PATIENT SAFETY TECHNOLOGIES, INC. SECURED CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT
SECURED
CONVERTIBLE NOTE AND WARRANT
PURCHASE
AGREEMENT
This
Secured Convertible Note and Warrant Purchase Agreement (this “Agreement”)
is
made as of the 8th
day of
September, 2006 by and between Patient Safety Technologies, Inc., a Delaware
corporation (“PST”
or
the
“Company”),
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, an individual (the “Purchaser”).
RECITALS
A. The
Company desires to issue and sell, and the Purchaser desires to purchase from
the Company (i) a secured convertible promissory note in the form attached
to
this Agreement as Exhibit
A
(the
“Note”),
which
Note shall be convertible on the terms stated therein into common stock of
the
Company, or into common stock of its subsidiary SurgiCount Medical, Inc.
(“SurgiCount”), a California corporation, at such time as the Company elects to
take a direct equity investment in SurgiCount, (ii) a warrant to purchase common
stock of the Company in the form attached to this Agreement as Exhibit
B
(the
“PST
Warrant”),
and
(iii) a warrant to purchase common stock of SurgiCount, at such time as the
Company elects to take a direct equity investment in SurgiCount, in the form
attached to this Agreement as Exhibit
C
(the
“SurgiCount
Warrant”)
(together, the PST Warrant and the SurgiCount Warrant are referred to herein
as
“the
Warrants”).
The
Note, Warrants and shares of common stock issuable upon conversion or exercise
thereof are collectively referred to herein as the “Securities”.
B. The
Company desires to provide certain rights to register for resale the shares
of
common stock issuable to the Purchaser upon the conversion of the Note and/or
exercise of the Warrants, in the form of “piggyback rights,” which are set forth
in the Note.
AGREEMENT
In
consideration of the mutual promises contained herein and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
to this Agreement agree as follows:
1. Purchase
and Sale of Note and Warrants.
(a) Sale
and Issuance of Note and Warrants.
Subject
to the terms and conditions of this Agreement, the Purchaser agrees to purchase
and the Company agrees to sell and issue to the Purchaser the Note in the
principal amount of $1,495,280.89, the PST Warrant for the purchase of
up
to
$312,500 in common stock of the Company, par value $0.33 per share (the
“Common
Stock”),
and
the SurgiCount Warrant for the purchase of shares in SurgiCount at an exercise
price to be determined at such time as the Company elects to take a direct
equity investment in SurgiCount, such that the total number of shares multiplied
by the exercise price does not exceed $312,500; or, a combination of PST and
SurgiCount common stock purchased under the two Warrants such that in the
aggregate, the total investment in common stock of the two companies does not
exceed $312,500, as further described in the Warrants. The purchase price of
the
Note shall be equal to 100% of the principal amount of the Note, and the
purchase price of the Warrants shall be $1.00 each.
(b) Closing;
Delivery.
The
purchase and sale of the Note and the Warrants shall take place at the offices
of the Company on October ___, 2006,
or
at such other time and place as the Company and the Purchaser mutually agree,
orally or in writing (which time and place are designated as the “Closing”).
At
the Closing, the Company shall deliver to the Purchaser the Note and the
Warrants and other certain agreements against payment of the purchase price.
2. Security
Interest.
The
indebtedness represented by the Note (the “Obligations”)
is to
be secured by personal property owned by the Company consisting of a) equity
securities identified in the pledge agreement between the Company and the
Purchaser in the form attached to this Agreement as Exhibit
D
(the
“Pledge
Agreement”),
and
b) the Note and Mortgage held by ▇▇▇▇ ▇▇▇▇▇▇ Capital Partners, LLC (formerly
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Acquisition Fund, LLC) on each of the properties known as
Trussville and ▇▇▇▇▇▇▇, owned by one of the Company’s subsidiaries and to be
collaterally assigned to Purchaser. The securities pledged pursuant to the
Pledge Agreement are maintained with ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Securities, LLC
(“AGB
Securities”).
In
addition, the Company has pledged (i) 8.5 acres of undeveloped land it owns
in
Heber Springs, Arkansas, to be encumbered by a mortgage (the “Arkansas
Mortgage”),
(ii)
0.71 acres of undeveloped land it owns in Springfield, Tennessee, to be
encumbered by a Deed of Trust (the “Tennessee
Deed of Trust”),
(iii)
5 acres of undeveloped land owned through its subsidiary Automotive Services
Group, Inc., as sole member of Automotive Services Group, LLC (“ASG”),
the
record owner of the property, located in Trussville, Alabama, to be encumbered
by a mortgage (the “Alabama
Mortgage”),
(iv)
Lot with carwash structure owned by ASG, located in Birmingham, Alabama, also
to
be encumbered by the Alabama Mortgage, and (iv) 1.10 acres of undeveloped land
owned by ASG, located in Tuscaloosa, Alabama, also to be encumbered by the
Alabama Mortgage. Purchaser holds an existing mortgage on the Tuscaloosa
property (the “Tuscaloosa
Mortgage”)
and as
an accommodation, the parties have further agreed to modify the existing
Tuscaloosa Mortgage by adding as additional security the other two Alabama
properties referenced above, located in Birmingham and Trussville, Alabama.
In
the alternative, since the existing loan on the Tuscaloosa property is in
default, the parties may agree, if the default cannot be cured, to deed the
Tuscaloosa property to the Purchaser via a deed in lieu of foreclosure, at
which
time the Purchaser’s existing loan on the Tuscaloosa property shall be deemed
extinguished and the property shall be released as security under Alabama
Mortgage. If the Purchaser then sells the Tuscaloosa property for less than
the
principal amount of the Purchaser’s loan on the property, the Company will
makeup the shortfall either in cash or in Common Stock, and if via Common Stock,
at the Value Weighted Average Price determined for the five (5) days immediately
prior to the sale (subject to a $1.25/share floor).
3. Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Purchaser that as of the date
this
Agreement is executed and delivered and as of the Closing, except as set forth
on a Schedule of Exceptions attached hereto as Exhibit
E,
specifically identifying the relevant subsection hereof, which exceptions shall
be deemed to be representations and warranties as if made
hereunder:
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3.1 Organization,
Good Standing and Qualification.
(a) The
Company and each Subsidiary (defined below) is duly organized, validly existing
and in good standing under the laws of their respective state of incorporation,
and each of them has all requisite corporate power and authority to own their
respective assets and properties and to carry on their respective businesses
as
now conducted and as proposed to be conducted. The Company does not own,
directly or indirectly, any equity interest in any corporation, partnership,
joint venture or other entity, except for (a) those entities identified as
subsidiaries of the Company in Exhibit 21.1 to the Form 10-K (collectively,
the
“Subsidiaries”)
filed
by the Company with the Securities and Exchange Commission (the “SEC”)
for
the year ended December 31, 2005 (the “Form
10-K”),
and
(b) those interests in entities identified in Section 3.1 of the Schedule of
Exceptions. The Company and each Subsidiary is duly qualified or licensed and
in
good standing to do business in each jurisdiction in which the property owned,
leased, or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing is not reasonably expected
to
have, individually or in the aggregate, a Material Adverse Effect on the Company
and the Subsidiaries taken as a whole.
(b) For
purposes of this Agreement, the term “Material
Adverse Effect”
shall
mean, with respect to any entity, any event, change or effect that, when taken
individually or together with all other adverse events, changes and effects,
is
or is reasonably likely (a) to be materially adverse to the condition (financial
or otherwise), properties, assets, liabilities, business, operations of that
entity and its subsidiaries, taken as a whole, or (b) to prevent, have an
adverse effect on or materially delay consummation of any of the transactions
contemplated by any of the Transaction Documents or any entity’s performance of
its obligations under any of the Transaction Documents.
3.2 Authorization.
(a) All
corporate action necessary on the part of the Company for the authorization,
execution and delivery of this Agreement, the Note, the Warrants, the Pledge
Agreement, the Arkansas Mortgage, the Tennessee Deed of Trust, the Alabama
Mortgage, the collateral assignments of the Trussville and ▇▇▇▇▇▇▇ Mortgages,
the modification of the Tuscaloosa Mortgage (if any), and any other documents
or
instruments required pursuant to any such agreement (collectively, the
“Transaction
Documents”),
the
performance of all obligations of the Company hereunder and thereunder and
the
authorization, issuance and delivery of the Securities has been taken. Each
of
the Transaction Documents, when executed and delivered, shall constitute the
valid and legally binding obligations of the Company, in each case enforceable
against the Company in accordance with its respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
(b) Except
for such filings, permits, consents and approvals which, if not obtained or
made, are not reasonably expected to have a Material Adverse Effect on the
Company and the Subsidiaries taken as a whole, no filing with or notice to,
and
no permit, authorization, consent or approval of, any governmental agency or
authority is necessary for the execution and delivery by the Company of this
Agreement or the consummation by the Company of the transactions contemplated
hereby.
3
(c) The
Board
of Directors of the Company, by the requisite unanimous written consent or
by
vote of those present (who constituted a quorum of the directors then in
office), with no dissenting votes, has duly and validly authorized the execution
and delivery of the Transaction Documents and approved the consummation of
the
transactions contemplated hereby.
(d) The
approval of any of the Transaction Documents and the transactions contemplated
thereby is not required by any of the stockholders of the Company.
3.3 Capitalization;
Valuation.
(a) The
authorized capital stock of the Company consists of:
(i) 1,000,000
shares of Convertible Preferred Stock, par value $1.00 per share, of which
10,950 shares are issued and outstanding immediately prior to the Closing.
All
of the outstanding shares of Convertible Preferred Stock have been duly
authorized, and are fully paid and nonassessable and issued in compliance with
all applicable foreign, federal and state securities laws. The rights,
privileges and preferences of the Convertible Preferred Stock are as stated
in
the Amended and Restated Certificate of Incorporation of the Company filed
as an
exhibit to the Form 10-K (the “Restated
Certificate”).
(ii) 25,000,000
shares of Common Stock, of which approximately 6,260,048
shares
are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized, and are fully
paid
and nonassessable and issued in compliance with all applicable foreign, federal
and state securities laws. The Company has reserved sufficient shares of Common
Stock for issuance (x) upon exercise of the Warrants and (y) upon conversion
of
the Note.
(iii) The
Company has reserved 2,500,000
shares
of Common Stock for issuance to officers, directors, employees and consultants
of the Company pursuant to the Company’s stock option plan (the “Stock
Plan”).
Of
such reserved shares of Common Stock, 759,143
shares
have been issued pursuant to restricted stock purchase agreements and options
to
purchase 1,724,000
shares
have been granted.
(iv) Except
for (A) the Warrants, (B) the Note, (C) the conversion privileges of the
Preferred Stock, (D) the stock reserved for issuance pursuant to the Stock
Plan,
and except as described on the Schedule of Exceptions, there are no outstanding
options, warrants, rights (including conversion or preemptive rights or rights
of first refusal or similar rights) or agreements, orally or in writing, related
to the purchase or acquisition of any shares of Company’s capital stock except
to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, who holds a $250,000 Promissory Note convertible into
83,333.33 shares of common stock at a conversion price of $3.00 per share.
In
addition, the Company has received advances from ▇▇▇▇ ▇▇▇▇▇▇ Capital Partners,
LLC, pursuant to a Revolving Line of Credit Agreement, and as of September
8,
2006, the balance is $268,990, convertible at $3.10/share, or 86,771 shares.
Also as of September 8, 2006, a total of 2,597,641 warrants, at exercise prices
ranging from $1.25 to $6.05, remain outstanding. There are no rights of first
refusal or similar rights, except those in favor of the Purchaser.
4
3.4 Valid
Issuance of Securities.
The
shares of Common Stock that are issuable upon conversion of the Note or exercise
of the Warrants have been duly and validly reserved for issuance, and when
issued, sold and delivered in accordance with the terms thereof for the
consideration expressed therein, will be duly and validly issued, fully paid
and
nonassessable and free of restrictions on transfer, other than as set forth
in
applicable state and federal securities laws. Based in part upon the
representations of the Purchaser in this Agreement, such shares of Common Stock
will be issued in compliance with all applicable state and federal securities
laws.
3.5 Consents
and Defaults.
(a) The
execution, delivery and performance of each of the Transaction Documents and
the
consummation of the transactions contemplated by each of them will not result
in
any violation of or conflict with, constitute a default under (with or without
due notice or lapse of time or both), require any consent, waiver or notice
under any term, or result in the reduction or loss of any benefit or the
creation or acceleration of any right or obligation (including any termination
rights) under (i) the charter, certificate or articles of incorporation, bylaws
or operating agreement (or other similar organizational or governing
instruments) of the Company or any of the Subsidiaries, (ii) any agreement,
note, bond, mortgage, indenture, contract, lease, permit or other obligation
or
right to which the Company or any of the Subsidiaries is a party or by which
any
of the assets or properties of the Company or any of the Subsidiaries is bound,
other than the Promissory Note dated May 1, 2006 in favor of the ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Revocable Trust, which consent has been obtained, or
(iii)
any applicable domestic or foreign law or legal requirement, except
in the
case of clauses (ii) and (iii) where any of the foregoing is not reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect
on
the Company and the Subsidiaries taken as a whole.
(b) Neither
the Company nor any of the Subsidiaries is in violation of any term of its
charter, certificate or articles of incorporation, bylaws or operating agreement
(or other similar organizational or governing instruments).
3.6 Litigation.
There
is no action, suit, proceeding or investigation pending or, to the Company’s
knowledge, currently threatened against the Company or any of the Subsidiaries
that questions the validity of any Transaction Document or the right of the
Company to enter into any such agreement to which such person is a party, to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in a Material Adverse Effect
on
the Company and the Subsidiaries taken as a whole, or any change in the current
equity ownership of any of them (except as contemplated herein), nor is the
Company aware that there is any basis for the foregoing. The Company is not
a
party or subject to, and will not become a party or become subject to, the
provisions of any order, writ, injunction, judgment or decree of any court
or
government agency or instrumentality that might result in a Material Adverse
Effect on the Company (and the Subsidiaries taken as a whole) as long as the
Company does not default on payments due under a Settlement Agreement in the
lawsuit referenced in the Schedule of Exceptions hereto as Winstar
v. PST
in the
aggregate of $750,000.00 ($150,000.00 of which has already been paid, the
remainder due in a series of milestone payments by July 1, 2007). The Settlement
Agreement is currently pending approval by a federal Bankruptcy Court in New
York. Should PST default, the original obligation of $1,200,000.00 will become
immediately due and payable. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends
to
initiate.
5
3.7 SEC
Reports; Financial Statements.
(a) Since
January 1, 2003, the Company (including its predecessors, if applicable) has
filed all forms, reports and documents with the SEC required to be filed by
it
under the Securities Act of 1933, as amended (“Securities
Act”),
and
the Securities Exchange Act of 1934, as amended (“Exchange
Act”)
(collectively, the “Company
SEC Reports”),
each
of which complied in all material respects with all applicable requirements
of
the Securities Act and the Exchange Act, each as in effect on the dates such
Company SEC Reports were filed.
(b) None
of
the Company SEC Reports contained, when filed, any untrue statement of a
material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent amended prior to the date hereof by a
subsequently filed Company SEC Report. The consolidated financial statements
of
the Company and any separate financial information relating to the Company
included in the Company SEC Reports (the “Company
Filed Financial Statements”)
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC in respect
thereof.
(c) The
Company Filed Financial Statements contained in each of the Company SEC Reports
(i) are true, accurate and complete in all respects; (ii) are consistent with
the books and records of Company; (iii) present fairly and accurately the
financial condition of the Company and the Subsidiaries, as appropriate, as
of
the respective dates thereof and the results of operations, changes in
stockholder’s equity and cash flows of each of them for the periods covered
thereby; and (iv) have been prepared in accordance with generally accepted
accounting principles (“GAAP”),
applied on a consistent basis throughout the periods covered,
except
as disclosed therein; provided,
however,
that the
Company Balance Sheet may not contain all of the footnotes required by GAAP,
and
may be subject to normal adjustments consistent with past practice which are
not
material individually or in the aggregate. All reserves established by the
Company and set forth in the Company Filed Financial Statements are adequate
for
the purposes for which they were established.
(d) Since
the
date of the financial statements contained in the Company’s Form 10-Q filed with
the SEC for the quarter ended June 30, 2006 (the “Form
10-Q”)
(such
date, the “Company
Balance Sheet Date”),
there
has not been any change, or any application or request for any change, by the
Company or any of the Subsidiaries in accounting principles, methods or policies
for financial accounting purposes, other than as a result of any changes under
GAAP or other relevant accounting principles.
(e)
The
Company is in compliance with the provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002
as applicable to it as of the date hereof.
6
3.8 Books
and Records.
(a) The
books, records and accounts of the Company and its Subsidiaries, in all material
respects, (i) have been maintained in accordance with good business practices
on
a basis consistent with prior years; (ii) are stated in reasonable detail and
accurately and fairly reflect the transactions and dispositions of the assets
of
the Company and its Subsidiaries; and (iii) accurately and fairly reflect the
basis for the financial statements pertaining to the Company and the
Subsidiaries contained in the Company SEC Reports and the Company Filed
Financial Statements.
(b) The
Company has devised and maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management’s general or specific authorization; and (ii)
transactions are recorded as necessary (A) to permit preparation of financial
statements in conformity with GAAP; and (B) to maintain accountability for
assets.
(c) The
Company maintains a system of disclosure controls and procedures that comply
with Rules 13a-14 and 13a-15 of the Exchange Act (as in effect on the date
of
this Agreement) and that are designed to ensure that information required to
be
disclosed by the Company in its reports or other documents filed with or
furnished to the SEC is recorded, processed, summarized and reported within
the
time periods required by the SEC’s rules and forms, including, without
limitation, controls and procedures designed to ensure that such information
is
accumulated and communicated to the Company’s senior management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions by Company regarding
required disclosure.
3.9 No
Undisclosed Liabilities.
There
are
no material liabilities of the Company or any of the Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable
or
otherwise, which are required to be reflected in its financial statements (or
in
the notes thereto) in accordance with GAAP, other than (a) liabilities
disclosed, provided for or reserved against in the financial statements
contained in the Form 10-Q or in the notes thereto; (b) liabilities arising
in
the ordinary course of business after the Company Balance Sheet Date or which
arose in the ordinary course of business prior to the Company Balance Sheet
Date
but were not required to be disclosed, provided for or reserved against in
the
financial statements contained in the Form 10-Q; and (c) liabilities arising
under this Agreement.
3.10 Absence
of Changes.
Except
as
contemplated by this Agreement or as disclosed in the Company SEC Reports filed
prior to the date hereof, since the Company Balance Sheet Date, the Company
and
the Subsidiaries have conducted their business in the ordinary and usual course
consistent with past practice and there has not been:
(a)
any
event, occurrence or development which had or is reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company
and
the Subsidiaries taken as a whole;
7
(b)
any
declaration, setting aside or payment of any dividend or other distribution
in
respect of any shares of capital stock of the Company or (except to the Company
or other Subsidiaries) any Subsidiary, any split, combination or
reclassification of any shares of capital stock of the Company or any
Subsidiary, or any repurchase, redemption or other acquisition by the Company
or
any of the Subsidiaries of any securities of the Company or any of the
Subsidiaries;
(c)
any
amendment or change to the charter, certificate or articles of incorporation,
operating agreement or bylaws (or other similar organizational or governing
instrument) of the Company or any of the Subsidiaries, or any amendment of
any
term of any outstanding security of the Company or any of the Subsidiaries
that
would materially increase the obligations of the Company or any such subsidiary
under such security;
(d)
(i)
any
incurrence or assumption by the Company or any of the Subsidiaries of any
indebtedness for borrowed money other than under existing credit facilities
(or
any renewals, replacements or extensions that do not increase the aggregate
commitments thereunder) except in the ordinary and usual course of business
consistent with past practice, or (ii) any guarantee, endorsement, or other
incurrence or assumption of liability (whether directly, contingently or
otherwise) by the Company or any of the Subsidiaries for the obligations of
any
other person (other than any wholly owned subsidiary of the Company), other
than
in the ordinary and usual course of business consistent with past
practice;
(e)
any
creation or assumption by the Company or any of the Subsidiaries of any lien
or
encumbrance on any material asset of the Company or any of the Subsidiaries
other than in the ordinary and usual course of business consistent with past
practice;
(f)
any
making of any loan, advance or capital contribution to or investment in any
person by the Company or any of the Subsidiaries other than (i) loans, advances
or capital contributions to or investments in wholly owned subsidiaries of
the
Company; (ii) loans or advances to employees of the Company or any of the
Subsidiaries in the ordinary and usual course of business consistent with past
practice; or (iii) extensions of credit to customers in the ordinary and usual
course of business consistent with past practice;
(g)
any
contract or agreement entered into by the Company or any of the Subsidiaries
on
or prior to the date hereof relating to any material acquisition or disposition
of any assets or business, other than contracts or agreements in the ordinary
and usual course of business consistent with past practice and those
contemplated by this Agreement;
(h)
any
modification, amendment, assignment, termination or relinquishment by the
Company or any of the Subsidiaries of any contract, license or other right
(including any insurance policy naming it as a beneficiary or a loss payable
payee) that is reasonably expected to have a Material Adverse Effect, after
taking into account the benefit of the consideration, if any, received in
exchange for agreeing to such modification, amendment, assignment, termination
or relinquishment, on the Company and the Subsidiaries taken as a
whole;
8
(i)
any
material change in any method of accounting or accounting principles or practice
by the Company or any of the Subsidiaries, except for any such change required
by reason of a change in GAAP, which change has been consistently
applied;
(j)
any
(i)
grant of any severance or termination pay to any director, officer or employee
of the Company or any of the Subsidiaries; (ii) entering into of any employment,
deferred compensation, severance, consulting, termination or other similar
agreement (or any change or amendment to any such existing agreement) with
any
director, officer, employee, agent or other similar representative of the
Company or any of the Subsidiaries (collectively, “Company
Employment Agreements”)
whose
annual cash compensation exceeds $100,000, other than changes or amendments
that
(A) do not and will not result in increases, in the aggregate, of more than
five
percent in the salary, wages or other compensation of any such person and (B)
are otherwise consistent with clause (iv) below; (iii) increase in benefits
payable under any existing severance or termination pay policies or Company
Employment Agreements; or (iv) increase in compensation, bonus or other benefits
payable to directors, officers or employees of the Company or any of the
Subsidiaries other than, in the case of clauses (ii) and (iv) only, increases
prior to the date hereof in compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any of the Subsidiaries
in
the ordinary and usual course of business consistent with past practice or
merit
increases in salaries of employees at regularly scheduled times in customary
amounts consistent with past practices; or
(k)
any
(i)
making or revoking of any material election relating to taxes; (ii) settlement
or compromise of any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes; or (iii)
change to any material methods of reporting income or deductions for federal
income tax purposes.
3.11 Compliance
with Applicable Law; Permits.
The
Company and each of the Subsidiaries hold all permits, licenses, variances,
exemptions, orders, and approvals of all governmental entities necessary for
the
lawful conduct of their respective businesses (“Company
Permits”),
except for failures to hold such permits, licenses, variances, exemptions,
orders and approvals which are not reasonably expected to have, individually
or
in the aggregate, a Material Adverse Effect on the Company and the Subsidiaries
taken as a whole. The Company and each of the Subsidiaries are in compliance
with the terms of the Company Permits, except where the failure to comply is
not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company and the Subsidiaries taken as a whole. The
businesses and operations of the Company and the Subsidiaries comply in all
respects with the requirements of all laws, rules and regulations applicable
to
the Company or the Subsidiaries, except where the failure to so comply is not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company and the Subsidiaries taken as a
whole.
3.12 Proprietary
Assets.
(a) The
Company and each Subsidiary has full title and ownership of, or has a license
to, or can obtain upon reasonable terms and conditions sufficient rights to,
all
patents, patent applications, trademarks, service marks, trade names,
copyrights, moral rights, maskworks, trade secrets, confidential and proprietary
information, compositions of matter, formulas, designs, proprietary rights
and
know-how and processes (collectively, the “Proprietary
Assets”)
necessary to enable each of them to carry on their businesses as now conducted
and as presently proposed to be conducted without any conflict with, or
infringement of, the rights of others.
9
(b) Neither
the Company nor any Subsidiary has violated or infringed and is not currently
violating or infringing, and neither the Company nor any Subsidiary has received
any communications alleging that either of them (or any of their employees
or
consultants) has violated or infringed, or, by conducting its business as
proposed would violate or infringe, any Proprietary Assets of any other person
or entity. No third party has any ownership right, title, interest, claim in
or
lien on any of the Proprietary Assets of the Company or any Subsidiary, and
the
Company and each Subsidiary has taken, and in the future will use best efforts
to take, all steps reasonably necessary to preserve their legal rights in,
and
the secrecy of, all of their Proprietary Assets, except those for which
disclosure is required for legitimate business or legal reasons.
(c) Neither
the Company nor any Subsidiary has received any communications alleging that
it
or any of its employees or consultants has violated or, by conducting its
business as proposed, would violate any Proprietary Assets of any other person
or entity. Neither the Company nor any Subsidiary is aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with
the use of such employee’s best efforts to promote the interest of the Company
or the Subsidiary or that would conflict with the business of the Company or
Subsidiary as proposed to be conducted.
3.13 Tax
Matters.
(a) As
of
September 8, 2006, the Company has timely filed (or has had timely filed) all
Tax Returns required to be filed by it (or on its behalf). All such Tax Returns
are true, complete and correct in all respects. The Company has paid all Taxes
due for the periods covered by such Tax Returns (whether or not shown on or
reportable on such Tax Returns) or with respect to any period prior to the
date
of this Agreement. There are no liens on any of the assets of the Company with
respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that the Company is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been
established.
(b) The
Company Financial Statements contained in the Form 10-K and Form 10-Q reflect
adequate reserves for all Taxes payable by the Company for all Taxable periods
and portions thereof through the dates thereof.
(c) No
deficiencies for any Taxes have been proposed, asserted, or assessed (either
in
writing or verbally, formally or informally) or are expected to be proposed,
asserted, or assessed against the Company that have not been fully paid or
adequately provided for in the appropriate financial statements of the Company,
no requests for waivers of the time to assess any Taxes are pending, and no
power of attorney still in effect in respect of any Taxes has been executed
or
filed with any taxing authority. The Company has not received notice (either
in
writing or verbally, formally or informally) or expects to receive notice that
it has not filed a Tax Return or paid Taxes required to be filed or paid by
it.
The Tax Returns of the Company have never been audited by a government or taxing
authority, nor is any such audit in process, pending or threatened (either
in
writing or verbally, formally or informally). No waiver or extension of any
statute of limitations is in effect with respect to Taxes or Tax Returns of
the
Company. The Company has disclosed on its federal income tax returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Section 6662 of the Internal Revenue Code of
1986,
as amended.
10
(d) The
Company has complied in all respects with all requirements applicable to the
payment and withholding of Taxes and has duly and timely withheld from employee
salaries, wages and other compensation and has paid over to the appropriate
taxing authority all material amounts required to be so withheld and paid over
for all periods under all applicable Legal Requirements.
(e) No
federal, state, local, or foreign audits or other administrative proceedings
or
court proceedings are presently pending in respect of any Taxes or Tax Returns
of the Company and the Company has not received notice (either in writing or
verbally, formally or informally) of any pending audit or proceeding in respect
of any Taxes or Tax Returns.
(f) For
purposes of this Section 3.13, (i) the term “Tax”
or
“Taxes”
means
all taxes, however denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by any
federal, territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes
(including, but not limited to, federal income taxes and state income taxes),
payroll and employee withholding taxes, unemployment insurance, social security
taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes,
gross receipts taxes, business license taxes, occupation taxes, real and
personal property taxes, stamp taxes, environmental taxes, transfer taxes,
workers’ compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which the Company is required to pay, withhold or
collect; and (ii) the term “Tax
Return”
means
any report, return, document, declaration, or any other information or filing
required to be supplied to any taxing authority or jurisdiction (domestic or
foreign) in respect of Taxes, including, information returns, any document
in
respect of or accompanying payments or estimated Taxes, or in respect of or
accompanying requests for the extension of time in which to file any such
report, return document, declaration, or other information, including amendments
thereof and attachments thereto.
3.14 Listing
and Maintenance Requirements.
The
Common Stock is registered pursuant to Section 12(b)
of the
Exchange Act, and the Company has taken no action designed to, or which is
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act nor has the Company received any notification that the
SEC is contemplating terminating such registration. Except
as
set forth in Section 3.14 of the Schedule of Exceptions,
the
Company has not, in the 12 months preceding the date hereof, received notice
from the Over the Counter Bulletin Board, Nasdaq or any trading market on which
the Common Stock is or has been listed or quoted to the effect that the Company
is not in compliance with the listing or maintenance requirements of such
trading market. The Company is in compliance with all such listing and
maintenance requirements at this time.
11
3.15 Registration
Rights and Voting Rights.
Except
as set forth in Section 3.15 of the Schedule of Exceptions, the Company has
not
granted or agreed to grant any registration rights, including piggyback rights,
to any other person or entity. No
stockholders of the Company or of the Subsidiary have entered into any
agreements with respect to the voting of shares of capital stock of the Company
or of the Subsidiary.
3.16 Private
Placement.
Subject
in part to the truth and accuracy of the Purchaser’s representations set forth
in this Agreement, the offer, sale and issuance of the Securities as
contemplated by this Agreement, and the issuance of shares of Common Stock
upon
conversion of the Note
and
exercise of the Warrants,
is or
will be exempt from the registration requirements of the Securities Act, and
neither the Company nor any authorized agent acting on its behalf will take
any
action hereafter that would cause the loss of such exemption.
3.17 Full
Disclosure.
(a) The
Company has provided Purchaser with all the information available to it that
(i)
Purchaser has requested of the Company for deciding whether to enter into this
Agreement and effect the transactions contemplated hereby and (ii) which the
Company believes is reasonably necessary to enable the Purchaser to decide
whether to acquire the Securities. None of the Company’s representations or
warranties in any of the Transaction Documents or any other agreements, nor
any
written information or statements or certificates made or delivered by the
Company in connection herewith, when taken as a whole, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make
the statements herein or therein not misleading in light of the circumstances
under which they were made.
(b) There
is
no fact or series of related facts known to the Company that has specific
application to the Company and that could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect on the Company
and the Subsidiaries, taken as a whole, or (as far as the Company can reasonably
foresee) that could materially adversely affect the assets, liabilities,
business, prospects, financial condition, operations, or results of operations
of the Company, that has not been set forth in this Agreement.
3.18 Brokers.
Except
for AGB
Securities,
no
broker, finder, investment banker or other person is entitled to receive from
the Company or any Subsidiary any brokerage, finder’s or other fee or commission
or expense reimbursement in connection with any of the Transaction Documents
or
any of the transactions contemplated thereby.
4.
Representations
and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company and the Subsidiary
that:
(a) Accredited
Investor.
The
Purchaser is an accredited investor, as defined in Rule 501(a) of Regulation
D
promulgated under the Securities Act.
12
(b) Authorization.
The
Transaction Documents, when executed and delivered by the Purchaser, will
constitute valid and legally binding obligations of the Purchaser, enforceable
in accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and any other
laws of general application affecting enforcement of creditors’ rights
generally, and as limited by laws relating to the availability of a specific
performance, injunctive relief, or other equitable remedies.
(c) Purchase
Entirely for Own Account.
This
Agreement is made with the Purchaser in reliance upon the Purchaser’s
representation to the Company, which by the Purchaser’s execution of this
Agreement, the Purchaser hereby confirms, that the Securities to be acquired
by
the Purchaser will be acquired for investment for the Purchaser’s own account,
not as a nominee or agent, and not with a view to the resale or distribution
of
any part thereof, and that the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to any of the Securities. The Purchaser represents that
it
has full power and authority to enter into this Agreement. The Purchaser has
not
been formed for the specific purpose of acquiring the Securities.
(d) Restricted
Securities.
The
Purchaser understands that the Securities have not been, and will not be,
registered under the Securities Act, by reason of a specific exemption from
the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of the
Purchaser’s representations as expressed herein. The Purchaser understands that
the Securities are “restricted securities” under applicable U.S. federal and
state securities laws and that, pursuant to these laws, the Purchaser must
hold
the Securities indefinitely unless they are registered with the SEC and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Registration Rights Agreement. The Purchaser has
such
knowledge and experience in financial and business matters that it is capable
of
evaluating the merits and risks of the proposed investment and therefore has
the
capacity to protect its own interests in connection with the purchase of the
Securities.
(e) Restrictions
and Legends.
None of
the shares of the Securities shall be sold, transferred, assigned, pledged,
hypothecated or otherwise disposed of unless one of the following events shall
have occurred: (i) such securities are disposed of pursuant to and in conformity
with an effective registration statement filed with the SEC pursuant to the
Securities Act or pursuant to Rule 144 of the SEC thereunder; or (ii) the seller
shall have delivered to the Company a written opinion by counsel which is
reasonably acceptable to the Company to the effect that the proposed transfer
is
exempt from the registration and prospectus delivery requirements of the
Securities Act. The Purchaser understands that the Securities, and any
securities issued in respect thereof or exchange therefor, may bear the
following legend:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO
SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO
THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933,
AS AMENDED, EXCEPT AS SET FORTH HEREIN.”
13
5. Conditions
of the Purchaser’s Obligations at Closing.
The
obligations of the Purchaser to the Company under this Agreement are subject
to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) Representations
and Warranties. The
representations and warranties of the Company contained in Section 3 shall
be
true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
(b) Performance.
The
Company shall have performed and complied with all covenants, agreements,
obligations and conditions contained in this Agreement and in the other
Transaction Documents that are required to be performed or complied with by
such
entity on or before the Closing.
(c) Qualifications.
All
authorizations, approvals or permits, if any, of any governmental authority
or
regulatory body of the United States or of any state that are required in
connection with and prior to the lawful issuance and sale of the Securities
pursuant to this Agreement shall be obtained and effective as of the
Closing.
(d) Transaction
Documents.
The
Company shall have executed and delivered to the Purchaser the Transaction
Documents.
(e) Title
Insurance.
The
Company shall have made arrangements acceptable to the Purchaser for lender’s
title insurance on the Arkansas Mortgage, the Tennessee Deed of Trust and the
Alabama Mortgage, and, if applicable, for an Endorsement to the Purchaser’s
existing loan policy on the Tuscaloosa property.
(f) Proceedings
and Documents.
All
corporate and other proceedings in connection with the transactions hereunder
shall have been taken, and all documents and instruments incident to such
transactions shall be satisfactory in substance and form to the Purchaser,
and
the Purchaser shall have received all such counterpart originals or certified
or
other copies of such documents as it may reasonably request.
6. Conditions
of the Company’s Obligations at Closing.
The
obligations of the Company to the Purchaser under this Agreement are subject
to
the fulfillment of each of the following conditions, unless otherwise
waived:
(a) Representations
and Warranties. The
representations and warranties of the Purchaser contained in Section 4 shall
be
true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the
Closing.
14
(b) Performance. All
covenants, agreements and conditions contained in this Agreement to be performed
by the Purchaser shall have been performed or complied with in all material
respects.
(c) Qualifications.
All
authorizations, approvals or permits, if any, of any governmental authority
or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Securities pursuant to
this
Agreement shall be obtained and effective as of the Closing.
(d) Transaction
Documents.
The
Purchaser shall have executed and delivered to the Transactions Documents to
which it is a party.
7. Indemnification.
The
Company hereby agrees to indemnify and hold harmless the Purchaser from and
against any costs, damages, fees or expenses incurred by Purchaser as a result
of any breach of any representation, warranty or covenant by either the Company
contained in the Transaction Documents.
8. Right
of First Offer.
Subject
to the terms and conditions specified in this Section 8, until the twelve-month
anniversary of the Closing, the
Company hereby grants to Purchaser a right of first offer with respect to future
sales by the Company of its Shares (as hereinafter defined). For purposes of
this Section 8, the term “Purchaser” includes any entity wholly-owned by
Purchaser, and Purchaser shall be entitled to transfer all or a portion of
the
right of first offer hereby granted to such entity, so long as such transfer
does not cause the loss of the exemption under Section 4(2) of the Act or any
similar exemption under applicable state securities laws in connection with
such
sale of Shares by the Company.
Each
time
the Company proposes to offer any shares of, or securities convertible into
or
exchangeable or exercisable for any shares of, any class of its capital stock
(the “Shares”),
the
Company shall first make an offering of such Shares to the Purchaser in
accordance with the following provisions:
(a)
The
Company shall deliver a notice in accordance with Section 9.8 (the “Notice”)
to the
Purchaser stating (i) its bona fide intention to offer such Shares, (ii) the
number of such Shares to be offered, and (iii) the price and terms upon which
it
proposes to offer such Shares.
(b)
By
written notification received by the Company, within ten (10) business days
after receipt of the Notice, (i) the Purchaser may elect to purchase or obtain,
at the price and on the terms specified in the Notice, up to that portion of
such Shares that equals the proportion that the number of shares of Common
Stock
issued and held, or issuable upon conversion or exercise of the Note and
Warrant(s) then held, by the Purchaser bears to the total number of shares
of
Common Stock of the Company then outstanding (assuming full conversion and
exercise of all outstanding convertible and exercisable securities), and (ii)
the Purchaser may elect to pay all or a portion of the purchase price for such
Shares by cancellation of all or a portion of the principal or accrued interest
due to Purchaser under the Note.
15
(c)
If
all
Shares that Purchaser is entitled to obtain pursuant to Section 8(b) are not
elected to be obtained as provided in Section 8(b) hereof, the Company may,
during the 30-day period following the expiration of the period provided in
Section 8(b) hereof, offer the remaining unsubscribed portion of such Shares
to
any person or persons at a price not less than, and upon terms no more favorable
to the offeree than those specified in the Notice. If the Company does not
enter
into an agreement for the sale of the Shares within such period, or if such
agreement is not consummated within sixty (60) days of the execution thereof,
the right provided hereunder shall be deemed to be revived and such Shares
shall
not be offered unless first reoffered to the Purchaser in accordance herewith.
(d)
The
right
of first offer in this Section 8 shall not be applicable to:
(i)
the
issuance of shares of securities pursuant to a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as “Common
Stock Equivalents”)
without payment of any consideration by such holder for the additional shares
of
Common Stock or the Common Stock Equivalents (including the additional shares
of
Common Stock issuable upon conversion or exercise thereof);
(ii)
the
issuance of shares of Common Stock or options therefor to employees,
consultants, officers or directors (if in transactions with primarily
non-financing purposes) of the Company pursuant to a stock option plan or
restricted stock purchase plan approved by the stockholders of the Company
and
Board of Directors of the Company;
(iii)
the
issuance of shares of Common Stock (A) in a bona fide, firmly underwritten
public offering under the Act, or (B) upon exercise of warrants or rights
granted to underwriters in connection with such a public offering;
(iv)
the
issuance of shares of Common Stock pursuant to the conversion or exercise of
convertible or exercisable securities outstanding as of the date hereof or
subsequently issued pursuant to this Section 8;
(v)
the
issuance of shares of Common Stock in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise, each as approved by the Board
of
Directors of the Company and, if required, the stockholders of the Company;
9. Miscellaneous.
9.1 Survival
of Warranties.
Unless
otherwise set forth in this Agreement, the warranties, representations and
covenants of the Company and the Purchaser contained in or made pursuant to
this
Agreement shall survive the execution and delivery of this agreement and the
Closing.
9.2 Successors
and Assigns.
The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing
in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. The Purchaser may assign this
Agreement to, without limitation, any entity that it controls (“control” meaning
ownership of more than a fifty percent (50%) interest in voting rights.)
16
9.3 Governing
Law; Jurisdiction.
This
Agreement and all acts and transactions pursuant hereto and the rights,
remedies, powers and duties of the parties hereto shall be governed, construed
and interpreted in accordance with the laws of the State of California,
without
regard to principles of conflicts of laws. Each party consents to the
non-exclusive jurisdiction of the courts of the State of California. Each party
further consents to service of process in any litigation relating to any
Transaction Document by written notice given in accordance with Section 9.8.
For
purposes of any dispute or controversy arising under this Agreement or the
transactions contemplated herein, the parties also mutually consent to the
jurisdiction of the courts of the State of California, and the federal ▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ of California, and agree that any and all process
directed to any of them in any such litigation may be served outside the State
of California with the same force and effect as if service had been made within
the State of California.
9.4 Waiver
of Jury Trial.
EACH OF
THE COMPANY AND THE PURCHASER HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE
IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE
ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THIS AGREEMENT
OR
ANY OTHER TRANSACTION DOCUMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL
BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
9.5
Reference
Provision.
(a) In
the
event that the waiver of jury trial set forth in Section 9.4 above is not
enforceable, the Company and the Purchaser elect to proceed under the provisions
of this Section 9.5 (the “Reference
Provision”).
(b) With
the
exception of the matters specified in clause (c) below, any controversy, dispute
or claim (each, a “Claim”)
between the parties arising out of or relating to this Agreement will be
resolved by a reference proceeding in California in accordance with the
provisions of Section 638
et
seq.
of the
California Code of Civil Procedure (“CCP”),
or
their successor sections, which shall constitute the exclusive remedy for the
resolution of any Claim, including whether the Claim is subject to the reference
proceeding. Except as otherwise provided in this Agreement, venue for the
reference proceeding will be in the state or federal court in the county or
district where venue is otherwise appropriate under applicable law (the
“Court”).
(c) The
matters that shall not be subject to a reference are the following:
17
(i) non-judicial
foreclosure of any security interests in real or personal property;
(ii)
exercise
of self-help remedies (including, without limitation, set-off);
(iii) appointment
of a receiver; and
(iv) temporary,
provisional or ancillary remedies (including, without limitation, writs of
attachment, writs of possession, temporary restraining orders or preliminary
injunctions).
This
Section 9.5 does not limit the right of any party to exercise or oppose any
of
the rights and remedies described in clauses (i) and (ii) or to seek or oppose
from a court of competent jurisdiction any of the matters described in clauses
(iii) and (iv). The exercise of, or opposition to, any of those matters does
not
waive the right of any party to a reference pursuant to this Section
9.5.
(d) The
referee shall be a retired judge or justice selected by mutual written agreement
of the parties. If the parties do not agree within ten (10) days of a written
request to do so by any party, then, upon request of any party, the referee
shall be selected by the Presiding Judge of the Court (or his or her
representative). A request for appointment of a referee may be heard on an
ex
parte or expedited basis, and the parties agree that irreparable harm would
result if ex parte relief is not granted. Pursuant to CCP Sec. 170.6, each
party
shall have one peremptory challenge to the referee selected by the Presiding
Judge of the Court (or his or her representative).
(e) The
parties agree that time is of the essence in conducting the reference
proceedings. Accordingly, the referee shall be requested, subject to change
in
the time periods specified herein for good cause shown, to:
(i) set
the
matter for a status and trial-setting conference within fifteen (15) days after
the date of selection of the referee;
(ii) if
practicable, try all issues of law or fact within one hundred twenty (120)
days
after the date of the conference; and
(iii) report
a
statement of decision within twenty (20) days after the matter has been
submitted for decision.
(f) The
referee will have power to expand or limit the amount and duration of discovery.
The referee may set or extend discovery deadlines or cutoffs for good cause,
including a party’s failure to provide requested discovery for any reason
whatsoever. Unless otherwise ordered, no party shall be entitled to “priority”
in conducting discovery, depositions may be taken by either party upon seven
(7)
days written notice, and all other discovery shall be responded to within
fifteen (15) days after service. All disputes relating to discovery which cannot
be resolved by the parties shall be submitted to the referee whose decision
shall be final and binding.
18
(g) Except
as
expressly set forth in this Section 9.5, the referee shall determine the manner
in which the reference proceeding is conducted including the time and place
of
hearings, the order of presentation of evidence, and all other questions that
arise with respect to the course of the reference proceeding. All proceedings
and hearings conducted before the referee, except for trial, shall be conducted
without a court reporter, except that when any party so requests, a court
reporter will be used at any hearing conducted before the referee, and the
referee will be provided a courtesy copy of the transcript. The party making
such a request shall have the obligation to arrange for and pay the court
reporter. Subject to the referee’s power to award costs to the prevailing party,
the parties will equally share the cost of the referee and the court reporter
at
trial.
(h) The
referee shall be required to determine all issues in accordance with existing
case law and the statutory laws of the State of California. The rules of
evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, enter equitable orders that will be binding
on the parties and rule on any motion that would be authorized in a trial,
including without limitation motions for summary judgment or summary
adjudication. The referee shall issue a decision at the close of the reference
proceeding which disposes of all Claims of the parties that are the subject
of
the reference. Pursuant to CCP Sec. 644, such decision shall be entered by
the
Court as a judgment or an order in the same manner as if the action had been
tried by the Court and any such decision will be final, binding and conclusive.
The parties reserve the right to appeal from the final judgment or order or
from
any appealable decision or order entered by the referee. The parties reserve
the
right to findings of fact, conclusions of law, a written statement of decision,
and the right to move for a new trial or a different judgment, which new trial,
if granted, is also to be a reference proceeding under this
provision.
(i) If
the
enabling legislation which provides for appointment of a referee is repealed
(and no successor statute is enacted), any dispute between the parties that
would otherwise be determined by reference procedure will be resolved and
determined by arbitration. The arbitration will be conducted by a retired judge
or Justice, in accordance with the California Arbitration Act Sec. 1280 through
Sec. 1294.2 of the CCP as amended from time to time. The limitations with
respect to discovery set forth above shall apply to any such arbitration
proceeding.
(j) THE
PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES RESOLVED UNDER THIS REFERENCE
PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING
(OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH
PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES,
AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE
OR
CLAIM BETWEEN OR AMONG THEM WHICH ARISES OUT OF OR IS RELATED TO THIS
AGREEMENT.
9.6 Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original and all of which together shall constitute one
instrument.
19
9.7 Titles
and Subtitles. The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this
Agreement.
9.8 Notices.
Any
notice required or permitted by this Agreement or any other Transaction Document
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) as follows:
| (i) |
if
to the Company, at:
|
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, President
| (ii) |
if
to the Purchaser, at:
|
▇▇▇▇▇▇
▇.
▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
with
a
copy to:
Rothschild
& Pearl, LLP
▇▇▇
▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇, Esq.
Any
party
hereto (and such party’s permitted assigns) may by notice so given change its
address for future notices hereunder.
9.9
Attorney’s
Fees.
If any
action at law or in equity (including arbitration) is necessary to enforce
or
interpret the terms of any of the Transaction Documents, the prevailing party
shall be entitled to reasonable attorneys’ fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
9.10
Amendments
and Waivers. Any
term
of this Agreement may be amended or waived only with the written consent of
the
Company and the Purchaser. Any amendment or waiver effected in accordance with
this Section 9.10 shall be binding upon the Purchaser and each transferee of
the
Securities, each future holder of all such Securities and the
Company.
9.11
Severability.
Whenever possible, each provision of this Agreement will be interpreted in
such
manner as to be effective and valid under applicable law, but if any provision,
subpart, sentence, phrase or term of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in
any
jurisdiction, such invalidity, illegality or unenforceable provision shall
be
modified or replaced with a valid and enforceable term or provision that most
accurately represents the intent of the parties with respect to the invalid,
illegal or unenforceable term.
20
9.12
Delays
or Omissions.
No
delay or omission to exercise any right, power or remedy accruing to any holder
of any of the Securities, upon any breach or default of the Company under any
Transaction Document, shall impair any such right, power or remedy of such
holder nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring.
Any
waiver, permit, consent or approval of any kind or character on the part of
any
holder of any breach or default under this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under a Transaction Document or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
9.13
Entire
Agreement.
This
Agreement, and the documents referred to herein constitute the entire agreement
between the parties hereto pertaining to the subject matter hereof, and any
and
all other written or oral agreements existing between the parties hereto are
expressly canceled.
[Remainder
of Page Intentionally Left Blank -
Signature
Pages to Follow]
21
The
parties have executed this Secured Convertible Note and Warrant Purchase
Agreement as of the date first written above.
COMPANY:
| By: | |||
| Name: | |||
| Title: | |||
| Date Signed: | |||
| Address: | ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇ | ||
| ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ | |||
| Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ | |||
| PURCHASER: | |||
| ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ | |||
| Date Signed: | |||
| Address: | ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ | ||
| ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ | |||
SIGNATURE
PAGE TO PATIENT SAFETY TECHNOLOGIES, INC.
SECURED
CONVERTIBLE NOTE
AND
WARRANT PURCHASE AGREEMENT
EXHIBITS
| Exhibit A |
-
|
Form of Secured Convertible Promissory Note |
|
Exhibit
B
|
-
|
Form
of PST Warrant
|
|
Exhibit
C
|
-
|
Form
of SurgiCount Warrant
|
| Exhibit D |
-
|
Form of Pledge Agreement |
| Exhibit E |
-
|
Schedule of Exceptions |