Exhibit
10.1

    


    SUPPLY
AND DISTRIBUTION AGREEMENT

    


    This Supply and Distribution Agreement
(“Agreement”), effective November 19, 2009 (“Effective Date”), is between
Patient Safety Technologies, Inc, a Delaware corporation with its principal
offices located at 43460 Ridge Park Drive, Suite # 140 Temecula,
CA  92590 hereinafter called “SUPPLIER,” and Cardinal Health 200,
LLC., a Delaware Corporation, with offices located at 7000 Cardinal Place,
Dublin Ohio 43017, hereinafter called “CARDINAL HEALTH.”

     

    SUPPLIER
and CARDINAL HEALTH agree as follows:

    


    1.           Products Covered by this
Agreement.  The products covered by, and sold to CARDINAL
HEALTH under this Agreement are those products manufactured by or for SUPPLIER
and listed on Schedule A (the “Products”).  There are no minimum
purchase commitments of any kind under this Agreement.   The
Products may be purchased by CARDINAL HEALTH either in (a) single sterile form
(“Single Sterile”) for distribution through CARDINAL HEALTH or alternate
distributors or (b) bulk non-sterile form (“Bulk Non–Sterile”) for placement
into kits either by CARDINAL HEALTH’s kitting business or alternate kit
packers.  SUPPLIER also sells or provides to customers equipment with
which Products are to be used; this equipment is referred to in this Agreement
as “Equipment”.  SUPPLIER is solely responsible for providing,
shipping, installing, maintaining, servicing and supporting the
Equipment.

    


    2.           Term.  The term of
this Agreement shall begin on the Effective Date and shall continue until
November 19, 2014 unless earlier terminated in accordance with the provisions of
Section 9 below, (the “Initial Term”).  At the end of the Initial
Term, this Agreement shall automatically renew for successive 12 month periods
unless either party provides written notice of its intent not to renew the
Agreement at least ninety (90) days prior to the expiration of the Initial Term
or any renewal term thereafter.  The Initial Term and any renewal
terms are sometimes referred to herein as the “term.”

    


    3.           Grant of
Distributorship.

    


    a.           SUPPLIER
hereby appoints CARDINAL HEALTH as the exclusive distributor of the Products in
the United States, Puerto Rico, & Canada (the “Territory”) and CARDINAL
HEALTH accepts such grant for the term and on the conditions stated in this
Agreement.  SUPPLIER agrees that it will not directly or indirectly
sell the Products, or any products competitive with or that could be used as
substitutes for, the Products, within the Territory to any party other than
CARDINAL HEALTH.  CARDINAL HEALTH agrees that during the term of this
Agreement, it will not act as the exclusive distributor for products that
compete directly with the Products.  In the event that SUPPLIER
intends to sell Products in a jurisdiction outside of the Territory through a
distributor, SUPPLIER will notify CARDINAL HEALTH of its intention and shall
negotiate exclusively with CARDINAL HEALTH for 30 days to determine whether
SUPPLIER will engage CARDINAL HEALTH to act as distributor for the jurisdiction
outside of the Territory.   If at the end of such 30 day time
period the parties do not agree on the terms of such opportunity outside of the
Territory, SUPPLIER can present the opportunity to other third parties and
select another distributor in its sole discretion.  

    


    b.           SUPPLIER
will market to and enter into agreements with its customers providing for
Equipment (as defined below) and supplies of Products.  SUPPLIER will
provide CARDINAL HEALTH with the identity and other information relating to
these customers and the agreements entered into with them within ten (10) days
of SUPPLIER entering into such agreements.  CARDINAL HEALTH will make
such introductions to its own customers as the parties may
agree.  SUPPLIER grants CARDINAL HEALTH a limited license to use
trademarks, tradenames and trade dress (collectively, “Trademarks”) of SUPPLIER
solely in connection with its duties under this agreement and in any marketing
efforts for sales of Products it may engage in.  CARDINAL HEALTH will
use these Trademarks only in the form prescribed by SUPPLIER and will not deface
or remove any Trademark on Products.

    


    c.           SUPPLIER
will provide CARDINAL HEALTH with information regarding the expected and
required volumes of Products to be sold to customers and will update this
information from time to time and upon request from CARDINAL
HEALTH.  CARDINAL HEALTH will order Products in accordance with
SUPPLIER’s lead times and upon the reasonable request of SUPPLIER will provide
accurate information about inventories of Products maintained by CARDINAL
HEALTH.  CARDINAL HEALTH will store the Products under conditions
recommended by SUPPLIER and in compliance with any applicable law or
regulation.


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    d.           SUPPLIER
shall have the right twice a calendar year upon reasonable advance written
notice to CARDINAL HEALTH during regular business hours to inspect the
facilities where the Products are stored and assembled.  SUPPLIER agrees to
treat as Confidential Information (as further defined in Section 13b) all
information viewed and received by SUPPLIER at CARDINAL HEALTH’s facilities
during the course of such inspections.  In the event that SUPPLIER has
received complaints or other creditable reports of quality problems relating to
CARDINAL HEALTH Kits containing Products or the kits of other producers
containing Products obtained from CARDINAL HEALTH, SUPPLIER shall have the right
within 2 business days (or more at SUPPLIER’s option) of written notice to
inspect the facilities where the Products are stored and assembled and discuss
related matters with CARDINAL HEALTH personnel. CARDINAL HEALTH will make its
personnel reasonably available to SUPPLIER and SUPPLIER may make such follow up
visits as it deems reasonably necessary (without counting such visits against
the 2 per year limit above) until it is satisfied that quality issues have been
resolved.

    


    4.           Forward Buy

    


    a.           Upon
execution of this Agreement, CARDINAL HEALTH will issue a purchase order to
SUPPLIER for $10 million of Products (the “Forward PO”) and pay SUPPLIER $8
million as a partial pre-payment for such Products. Following issuance of the
Forward PO, Product will be delivered against the Forward PO as soon as
reasonably practicable but (i) at least $1 million of Products will be delivered
within [*****] following issuance of the Forward PO, (ii) an aggregate of at
least $2.5 million of Products will be delivered within [*****] following
issuance of the Forward PO, (iii) an aggregate of at least $5 million of
Products will be delivered within [*****] following issuance of the Forward PO,
and (iv) all of the Product prior to [*****] of the delivery of the Forward
PO.  SUPPLIER shall meet all Fill Rate requirements (as defined below
in Section 7b) for all Product purchased by CARDINAL HEALTH under this
section.

    


    b.           Within
30 days after SUPPLIER’s delivery to CARDINAL HEALTH of invoices from A+ Medical
Products (“A+MP”) for Products delivered to CARDINAL HEALTH under the Forward
PO, CARDINAL HEALTH will pay A+MP for such invoices up to  $2 million
in the aggregate. SUPPLIER shall remain responsible and liable pursuant to the
terms of this Agreement for all Product delivered to CARDINAL HEALTH hereunder
even though CARDINAL HEALTH is making payment directly to A+MP under this
section.

    


    c.           On
or before July 1, 2010, but no later than September 30, 2010, CARDINAL HEALTH
will issue a purchase order for an additional $5 million of Product (“Second
Forward PO”); provided that sales of Product to customers or other distributors
under this Agreement  are at an installed base run rate (run rate is
calculated by annualizing the  most recent month’s sale as of date of
Second Forward PO)of [*****] (the “Sales Threshold”).   If the Sales
Threshold is not achieved, CARDINAL HEALTH will not be required to issue the
Second Forward PO. If the Second Forward PO is issued, CARDINAL HEALTH will make
an initial payment for the Product deliverable thereunder in an amount equal to
the dollar value of the Product delivered to CARDINAL HEALTH against the Forward
PO prior to such date (the “Initial Payment”) (but not greater than $5,000,000
in the aggregate) as follows: (i) upon issuance of the Second Forward PO,
CARDINAL HEALTH shall pay 80% of the Initial Payment (not greater than $4
million) to SUPPLIER and (ii) within 30 days after SUPPLIER’s delivery to
CARDINAL HEALTH of invoices from A+MP for Products delivered to CARDINAL HEALTH
under the Second Forward PO, 20% of the Initial Payment (not greater than $1
million) to A+MP. If the Initial Payment is less than $5,000,000, then every
thirty (30) days beginning August 1, 2010 CARDINAL HEALTH will reconcile what
Product has been received by CARDINAL HEALTH under the Forward PO until such
time as Product delivered under the Forward PO has reached $5,000,000 and shall
pay SUPPLIER an amount equal to 80% of the dollar value of the Product received
within the last 30 days and pay A+MP 20% of such dollar value of Product. For
example, if as of July 1, 2010 Supplier has delivered $2,500,000 of Products to
CARDINAL HEALTH, CARDINAL HEALTH will make an Initial Payment of $2,500,000
(divided between SUPPLIER and A+MP as stated above), and then SUPPLIER makes a
subsequent delivery under the Forward PO to CARDINAL HEALTH on July 15, 2010 of
$1,000,000 of Products, then on August 1, 2010,  CARDINAL HEALTH would pay
an additional $1,000,000 on the Second Forward PO (divided between SUPPLIER and
A+MP as stated above). Following issuance of the Second Forward PO, Product will
be delivered against the Second Forward PO as soon as reasonably practicable but
(i) at least $500,000 of Products will be delivered within [*****] following
issuance of the Second Forward PO, (ii) an aggregate of at least $1.25 million
of Products will be delivered within [*****] following issuance of the Second
Forward PO, (iii) an aggregate of at least $2.5 million of Products will be
delivered within [*****] following issuance of the Second Forward PO, and (iv)
all of the Product prior to [*****] of the delivery of the Second Forward
PO.  SUPPLIER shall meet all Fill Rate requirements (as defined below
in Section 7b) for all Product purchased by CARDINAL HEALTH under this
section.

     

    
      	
              *****

            	
              CONFIDENTIAL INFORMATION HAS
      BEEN OMITTED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
      EXCHANGE COMMISSION.

            


    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    d.           If
SUPPLIER fails to meet the delivery commitments for the Product covered by the
Forward PO or for the Second Forward PO, CARDINAL HEALTH will be entitled to a
[*****] discount on the purchase price of any Product delivered late under the
applicable PO.  Any late deliveries are only subject to the [*****]
discount one time.  For example, if there is a late delivery for
$100,000 and there is a second late delivery for $200,000, the two would not be
additive, but rather subject to a [*****] discount on the $100,000 and
separately a [*****] discount for the second $100,000, not [*****] on the first
$100,000 and then [*****] on $200,000 ($100,000 + $100,000).  During
[*****] after the issuance of the Forward PO and, if applicable, [*****] after
the issuance of the Second Forward PO,  CARDINAL HEALTH will continue
with its typical ordering pattern and volume for Products, such that Products
delivered under the Forward PO and, if applicable, the Second Forward PO would
be in addition to the normal levels of inventory of Products held by CARDINAL
HEALTH.  Notwithstanding the preceding sentence, during any time
period that SUPPLIER is not achieving the Fill Rate required by Section 7b,
CARDINAL HEALTH may draw down inventory to the extent necessary to cover the
shortfall.  Commencing on the date which is [*****] after the issuance
of the Forward PO, subject to the above-normal inventory obligations of the
Second Forward PO, CARDINAL HEALTH may gradually return inventory to normal
levels within the next [*****] period.  Commencing on the date which
is [*****] after the issuance of the Second Forward PO, if any, CARDINAL HEALTH
may gradually return inventory to normal levels within the next [*****]
period.  Although Products sold under the Forward PO and the Second
Forward PO are not returnable, in the event that such Products become unsalable,
, because of Product upgrades or changes due to regulatory determinations,
SUPPLIER will exchange the unsalable Product for the then current
version.  Notwithstanding the prior sentence, Products can be returned
pursuant to the warranty and inspection terms set forth in Section
8.

    


    5.           Pricing

    


    a.           For
sales of Products to CARDINAL HEALTH from the Effective Date through December
31, 2009, the pricing in effect for the Products immediately prior to the
Effective Date under the Former Agreement will be the price charged to CARDINAL
HEALTH.

    


    b.           Beginning
January 1, 2010, the prices for Products purchased by CARDINAL HEALTH shall be
as set forth on Schedule A.  CARDINAL HEALTH reserves the right to
audit pricing upon request.  Notwithstanding the pricing set forth on
Schedule A, SUPPLIER has agreed to provide CARDINAL HEALTH minimum gross profit
margins (hereinafter referred to as the “Minimum Gross Margins”) on the sale of
the Products as follows (the Minimum Gross Margins described in items (i)
through (iii) below will be paid through the rebate process described
below):

    


    
      	
              (i)

            	
              [*****]
      (as defined below) on all Single Sterile Products to any CARDINAL HEALTH
      end user customers

            


    

    (ii)           [*****]
on all Single Sterile Products sold to other distributors.

    
      	
              (iii)

            	
              [*****]
      on all Bulk Non-Sterile Products when sold to other convenience kit
      packers

            


    

    
      	
              (iv)

            	
              For
      Bulk Non-Sterile Products included in CARDINAL HEALTH kits (whether custom
      or standard) (each referred to below as a “Cardinal Health Product Kit”) ,
      the Minimum Gross Margin will be calculated on a quarterly basis using the
      following formula and based upon the prior 3 months
  data:

            


    

    


    Cardinal
Health’s current policy for administering rebates to third party distributors
and kit packers (“Alternate Distributors”) is set forth on Schedule B attached
hereto.  Cardinal Health agrees to follow such policy during the term of
this Agreement in selling the Products to such Alternate Distributors and to
follow any other terms relating to rebates set forth in any agreements entered
into by such Alternate Distributors with Cardinal Health.  Cardinal Health
reserves the right to update the policy set forth in Schedule B at any time
during the term of this Agreement and to provide to Supplier an updated version
of such Schedule B which shall automatically become a part of this Agreement as
of the effective date of such revised policy.

    
 

    
      	
              *****

            	
              CONFIDENTIAL INFORMATION HAS
      BEEN OMITTED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
      EXCHANGE COMMISSION.

            


    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    The sum
of the following for all customers purchasing a Cardinal Health Product
kit:  (1) each customer’s line item price for the Products in that
customer’s Cardinal Health Product Kits multiplied by (2) the total units of
Product in each such kit; divided by (3) the total number units of Products sold
to all customers in all Cardinal Health Product Kits; multiplied by (4) the
applicable Gross Margin Percentage (as defined below).  The Gross
Margin Percentage for the term of this Agreement will be calculated on a
quarterly basis based on the number of units of Product purchased by CARDINAL
HEALTH during the prior 3 month period beginning on January 1, 2010 as
follows:

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	 
      	 	
                                      Gross
      Margin Rates for Presource Kits

                                    
	 
      	 	
                                      Up
      to 100% of

                                      Plan

                                    	 	
                                      Greater
      than 100%, but less than 120%

                                      of
      Plan

                                    	 	
                                      >120%
      of

                                      Plan

                                    
	 
      	 	
                                      [*****]

                                    	 	
                                      [*****]

                                    	 	
                                      [*****]

                                    
	
                                      October
      1, 2009-June 30, 2010

                                    	 	
                                      [*****]

                                    	 	
                                      [*****]

                                    	 	
                                      [*****]

                                    


                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    


    The
targeted sales for each twelve month period from July 1 through June 30th as set
forth in the chart above (the “Plan”).

    


    From
October 1, 2009 through June 30, 2010 the parties will measure the Gross Margin
Percentage by measuring SUPPLIER’s total revenue from sales to CARDINAL HEALTH
over this time period divided by 2, based on the assumption that the Bulk
Non-Sterile Product will comprise [*****] of total Product sold.  The
applicable Gross Margin Rate will be applied to each revenue range to determine
the aggregate Gross Margin Percentage.  For example, if SUPPLIER’s
total revenue during the period is $8 million, the Gross Margin Percentage would
be based on [*****] and would be equal to [*****] of the first [*****]and
[*****] of [*****].

    


    For the
period from July 1, 2010 through June 30, 2011 the new performance Plan shall be
calculated by taking the actual sales from October 1, 2009 through June 30, 2010
plus the sales from April 1, 2010 – through June 30, 2010 multiplied by [*****]
multiplied by the percentage of sales through Cardinal Health kits to determine
the starting point for performance incentives.

    


    For
example, if the sales from October 1, 2009 through June 30, 2010 are $6,000,000
and sales from April 1, 2010 through June 30, 2010 are $3,000,000 the total
sales would be $9,000,000.  The new performance target would be
[*****] which in turn would be multiplied by the percentage of sales through
Cardinal Health kits (for example 50%).  The resulting performance
targets would be as follows:

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  	 
      	 	
                                          Gross
      Margin Rates for Presource Kits

                                        
	 
      	 	
                                          Up
      to 100% of

                                          Plan

                                        	 	
                                          Greater
      than 100%, but less than 120%

                                          of
      Plan

                                        	 	
                                          >120%
      of

                                          Plan

                                        
	 
      	 	
                                          [*****]

                                        	 	
                                          [*****]

                                        	 	
                                          [*****]

                                        
	
                                          July
      1, 2010 —June 30, 2011

                                        	 	
                                          [*****]

                                        	 	
                                          [*****]

                                        	 	
                                          [*****]

                                        


                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    


    Thereafter,
each July 1 during the course of the Agreement, new performance criteria shall
be calculated as follows.  The annual sales from the prior 12 month
period multiplied by the following growth rates multiplied by the percentage of
sales through Cardinal Health kits.

    
      	
              *****

            	
              CONFIDENTIAL INFORMATION HAS
      BEEN OMITTED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
      EXCHANGE COMMISSION.

            


    

    



    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    
      
        
          	 
      	
                  Growth
      Rate

                
	
                  July
      1, 2011 – June 30 2012

                	
                  [*****]

                
	
                  July
      1, 2012 – June 30 2013

                	
                  [*****]

                
	
                  July
      1, 2013 – June 30 2014

                	
                  [*****]

                
	
                  July
      1, 2014 – End of Contract

                	
                  [*****]

                


        

      

    

    


    For
example, if total sales through Cardinal Health for the period July 1, 2010
through June 30, 2011 is $20,000,000 that would be multiplied by [*****] growth
resulting in a starting target performance of [*****] multiplied by the
percentage of sales in the Presource kits (assumed to be [*****]%) resulting in
the following performance Plan.

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  	 
      	 	
                                          Gross
      Margin Rates for Presource Kits

                                        
	 
      	 	
                                          Up
      to 100% of

                                          Plan

                                        	 	
                                          Greater
      than 100%, but less than 120%

                                          of
      Plan

                                        	 	
                                          >120%
      of

                                          Plan

                                        
	 
      	 	
                                          [*****]

                                        	 	
                                          [*****]

                                        	 	
                                          [*****]

                                        
	
                                          July
      1, 2011 —June 30, 2012

                                        	 	
                                          [*****]

                                        	 	
                                          [*****]

                                        	 	
                                          [*****]

                                        


                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    


    Single
Sterile Products gross profit margin (alternate dealer and through CARDINAL
HEALTH) and Bulk Non Sterile Product gross profit margin (alternate dealer only)
shall both be calculated under this Agreement as the difference between the Net
Distributor Price (as defined below) and CARDINAL HEALTH’s actual acquisition
cost from SUPPLIER. “Net Distributor Price” ” shall be the price (excluding
taxes and any cost plus mark up to an end user customer) actually invoiced by
CARDINAL HEALTH to the customer or alternate distributor.  If SUPPLIER
offers a customer a price that would provide CARDINAL HEALTH with a gross margin
below CARDINAL HEALTH’s applicable Minimum Gross Margin, SUPPLIER will provide
CARDINAL HEALTH with the shortfall through the rebate process described below.
Any additional amounts owed to CARDINAL HEALTH as a result of the Minimum Gross
Margin guarantees described herein shall also be paid through the rebate process
described below.

    


    SUPPLIER
agrees to the following process with regard to rebates:  CARDINAL
HEALTH uses an auto-debit system where rebate dollars are automatically deducted
from a supplier’s payables balance upon the sale to the
customer.  Rebate dollars are accumulated until a specified time
period (usually one month) and then the deduction is made.  Within 5
business days after the end of each month, CARDINAL HEALTH will provide SUPPLIER
with monthly reports detailing what Products were sold in CARDINAL HEALTH Kits
in the prior month.  Within 5 business days after the end of each
quarter CARDINAL HEALTH will provide a quarterly report detailing the Products
sold in CARDINAL HEALTH Kits in the prior quarter.  A remittance
advice will follow showing which deductions have been made.  CARDINAL
HEALTH will provide SUPPLIER with such information and detail as SUPPLIER shall
reasonably request to confirm the amount of any rebate.  Any rebates
not deducted within 120 days after they are earned or 120 days past the end of
the calendar quarter for bulk non sterile Products used inside CARDINAL H EALTH
kits, whichever is longer, are waived.

    


    c.           Terms
of payment are [*****] from CARDINAL HEALTH’s receipt of Product except for
those relating to the Forward PO and the Second Forward PO.

    d.           SUPPLIER
agrees to pay all GPO fees in connection with any contract between a GPO and
either CARDINAL HEALTH or SUPPLIER covering Single Sterile Products upon
presentation of documentation reasonably requested by SUPPLIER to confirm the
amount and payment terms of such fees.

    e.           CARDINAL
HEALTH shall be liable for any GPO fees associated only with the sale of
CARDINAL HEALTH kits containing Bulk Non-Sterile Products.

     

    
      	
              *****

            	
              CONFIDENTIAL INFORMATION HAS
      BEEN OMITTED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
      EXCHANGE COMMISSION.

            


    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    
      	
               
      

            	
              6.

            	
              CARDINAL HEALTH’s
      Duties.  CARDINAL HEALTH
shall:

            


    

    


    a.           Submit
its order for Products via facsimile or EDI if Supplier obtains that capability
on its standard purchase order form the terms and conditions of which shall not
conflict with the terms and conditions of this Agreement.  To the
extent there is such a conflict, the terms and conditions of this Agreement
shall control.

    b.           Pay
for such orders in accordance with the payment terms specified in Section 5
above.

    c.           Maintain
complete and accurate records for such periods as may be required by applicable
law, of all the Products sold by it.

    d.           Provide
a sales tracing report on a monthly basis at no charge to SUPPLIER.

    e.           For
a new SUPPLIER customer that is an existing CARDINAL HEALTH customer that enters
into an agreement with CARDINAL HEALTH to exclusively purchase the Products from
CARDINAL HEALTH for a minimum term of three (3) years, CARDINAL HEALTH will
reimburse SUPPLIER [*****] of SUPPLIER’s actual cost of the Equipment required
for the customer to use the Products.  Notwithstanding the foregoing,
if customer terminates its agreement and discontinues the purchase and use of
the Products prior to the end of the 3 year agreement term and the Equipment is
returned to SUPPLIER, SUPPLIER shall refund CARDINAL HEALTH on a prorated basis
the total amount CARDINAL HEALTH initially paid SUPPLIER for the Equipment
multiplied by a fraction, the numerator of which is the number of months
remaining until the end of the term and the denominator of which is the length
of the term.  For example, if funding provided by CARDINAL HEALTH was
$30,000 for a three year agreement and the customer canceled the agreement
during the 14th month,
SUPPLIER would refund CARDINAL HEALTH 22/36 of the funding or
$18,333.

    f.           Maintain
fill rates as set forth in CARDINAL HEALTH’s end user customer
contracts.  CARDINAL HEALTH will maintain a [*****] fill rate for
alternate distributors and kit packers.   If CARDINAL HEALTH
fails to maintain the fill rate set forth above for a 90 day
consecutive  time period (excluding from the calculation of fill rate
delivery delays caused by manufacturer backorders and Products for which
CARDINAL HEALTH’s end user customer’s actual usage in the prior 30 day time
period exceeds [*****] of CARDINAL HEALTH’s end user customer’s average monthly
usage during the prior [*****] months), SUPPLIER shall notify CARDINAL HEALTH in
writing and CARDINAL HEALTH shall have sixty (60) days to bring such Fill Rate
up to [*****].  After such sixty (60) day period, SUPPLIER may
terminate this Agreement upon written notice to CARDINAL HEALTH.

    g.           Promptly
disclose to SUPPLIER any information, including any complaints, it receives with
respect to the Products or kits containing Product that raises questions about
the quality, safety or efficacy of the kit or the Products or which SUPPLIER may
be required to report to comply with applicable law relating to adverse event
reporting and cooperate with SUPPLIER to carry out any required
recall.

    


    
      	
               
      

            	
              7.

            	
              SUPPLIER’s
      Duties.  SUPPLIER
shall:

            


    

    


    a.           Promptly
ship Products to CARDINAL HEALTH facilities, F.O.B. Chino, California,
U.S.

    b.           Maintain
[*****] Fill Rate (defined below) on all orders for Products.  Fill
Rate is defined as the quantity of Products meeting the warranty requirements
set forth in Section 8 below actually shipped as of the delivery date set forth
in CARDINAL HEALTH’s purchase order, divided by the quantity of Products that
should have been shipped in accordance with that purchase
order.  CARDINAL HEALTH will measure the Fill Rate with respect to
each purchase order it submits to SUPPLIER.  If SUPPLIER fails to meet
the Fill Rate with respect to a purchase order, CARDINAL HEALTH may invoice and
collect from SUPPLIER an amount equal to any expedited shipping costs, customer
penalties, or other costs actually incurred by CARDINAL HEALTH as a result of
such Fill Rate failure. If SUPPLIER fails to maintain a [*****] Fill Rate for a
90 day consecutive  time period (excluding from the calculation of
Fill Rate delivery delays caused by manufacturer backorders and Products for
which CARDINAL HEALTH’s actual usage in the prior 30 day time period exceeds
[*****] of CARDINAL HEALTH’s average monthly usage during the prior [*****]
months),.  CARDINAL HEALTH shall notify SUPPLIER in writing and
SUPPLIER shall have sixty (60) days to bring such Fill Rate up to
[*****].  After such sixty (60) day period, CARDINAL HEALTH may
terminate this Agreement upon written notice to SUPPLIER.

    c.           Notify
CARDINAL HEALTH immediately in writing should SUPPLIER become aware of any
defect or condition which may render any of the Products in violation of the
Food, Drug and Cosmetic Act or any other applicable law.

     

    
      	
              *****

            	
              CONFIDENTIAL INFORMATION HAS
      BEEN OMITTED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
      EXCHANGE COMMISSION.

            


    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    d.           Upon
request, provide CARDINAL HEALTH with the following records for the Products:
(i) Product specifications; (ii) if the Products are not manufactured directly
by SUPPLIER, the name and address of the actual manufacturer of the Products and
the location(s) where the Products are manufactured; and (iii) Quality control
specifications to include testing methods, sampling procedures, and acceptance
levels.  In addition, SUPPLIER will not make any change in the
manufacture, assembly, or labeling process of the Products which could
reasonably be expected to adversely affect the quality of the Products and/or
change the location where Products are manufactured without CARDINAL HEALTH's
prior written consent, which shall not be unreasonably withheld or
delayed.

    e.           Make
any claims for unpaid fees, invoices or other amounts due to it, in writing
within 120 days of the date of SUPPLIER’s first invoice for such
amount.  Claims not made during this 120 day period shall be
waived.  CARDINAL HEALTH will not be obligated to make payments for,
or investigate, entries which are dated more than 120 days before SUPPLIER’s
first written claim or request for investigation.

    f.           Notify
the appropriate federal, state and local authorities of any customer complaints
or other occurrences regarding the Products which are required to be so
reported.  CARDINAL HEALTH and SUPPLIER shall provide each other with
any information it receives regarding such occurrences.  SUPPLIER
shall be responsible for evaluating all complaints and for responding to
CARDINAL HEALTH in writing.

    g.           During
the period from September 1, 2009 through June 30, 2010, SUPPLIER agrees to fund
a sales incentive program as outlined in Schedule C of this
Agreement.

    


    8.           Product Warranties, Indemnification
and Insurance.

    


    a.           SUPPLIER
specifically warrants to CARDINAL HEALTH that the Products are free from defects
in design, workmanship and materials and are in compliance with the written
specifications and claims made by SUPPLIER for them.  SUPPLIER further
agrees to execute and comply with the provisions of the CARDINAL HEALTH
Continuing Guaranty attached hereto as Exhibit 1, the terms and conditions of
which are made part hereof, in case of conflict between the Continuing Guaranty
and this Agreement, the terms of the Continuing Guaranty will
control.    Except as set forth in the warranty provisions
above, CARDINAL HEALTH shall have a period of thirty (30) business days after
receipt of a shipment within which to notify SUPPLIER in writing of any apparent
damage, discrepancies or nonconformity in the applicable shipment. Except as set
forth in the warranty provisions set forth above, all shipments shall be deemed
accepted after expiration of this inspection period. SUPPLIER will promptly
address any documented discrepancy or nonconformity.

    


    b.           CARDINAL
HEALTH shall give SUPPLIER prompt written notice of any claim, suit, action,
demand, or judgment for which indemnification is sought under this
Agreement.  If CARDINAL HEALTH does not provide prompt written notice
to SUPPLIER, its rights will not be forfeited unless the delay in notice
materially prejudices the defense of the applicable claim, suit or action.
SUPPLIER will, at its own expense, defend such claim with attorneys reasonably
acceptable to CARDINAL HEALTH.  CARDINAL HEALTH shall cooperate fully
with SUPPLIER in such defense and will permit SUPPLIER to conduct and control
such defense and the disposition of such claim, suit, or action (including all
decisions relative to litigation, appeal, and settlement); provided, however,
that CARDINAL HEALTH shall have the right to retain its own counsel, at its
expense participate in the defense of such claim.

    


    c.           NEITHER
PARTY SHALL UNDER ANY CIRCUMSTANCES BE LIABLE TO THE OTHER PARTY FOR ANY
SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING IN ANY
WAY UNDER THIS AGREEMENT; PROVIDED THAT THE FOREGOING SHALL NOT APPLY TO DAMAGES
AWARDED TO A THIRD PARTY OR RELATING TO A BREACH OF SECTION 13
(CONFIDENTIALITY).

    


    9.           Termination.  Either
party shall have the right to terminate this Agreement on written notice if the
other (a) makes a general assignment for the benefit of creditors, suffers or
permits the appointment of a receiver for its businesses or assets, becomes
subject to any proceedings under any bankruptcy or insolvency laws (which
proceedings or appointment is not terminated within 30 days), or (b) fails to
cure any material breach of the provisions of this Agreement within thirty (30)
days after written notice of such breach, or (c) pursuant to sections 7(b) and
6(f).  CARDINAL HEALTH may terminate this Agreement with respect to a
particular Product upon written notice to SUPPLIER without further obligation or
liability if such Product infringes the proprietary rights of a third party,
provided that SUPPLIER is unable to obtain an appropriate license within a
reasonable period of time from the third party after notice of the alleged
infringement from CARDINAL HEALTH.  Any such termination will not
relieve SUPPLIER of its indemnification and other obligations as set forth in
this Agreement.

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    10.           Right of First
Negotiation:  During the term of this Agreement, if SUPPLIER
initiates discussions, seeks out or is approached by a third-party to (x) sell
substantially all of SUPPLIER's assets to such third-party or (y) become party
to a merger, consolidation, share exchange or similar business combination
transaction in which more than 50% of the voting securities of SUPPLIER would be
owned by stockholders other than SUPPLIER'S stockholders in existence
immediately prior to such transaction (collectively, a “Reorganization”), then
SUPPLIER will notify CARDINAL HEALTH in writing of the potential
Reorganization (without any obligation, however, to identify such third-party or
the terms of any such Reorganization). CARDINAL HEALTH agrees that any such
notice and the contents therein shall be kept confidential by CARDINAL as
"Confidential Information" pursuant to Section 13 of this Agreement.  
Within ten  (10) days after receipt of such written notice,
CARDINAL HEALTH will respond to SUPPLIER's notice indicating whether it has an
interest in negotiating Reorganization with SUPPLIER.   
If CARDINAL HEALTH does not express its interest in negotiating
Reorganization within such 10 day period, SUPPLIER shall have no further
obligation to negotiate Reorganization with CARDINAL HEALTH.   If within
such 10  day period, CARDINAL HEALTH notifies SUPPLIER in
writing that it is interested in negotiating Reorganization with SUPPLIER,
then SUPPLIER and CARDINAL HEALTH agree that they will discuss a
potential Reorganization between the two parties for up to 10  days
thereafter. Notwithstanding the foregoing, nothing herein shall prohibit or
impair SUPPLIER'S right or ability to negotiate Reorganization during such 20
day period with any third-party.  SUPPLIER shall have absolutely no
obligation to enter into Reorganization with CARDINAL HEALTH and shall have no
constraints nor need any approvals from CARDINAL HEALTH to enter into or to
consummate Reorganization after such 10 day or 20 day period, as the case may
be. Notwithstanding any provisions to the contrary herein, nothing in this
Section shall (i) prohibit SUPPLIER or its affiliates from taking any course of
action that it or he reasonably believes, based on the advice of legal counsel,
is necessary to comply with its or his fiduciary obligations to SUPPLIER or its
stockholders under applicable laws, or (ii) obligate SUPPLIER or its affiliates
to take any course of action that it or he reasonably believes, based on the
advice of legal counsel, would constitute a breach of its or his fiduciary
obligations to SUPPLIER or its stockholders under applicable laws.

    


    11.           Procedures on
Termination.  The termination of this Agreement for any reason
shall be without prejudice to and shall not affect the right of either party to
recover from the other any and all damages to which such party may be
entitled.  Nothing herein contained shall release either party from
the payment of any sum that may then be owed to the other party or from any
liability or obligation incurred or accrued prior to the termination of this
Agreement or which by their terms are expressly intended to survive the
termination of this Agreement.  On the termination or expiration of
this Agreement, for whatever reason, SUPPLIER shall continue to honor CARDINAL
HEALTH’s orders for Products up to the effective date of termination and for a
period of sixty (60) days thereafter, and CARDINAL HEALTH shall pay for such
Products on the terms and conditions of this Agreement.

    


    12.           Force Majeure.  The
inability of any party to commence or complete its obligations hereunder by the
dates herein required resulting from delays caused by strikes, insurrection,
acts of God, act of terrorism, war, emergencies, or other similar causes beyond
the party’s reasonable control which shall have been timely communicated to the
other party, shall extend the period for the performance of the obligations for
the period equal to the period(s) of any such delay(s); provided that such party
shall continue to perform to the extent feasible in view of such force
majeure.

    


    13.           Confidentiality/Publicity

    


    a.           Neither
party will issue any press release or other public announcement, communication,
verbally or in writing (including without limitation, communication with or to,
directly or indirectly any customers and including use of the CARDINAL HEALTH
logo on SUPPLIER’s website or any use of the CARDINAL HEALTH logo or name by
SUPPLIER) (“Disclosure”), referring to the other party or this Agreement,
without the prior written consent of the other party (which will not be
unreasonably withheld or delayed).  Each party shall give the other
party the reasonable opportunity to review and comment on any such
Disclosure.  CARDINAL HEALTH acknowledges that SUPPLIER may be
required to issue a press release, and make certain disclosures and filings,
relating to this Agreement under securities laws.

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    b.           Each
party acknowledges that in the performance of this Agreement proprietary or
confidential information belonging to the other party will be disclosed or
become known to it.  Each party shall keep confidential and not
disclose to others or use for any purpose, other than as authorized by this
Agreement, all “Confidential Information” which is provided to it by the other
party or its Affiliates or their respective employees or
representatives.  For purposes of this Agreement, the term
Confidential Information includes, without limitation, all know-how, trade
secrets, formulae, data, inventions, technology and other information, including
financial information, sales plans, customer information, forecasts and reports,
related to the manufacture, distribution, sale or marketing of the
Products.  The restrictions of this Section shall not apply to any
information which (a) is already known to the receiving party at the time of
disclosure; (b) is or becomes public knowledge through no fault of the receiving
party; or (c) is received from a third party having the lawful right to disclose
the information or is independently developed by the receiving party without
reference to Confidential Information received hereunder.

     

    c.           If
a receiving party is required under applicable law to disclose Confidential
Information by any court or governmental authority, the receiving party shall
promptly notify the other party of such requirement and all particulars related
to such requirement.  The other party shall have the right, at its
expense, to object to such disclosure and to seek confidential treatment of any
Confidential Information to be so disclosed on such terms as it shall determine,
and the receiving party shall fully cooperate with the other party in this
regard.

    


    d.           This
Agreement does not constitute the conveyance of ownership with respect to or a
license to any Confidential Information.  Upon the termination of this
Agreement for any reason, the receiving party shall return to the other party
upon the request of the other party in writing all documentation or other
tangible evidence or embodiment of Confidential Information belonging to the
other party except that one copy of such Confidential Information can be
retained in the legal department of the receiving party for purposes of
enforcing this Agreement.  The provisions of this Section 13 b, c and
d shall survive termination or expiration of this Agreement.

    


    14.           Customer Implementation
Schedule:  If an existing CARDINAL HEALTH kitting customer
requests a transition to Products within some or all of its existing kits with a
transition period of less then 75 days or current finished goods days inventory
on hand; whichever is less, CARDINAL HEALTH will so notify SUPPLIER, as
transition within this time frame will require CARDINAL HEALTH to dispose of
inventory already in that customer’s kits and to replace them with
Products.  If SUPPLIER approves of such transition period, it will
reimburse CARDINAL HEALTH for [*****] of the value of the excess kit inventory
that was replaced by Products upon receipt of an invoice.

     

    
      	
              *****

            	
              CONFIDENTIAL INFORMATION HAS
      BEEN OMITTED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
      EXCHANGE COMMISSION.

            


    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    15.           Miscellaneous.

    


    a.           Notices.  Any
notice required or permitted under this Agreement shall be in writing and shall
be deemed to have been given upon receipt if forwarded by personal delivery,
certified mail, or facsimile transmission (transmission confirmed) properly
addressed to the respective parties as set forth below until notice of a
different address is supplied in accordance with this Section:

     

    
      	 	
              If
      to SUPPLIER:

            	
              Patient
      Safety Technologies

            


    

    43460
Ridge Park Drive, Suite # 140

    Temecula,
CA 92590

    Attn:
Steven Kane

     

    If to CARDINAL HEALTH:

    7000 Cardinal Place

    Dublin, Ohio 43017

    Attn: President Presource Products and
Services

     

    
      	 	
              With
      copies to:

            	
              CARDINAL
      HEALTH

            


    

    7000 Cardinal Place

    Dublin, Ohio
43017   Attn: General Counsel

     

    b.           Entire
Agreement.  This Agreement supersedes in all respects any prior
agreements, arrangements or understandings between the parties, whether oral or
written, there being no prior written or oral promises or representations not
incorporated herein with respect to such matters.   The parties
agree that the provisions of Section 306(2) of the Uniform Commercial Code shall
not apply to the obligations of either party under this Agreement and that no
marketing or sales obligations shall be implied other than those expressly set
forth herein.

    


    c.           Applicable
Law.  This Agreement shall be governed by the laws of the State of
Illinois, applicable to contracts made and to be performed in that
state.

    


    d.           Amendments.  No
amendment or modification of the terms of this Agreement shall be binding on
either party unless reduced to writing and signed by an authorized employee of
the party to be bound.

    


    16.           Assignment.  This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. This Agreement shall not
be assignable by any party without the prior written consent of the other party,
except that either party shall be permitted to assign this Agreement, without
the other party’s consent, to an Affiliate or a company acquiring all or
substantially all of the first party’s assets, voting stock or business to which
this Agreement relates, provided however, SUPPLIER shall not be permitted to
assign this Agreement to a direct competitor of CARDINAL HEALTH’s Presource
business without consent, upon written notice to the other
party.  Such assignment shall be subject to the assignee agreeing in
writing to assume the benefits and obligations of this Agreement.  For
purposes of this Agreement, “Affiliate” means, with respect to any party, any
other person that directly or indirectly Controls, is Controlled by, or is under
common Control with, such person.  “Control” means the direct or
indirect ownership of fifty percent (50%) or more of the voting or income
interest in such person.

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    17.           Counterparts.  For
convenience of the parties hereto, this Agreement may be executed in one or more
counterparts, each of which shall be deemed an original for all purposes and all
of which together shall constitute one agreement.

    


    IN
WITNESS WHEREOF, the parties have by their duly authorized officers executed
this Agreement as of the Effective Date.

    


    NOW
THEREFORE, in consideration of the mutual promises of the parties contained
herein, and for other good and valuable consideration, the parties hereby agree
as follows:

     

    
      
        	
                Patient
      Safety Technologies, Inc.

              	 
      	
                Cardinal
      Health 200, LLC

              
	 
      	 
      	 
      
	
                By:

              	
                  

              	 
      	
                By:

              	
                  

              
	 
      	 
      	 
      	 
      	 
      
	
                Title:

              	
                  

              	 
      	
                Title:

              	
                  

              
	 
      	 
      	 
      	 
      	 
      
	
                Date:

              	
                  

              	 
      	
                Date:

              	
                  

              


      

    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
A

    Product
Listing and Prices

     

    
      Bulk
Non-Sterile Catalog Numbers

      


      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	 
      	  	  	  	  	  	  	  	
                                        CAH Cost

                                      	 
      	
                                        Current

                                      	 
      	 
      	 
      	
                                        2009

                                      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                        Per
      Pack

                                      	 
      	
                                        Weighted

                                      	 
      	 
      	 
      	
                                        Hospital

                                      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                        (at [*****]

                                      	  	
                                        Average in Kit

                                      	  	
                                        CAH Cost/

                                      	  	
                                        NDP Per

                                      	  	
                                        Hospital NDP

                                      
	
                                        SKU #

                                      	 
      	
                                        DESCRIPTION

                                      	 
      	
                                        UOM

                                      	 
      	
                                        Case Qty.

                                      	 
      	
                                        GP)

                                      	 
      	
                                        Price

                                      	 
      	
                                        Case

                                      	 
      	
                                        Pack

                                      	 
      	
                                        Per
      Case

                                      
	
                                        SD-1727-BB

                                      	 
      	
                                        O.R.
      Towel, 17x26, Blue, with Loop

                                      	 
      	
                                        EA

                                      	 
      	
                                        400

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SD-1727-GB

                                      	 
      	
                                        O.R.
      Towel, 17x26, Green with Loop

                                      	 
      	
                                        EA

                                      	 
      	
                                        400

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SD-1727-WB

                                      	 
      	
                                        O.R.
      Towel, 17x26, White with Loop

                                      	 
      	
                                        EA

                                      	 
      	
                                        400

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-1727-BB

                                      	 
      	
                                        O.R.
      Towel, 17x26, Blue, with Loop, Master Tagged

                                      	 
      	
                                        EA

                                      	 
      	
                                        400

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-1727-GB

                                      	 
      	
                                        O.R.
      Towel, 17x26, Green with Loop, Master Tagged

                                      	 
      	
                                        EA

                                      	 
      	
                                        400

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-1727-WB

                                      	 
      	
                                        O.R.
      Towel, 17x26, White with Loop, Master Tagged

                                      	 
      	
                                        EA

                                      	 
      	
                                        400

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-0418-PB

                                      	 
      	
                                        4x18
      Master Tag

                                      	 
      	
                                        PK

                                      	 
      	
                                        360

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-0836-PB

                                      	 
      	
                                        8x36
      Master Tag

                                      	 
      	
                                        PK

                                      	 
      	
                                        160

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-1212-PB

                                      	 
      	
                                        SPNG,LAP,12X12IN,X-RAY,METAL
      RING,5PK,MASTER TAGGED,NS

                                      	 
      	
                                        PK

                                      	 
      	
                                        280

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-1818-PB

                                      	 
      	
                                        18x18
      Master Tag

                                      	 
      	
                                        PK

                                      	 
      	
                                        160

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-1836-PB

                                      	 
      	
                                        18x36
      Master Tag

                                      	 
      	
                                        PK

                                      	 
      	
                                        133

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-4416-7B

                                      	 
      	
                                        Gauze
      Sponge. 4X4

                                      	 
      	
                                        PK

                                      	 
      	
                                        200

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-4416-9B

                                      	 
      	
                                        Gauze
      Sponge. 4X4

                                      	 
      	
                                        PK

                                      	 
      	
                                        200

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-8412-7B

                                      	 
      	
                                        8X4
      Master Tag, 12 Ply

                                      	 
      	
                                        PK

                                      	 
      	
                                        200

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-8416-7B

                                      	 
      	
                                        8X4
      Master Tag, 16 Ply

                                      	 
      	
                                        PK

                                      	 
      	
                                        200

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      
	
                                        SM-8424-7B

                                      	 
      	
                                        8X4
      Master Tag, 24 Ply

                                      	 
      	
                                        PK

                                      	 
      	
                                        100

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      	 
      	
                                        ***

                                      


                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

      


      Sterile
Catalog Numbers

      


      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	
                                      Hospital

                                    	 
      	 
      
	  
      	 
      	  
      	 
      	
                                       

                                    	 
      	
                                       

                                    	  	
                                      CAH Cost

                                    	  	  	  	
                                      CAH Cost/

                                    	  	
                                      NDP Per

                                    	  	
                                      Hospital NDP

                                    
	
                                      SKU #

                                    	  	
                                      DESCRIPTION

                                    	 
      	
                                      UOM

                                    	 
      	
                                      Case
Qty.

                                    	 
      	
                                      Per
      Pack

                                    	 
      	 
      	 
      	
                                      Case

                                    	 
      	
                                      Pack

                                    	 
      	
                                      Per
      Case

                                    
	
                                      SD-6004-BS

                                    	 
      	
                                      TOWEL
      O.R. 17X26 PREWASHED BLUE X-RAY

                                    	 
      	
                                      PK

                                    	 
      	
                                      40

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	
                                      SD-6004-GS

                                    	 
      	
                                      TOWEL
      O.R. 17X26 PREWASHED GREEN X-RAY

                                    	 
      	
                                      PK

                                    	 
      	
                                      20

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	
                                      SD-6002-GS

                                    	 
      	
                                      TOWEL
      O.R. 17X26 PREWASHED GREEN X-RAY

                                    	 
      	
                                      PK

                                    	 
      	
                                      40

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	
                                      SD-6004-WS

                                    	 
      	
                                      TOWEL
      O.R. 17X26 PREWASHED WHITE X-RAY

                                    	 
      	
                                      PK

                                    	 
      	
                                      20

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	
                                      SM-6005-BS

                                    	 
      	
                                      TOWEL
      O.R. 17X26 PREWASHED BLUE X-RAY, Master Tagged

                                    	 
      	
                                      PK

                                    	 
      	
                                      16

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	
                                      SM-6005-GS

                                    	 
      	
                                      TOWEL
      O.R. 17X26 PREWASHED GREEN X-RAY, Master Tagged

                                    	 
      	
                                      PK

                                    	 
      	
                                      16

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	
                                      SM-6005-WS

                                    	 
      	
                                      TOWEL
      O.R. 17X26 PREWASHED WHITE X-RAY, Master Tagged

                                    	 
      	
                                      PK

                                    	 
      	
                                      16

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,LAP,4X18,DBL
      XRAY,DBL BAND,5/PK,MASTER

                                    	 
      	 
      	 
      	
                                       
      

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-0418-PS

                                    	 
      	
                                      TAGGED,ST

                                    	 
      	
                                      PK

                                    	 
      	
                                      40

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	
                                      SM-0418-PS

                                    	 
      	
                                      4x18
      Master Tag, Plastic Ring

                                    	 
      	
                                      PK

                                    	 
      	
                                      40

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,LAP,8X36,DBL
      XRAY,DBL BAND,5/PK,MASTER

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-0836-PS

                                    	 
      	
                                      TAGGED,ST

                                    	 
      	
                                      PK

                                    	 
      	
                                      40

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,LAP,8X36,DBL
      XRAY,DBL BAND,5/PK,MASTER

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-0836-RS

                                    	 
      	
                                      TAGGED,ST,
      Plastic Ring

                                    	 
      	
                                      PK

                                    	 
      	
                                      40

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	
                                      SM-1212-PS

                                    	 
      	
                                      SPNG,LAP,12X12IN,X-RAY,METAL
      RING,5PK,MASTER TAGGED

                                    	 
      	
                                      PK

                                    	 
      	
                                      40

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,LAP,12X12,DBL
      XRAY,DBL BAND,PLAS RING,5/PK,MASTER

                                    	 
      	 
      	 
      	
                                       
      

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-1212-RS

                                    	 
      	
                                      TAG

                                    	 
      	
                                      PK

                                    	 
      	
                                      40

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,LAP,18X18IN,PREWASHED,SQ
      FLD,5/PK

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-1818-PS

                                    	 
      	
                                      BANDED,MASTER
      TAGGED

                                    	 
      	
                                      PK

                                    	 
      	
                                      40

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,LAP,18X18,DBL
      XRAY,DBL BAND,PLAS

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-1818-RS

                                    	 
      	
                                      RING,5PK,MASTER
      TAG

                                    	 
      	
                                      PK

                                    	 
      	
                                      40

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,LAP,18X36,DBL
      XRAY,DBL BAND,3/PK,MASTER

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-1836-PS

                                    	 
      	
                                      TAGGED,ST

                                    	 
      	
                                      PK

                                    	 
      	
                                      20

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,GAUZE,4X4,16-PLY,DBL
      XRAY DBL

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-4416-7S

                                    	 
      	
                                      BAND,10/PK,MASTER
      TAGGED

                                    	 
      	
                                      PK

                                    	 
      	
                                      128

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,GAUZE,4X4,16PLY,DBL
      XRAY, DBL

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-4416-9S

                                    	 
      	
                                      BAND,10PK,MASTER
      TAGGED,ST

                                    	 
      	
                                      PK

                                    	 
      	
                                      128

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,GAUZE,8X4,12-PLY,DBL
      XRAY DBL

                                    	 
      	 
      	 
      	
                                       
      

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-8412-7S

                                    	 
      	
                                      BAND,10/PK,MASTER
      TAGGED

                                    	 
      	
                                      PK

                                    	 
      	
                                      48

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	 
      	 
      	
                                      SPNG,GAUZE,8X4,16-PLY,DBL
      XRAY DBL

                                    	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                                      SM-8416-7S

                                    	 
      	
                                      BAND,10/PK,MASTER
      TAGGED

                                    	 
      	
                                      PK

                                    	 
      	
                                      48

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    
	
                                      SM-8424-7B

                                    	 
      	
                                      8X4
      Master Tag, 24 Ply

                                    	 
      	
                                      PK

                                    	 
      	
                                      48

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    	 
      	
                                      ***

                                    


                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

    

    
      	
              *****

            	
              CONFIDENTIAL INFORMATION HAS
      BEEN OMITTED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
      EXCHANGE COMMISSION.

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    SCHEDULE
B

    Cardinal
Health Alternate Distributor Rebate Process

    


    Rebate (Chargeback)
Process

    


    [*****]

     

    
      	
              *****

            	
              CONFIDENTIAL INFORMATION HAS
      BEEN OMITTED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
      EXCHANGE COMMISSION.

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Schedule
C

    


    Sales
Representative Incentive Program

    
      	
               
      

            	
              ·

            	
              Spiff
      payout of [*****] of
      Sales

            


    

    
      	
               
      

            	
              o

            	
              For
      example: If SUPPLIER closes a deal with a new customer to SUPPLIER that is
      worth [*****] in
      annual sales, the CARDINAL HEALTH sales representative  will
      receive a spiff of [*****]

            


    

    
      	
               
      

            	
              ·

            	
              Spiff
      will be issued after implementation “go live”
  date

            


    

    
      	
               
      

            	
              ·

            	
              There
      will be one [*****] year
      end spiff awarded to the highest performing CARDINAL HEALTH sales
      representative based on total sales

            


    

     

    Region
Manager Incentive Program

    
      	
               
      

            	
              ·

            	
              [*****] spiff
      awarded if every sales representative  in a region manager’s
      territory closes at least [*****]
      in  new business to SUPPLIER


            


    

    
      	
               
      

            	
              ·

            	
              There
      will be one [*****] year
      end spiff awarded to the highest  performing CARDINAL HEALTH
      region manager

            


    

     

    CMC
Incentive Program

    
      	
               
      

            	
              ·

            	
              [*****] spiff
      payout once [*****] in
      closed new business to SUPPLIER  has been achieved by an
      individual CARDINAL HEALTH CMC

            


    

    
      	
               
      

            	
              ·

            	
              CARDINAL
      HEALTH CMC will receive a [*****] spiff
      payout on all sales over [*****]

            


    

    
      	
               
      

            	
              ·

            	
              There
      will be one [*****] year
      end spiff awarded to the highest performing CARDINAL HEALTH
      CMC

            


    

    
      	
               
      

            	
              ·

            	
              All
      incentives are based on projected annual sales rounded to the nearest
      [*****].

            


    

    
      	
               
      

            	
              o

            	
              For
      example $76,000 would round to [*****]

            


    

    


    All
incentives are subject to the following limitations:

    
      	
               
      

            	
              ·

            	
              In
      order to qualify for the spiff, CARDINAL HEALTH must have played a role in
      the lead generation and selling
process.

            


    

    
      	
               
      

            	
              ·

            	
              The
      spiff’s set forth in this promotion are only eligible on new business to
      SUPPLIER

            


    

    
      	
               
      

            	
              ·

            	
              All
      incentives will be paid to CARDINAL HEALTH and CARDINAL HEALTH will be
      responsible for administering the payout to the CARDINAL HEALTH sales
      representative, region manager or
CMC

            


    

     

    
      	
              *****

            	
              CONFIDENTIAL INFORMATION HAS
      BEEN OMITTED AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
      EXCHANGE COMMISSION.

            


    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    EXHIBIT
1

    Continuing
Guaranty

     

    CONTINUING
GUARANTY

     

    Cardinal
Health

    7000
Cardinal Place

    Dublin,
Ohio 43017

    


    Vendor:
Patient Safety Technologies, Inc.

    43460 Ridge Park Drive Suite
#140

    Temecula,
CA  92590

     

    1.  Compliance with
Laws:  Vendor guarantees that each product shipped to, or on
the order of, Cardinal Health 200,LLC., or any affiliated corporation ("Cardinal
Health") is as of the date of shipment in compliance with all federal, state and
local laws, regulations, rules and orders and agrees to provide Cardinal Health
with such additional certifications of Vendor’s compliance with laws and
regulations as Cardinal health shall from time to time reasonably request to
fulfill its obligations as a government contractor.  Without limiting
the foregoing, Vendor specifically guarantees that the products are not
adulterated or misbranded within the meaning of the Federal Food, Drug and
Cosmetic Act, as amended and the regulations issued thereunder, or within the
meaning of any applicable state or municipal law in which the definitions of
adulteration and misbranding are substantially identical to those contained in
the Federal Food, Drug and Cosmetic Act, or products that may not under the
provisions of Sections 404, 505, 514, or 515 of said Act be introduced into
interstate commerce, and are not banned devices under Section 516 of said Act,
and the products are not products that may not under any state or municipal law,
ordinance, regulation or order be introduced into commerce.

     

    2.  Child Labor
Laws:  Vendor represents and warrants that it complies with all
federal, state, local and other applicable laws, regulations, conventions or
treaties prohibiting any form of child labor or other exploitation of children
in the manufacturing and delivery of Vendor’s products or services.

     

    3.  Insurance:  Vendor
agrees to procure and maintain commercial general liability and products and
completed operations liability insurance in an amount of nor less than Ten
Million Dollars ($10,000,000) per occurrence covering bodily injury and property
damage and including an endorsement for vendor's liability.  If the
required insurance is on a claims-made basis, then the policy(ies) shall be
maintained for a period of at least five (5) years following the termination or
expiration of any contract or agreement.  Cardinal Health, Inc. and
its subsidiaries will be named as additional insureds on the required
policies.  The endorsement shall provide that such insurance is
primary (with respect both to any insurance issued to Cardinal Health and to any
self-insurance amount retained by Cardinal Health) for the additional insureds’
liability for damages arising out of the products and completed operations for
which they have been added as an additional insured.  Vendor will
furnish Cardinal Health with a certificate of insurance evidencing the required
coverage upon request and upon renewal of the policy(ies).  The
certificate shall state that the insurer shall endeavor to provide thirty (30)
days written notice to Cardinal Health of any cancellation prior to the
policy(ies) expiration date(s).  Each insurance policy shall be
obtained from an insurance carrier with an A.M.Best Rating of at least A-VII or
its equivalent.

     

    4.  Indemnification:  Vendor
agrees to indemnify and hold harmless Cardinal Health from any liability, loss,
expense, cost, claim or judgment (including attorneys fees), arising out of: (a)
any claim for property damage, or personal injury or death where the product or
Equipment is alleged to have caused or contributed to the damage, injury or
death, provided that this indemnification does not extend to injuries, damages
or death to the extent caused by willful misconduct, gross negligence or
reckless disregard on the part of Cardinal Health or any of its employees; and
(b) any claim that the products infringe the patent, trademark or other
proprietary rights of any other party.

     

    5.  Corrective Actions and
Product Complaints:  Vendor agrees that it will reimburse
Cardinal Health for all costs associated with product corrective actions
(including recalls), except those recalls that result from willful misconduct,
gross negligence or reckless disregard on the part of Cardinal Health or any of
its employees.  Vendor shall be responsible for notifying the
appropriate federal, state and local authorities of any customer complaints or
other occurrences regarding the Products which are required to be so reported,
evaluating all complaints and responding to Cardinal Health in writing on the
resolution of any complaints from Cardinal Health or its
customers.


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    6.  Survival of
Guaranty:  This guaranty shall be continuing and shall be
binding upon the Vendor and his or its heirs, executors, administrators,
successors and/or assigns and shall inure to the benefit of Cardinal Health its
successors and assigns and to the benefit of its officers, directors, agents and
employees.

    


    Date:                                           ,
20           

     

    
      
        	 
      	
                   

              	 
      
	 
      	
                Corporate
      Name or Name Under Which Business is Conducted

              	 
      
	 
      	 
      	 
      
	 
      	
                   

              	 
      
	 
      	
                Signature
      & Title of Authorized Employee, Partner or Proprietor

              	 
      
	 
      	 
      	 
      
	 
      	
                   

              	 
      
	 
      	
                Printed
      Name & Title of Authorized Employee, Partner or
    Proprietor