Contract
THIS
NOTE AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER THE SECURITIES LAWS
OF
ANY STATE, AND HAVE BEEN OFFERED AND SOLD IN RELIANCE UPON THE EXEMPTION SET
FORTH IN SECTION 4(2) OF SUCH ACT. THIS NOTE AND THE SECURITIES INTO WHICH
IT IS
CONVERTIBLE MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED,
OR
OTHERWISE DISPOSED OF WITHOUT PROPER REGISTRATION OR A SATISFACTORY OPINION
OF
COUNSEL THAT AN EXEMPTION FROM REGISTRATION APPLIES TO ANY SUCH
TRANSACTION.
U.S. $2,530,558.40 | Los Angeles, |
California |
SECURED
CONVERTIBLE PROMISSORY NOTE
1. FOR
VALUE
RECEIVED, the undersigned, Patient Safety Technologies, Inc., a Delaware
corporation, with an office at 00000 Xxxx Xxxx, Xxxxx 000, Xxxxxxxx, XX 00000
("Borrower"), promises to pay to Xxxx Xxxxxx Capital Partners, LLC., with its
principal place of business located at 0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000 Xxx
Xxxxxxx, XX 00000 or a permitted assignee of the Lender (“Lender" or
"Noteholder” used interchangeably), the principal sum of Two Million Five
Hundred Thirty Thousand Five Hundred Fifty Eight Dollars and Forty
Cents
($2,530,558.40) (the
"Principal Amount"), in lawful money of the United States of America. Interest
shall accrue on the Principal Amount from the date hereof at a simple interest
rate equal at all times to 7% per annum (each an “Interest Payment, and
collectively the “Interest Payments”). Such accrued interest shall be payable
quarterly on the last Business Day (as defined below) of each quarter beginning
on September 30, 2007 (the “Interest Date”). For the purposes of this Note
“Business Day shall mean any weekday unless such day is a holiday on which the
New York Stock Exchange trading floor is closed. All accrued and unpaid interest
and the Principal Amount shall be payable at the Maturity Date (as hereinafter
defined). At the election of the Borrower the payment of interest may be made
in
cash or converted into equity as provided in paragraph 7(b) herein. All
agreements between Borrower and Lender are expressly limited so that in no
contingency or event whatsoever shall the amount paid or agreed to be paid
to
Lender for the use, forbearance, or detention of the indebtedness evidenced
by
this Note exceed the maximum amount permissible under applicable law. If from
any circumstance Lender should ever receive as interest an amount which would
exceed the highest lawful rate, such amount as would be excessive interest
shall
be applied to the reduction of the principal amount owing under this Note and
not to the payment of interest.
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2. This
Note, effective as of June 1, 2007, shall mature and the Principal Amount and
accrued but unpaid interest hereunder shall become due and payable on December
31, 2010 (the "Maturity Date") if not prepaid or converted into equity in
accordance with the provisions hereof.
3. Payments
of the Principal Amount and interest shall be made to Lender at the address
of
the Lender set forth above, or at such other place as may be designated in
writing by Xxxxxx.
4. Borrower,
for itself and its legal representatives, successors, and assigns, expressly
waives presentment, demand, protest, notice of dishonor, notice of non-payment,
notice of maturity, notice of protest, presentment for the purposes of
accelerating maturity, diligence in collection, and any other condition
precedent to action against Borrower for the payment hereof.
5. This
Note
shall become immediately due and payable, upon the expiration of any applicable
grace period, without notice or demand upon the happening to Borrower of any
one
or more of the following specified events (each an “Event of Default”): (a)
Borrower making a general assignment for the benefit of creditors; (b) Borrower
consenting to or suffering an attachment, garnishment, execution or other legal
process against any of its assets; (c) application for, or appointment of a
receiver, trustee or custodian for, Borrower or Borrower’s property; (d)
Borrower filing a voluntary petition under any of the provisions of the federal
bankruptcy laws or having an involuntary petition filed against it under the
federal bankruptcy laws which is not dismissed within 60 days; (e) any other
proceeding under bankruptcy, insolvency, reorganization, relief of debtors,
or
similar laws is commenced by Borrower, or is commenced against Borrower and
not
dismissed within sixty (60) day; (f) if any payment of Principal Amount or
interest due hereunder is not made within twenty (20) days after the date such
payment was due; (g) any failure on the part of Borrower to keep or perform
any
of the terms or provisions of this Note or the Security Agreement between the
Borrower and the Lender dated the even date hereof (the “Security Agreement”) or
any amendment thereof; (h) delisting of the Borrower’s Common Stock from the
Over-The-Counter Bulletin Board; (i) if any representation or warranty made
by
Borrower herein or in the Security Agreement was not true and correct in all
material respects when made; and/or (j) the happening of any event under any
agreement executed after the date hereof involving the borrowing of money in
excess of $200,000 not in the ordinary course of business by, or advance of
credit to, Borrower, which gives to the holder of such obligation the right
to
accelerate its maturity, whether or not such right is exercised. Any one or
more
of such events shall constitute an Event of Default hereunder. Upon the
occurrence of any Event of Default as specified above, the balance of the
Principal Amount, together with all accrued but unpaid interest, shall
immediately become due and payable. Upon an Event of Default the interest rate
on this Note shall become Twelve Percent (12%) per annum on the outstanding
Principal Amount until paid in full or such Event of Default has been cured.
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6. Except
as
otherwise agreed to by the Borrower and Xxxxxx in writing, this Note may not
be
prepaid in whole or in part except as provided in Section 7(a)(ii) of this
Note.
7. (a)
(i)
At
the
election of the Noteholder, this Note may be convertible in whole or in part
prior to its original maturity or prepayment into a number of shares (the
"Shares") of the Borrower's common stock, $0.33 par value per share (the “Common
Stock”), equal to the Principal Amount divided by a price per share equal to
$2.50. The amount of accrued and unpaid interest hereunder shall be paid in
cash
or, at the sole option of the Borrower, in shares of the Borrower's Common
Stock
as provided in Section 7(b) of this Note. Such conversion of the Note shall
be
effected by Noteholder giving Borrower written notice of conversion and
submitting this Note to Borrower for cancellation and issuance of the proper
number of Shares to Noteholder or his qualified nominee or assign(s), and if
this Note is being converted in part, a replacement Note representing the
unconverted portion of this Note. The Borrower shall issue such shares and/or
re-issue the unconverted portion of the Note within 15 Business Days of receipt
of such notice from the Lender. The Conversion Price will be proportionately
adjusted by (X) any stock splits and/or stock dividends which might be
declared
by Borrower, (Y) any subdivision or reclassification of the Borrower’s
outstanding shares of Common Stock into a greater number of shares, and/or
(Z)
any combination or reclassification its outstanding shares of Common Stock
into
a smaller number of shares.
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(ii)
Notwithstanding
any of the foregoing, in the event the Trading Price (as defined below) equals
or exceeds $5.00, the Borrower at its sole and absolute discretion at any time
thereafter shall have the right to redeem the full Principal Amount plus all
accrued and unpaid interest hereunder (the “Redemption Amount”). At the Maturity
Date, at the Noteholder’s election, the Principal Amount shall be redeemed
either in cash or in shares of the Borrower’s Common Stock. In the event the
Noteholder shall elect to redeem the Principal Amount in shares of the
Borrower’s Common Stock, the Principal Amount shall be convertible into a number
of shares of the Borrower's Common Stock equal to the Principal Amount divided
by a price of $2.50. In the event the Borrower shall elect to satisfy the
accrued and unpaid interest in shares of Common Stock, the accrued and unpaid
interest shall be convertible into a number of shares of the Borrower's Common
Stock equal to the accrued and unpaid interest divided by the Interest
Conversion Price. Upon redemption of this Note pursuant to this Section
7(a)(ii), the Noteholder shall promptly file a UCC-3 Termination Statement
and
fully and unconditionally release its security interest created by the Security
Agreement. The “Trading Price” shall mean the average closing bid price of the
Borrower’s Common Stock for any consecutive thirty trading days.
(b) At
the
sole election of the Borrower, any of the Interest Payments may be convertible
in whole or in part into a number of shares of the Borrower's Common Stock
(the
"Interest Shares"), equal to the amount of the Interest Payments due divided
by
a price per share equal to 80% of the Market Price (the “Interest Conversion
Price”). Such conversion shall be effected by the Borrower giving the Noteholder
written notice of conversion of the Interest Payment and issuance of the proper
number of the Interest Shares to Noteholder or his qualified nominee or
assignee(s). (By way of example, and without limitation of the foregoing
provisions, if the amount of the Interest Payment at December 31, 2008, equaled
$175,000, and the Market Price was $2.00 per share, the Borrower would then
issue 109,375 shares of its Common Stock in satisfaction of the Interest Payment
($175,000/($2.00*80%)). The “Market Price” shall mean the average closing bid
price of the Borrower’s Common Stock for the thirty trading days immediately
preceding the Interest Date.
(c) The
Borrower shall at all times reserve and keep available out of its authorized
and
unissued Common Stock, such number of shares of Common Stock as shall from
time
to time be sufficient for the purpose of providing for the conversion of this
Note. In case of any consolidation of the Borrower with, or merger of the
Borrower into, another corporation (except a merger or other reorganization
in
which the Borrower shall be the surviving corporation and its shares of Common
Stock shall continue to be outstanding and unchanged), the corporation formed
by
such consolidation or merger shall execute and deliver to the Noteholder a
supplemental agreement providing that the Noteholder shall have the rights
thereafter to receive, upon conversion of this Note, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger by a holder of the number of shares of Common Stock
for
which this Note might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Any shares issued to the Noteholder
under this Note shall bear a legend substantially in the form of the following:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.”
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8.
(a)
Lender represents and warrants that this Note has been purchased for investment,
that he is an "accredited investor" as that term is defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
“Securities Act”), that he understands and can bear the risk of this highly
speculative investment, that the Shares and the Interest Shares will not be
registered under the Securities Act, or the securities laws of any state and
that the Shares and the Interest Shares will be restricted and non-liquid
security that is highly speculative and dependent upon the future success of
the
Borrower as to which there is no assurance.
(b)
Xxxxxx further confirms that he has reviewed the Borrower’s SEC Reports. The
“SEC Reports” shall mean all reports, schedules, forms, statements and other
documents required to be filed by the Borrower under the Securities Act and
the
Exchange Act of 1934, as amended, including pursuant to Section 13(a) or 15(d)
thereof.
(c)
Borrower represents, warranties and covenants (as the case may be), that as
of
the date hereof, and for so long as any principal and/or interest is outstanding
on this Note, all SEC Reports have been, and shall be, true and correct in
all
material respects and do not and shall not contain any untrue statement of
a
material fact or omit to state a material fact required to be stated therein
or
necessary to make the statements therein, in light of the circumstances, under
which they were made, not misleading.
9. This
Note
is to be construed and enforced according to and governed by the laws of the
State of Delaware without giving effect to principles of conflicts of laws.
In
any action or proceeding arising out of or relating to this Note, Borrower
waives (to the full extent permitted by law) all right to a trial by jury or
to
plead as a defense any statute of limitations or any other similar law or
equitable doctrine. Borrower irrevocably consents to the jurisdiction of the
courts of the State of Delaware and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Note, any document or instrument delivered pursuant to, in connection with,
or
simultaneously with this Note, or a breach of this Note or any such document
or
instrument. Borrower waives, to the full extent permitted by law, any objection
which it may now or hereafter have to the laying of venue of any action or
proceeding arising out of or relating to this Note brought in the State of
Delaware, and further irrevocably waives, to the full extent permitted by law,
any claim that any such action or proceeding brought in such State has been
brought in an inconvenient forum. In any such action or proceeding, Borrower
waives, to the full extent permitted by law, personal service of any summons,
complaint, or other process and agrees that service thereof may be made on
Borrower by certified or registered U.S. mail or by personal delivery.
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10. This
Note
is non-negotiable, and may not to be assigned, transferred, pledged, or
hypothecated to any entity that is not an Affiliate (as such term is defined
in
section 2(11) of the Securities Act) of the Lender without the prior written
consent of the Borrower, which consent shall not be unreasonably withheld.
Borrower may not assign or transfer this Note or any of its obligations under
this Note in any manner whatsoever (unless through a consolidation or merger
of
Borrower, if a corporation, with or into another corporation) without the prior
written consent of Lender.
11. Xxxxxxxx
agrees to pay all costs and expenses (including, without limitation, reasonable
attorney fees) incurred or payable by Lender in enforcing each provision of
this
Note including, without limitation, respecting the collection of any and all
amounts payable under this Note.
12. Borrower
acknowledges that its obligations to make payments hereunder are absolute and
unconditional and valid obligations of the Company, and agrees that such
payments shall not be requested to be, and shall not be, subject to any defense,
setoff, or counterclaim of any kind or nature, or any other action similar
to
the foregoing, provided that nothing contained herein shall preclude any
separate proceeding by Borrower against Lender so long as such proceeding does
not in any manner relate to or otherwise impair the payment or the collection
of
the amounts due hereunder in accordance with the terms of this Note. Borrower
further represents that this Note has received all necessary approvals and
is a
valid and binding corporate act.
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13. No
amendment, modification, rescission, waiver, consent, forbearance, or release
of
any provision of this Note shall be valid or binding unless made in writing
and
executed by a duly authorized representative of Xxxxxxxx and Lender. No consent
or waiver, express or implied, by Xxxxxx to the breach by Xxxxxxxx in the
performance by it of any of its obligations hereunder shall be deemed or
construed to be a consent to or waiver of the further breach in the performance
of the same or any other obligation of Borrower hereunder. Failure on the part
of Lender to complain of the act or failure to act by Borrower or to declare
Borrower in breach, irrespective of how long such failure continues, shall
not
constitute a waiver by Xxxxxx of any of its rights hereunder.
14. This
Note is
expressly secured by a pledge by the Borrower of all of its assets as set forth
in the Security Agreement and a Guaranty of Surgicount Medical, Inc., a
California corporation and wholly owned subsidiary of Borrower. The security
granted hereby shall have priority only over security subsequently granted
to
any party; provided,
however, that the Lender shall subordinate this security interest in favor
of
any lender who provides financing to the Company of up to $2,000,000 in the
form
of a new credit facility and/or a replacement credit facility. Each Noteholder
may file a UCC-1 Financing Statement to perfect the security interest granted
herein. The aggregate amount of loan proceeds secured by this pledge will be
not
more than $2,530,558.40 (plus accrued and unpaid interest thereupon). The UCC-1
security will be issued in the name of Noteholder or such other party designated
by Noteholder. Upon satisfaction of this Note, the Noteholder shall promptly
file a UCC-3 Termination Statement.
15. This
Note and
Security Agreement constitute a final written expression of all the terms of
the
agreement between the parties regarding the subject matter hereof, are a
complete and exclusive statement of those terms, and supersede all prior and
contemporaneous agreements, understandings, and representations between the
parties. If any provision or any word, term, clause, or other part of any
provision of this Note shall be invalid for any reason, the same shall be
ineffective, but the remainder of this Note shall not be affected and shall
remain in full force and effect.
16. All
notices,
consents, or other communications provided for in this Note or otherwise
required by law shall be in writing and may be given to or made upon the
respective parties at their respective addresses set forth in Section 1 of
this
Note. Such
addresses may be changed by notice given as provided in this subsection. Notices
shall be effective upon the date of receipt; provided, however, that a notice
(other than a notice of a changed address) sent by certified or registered
U.S.
mail, with postage prepaid, shall be presumed received not later than three
(3)
business days following the date of sending.
[Signature
page follows.]
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IN
WITNESS WHEREOF, Xxxxxxxx has executed and delivered this Note as of July ___,
2007.
PATIENT SAFETY TECHNOLOGIES, INC. | |
By: _________________________________ | |
Name: Xxxxxxx X. Xxxxx | |
Title: Chief Executive Officer | |
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