchange for any Equity Interest constituting Collateral, any right to receive an Equity Interest and any right to receive earnings, in which the Grantor now has or hereafter acquires any right, issued by an issuer of such Equity Interest.

 

“ Supporting Obligations ” shall have the meaning set forth in Article 9 of the UCC.

 

“ Trademarks ” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:  (a) all trademarks (including service marks), trade names, trade dress, and trade styles and the registrations and applications for registration thereof and the goodwill of the business symbolized by the foregoing; (b) all licenses of the foregoing, whether as licensee or licensor; (c) all renewals of the foregoing; (d) all income, royalties, damages, and payments now or hereafter due or payable with respect thereto, including, without limitation, damages, claims, and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements of the foregoing, including the right to settle suits involving claims and demands for royalties owing; and (f) all rights corresponding to any of the foregoing throughout the world.

 

“ UCC ” means the Uniform Commercial Code, as in effect from time to time, of the State of Delaware or of any other state the laws of which are required as a result thereof to be applied in connection with the attachment, perfection or priority of, or remedies with respect to, the Secured Parties’ Lien on any Collateral.

 

The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.

 

ARTICLE II

GRANT OF SECURITY INTEREST

2.1.            Grant of Security Interest .  The Grantor hereby pledges, assigns and grants to the Secured Parties a security interest in all of its right, title and interest in, to and under all personal property and other tangible and intangible assets, whether now owned by or owing to, or hereafter acquired by or arising in favor of the Grantor (including under any trade name or derivations thereof), and whether owned or consigned by or to, or leased from or to, the Grantor, and wherever located (all of which will be collectively referred to as the “ Collateral ”), including, without limitation:

 

(i)           all Accounts;

 

(ii)          all Chattel Paper;

 

(iii)         all Copyrights, Patents and Trademarks;

(iv)         all Documents;

 

(v)          all Equipment;

 

(vi)         all Fixtures;

 

(vii)        all General Intangibles;

 

(viii)       all Goods;

 

(ix)          all Instruments;

 

(x)           all Inventory;

 

(xi)          all Investment Property;

 

(xii)         all cash or cash equivalents;

 

(xiii)        all letters of credit, Letter-of-Credit Rights and Supporting Obligations;

 

(xiv)        all Deposit Accounts with any bank or other financial institution;

 

(xv)         all Commercial Tort Claims;

 

(xvi)        all Contracts; and

 

(xvii)       all accessions to, substitutions for and replacements, proceeds (including Stock Rights), insurance proceeds and products of the foregoing, together with all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records related thereto and any General Intangibles at any time evidencing or relating to any of the foregoing.

 

Any of the foregoing to the contrary notwithstanding (a) the “ Collateral ” shall not include, and the security interest granted herein shall not attach to, any asset subject to a rule of law, statute or regulation (including a permit, license or franchise), where the grant of such security interest would invalidate or constitute a breach or violation of any such rule of law, statute or regulation, provided that the limitation set forth in this sentence shall (i) exist only for so long as such rule of law, statute or regulation, continues to be effective (and, upon the cessation, termination, expiration of such rule of law, statute or regulation, or if any such rule of law, statue or regulation is no longer applicable, the security interest granted herein shall be deemed to have automatically attached to such asset), and (ii) not apply with respect to any asset if and to the extent that the security interest in and to such asset granted in this Security Agreement is permitted under Section 9-406, 9-407, 9-408, or 9-409 of the UCC, and (b) in the case of a Subsidiary that is a foreign entity, in no event shall the " Collateral " include more than sixty-five percent (65%) of the equity interests in such Subsidiary.

 

2.2.            Security for Obligations .  This Security Agreement, including the Guarantors’ guaranty hereunder, secures, and the Collateral is collateral security for, the prompt and complete payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Grantor represents and warrants to the Secured Parties that:

 

3.1.            Title, Perfection and Priority .  The Grantor has good and valid rights in, or the power to transfer rights in, the Collateral and, to the extent applicable, title to the Collateral with respect to which it has purported to grant a security interest hereunder, free and clear of all Liens, except for Permitted Encumbrances, and has full power and authority to grant to the Secured Parties the security interest in such Collateral pursuant hereto.  When financing statements have been filed in the appropriate offices against the Grantor in the locations listed on Exhibit G , the Secured Parties will have a fully perfected security interest in that Collateral of the Grantor in which a security interest may be perfected by filing, and having priority over all other Liens on such Collateral except in the case of (a) Permitted Encumbrances, to the extent any such Permitted Encumbrances would have priority over the Liens in favor of the Secured Parties pursuant to any applicable law or agreement, and (b) Liens perfected only by possession (including possession of any certificate of title) to the extent the Secured Parties have not obtained or do not maintain possession of such Collateral, in which case such Lien in favor of the Secured Parties shall not be perfected until such possession is obtained.

 

3.2.            Type and Jurisdiction of Organization, Organizational and Identification Number .  The type of entity of the Grantor, its state of organization, the organizational number issued to it by its state of organization and its federal employer identification number are set forth on Exhibit A .

 

3.3.            Principal Location .  The Grantor’s mailing address and the location of its place of business (if it has only one) or its chief executive office (if it has more than one place of business), is disclosed in Exhibit A ; the Grantor has no other places of business except those set forth in Exhibit A .

 

3.4.            Collateral Locations .  All of the Grantor’s locations where Collateral is located are listed on Exhibit A .  All of said locations are owned by the Grantor except for locations (i) which are leased by the Grantor as lessee and designated in Part VII(b) of Exhibit A and (ii) at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment as designated in Part VII(c) of Exhibit A.

 

3.5.            Deposit Accounts .  All of the Grantor’s Deposit Accounts are listed in Part VIII of Exhibit A .

 

3.6.            Exact Names .  The Grantor’s name in which it has executed this Security Agreement is the exact name as it appears in the Grantor’s organizational documents, as amended, as filed with the Grantor’s jurisdiction of organization.  Other than as set forth on Exhibit B , the Grantor has not, during the past five years, been known by or used any other corporate or fictitious name, or been a party to any merger or consolidation, or been a party to any acquisition.

 

3.7.            Letter-of-Credit Rights and Chattel Paper .   Exhibit C-1 lists all Letter-of-Credit Rights and Chattel Paper of the Grantor having a value in excess of $25,000, individually.  All action by the Grantor necessary or desirable to protect and perfect the Secured Parties’ Lien on each item listed on Exhibit C-1 (including the delivery of all originals and the placement of a legend on all Chattel Paper as required hereunder) has been duly taken. The Secured Parties will have a fully perfected first priority security interest in the Collateral listed on Exhibit C-1 .

 

3.8.            Intellectual Property . The Grantor does not have any interest in, or title to, any Patent, Trademark or Copyright except as set forth in Exhibit D .

3.9.            Filing Requirements .  None of the Grantor’s Equipment is covered by any certificate of title.  None of the Collateral owned by the Grantor is of a type for which security interests or Liens may be perfected by filing under any federal statute except for Patents, Trademarks and Copyrights held by the Grantor and described in Exhibit D .  The legal description, county and street address of each property on which any Fixtures are located is set forth in Exhibit E together with the name and address of the record owner of each such property.

 

3.10.          No Financing Statements, Security Agreements .  No financing statement or security agreement describing all or any portion of the Collateral which has not lapsed or been terminated naming the Grantor as debtor has been filed or is of record in any jurisdiction except (a) for financing statements or security agreements naming the Secured Parties as the secured party and (b) to perfect Permitted Encumbrances.

 

3.11.          Pledged Collateral .

 

(a)            Exhibit F sets forth a complete and accurate list of the Pledged Collateral.  The Grantor is the record and beneficial owner of the Pledged Collateral listed on Exhibit F as being owned by the Grantor, free and clear of any Liens, except for the security interest granted to the Secured Parties hereunder and Permitted Encumbrances.  The Grantor further represents and warrants that (i) with respect to any certificates delivered to the Secured Parties representing Equity Interests, either such certificates are Securities as defined in Article 8 of the UCC as a result of actions by the issuer or otherwise or, if such certificates are not Securities, the Grantor has so informed the Secured Parties so that the Secured Parties may take steps to perfect their security interest therein as a General Intangible, (ii) all Pledged Collateral held by a securities intermediary is covered by a Control Agreement among the Grantor, the securities intermediary and the Secured Parties, or otherwise held under terms, pursuant to which the Secured Parties have Control, (iii) none of the Pledged Collateral owned by the Grantor has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject, (iv) there are existing no options, warrants, calls or commitments of any character whatsoever relating to such Pledged Collateral, and (v) no consent, approval, authorization, or other action by, and no giving of notice or filing with, any governmental authority or any other Person is required for the pledge by the Grantor of such Pledged Collateral pursuant to this Security Agreement or for the execution, delivery and performance of this Security Agreement by the Grantor, or for the exercise by the Secured Parties of the voting or other rights provided for in this Security Agreement or for the remedies in respect of the Pledged Collateral pursuant to this Security Agreement, except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally.

 

(b)           Except as set forth in Exhibit F , the Grantor owns 100% of the issued and outstanding Equity Interests which constitute Pledged Collateral owned by it and none of the Pledged Collateral which represents indebtedness owed to the Grantor is subordinated in right of payment to other indebtedness or subject to the terms of an indenture.

 

ARTICLE IV

COVENANTS

From the date of this Security Agreement, and thereafter until this Security Agreement is terminated, the Grantor agrees that:

 

4.1.            General .

(a)             Collateral Records .  The Grantor will maintain complete and accurate books and records with respect to the Collateral owned by it, and will furnish the Secured Parties with updates with respect to Exhibits A, B, C-1, C-2, D, E, F and G hereto in accordance with Section 4.1(c) and such other such reports relating to such Collateral as the Secured Parties shall from time to time request.

 

(b)            Authorization to File Financing Statements; Ratification .  The Grantor hereby authorizes the Secured Parties to file, and if requested will deliver to the Secured Parties, all financing statements and other documents and to take such other actions as may from time to time be requested by the Secured Parties in order to maintain a perfected security interest in and, if applicable, Control of, the Collateral owned by the Grantor subject only to Permitted Encumbrances.  Any financing statement filed by the Secured Parties may be filed in any filing office in any UCC jurisdiction and may (i) indicate the Grantor’s Collateral (1) as all assets of the Grantor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC or such jurisdiction, or (2) by any other description which reasonably approximates the description contained in this Security Agreement, and (ii) contain any other information required by part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (A) whether the Grantor is an organization, the type of organization and any organization identification number issued to the Grantor and (B) in the case of a financing statement filed as a fixture filing, a sufficient description of real property to which the Collateral relates.  The Grantor also agrees to furnish any such information to the Secured Parties promptly upon request.  The Grantor also ratifies its authorization for the Secured Parties to have filed in any UCC jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof.

 

(c)            Further Assurances .  The Grantor will, if reasonably requested by the Secured Parties, furnish to the Secured Parties statements and schedules further identifying and describing the Collateral owned by it and such other reports and information in connection with its Collateral as the Secured Parties may reasonably request, all in such detail as the Secured Parties may reasonably specify.  The Grantor also agrees to take any and all actions necessary to defend title to the Collateral against all persons and to defend the security interest of the Secured Parties in its Collateral and the priority thereof against any Lien not expressly permitted hereunder, in each case as reasonably requested by the Secured Parties.  The Grantor shall also supplement the information set forth in Exhibits A, B, C-1, C-2, D, E, F and G attached hereto within thirty (30) days after obtaining knowledge of information which would require a material correction or addition of any such Exhibit.

 

(d)            Disposition of Collateral .  The Grantor will not sell, lease or otherwise dispose of the Collateral owned by it except for dispositions in the ordinary course of business consistent with past practice or as permitted under the Purchase Agreement.

 

(e)            Liens .  The Grantor will not create, incur, or suffer to exist any Lien on the Collateral owned by it except (i) the security interest created by this Security Agreement and (ii) Permitted Encumbrances.

 

(f)            Other Financing Statements .  The Grantor will not authorize the filing of any financing statement naming it as debtor covering all or any portion of the Collateral owned by it, except in connection with Permitted Encumbrances and the Revolving Debt Facility.  The Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the prior written consent of the Secured Parties, subject to the Grantor’s rights under Section 9-509(d)(2) of the UCC.

 

(g)            Locations . Other than to the extent permitted by the Purchase Agreement, the Grantor will not (i) maintain any Collateral owned by it at any location other than those locations listed on Exhibit A , (ii) otherwise change or add to such locations without the Secured Parties’ prior written consent, which shall not be unreasonably withheld (provided that if the Secured Parties give such consent, the Grantor will concurrently therewith obtain a landlord waiver for each such location), or (iii) change its principal place of business or chief executive office from the location identified on Exhibit A .

(h)            Compliance with Terms .  The Grantor will perform and comply in all material respects with all obligations in respect of the Collateral owned by it and all agreements to which it is a party or by which it is bound relating to such Collateral.

 

4.2.            Equipment .  The Grantor shall not permit any Equipment to become a fixture with respect to real property or to become an accession with respect to other personal property with respect to which real or personal property the Secured Parties do not have a Lien.  The Grantor will not, without the Secured Parties’ prior written consent, alter or remove any identifying symbol or number on any of the Grantor’s Equipment constituting Collateral.

 

4.3.            Delivery of Instruments, Securities, Chattel Paper and Documents .  The Grantor will (a) deliver to the Secured Parties immediately upon execution of this Security Agreement the originals of all Chattel Paper, Securities (to the extent certificated) and Instruments constituting Collateral owned by it (if any then exist), (b) hold in trust for the Secured Parties upon receipt and immediately thereafter deliver to the Secured Parties any such Chattel Paper, Securities and Instruments constituting Collateral, and (c) upon the Secured Parties’ request, deliver to the Secured Parties (and thereafter hold in trust for the Secured Parties upon receipt and immediately deliver to the Secured Parties) any Document evidencing or constituting Collateral.

 

4.4.            Uncertificated Pledged Collateral . The Grantor will permit the Secured Parties from time to time to cause the appropriate issuers (and, if held with a securities intermediary, such securities intermediary) of uncertificated securities or other types of Pledged Collateral owned by it not represented by certificates to mark their books and records with the numbers and face amounts of all such uncertificated securities or other types of Pledged Collateral not represented by certificates and all rollovers and replacements therefor to reflect the Lien of the Secured Parties granted pursuant to this Security Agreement.  With respect to any Pledged Collateral owned by it, the Grantor will take any actions necessary to cause (a) the issuers of uncertificated securities which are Pledged Collateral and (b) any securities intermediary which is the holder of any such Pledged Collateral, to cause the Secured Parties to have and retain Control over such Pledged Collateral.  Without limiting the foregoing, the Grantor will, with respect to any such Pledged Collateral held with a securities intermediary, cause such securities intermediary to enter into a Control Agreement with the Secured Parties, in form and substance satisfactory to the Secured Parties, giving the Secured Parties Control over such Pledged Collateral.

 

4.5.            Pledged Collateral .

 

(a)            Changes in Capital Structure of Issuers .  Except as permitted under the Purchase Agreement, the Grantor will not (i) permit or suffer any issuer of Equity Interests constituting Pledged Collateral owned by it to dissolve, merge, liquidate, retire any of its Equity Interests or other Instruments or Securities evidencing ownership, reduce its capital, sell or encumber all or substantially all of its assets (except for Permitted Encumbrances and sales of assets permitted pursuant to Section 4.1(d) ) or merge or consolidate with any other entity, or (ii) vote any such Pledged Collateral in favor of any of the foregoing.

 

(b)            Issuance of Additional Securities .  If any issuer of Equity Interests constituting Pledged Collateral issues additional Equity Interests to the Grantor, the Grantor shall promptly notify the Secured Parties of such issuance of Equity Interests and such Equity Interests shall promptly be deposited with and pledged to the Secured Parties in accordance with Section 4.4 and 4.5 hereof, subject, in each case, to the limitation set forth in Section 2.1.

(c)            Registration of Pledged Collateral .  After the occurrence and during the continuance of an Event of Default, the Grantor will permit any registrable Pledged Collateral owned by it to be registered in the name of the Secured Parties or their nominee at any time at the Secured Parties’ option.

(d)            Exercise of Rights in Pledged Collateral .

 

(i)           Without in any way limiting the foregoing and subject to clause (ii) below, the Grantor shall have the right to exercise all voting rights or other rights relating to the Pledged Collateral owned by it for all purposes not inconsistent with this Security Agreement, the Purchase Agreement or any other Transaction Document; provided however , that no vote or other right shall be exercised or action taken which would have the effect of impairing the rights of the Secured Parties in respect of such Pledged Collateral.

 

(ii)          The Grantor will permit the Secured Parties or their nominee at any time after the occurrence and during the continuance of an Event of Default, without notice, to exercise all voting rights or other rights relating to the Pledged Collateral owned by it, including, without limitation, exchange, subscription or any other rights, privileges, or options pertaining to any Equity Interests or Investment Property constituting such Pledged Collateral as if they were the absolute owner thereof.

 

(iii)         So long as no Event of Default shall have occurred and be continuing, the Grantor shall be entitled to collect and receive for its own use all cash dividends and interest paid in respect of the Pledged Collateral owned by it to the extent not in violation of the Purchase Agreement; provided however, that until actually paid, all rights to such distributions shall remain subject to the Lien created by this Security Agreement.

 

4.6.            Intellectual Property .

 

(a)           The Grantor will use commercially reasonable efforts to secure all consents and approvals necessary or appropriate for the assignment to or benefit of the Secured Parties of any material License held by the Grantor and to enforce the security interests granted hereunder.

(b)           In no event shall the Grantor, either directly or through any agent, employee, licensee or designee, file an application for the registration of any material Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving the Secured Parties prior written notice thereof, and, upon the Secured Parties’ request, the Grantor shall execute and deliver any and all security agreements as the Secured Parties may request to evidence the Secured Parties’ first priority security interest on such Patent, Trademark or Copyright, and the General Intangibles of the Grantor relating thereto or represented thereby.

 

(c)           The Grantor shall take all actions necessary or reasonably requested by the Secured Parties to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of its material Patents, Trademarks and Copyrights registered with, or applied to be registered with, the United Stated Patent and Trademark Office or the United States Copyright Office, as applicable (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings, unless the Grantor shall determine in good faith that such Patent, Trademark or Copyright is not material to the conduct of the Grantor’s business.

(d)             The Grantor shall, unless it shall reasonably determine that such Patent, Trademark or Copyright is not material to the conduct of its business or operations, promptly sue for any material infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and shall take such other actions as the Secured Parties shall deem reasonably appropriate under the circumstances to protect such Patent, Trademark or Copyright.  In the event that the Grantor institutes suit because any of its Patents, Trademarks or Copyrights constituting Collateral is infringed upon, or misappropriated or diluted by a third party, the Grantor shall comply with Section 4.7.

 

4.7.            Commercial Tort Claims .  The Grantor shall promptly, and in any event within two Business Days after the same is acquired by it, notify the Secured Parties of any commercial tort claim (as defined in the UCC) acquired by it having a value in excess of $25,000 and, unless the Secured Parties otherwise consent, the Grantor shall enter into an amendment to this Security Agreement, in form and substance reasonably satisfactory to the Secured Parties, granting the Secured Parties a first priority security interest in such commercial tort claim.

 

4.8.            Letter-of-Credit Rights .  If the Grantor is or becomes the beneficiary of a letter of credit having a value in excess of $25,000, it shall promptly, and in any event within five (5) Business Days after becoming a beneficiary, notify the Secured Parties thereof and use its commercially reasonable efforts to cause the issuer and/or confirmation bank to (i) consent to the assignment of any Letter-of-Credit Rights to the Secured Parties and (ii) agree to direct all payments thereunder to a Deposit Account subject to a Control Agreement for application to the Obligations, all in form and substance reasonably satisfactory to the Secured Parties.

 

4.9.            Federal, State or Municipal Claims .  The Grantor will, within five (5) Business Days, notify the Secured Parties of any Collateral which constitutes a claim against the United States government or any state or local government or any instrumentality or agency thereof (other than Accounts owing from the United States government which have been or will be identified by the Grantor) having a value in excess of $25,000, the assignment of which claim is restricted by federal, state or municipal law.

 

4.10.            No Interference .  The Grantor agrees that it will not interfere with any right, power and remedy of the Secured Parties provided for in this Security Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by the Secured Parties of any one or more of such rights, powers or remedies.

 

4.11.            Insurance .

 

(a)           All insurance policies required hereunder and under Section 5.10 of the Purchase Agreement shall name each of the Secured Parties as additional insureds or as loss payees, as applicable, and shall contain loss payable clauses through endorsements in form and substance satisfactory to the Secured Parties, which provide that: (i) all proceeds thereunder with respect to any Collateral shall be payable to the Secured Parties; (ii) no such insurance shall be affected by any act or neglect of the insured or owner of the property described in such policy; and (iii) such policy and loss payable clauses may be canceled, amended, or terminated only upon at least thirty (30) days prior written notice given to the Secured Parties.

(b)           All premiums on any such insurance shall be paid when due by the Grantor, and copies of the policies delivered to the Secured Parties, upon the request of the Secured Parties.  If the Grantor fails to obtain any insurance as required by this Section, the Secured Parties may obtain such insurance at the expense of the Grantor.

 

4.12.             Landlord Waivers .  The Grantor shall obtain landlord waivers from the lessor of each location of real property leased by the Grantor, mortgagee of owned property or bailee or consignee with respect to any warehouse, processor or converter facility or other location where Collateral is stored or located, which landlord waivers shall be reasonably satisfactory in form and substance to the Secured Parties. The Grantor shall timely and fully pay and perform in all material respects its obligations under all leases and other agreements with respect to each leased location or third party warehouse where any Collateral is or may be located.

 

4.13.            Control Agreements .  The Grantor will provide to the Secured Parties upon the Secured Parties’ request in accordance with the Purchase Agreement, a Control Agreement duly executed on behalf of each financial institution, securities broker or securities intermediary where the Grantor maintains a deposit account or securities account.

 

4.14.            Change of Name or Location; Change of Fiscal Year .  The Grantor shall not (a) change its name as it appears in official filings in the state of its incorporation or organization, (b) change its chief executive office, principal place of business, mailing address or corporate offices, or the location of its records concerning the Collateral as set forth in the Security Agreement, (c) change the type of entity that it is, (d) change its organization identification number, if any, issued by its state of incorporation or other organization, or (e) change its state of incorporation or organization, in each case, unless the Secured Parties shall have received at least thirty (30) days prior written notice of such change and the Secured Parties shall have acknowledged in writing that either (1) such change will not adversely affect the validity, perfection or priority of the Secured Parties’ security interest in the Collateral, or (2) any reasonable action requested by the Secured Parties in connection therewith has been completed or taken (including any action to continue the perfection of any Liens in favor of the Secured Parties, in any Collateral), provided that , any new location shall be located in the continental U.S. to the extent the prior location was located in the continental U.S.  The Grantor shall not store any Collateral at any new warehouse or new leased location unless the Grantor shall have provided the Secured Parties with at least five (5) Business Days prior written notice.  The Grantor shall not change its fiscal year which currently ends on December 31.

 

ARTICLE V

EVENTS OF DEFAULT AND REMEDIES

5.1.            Events of Default .

 

The occurrence of any “Event of Default” under, and as defined in, the Notes shall constitute an Event of Default hereunder.

 

5.2.            Remedies .

 

(a)           If an Event of Default has occurred and for so long as such Event of Default is continuing, the Secured Parties may exercise any or all of the following rights and remedies:

 

(i)           those rights and remedies provided in this Security Agreement, the Notes, or any other Transaction Document; provided that, this Section 5.2(a) shall not be understood to limit any rights or remedies available to the Secured Parties prior to an Event of Default;

(ii)          those rights and remedies available to a secured party under the UCC (whether or not the UCC applies to the affected Collateral) or under any other applicable law when a debtor is in default under a security agreement;

 

(iii)         give notice of sole control or any other instruction under any Control Agreement and take any action therein with respect to such Collateral;

 

(iv)         without notice (except as specifically provided in Section 8.2 or elsewhere herein), demand or advertisement of any kind to the Grantor or any other Person, enter the premises of the Grantor where any Collateral is located (through self-help and without judicial process) to collect, receive, assemble, process, appropriate, sell, lease, assign, grant an option or options to purchase or otherwise dispose of, deliver, or realize upon, the Collateral or any part thereof in one or more parcels at public or private sale or sales (which sales may be adjourned or continued from time to time with or without notice and may take place at the Grantor’s premises or elsewhere), for cash, on credit or for future delivery without assumption of any credit risk, and upon such other terms as the Secured Parties may deem commercially reasonable; and

 

(v)          concurrently with written notice to the Grantor, transfer and register in their name or in the name of their nominee(s) the whole or any part of the Pledged Collateral, to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations, to exercise the voting and all other rights as a holder with respect thereto, to collect and receive all cash dividends, interest, principal and other distributions made thereon and to otherwise act with respect to the Pledged Collateral as though the Secured Parties were the outright owners thereof.

 

(b)           The Secured Parties may comply with any applicable state or federal law in connection with a disposition of the Collateral and such compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

 

(c)           The Secured Parties shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase for the benefit of the Secured Parties the whole or any part of the Collateral so sold, free of any right of equity redemption, which equity redemption the Grantor hereby expressly releases.

 

(d)           Until the Secured Parties are able to effect a sale, lease, or other disposition of Collateral, the Secured Parties shall have the right to hold or use Collateral, or any part thereof, to the extent that they deem appropriate for the purpose of preserving Collateral or its value or for any other purpose deemed appropriate by the Secured Parties.  The Secured Parties may, if they so elect, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of the Secured Parties’ remedies with respect to such appointment without prior notice or hearing as to such appointment.

 

(e)           Notwithstanding the foregoing, the Secured Parties shall not be required to (i) make any demand upon, or pursue or exhaust any of their rights or remedies against, the Grantor, any other obligor, guarantor, pledgor or any other Person with respect to the payment of the Obligations or to pursue or exhaust any of their rights or remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof, (ii) marshal the Collateral or any guarantee of the Obligations or to resort to the Collateral or any such guarantee in any particular order, or (iii) effect a public sale of any Collateral.

(f)           The Grantor recognizes that the Secured Parties may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof in accordance with clause (a) above.  The Grantor also acknowledges that any private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private.  The Secured Parties shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the Grantor or the issuer of the Pledged Collateral to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the Grantor and the issuer would agree to do so.

 

5.3.            Grantor’s Obligations Upon an Event of Default .  Upon the request of the Secured Parties after the occurrence and during the continuance of an Event of Default, the Grantor will:

 

(a)           assemble and make available to the Secured Parties the Collateral and all books and records relating thereto at any place or places specified by the Secured Parties, whether at the Grantor’s premises or elsewhere;

 

(b)           permit the Secured Parties, by their respective representatives and agents, to enter, occupy and use  any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral or the books and records relating thereto, or both, to remove all or any part of the Collateral or the books and records relating thereto, or both, and to conduct sales of the Collateral, without any obligation to pay the Grantor for such use and occupancy; and

 

(c)           at its own expense, cause the Grantor’s accountants to prepare and deliver to the Secured Parties, at any time, and from time to time, promptly upon the Secured Parties’ request, the following reports with respect to the Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a test verification of such Accounts.

 

5.4.            Grant of Intellectual Property License .  For the purpose of enabling the Secured Parties to exercise the rights and remedies under this Article V at such time as the Secured Parties shall be lawfully entitled to exercise such rights and remedies, the Grantor hereby (a) grants to the Secured Parties an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to the Grantor) to use, license or sublicense any Intellectual Property Rights now owned or hereafter acquired by the Grantor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof and (b) irrevocably agrees that the Secured Parties may sell any of the Grantor’s Inventory directly to any person, including without limitation persons who have previously purchased the Grantor’s Inventory from the Grantor and in connection with any such sale or other enforcement of the Secured Parties’ rights under this Security Agreement, may sell Inventory which bears any Trademark owned by or licensed to the Grantor and any Inventory that is covered by any Copyright owned by or licensed to the Grantor and the Secured Parties may finish any work in process and affix any Trademark owned by or licensed to the Grantor and sell such Inventory as provided herein.

 

ARTICLE VI

ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY

6.1.            Account Verification .  The Secured Parties may at any time, in their own name, in the name of their nominee(s), or in the name of the Grantor, communicate (by mail, telephone, facsimile or otherwise) with the Account Debtors of the Grantor, parties to contracts with the Grantor and obligors in respect of Instruments of the Grantor to verify with such Persons, to the Secured Parties’ satisfaction, the existence, amount, terms of, and any other matter relating to, Accounts, Instruments, Chattel Paper, payment intangibles and/or other Receivables.

6.2.            Authorization for Secured Parties to Take Certain Action .

 

(a)             The Grantor irrevocably authorizes the Secured Parties at any time and from time to time in their sole discretion, and appoints the Secured Parties as its attorney in fact, (i) to execute on behalf of the Grantor as debtor and to file financing statements necessary or desirable in the Secured Parties’ sole discretion to perfect and to maintain the perfection and priority of the Secured Parties’ security interest in the Collateral, (ii) to endorse and collect any cash proceeds of the Collateral, (iii) to file a carbon, photographic or other reproduction of this Security Agreement or any financing statement with respect to the Collateral as a financing statement and to file any other financing statement or amendment of a financing statement (which does not add new collateral or add a debtor) in such offices as the Secured Parties in their sole discretion deem necessary or desirable to perfect and to maintain the perfection and priority of the Secured Parties’ security interest in the Collateral, (iv) to contact and enter into one or more agreements with the issuers of uncertificated securities which are Pledged Collateral or with securities intermediaries holding Pledged Collateral as may be necessary or advisable to give the Secured Parties Control over such Pledged Collateral, (v) to discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for (i) such Liens as are specifically permitted hereunder if the Grantor shall have failed to do so after request by the Secured Parties, (vi) to contact Account Debtors for any reason, (vii) to demand payment or enforce payment of the Receivables in the name of the Secured Parties or the Grantor and to endorse any and all checks, drafts, and other instruments for the payment of money relating to the Receivables, (viii) to sign the Grantor’s name on any invoice or bill of lading relating to the Receivables, drafts against any Account Debtor of the Grantor, assignments and verifications of Receivables, (ix) to exercise all of the Grantor’s rights and remedies with respect to the collection of the Receivables and any other Collateral, (x) to settle, adjust, compromise, extend or renew the Receivables, (xi) to settle, adjust or compromise any legal proceedings brought to collect Receivables, (xii) to prepare, file and sign the Grantor’s name on a proof of claim in bankruptcy or similar document against any Account Debtor of the Grantor, (xiii) to prepare, file and sign the Grantor’s name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables, (xiv) to change the address for delivery of mail addressed to the Grantor to such address as the Secured Parties may designate and to receive, open and dispose of all mail addressed to the Grantor, and (xv) to do all other acts and things necessary to carry out this Security Agreement (other than the acts and things described in clauses (vi) through (xiv) above) to the extent not performed by the Grantor hereunder when due; and the Grantor agrees to reimburse the Secured Parties on demand for any payment made or any expense incurred by the Secured Parties in connection with any of the foregoing; provided that, this authorization shall not relieve the Grantor of any of its obligations under this Security Agreement or under the Purchase Agreement.

 

(b)           All acts of said attorney or designee are hereby ratified and approved. The powers conferred on the Secured Parties under this Section 6.2 are solely to protect the Secured Parties’ interests in the Collateral and shall not impose any duty upon the Secured Parties to exercise any such powers.  The Secured Parties agree that, except for the powers granted in Section 6.2(a)(i)-(v) and Section 6.2(a)(xv), they shall not exercise any power or authority granted to them unless an Event of Default has occurred and is continuing.

 

6.3.            Proxy . THE GRANTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS THE SECURED PARTIES AS ITS PROXIES AND ATTORNEYS-IN-FACT (AS SET FORTH IN SECTION 6.2 ABOVE) WITH RESPECT TO ITS PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO THE RIGHT TO VOTE ANY SUCH PLEDGED COLLATERAL, THE APPOINTMENT OF THE SECURED PARTIES AS ITS PROXIES AND ATTORNEYS-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF SUCH PLEDGED COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY SUCH PLEDGED

6.4.            Nature of Appointment; Limitation of Duty .  THE APPOINTMENT OF THE SECURED PARTIES AS PROXIES AND ATTORNEYS-IN-FACT IN THIS ARTICLE VI IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 8.15. NOTWITHSTANDING ANYTHING CONTAINED HEREIN, NEITHER THE SECURED PARTIES NOR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT  IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO EVENT SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

 

ARTICLE VII

DEPOSIT ACCOUNTS

7.1.            Control Agreements .  Before opening or replacing any Deposit Account, the Grantor shall (a) obtain the Secured Parties’ consent (not to be unreasonably withheld or delayed) in writing to the opening of such Deposit Account, and (b) to the extent then applicable, cause each bank or financial institution in which it seeks to open a Deposit Account, to enter into a Control Agreement with the Secured Parties in order to give the Secured Parties Control of such Deposit Account.

 

7.2.            Application of Proceeds .

 

(a)           Notwithstanding anything to the contrary set forth herein, if an Event of Default shall have occurred and be continuing, the Secured Parties shall have, in addition to all other rights and remedies provided herein and in the other Transaction Documents, the right to direct each banking institution, securities broker or securities intermediary at which the Grantor maintains a Deposit Account or securities account, to follow all instructions given to such banking institution, securities broker or securities intermediary by the Secured Parties, including, without limitation, instructions regarding the liquidation of securities and the transfer of funds held in such accounts, and the Grantor shall remain liable for any deficiency if such funds and proceeds are insufficient to pay all Obligations, including any attorneys’ fees and other expenses incurred by the Secured Parties to collect such deficiency.

ARTICLE VIII

GENERAL PROVISIONS

8.1.             Guaranty, Etc.   CareView TX and CareView LLC (the “ Guarantors ”), in consideration of the Secured Parties entering into the Purchase Agreement and the other Transaction Documents to which they are a party and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and for the purpose of inducing the Secured Parties to enter into the Transaction Documents, hereby jointly and severally, irrevocably and unconditionally guarantee to the Secured Parties (a) the full, punctual and prompt payment of all Obligations, whether at maturity or by acceleration or otherwise, in immediately available funds; (b) the performance of all of CareView NV’s Obligations; and (c) all other obligations of every kind and description now existing or hereafter arising, direct or indirect, absolute or contingent, secured or unsecured, matured or unmatured, primary or secondary, of CareView NV to the Secured Parties.  The Guarantors hereby acknowledge that this guaranty is a guarantee of (i) performance by CareView NV of the Obligations; and (ii) payment and not of collection, and that the liability of Guarantors hereunder is present, absolute, unconditional, continuing, primary, direct and independent of the obligations of CareView NV.  The Secured Parties shall not be required to pursue any other remedies before invoking the benefits of this guaranty, including, without limitation, its remedies under the Transaction Documents.  The Guarantors hereby waive notice of the acceptance of this guaranty, presentment, demand, protest and notice of protest, nonpayment, default or dishonor of the Obligations or any renewal or extension thereof and any and all other rights and remedies now or hereafter accorded to guarantors by applicable law.  In addition, the Guarantors hereby unconditionally and irrevocably agree that they will not at any time exert or exercise against CareView NV, and do hereby subordinate any right of or claim to subrogation, reimbursement, indemnity, contribution or payment for or with respect to any amounts which the Guarantors may pay or be obligated to pay to the Secured Parties.

 

8.2.            Waivers .  The Grantor hereby waives notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made.  To the extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable if sent to the Grantor, addressed as set forth in Article IX, at least ten days prior to (i) the date of any such public sale or (ii) the time after which any such private sale or other disposition may be made.  To the maximum extent permitted by applicable law, the Grantor waives all claims, damages, and demands against the Secured Parties arising out of the repossession, retention or sale of the Collateral, except such as arise solely out of the gross negligence or willful misconduct of the Secured Parties as finally determined by a court of competent jurisdiction. To the extent it may lawfully do so, the Grantor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the Secured Parties, any valuation, stay, appraisal, extension, moratorium, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Collateral made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Security Agreement, or otherwise.  Except as otherwise specifically provided herein, the Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral.

 

8.3.            Limitation on the Secured Parties’ Duty with Respect to the Collateral .  The Secured Parties shall have no obligation to clean-up or otherwise prepare the Collateral for sale. The Secured Parties shall use reasonable care with respect to the Collateral in their possession or under their control.  The Secured Parties shall have no other duty as to any Collateral in their possession or control or in the possession or control of any agent or nominee of the Secured Parties, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. To the extent that applicable law imposes duties on the Secured Parties to exercise remedies in a commercially reasonable manner, the Grantor acknowledges and agrees that it is commercially reasonable for the Secured Parties (i) to fail to incur expenses deemed significant by the Secured Parties to prepare Collateral for disposition or otherwise to transform raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against Account Debtors or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against Account Debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other Persons,

whether or not in the same business as the Grantor, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure the Secured Parties against risks of loss, collection or disposition of Collateral or to provide to the Secured Parties a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by the Secured Parties, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Secured Parties in the collection or disposition of any of the Collateral.  The Grantor acknowledges that the purpose of this Section 8.3 is to provide non-exhaustive indications of what actions or omissions by the Secured Parties would be commercially reasonable in the Secured Parties’ exercise of remedies against the Collateral and that other actions or omissions by the Secured Parties shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 8.3.  Without limitation upon the foregoing, nothing contained in this Section 8.3 shall be construed to grant any rights to the Grantor or to impose any duties on the Secured Parties that would not have been granted or imposed by this Security Agreement or by applicable law in the absence of this Section 8.3.

8.4.            Compromises and Collection of Collateral .  The Grantor and the Secured Parties recognize that setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Receivables, that certain of the Receivables may be or become uncollectible in whole or in part and that the expense and probability of success in litigating a disputed Receivable may exceed the amount that reasonably may be expected to be recovered with respect to a Receivable.  In view of the foregoing, the Grantor agrees that the Secured Parties may at any time and from time to time, if an Event of Default has occurred and is continuing, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as the Secured Parties in their sole discretion shall determine or abandon any Receivable, and any such action by the Secured Parties shall be commercially reasonable so long as the Secured Parties acts in good faith based on information known to them at the time they take any such action.

 

8.5.            The Secured Parties’ Performance of Grantor Obligations .  Without having any obligation to do so, the Secured Parties may perform or pay any obligation which the Grantor has agreed to perform or pay in this Security Agreement, but has failed to perform or pay when due, and the Grantor shall reimburse the Secured Parties for any amounts paid by the Secured Parties pursuant to this Section 8.5.  The Grantor’s obligation to reimburse the Secured Parties pursuant to the preceding sentence shall be an Obligation payable on demand.

 

8.6.            Specific Performance of Certain Covenants .  The Grantor acknowledges and agrees that a breach of any of the covenants contained in Sections 4.1(d), Sections 4.1(e), 4.3, 4.4, 4.5, 4.11, 4.12, 4.13, 4.14, 5.3, or 8.8 or in Article VII will cause irreparable injury to the Secured Parties and that the Secured Parties have no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of the Secured Parties to seek and obtain specific performance of other obligations of the Grantor contained in this Security Agreement, that the covenants of the Grantor contained in the Sections referred to in this Section 8.6 shall be specifically enforceable against the Grantor.

8.7.             Dispositions Not Authorized .  The Grantor is authorized to sell or otherwise dispose of the Collateral except as set forth in Section 4.1(d) and notwithstanding any course of dealing between the Grantor and the Secured Parties or other conduct of the Secured Parties, no authorization to sell or otherwise dispose of the Collateral (except as set forth in Section 4.1(d)) shall be binding upon the Secured Parties unless such authorization is in writing signed by the Secured Parties.

 

8.8.            No Waiver; Amendments; Cumulative Remedies . No delay or omission of the Secured Parties to exercise any right or remedy granted under this Security Agreement shall impair such right or remedy or be construed to be a waiver of any Default or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude any other or further exercise thereof or the exercise of any other right or remedy. No waiver, amendment or other variation of the terms, conditions or provisions of this Security Agreement whatsoever shall be valid unless in writing signed by the Secured Parties and then only to the extent in such writing specifically set forth.  All rights and remedies contained in this Security Agreement or by law afforded shall be cumulative and all shall be available to the Secured Parties until the Obligations have been paid in full.

 

8.9.            Limitation by Law; Severability of Provisions .  All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable or not entitled to be recorded or registered, in whole or in part.  Any provision in this Security Agreement that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Security Agreement are declared to be severable.

 

8.10.          Reinstatement .  This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against the Grantor for liquidation or reorganization, should the Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of the Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable Law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made.  In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

 

8.11.          Benefit of Agreement .  The terms and provisions of this Security Agreement shall be binding upon and inure to the benefit of the Grantor, the Secured Parties and their respective successors and assigns (including all persons who become bound as a debtor to this Security Agreement), except that the Grantor shall not have the right to assign its rights or delegate its obligations under this Security Agreement or any interest herein, without the prior written consent of the Secured Parties.  No sales of participations, assignments, transfers, or other dispositions of any agreement governing the Obligations or any portion thereof or interest therein shall in any manner impair the Lien granted to the Secured Parties, hereunder.

 

8.12.          Survival of Representations .  All representations and warranties of the Grantor contained in this Security Agreement shall survive the execution and delivery of this Security Agreement.

 

8.13.           Taxes and Expenses .  Any taxes (including income taxes) payable or ruled payable by Federal or State authority in respect of this Security Agreement shall be paid by the Grantor, together with interest and penalties, if any.  The Grantor shall reimburse the Secured Parties for any and all reasonable out-of-pocket expenses paid or incurred by the Secured Parties in connection with the preparation, execution, delivery, administration, collection and enforcement of this Security Agreement and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the reasonable fees, charges and disbursements of counsel for the Secured Parties), all as more fully described in, and subject to the limitations and conditions set forth in, Section 7.2 of the Purchase Agreement.  Any and all costs and expenses incurred by the Grantor in the performance of actions required pursuant to the terms hereof shall be borne solely by the Grantor.

 

8.14.          Headings .  The title of and section headings in this Security Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement.

 

8.15.          Termination .  This Security Agreement shall continue in effect (notwithstanding the fact that from time to time there may be no Obligations outstanding) until (i) the Purchase Agreement has terminated pursuant to its express terms and (ii) all of the Obligations have been indefeasibly paid and performed in full and no commitments of the Secured Parties which would give rise to any Obligations are outstanding.