Exhibit 10.1 

 

NOTE PURCHASE AGREEMENT

 

This NOTE PURCHASE AGREEMENT (this “Agreement”), dated as of September 10, 2014,
is entered into by and between Guided Therapeutics, Inc., a Delaware corporation
(“Company”), and Tonaquint, Inc., a Utah corporation, its successors and/or
assigns (“Investor”).

A. Company and Investor are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission under the Securities Act of 1933, as amended (the “Securities Act”).

B. Investor desires to purchase and Company desires to issue and sell, upon the
terms and conditions set forth in this Agreement a Secured Promissory Note, in
the form attached hereto as Exhibit A, in the original principal amount of
$1,275,000.00 (the “Note”). This Agreement, the Note, the Security Agreement (as
defined below), and all other certificates, documents, agreements, resolutions
and instruments delivered to any party under or in connection with this
Agreement, as the same may be amended from time to time, are collectively
referred to herein as the “Transaction Documents”.

NOW THEREFORE, Company and Investor hereby agree as follows:

1.                  Purchase and Sale of Note.

1.1.            Purchase of Note. On the Closing Date (as defined below),
Company shall issue and sell to Investor and Investor agrees to purchase from
Company the Note.

1.2.            Form of Payment. On the Closing Date, (i) Investor shall pay
$700,000.00 as full consideration for the Note to be issued and sold to it at
the Closing (as defined below) (the “Purchase Price”) by wire transfer of
immediately available funds to Company, in accordance with Company’s written
wiring instructions, against delivery of the Note, and (ii) Company shall
execute and deliver the Note on behalf of Company, to Investor, against delivery
of the Purchase Price.

1.3.            Closing Date. Subject to the satisfaction (or written waiver) of
the conditions set forth in Section ‎5 and Section ‎6 below, the date and time
of the issuance and sale of the Note pursuant to this Agreement (the “Closing
Date”) shall be 5:00 p.m., Eastern Time on or about September 9, 2014, or such
other mutually agreed upon time. The closing of the transactions contemplated by
this Agreement (the “Closing”) shall occur on the Closing Date at such location
as may be agreed to by the parties.

1.4.            Original Issue Discount; Transaction Expenses. The Note carries
an original issue discount of $560,000.00 (the “OID”). In addition, Company
agrees to pay $15,000.00 to Investor to cover Investor’s legal fees, accounting
costs, due diligence, monitoring and other transaction costs incurred in
connection with the purchase and sale of the Note (the “Transaction Expense
Amount”), all of which amount is included in the initial principal balance of
the Note. The Purchase Price, therefore, shall be $700,000.00, computed as
follows: $1,275,000.00 original principal balance, less the OID, less the
Transaction Expense Amount.

1.5.            Security. The Note will be secured by certain assets of Company,
as set forth in more detail in the Security Agreement attached hereto as Exhibit
B (the “Security Agreement”).

2.                  Investor’s Representations and Warranties. Investor
represents and warrants to Company that: (i) each of this Agreement and the
Security Agreement have each been duly and validly authorized; (ii) each of this
Agreement and the Security Agreement have been duly executed and delivered on
behalf of Investor, and this Agreement and the Security Agreement each
constitute a valid and binding agreement of Investor enforceable in accordance
with its terms; (iii) Investor is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D; (iv) Investor is experienced,
sophisticated and knowledgeable in trading in securities of private and public
companies and by reason of its respective business or financial experience or
its own independent investigation, Investor is capable of evaluating the merits
and risks of the transaction contemplated by the Transaction Documents; (v)
Investor is acquiring the Note for investment, for its own account and not for
the interest of any other person and not for distribution or resale to others;
(vi) the Note (a) has not been and will not be registered under the Securities
Act or the securities laws of any state, nor is any such registration
contemplated and (b) is subject to restrictions on transferability and resale,
and may not be transferred or resold except as permitted under the Securities
Act and applicable state securities laws, whether pursuant to registration
thereunder or an exemption therefrom; and (vii) Investor is familiar with the
Company and has been given the opportunity to ask questions of the officers and
directors of the Company and to obtain (and has received to its satisfaction)
such information about the business and financial conditions of the Company as
it has reasonably requested. Notwithstanding the foregoing, nothing in this
Section 2 shall be construed to modify, undermine or act as a defense to
Company’s unconditional obligation to repay the Note.

3.                  Representations and Warranties of Company. Company
represents and warrants to Investor that: (i) Company is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has the requisite corporate power to own its properties and to
carry on its business as now being conducted; (ii) Company is duly qualified as
a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property owned by it
makes such qualification necessary, and in which the failure to so qualify would
have or is reasonably likely to result in a material adverse effect upon the
business, properties, operations, financial condition or results of operations
of the Company, or in its ability to perform its obligations under this
Agreement; (iii) each of the Transaction Documents and the transactions
contemplated hereby and thereby have been duly and validly authorized by
Company; (iv) this Agreement, the Note and the Security Agreement have been duly
executed and delivered by Company and constitute the valid and binding
obligations of Company enforceable in accordance with their terms, subject as to
enforceability only to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors’ rights generally; (v) the execution and delivery of the Transaction
Documents by Company, the issuance of the Note in accordance with the terms
hereof, and the consummation by Company of the other transactions contemplated
by the Transaction Documents do not and will not conflict with or result in a
breach by Company of any of the terms or provisions of, or constitute a default
under (a) Company’s formation documents or bylaws, each as currently in effect,
(b) any indenture, mortgage, deed of trust, or other material agreement or
instrument to which Company is a party or by which it or any of its properties
or assets are bound, including any listing agreement for the Common Stock except
as herein set forth, or (c) to Company’s knowledge, any existing applicable law,
rule, or regulation or any applicable decree, judgment, or order of any court,
United States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over Company or any of Company’s
properties or assets; (vi) no authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders or any lender of Company is required to
be obtained by Company for the issuance of the Note to Investor, except such
authorizations, approvals and consents that have been obtained; (vii) with
respect to any brokerage commissions, placement agent or finder’s fees or
similar payments that will or would become due and owing by Company to any
person or entity as a result of this Agreement or the transactions contemplated
hereby (“Broker Fees”), any such Broker Fees will be made in full compliance
with all applicable laws and regulations and only to a person or that is a
registered investment adviser or registered broker-dealer; and (viii) Investor
shall have no obligation with respect to any such Broker Fees or with respect to
any claims made by or on behalf of other persons or entities for fees of a type
contemplated herein that may be due in connection with the transactions
contemplated hereby and Company shall indemnify and hold harmless each of
Investor, Investor’s employees, officers, directors, stockholders, managers,
agents, and partners, and their respective affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorneys’ fees) and expenses suffered in respect of any such claimed or
existing fees.

4.                  Company Covenants. Until all of Company’s obligations
hereunder are paid and performed in full, or within the timeframes otherwise
specifically set forth below, Company shall comply with the following covenants:
(i) Company shall use the net proceeds received under the Note for working
capital and general corporate purposes only; provided, however, Company will not
use such proceeds to pay fees payable (A) to any broker or finder relating to
the offer and sale of the Note unless such broker, finder, or other party is a
registered investment adviser or registered broker-dealer and such fees are paid
in full compliance with all applicable laws and regulations, or (B) to any other
party relating to any financing transaction effected prior to the date hereof;
and (ii) when issued, the Note will be validly issued, fully paid for and
non-assessable, free and clear of all liens, claims, charges and encumbrances.

5.                  Conditions to Company’s Obligation to Sell. The obligation
of Company hereunder to issue and sell the Note to Investor at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions thereto, provided that these conditions are for Company’s
sole benefit and may be waived by Company at any time in its sole discretion:

5.1.            Investor shall have executed this Agreement and delivered the
same to Company.

5.2.            Investor shall have executed the Security Agreement and
delivered the same to Company.

5.3.            Investor shall have delivered the Purchase Price to Company in
accordance with Section ‎1.2 above.

6.                  Conditions to Investor’s Obligation to Purchase. The
obligation of Investor hereunder to purchase the Note at the Closing is subject
to the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for Investor’s sole benefit and
may be waived by Investor at any time in its sole discretion:

6.1.            Company shall have executed this Agreement and delivered the
same to Investor.

6.2.            Company shall have delivered to Investor the duly executed Note
in accordance with Section ‎1.2 above.

6.3.            Company shall have executed the Security Agreement and delivered
the same to Investor.

6.4.            Company shall have delivered to Investor a fully executed
Secretary’s Certificate evidencing Company’s approval of the Transaction
Documents substantially in the form attached hereto as ‎Exhibit C.

7.                  Miscellaneous. The provisions set forth in this Section ‎7
shall apply to this Agreement, as well as all other Transaction Documents as if
these terms were fully set forth therein.

7.1.            Original Signature Pages. Each party agrees to deliver its
original signature pages to the Transaction Documents to the other party within
five (5) business days of the date hereof. Notwithstanding the foregoing, the
Transaction Documents shall be fully effective upon exchange of electronic
signature pages by the parties and payment of the Purchase Price by Investor.
For the avoidance of doubt, the failure by either party to deliver its original
signature pages to the other party shall not affect in any way the validity or
effectiveness of any of the Transaction Documents, provided that such failure to
deliver original signatures shall be a breach of the party’s obligations
hereunder.

7.2.            Cross Default. Any Event of Default (as defined in the Note)
shall be deemed a default under this Agreement and any default of this Agreement
by Company shall be deemed an Event of Default under the Note, subject to the
more-specific terms of the Note. Upon a default of this Agreement by Company,
Investor shall have all those rights and remedies available at law or in equity,
including without limitation those remedies set forth in the Note.

7.3.            Governing Law; Venue. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Utah for contracts to be
wholly performed in such state and without giving effect to the principles
thereof regarding the conflict of laws. Each party consents to and expressly
agrees that venue for Arbitration (as defined in ‎Exhibit D) of any dispute
arising out of or relating to any Transaction Document or the relationship of
the parties or their affiliates shall be in Salt Lake County or Utah County,
Utah. Without modifying the parties obligations to resolve disputes hereunder
pursuant to the Arbitration Provisions (as defined below), for any litigation
arising in connection with any of the Transaction Documents, each party hereto
hereby (a) consents to and expressly submits to the exclusive personal
jurisdiction of any state or federal court sitting in Salt Lake County, Utah,
(b) expressly submits to the venue of any such court for the purposes hereof,
and (c) waives any claim of improper venue and any claim or objection that such
courts are an inconvenient forum or any other claim or objection to the bringing
of any such proceeding in such jurisdictions or to any claim that such venue of
the suit, action or proceeding is improper.

7.4.            Arbitration. The parties shall submit all Claims (as defined in
‎Exhibit D) arising under this Agreement or any other Transaction Document or
other agreements between the parties and their affiliates to binding arbitration
pursuant to the arbitration provisions set forth in ‎Exhibit D attached hereto
(the “Arbitration Provisions”). The parties hereby acknowledge and agree that
the Arbitration Provisions are unconditionally binding on the parties hereto and
are severable from all other provisions of this Agreement. Any capitalized term
not defined in the Arbitration Provisions shall have the meaning set forth in
this Agreement. By executing this Agreement, Company represents, warrants and
covenants that Company has reviewed the Arbitration Provisions carefully,
consulted with legal counsel about such provisions (or waived its right to do
so), understands that the Arbitration Provisions are intended to allow for the
expeditious and efficient resolution of any dispute hereunder, agrees to the
terms and limitations set forth in the Arbitration Provisions, and that Company
will not take a position contrary to the foregoing representations. Company
acknowledges and agrees that Investor may rely upon the foregoing
representations and covenants of Company regarding the Arbitration Provisions.

7.5.            Counterparts. Each Transaction Document may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one instrument. The parties hereto confirm that
any electronic copy of another party’s executed counterpart of a Transaction
Document (or such party’s signature page thereof) will be deemed to be an
executed original thereof.

7.6.            Severability. In the event that any provision of this Agreement
is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform to such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.

7.7.            Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither Company nor Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the parties hereto.

7.8.            Notices. Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of: (a) the date delivered, if delivered by
personal delivery as against written receipt therefor or by e-mail to an
executive officer, or by facsimile (with successful transmission confirmation),
(b) the earlier of the date delivered or the third business day after deposit,
postage prepaid, in the United States Postal Service by certified mail, or (c)
the earlier of the date delivered or the third business day after mailing by
express courier, with delivery costs and fees prepaid, in each case, addressed
to each of the other parties thereunto entitled at the following addresses (or
at such other addresses as such party may designate by five (5) calendar days’
advance written notice similarly given to each of the other parties hereto):

If to Company:

 

Guided Therapeutics, Inc.

Attn: Gene Cartwright

5835 Peachtree Corners East

Suite D

Norcross, Georgia 30092

 

If to Investor:

 

Tonaquint, Inc.

Attn: John Fife, President

303 East Wacker Drive, Suite 1200

Chicago, Illinois 60601

 

With a copy to (which copy shall not constitute notice):

 

Hansen Black Anderson Ashcraft PLLC

Attn: Jonathan K. Hansen

3051 West Maple Loop Drive, Suite 325

Lehi, Utah 84043

 

7.9.            Successors and Assigns. This Agreement or any of the severable
rights and obligations inuring to the benefit of or to be performed by Investor
hereunder may be assigned by Investor to a third party, including its financing
sources, in whole or in part, without the need to obtain Company’s consent
thereto. Company may not assign its rights or obligations under this Agreement
or delegate its duties hereunder without the prior written consent of Investor.

7.10.        Survival. The representations and warranties of Company and the
agreements and covenants set forth in this Agreement shall survive the Closing
hereunder notwithstanding any due diligence investigation conducted by or on
behalf of Investor. Company agrees to indemnify and hold harmless Investor and
all its officers, directors, employees, attorneys, and agents for loss or damage
arising as a result of or related to any breach or alleged breach by Company of
any of its representations, warranties and covenants set forth in this Agreement
or any of its covenants and obligations under this Agreement, including
advancement of expenses as they are incurred.

7.11.        Publicity. Company and Investor shall have the right to review a
reasonable period of time before issuance of any press releases with respect to
the transactions contemplated hereby.

7.12.        Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

7.13.        Investor’s Rights and Remedies Cumulative. All rights, remedies,
and powers conferred in this Agreement and the Transaction Documents are
cumulative and not exclusive of any other rights or remedies, and shall be in
addition to every other right, power, and remedy that Investor may have, whether
specifically granted in this Agreement or any other Transaction Document, or
existing at law, in equity, or by statute, and any and all such rights and
remedies may be exercised from time to time and as often and in such order as
Investor may deem expedient. The parties acknowledge and agree that upon
Company’s failure to comply with the provisions of the Transaction Documents,
Investor’s damages would be uncertain and difficult (if not impossible) to
accurately estimate because of the parties’ inability to predict future interest
rates and future share prices, Investor’s increased risk, and the uncertainty of
the availability of a suitable substitute investment opportunity for Investor,
among other reasons. Accordingly, any fees, charges, and default interest due
under the Note and the other Transaction Documents are intended by the parties
to be, and shall be deemed, liquidated damages (under Company’s and Investor’s
expectations that any such liquidated damages will tack back to the Closing Date
for purposes of determining the holding period under Rule 144). The parties
agree that such liquidated damages are a reasonable estimate of Investor’s
actual damages and not a penalty, and shall not be deemed in any way to limit
any other right or remedy Investor may have hereunder, at law or in equity. The
parties acknowledge and agree that under the circumstances existing at the time
this Agreement is entered into, such liquidated damages are fair and reasonable
and are not penalties. All fees, charges, and default interest provided for in
the Transaction Documents are agreed to by the parties to be based upon the
obligations and the risks assumed by the parties as of the Closing Date and are
consistent with investments of this type. The liquidated damages provisions of
the Transaction Documents shall not limit or preclude a party from pursuing any
other remedy available at law or in equity; provided, however, that the
liquidated damages provided for in the Transaction Documents are intended to be
in lieu of actual damages.

7.14.        Attorneys’ Fees and Cost of Collection. In the event of any
arbitration or action at law or in equity to enforce or interpret the terms of
this Agreement or any of the other Transaction Documents, the parties agree that
the party who is awarded the most money shall be deemed the prevailing party for
all purposes and shall therefore be entitled to an additional award of the full
amount of the attorneys’ fees, deposition costs, and expenses paid by such
prevailing party in connection with arbitration or litigation without reduction
or apportionment based upon the individual claims or defenses giving rise to the
fees and expenses. Nothing herein shall restrict or impair an arbitrator’s or a
court’s power to award fees and expenses for frivolous or bad faith pleading. If
(a) a Note is placed in the hands of an attorney for collection or enforcement
prior to commencing arbitration or legal proceedings, or is collected or
enforced through any arbitration or legal proceeding, or Investor otherwise
takes action to collect amounts due under the Note or to enforce the provisions
of the Note; or (b) there occurs any bankruptcy, reorganization, receivership of
Company or other proceedings affecting Company’s creditors’ rights and involving
a claim under the Note, then Company shall pay the costs incurred by Investor
for such collection, enforcement or action or in connection with such
bankruptcy, reorganization, receivership or other proceeding, including, without
limitation, attorneys’ fees, deposition costs, and disbursements.

7.15.        Waiver. No waiver of any provision of this Agreement shall be
effective unless it is in the form of a writing signed by the party granting the
waiver. No waiver of any provision or consent to any prohibited action shall
constitute a waiver of any other provision or consent to any other prohibited
action, whether or not similar. No waiver or consent shall constitute a
continuing waiver or consent or commit a party to provide a waiver or consent in
the future except to the extent specifically set forth in writing.

7.16.        Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY
WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS
WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER
COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH
PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING
SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.

7.17.        Time of the Essence. Time is expressly made of the essence of each
and every provision of this Agreement and the other Transaction Documents.

[Remainder of page intentionally left blank; signature page to follow]

 

 

 

 

 

 

 

 

 

 

IN WITNESS WHEREOF, the undersigned Investor and Company have caused this
Agreement to be duly executed as of the date first above written.

SUBSCRIPTION AMOUNT:

 

Principal Amount of Note: $1,275,000.00

 

Purchase Price:

$700,000.00

 

INVESTOR:

 

Tonaquint, Inc.

 

 

 

By: /s/ John M. Fife

John M. Fife, President

 

 

COMPANY:

 

Guided Therapeutics, Inc.

 

 

 

By: /s/ Gene S. Cartwright

Printed Name: Gene S. Cartwright

Title: President and CEO

 

 

ATTACHED EXHIBITS:

 

ExhibitA                  Note

ExhibitB                   Security Agreement

ExhibitC                   Secretary’s Certificate

ExhibitD                  Arbitration Provisions

 

 

 

 

‎Exhibit D

 

ARBITRATION PROVISIONS

 

1. Dispute Resolution. For purposes of this ‎Exhibit D, the term “Claims” means
any disputes, claims, demands, causes of action, liabilities, damages, losses,
or controversies whatsoever arising from related to or connected with the
transactions contemplated in the Transaction Documents and any communications
between the parties related thereto, including without limitation any claims of
mutual mistake, mistake, fraud, misrepresentation, failure of formation, failure
of consideration, promissory estoppel, unconscionability, failure of condition
precedent, rescission, and any statutory claims, tort claims, contract claims,
or claims to void, invalidate or terminate the Agreement or any of the other
Transaction Documents. The parties hereby agree that the arbitration provisions
set forth in this ‎Exhibit D (“Arbitration Provisions”) are binding on the
parties hereto and are severable from all other provisions in the Transaction
Documents. As a result, any attempt to rescind the Agreement or declare the
Agreement or any other Transaction Document invalid or unenforceable for any
reason is subject to these Arbitration Provisions. These Arbitration Provisions
shall also survive any termination or expiration of the Agreement.

2. Arbitration. Except as otherwise provided herein, all Claims must be
submitted to arbitration (“Arbitration”) to be conducted in Salt Lake County,
Utah or Utah County, Utah and pursuant to the terms set forth in these
Arbitration Provisions. The parties agree that the award of the Arbitration
Panel (as defined below) shall be final and binding upon the parties; shall be
the sole and exclusive remedy between them regarding any Claims, counterclaims,
issues, or accountings presented or pleaded to the Arbitration Panel; and shall
promptly be payable in United States dollars free of any tax, deduction or
offset (with respect to monetary awards). Any costs or fees, including without
limitation attorneys’ fees, incident to enforcing the Arbitration Panel’s award
shall, to the maximum extent permitted by law, be charged against the party
resisting such enforcement. The award shall include Default Interest (as defined
in the Note) both before and after the award. Judgment upon the award of the
Arbitration Panel will be entered and enforced by a state court sitting in Salt
Lake County, Utah. The parties hereby incorporate herein the provisions and
procedures set forth in the Utah Uniform Arbitration Act, U.C.A. § 78B-11-101 et
seq. (as amended or superseded from time to time, the “Arbitration Act”).
Pursuant to Section 78B-11-105 of the Arbitration Act, in the event of conflict
between the terms of these Arbitration Provisions and the provisions of the
Arbitration Act, the terms of these Arbitration Provisions shall control.

3. Arbitration Proceedings. Arbitration between the parties will be subject to
the following procedures:

3.1 Pursuant to Section 110 of the Arbitration Act, the parties agree that a
party may initiate Arbitration by giving written notice to the other party
(“Arbitration Notice”) in the same manner that notice is permitted under Section
‎7.8 of the Agreement; provided, however, that the Arbitration Notice may not be
given by email or fax. Arbitration will be deemed initiated as of the date that
the Arbitration Notice is deemed delivered under Section ‎7.8 of the Agreement
(the “Service Date”). After the Service Date, information may be delivered, and
notices may be given, by email or fax pursuant to Section ‎7.8 of the Agreement
or any other method permitted thereunder. The Arbitration Notice must describe
the nature of the controversy, the remedies sought, and the election to commence
Arbitration proceedings. All Claims in the Arbitration Notice must be pleaded
consistent with the Utah Rules of Civil Procedure.

3.2 The final Arbitration hearing will be heard by a three (3) person
arbitration panel (“Arbitration Panel”). Within ten (10) calendar days after the
Service Date, Investor shall select and submit to Company the names of five (5)
arbitrators that are designated as “neutrals” or qualified arbitrators by Utah
ADR Services (http://www.utahadrservices.com) (such five designated persons
hereunder are referred to herein as the “Proposed Arbitrators”). For the
avoidance of doubt, each Proposed Arbitrator must be qualified as a “neutral”
with Utah ADR Services. Within ten (10) calendar days after Investor has
submitted to Company the names of the Proposed Arbitrators, Company must select,
by written notice to Investor, three (3) of the Proposed Arbitrators to act as
the members of the Arbitration Panel. If Company fails to select three of the
Proposed Arbitrators in writing within such 10-day period, then Investor may
select such three arbitrators from the Proposed Arbitrators by providing written
notice of such selection to Company. If Investor fails to identify the Proposed
Arbitrators within the time period required above, then Company may at any time
prior to Investor designating the Proposed Arbitrators, select the names of the
five (5) Proposed Arbitrators.

 

Arbitration Provisions, Page 9

 

 

 

Investor may then, within ten (10) calendar days after Company has submitted
notice of its Proposed Arbitrators to Investor, select, by written notice to
Company, three (3) of the Proposed Arbitrators to serve on the Arbitration
Panel. If Investor fails to select in writing and within such 10-day period the
three members of the Arbitration Panel, then Company may select such three
members of the Arbitration Panel by providing written notice of such selection
to Investor. After the three members of the Arbitration Panel are selected,
Investor shall designate in writing to Company the name of one of such three
arbitrators to serve as the lead arbitrator (the “Lead Arbitrator”). Subject to
Paragraph 3.12 below, the cost of the arbitrators must be paid equally by both
parties; provided, however, that if one party refuses or fails to pay its
portion of the arbitrators’ fees, then the other party can advance such unpaid
amounts (subject to the accrual of Default Interest thereupon), with such amount
added to or subtracted from, as applicable, the award granted by the Arbitration
Panel. If Utah ADR Services ceases to exist or to provide a list of neutrals,
then the arbitrators shall be selected under the then prevailing rules of the
American Arbitration Association. The date that all three selected arbitrators
agree in writing to serve as the arbitrators hereunder is referred to herein as
the “Arbitration Commencement Date”.

3.3 An answer and any counterclaims to the Arbitration Notice, which must be
pleaded consistent with the Utah Rules of Civil Procedure, shall be required to
be delivered to the other party within twenty (20) calendar days after the
Service Date. Upon request, the Arbitration Panel is hereby instructed to render
a default award, consistent with the relief requested in the Arbitration Notice,
against a party that fails to submit an answer within such time period.

3.4 The party that delivers the Arbitration Notice to the other party shall have
the option to also commence legal proceedings with any state court sitting in
Salt Lake County, Utah (“Litigation Proceedings”), subject to the following: (i)
the complaint in the Litigation Proceedings is to be substantially similar to
the claims set forth in the Arbitration Notice, provided that an additional
cause of action to compel arbitration will also be included therein, (ii) so
long as the other party files an answer to the complaint in the Litigation
Proceedings and an answer to the Arbitration Notice, the Litigation Proceedings
will be stayed pending an award of the Arbitration Panel hereunder, (iii) if the
other party fails to file an answer in the Litigation Proceedings or an answer
in the Arbitration Proceedings, then the party initiating Arbitration shall be
entitled to a default judgment consistent with the relief requested, to be
entered in the Litigation Proceedings, and (iv) any legal or procedural issue
arising under the Arbitration Act that requires a decision of a court of
competent jurisdiction may be determined in the Litigation Proceedings. Any
award of the Arbitration Panel may be entered in such Litigation Proceedings
pursuant to the Arbitration Act.

3.5 Pursuant to Section 118(8) of the Arbitration Act, the parties agree that
discovery shall be conducted in accordance with the Utah Rules of Civil
Procedure; provided, however, that incorporation of such rules will in no event
supersede the Arbitration Provisions set forth herein, including without
limitation the time limitation set forth in Paragraph 3.9 below, and the
following:

(a) The Lead Arbitrator will be responsible for determining all issues regarding
discovery.

(b) Discovery will only be allowed if the likely benefits of the proposed
discovery outweigh the burden or expense, and the discovery sought is likely to
reveal information that will satisfy a specific element of a claim or defense
already pleaded in the Arbitration. The party seeking discovery shall always
have the burden of showing that all of the standards and limitations set forth
in these Arbitration Provisions are satisfied. The scope of discovery in the
Arbitration proceedings shall also be limited as follows:

(i) To facts directly connected with the transactions contemplated by the
Agreement.

(ii) To facts and information that cannot be obtained from another source that
is more convenient, less burdensome or less expensive.

(c) No party shall be allowed (a) more than fifteen (15) interrogatories
(including discrete subparts), (b) more than fifteen (15) requests for admission
(including discrete subparts), (c) more than ten (10) document requests
(including discrete subparts), or (d) more than three depositions (excluding
expert depositions) for a maximum of seven (7) hours per deposition.

3.6 Any party submitting any written discovery requests, including
interrogatories, requests for production, subpoenas to a party or a third party,
or requests for admissions, must prepay the estimated attorneys’ fees and costs,
as determined by the Lead Arbitrator, before the responding party has any
obligation to produce or respond.

 

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(a) All discovery requests must be submitted in writing to the Lead Arbitrator
and the other party before issuing or serving such discovery requests. The party
issuing the written discovery requests must include with such discovery requests
a detailed explanation of how the proposed discovery requests satisfy the
requirements of these Arbitration Provisions and the Utah Rules of Civil
Procedure. Any party will then be allowed, within ten (10) calendar days of
receiving the proposed discovery requests, to submit to the Lead Arbitrator an
estimate of the attorneys’ fees and costs associated with responding to such
written discovery requests and a written challenge to each applicable discovery
request. After receipt of an estimate of attorneys’ fees and costs and/or
challenge(s) to one or more discovery requests, the Lead Arbitrator will make a
finding as to the likely attorneys’ fees and costs associated with responding to
the discovery requests and issue an order that (A) requires the requesting party
to prepay the attorneys’ fees and costs associated with responding to the
discovery requests, and (B) requires the responding party to respond to the
discovery requests as limited by the Lead Arbitrator within a certain period of
time after receiving payment from the requesting party. If a party entitled to
submit an estimate of attorneys’ fees and costs and/or a challenge to discovery
requests fails to do so within such 10-day period, the Lead Arbitrator will make
a finding that (A) there are no attorneys’ fees or costs associated with
responding to such discovery requests, and (B) the responding party must respond
to such discovery requests (as may be limited by the Lead Arbitrator) within a
certain period of time as determined by the Lead Arbitrator.

(b) In order to allow a written discovery request, the Lead Arbitrator must find
that the discovery request satisfies the standards set forth in these
Arbitration Provisions and the Utah Rules of Civil Procedure. The Lead
Arbitrator must strictly enforce these standards. If a discovery request does
not satisfy any of the standards set forth in these Arbitration Provisions or
the Utah Rules of Civil Procedure, the Lead Arbitrator may modify such discovery
request to satisfy the applicable standards, or strike such discovery request in
whole or in part.

(c) Discovery deadlines will be set forth in a scheduling order issued by the
Lead Arbitrator. The parties hereby authorize and direct the Lead Arbitrator to
take such actions and make such rulings as may be necessary to carry out the
parties’ intent for the arbitration proceedings to be efficient and expeditious.

3.7 Each party may submit expert reports (and rebuttals thereto), provided that
such reports must be submitted by the deadlines established by the Lead
Arbitrator. Expert reports must contain the following: (a) a complete statement
of all opinions the expert will offer at trial and the basis and reasons for
them; (b) the expert’s name and qualifications, including a list of all
publications within the preceding 10 years, and a list of any other cases in
which the expert has testified at trial or in a deposition or prepared a report
within the preceding 10 years; and (c) the compensation to be paid for the
expert’s study and testimony. The parties are entitled to depose any other
party’s expert witness one time for no more than 4 hours. An expert may not
testify in a party’s case-in-chief concerning any matter not fairly disclosed in
the expert report.

3.8 All information disclosed by either party during the Arbitration process
(including without limitation information disclosed during the discovery
process) shall be considered confidential in nature. Each party agrees not to
disclose any confidential information received from the other party during the
discovery process unless (i) prior to or after the time of disclosure such
information becomes public knowledge or part of the public domain, not as a
result of any inaction or action of the receiving party, (ii) such information
is required by a court order, subpoena or similar legal duress to be disclosed
if such receiving party has notified the other party thereof in writing and
given it a reasonable opportunity to obtain a protective order from a court of
competent jurisdiction prior to disclosure; or (iii) disclosed to the receiving
party’s agents, representatives and legal counsel on a need to know basis who
each agree in writing not to disclose such information to any third party.
Pursuant to Section 118(5) of the Arbitration Act, the Lead Arbitrator is hereby
authorized and directed to issue a protective order to prevent the disclosure of
privileged information and confidential information upon the written request of
either party.

3.9 The parties hereby authorize and direct the Arbitration Panel to take such
actions and make such rulings as may be necessary to carry out the parties’
intent for the arbitration proceedings to be efficient and expeditious. Pursuant
to Section 120 of the Arbitration Act, the parties hereby agree that an award of
the Arbitration Panel must be made within 150 days after the Arbitration
Commencement Date. The Lead Arbitrator is hereby authorized and directed to hold
a scheduling conference within ten (10) calendar days after the Arbitration
Commencement Date in order to establish a scheduling order with various binding
deadlines for discovery, expert testimony, and the submission of documents by
the parties to enable the Arbitration Panel to render a decision prior to the
end of such 150-day period. The Utah Rules of Evidence will apply to any final
hearing before the Arbitration Panel.

3.10 The decision of the Arbitration Panel shall be determined by majority vote
of the arbitrators. The Arbitration Panel shall have the right to award or
include in the Arbitration Panel’s award any relief which the Arbitration Panel
deems proper under the circumstances, including, without limitation, specific
performance and injunctive relief, provided that the Arbitration Panel may not
award exemplary or punitive damages. The Arbitration Panel shall select a single
arbitrator to prepare the written decision of the Arbitration Panel.

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3.11 If any part of these Arbitration Provisions is found to violate applicable
law or to be illegal, then such provision shall be modified to the minimum
extent necessary to make such provision enforceable under applicable law.

3.12 The Arbitration Panel is hereby directed to require the losing party to (i)
pay the full amount of the costs and fees of the arbitrators, and (ii) reimburse
the prevailing party the reasonable attorneys’ fees, arbitrator costs,
deposition costs, and other discovery costs incurred by the prevailing party.

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