Employment
      Agreement

     

    THIS
      EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of July 22,
      2005 and shall be effective as of August 8, 2005 (the “Effective Date”) by and
      between Patient
      Safety Technologies, Inc., a
      Delaware corporation, with an office located at 100 Wilshire Boulevard, Suite
      1500, Santa Monica, California, 90401 (the “Company”) and James
      Schafer, an
      individual with an address 1215 Pinehurst Road, Chula Vista, California, 91915
      (“Individual”).

    


    WHEREAS,
      the Company is in the business of patient safety products and content; and
      

    


    WHEREAS,
      Individual has had experience in the operations of businesses doing purchasing,
      materials and supply chain management; and

    


    WHEREAS,
      the Company desires to retain the services of Individual; and

    


    WHEREAS,
      Individual is willing to be employed by the Company.

    


    NOW,
      THEREFORE, in consideration of the mutual covenants contained herein, the
      parties agree as follows:

    


    1.
      Employment.
      Individual is hereby employed and engaged to serve the Company as the Chief
      Operating Officer of the Company, or such additional titles as the Company
      shall
      specify from time to time, and Individual does hereby accept, and Individual
      hereby agrees to such engagement and employment. 

    


    2.
      Duties.
      Individual shall be responsible for the overall operations of the Company.
      In
      addition, Individual’s duties shall be such duties and responsibilities as the
      Company shall specify from time to time, and shall entail those duties
      customarily performed by the Chief Operating Officer of a company with a sales
      volume and number of employees commensurate with those of the Company.
      Individual shall have such authority, discretion, power and responsibility,
      as
      are customary or appropriate to this position. Individual shall diligently
      and
      faithfully execute and perform such duties and responsibilities, subject to
      the
      general supervision and control of the Company’s Chief Executive Officer.
      Individual shall be responsible and report only to the Company’s Chief Executive
      Officer. The Company’s Chief Executive Officer, in its sole and absolute
      discretion, shall determine Individual’s duties and responsibilities and may
      assign or reassign Individual to such duties and responsibilities as it deems
      in
      the Company's best interest. Individual shall devote his full-time attention,
      energy, and skill during normal business hours to the business and affairs
      of
      the Company and shall not, during the Employment Term, as that term is defined
      below, be actively engaged in any other business activity, except with the
      prior
      written consent of the Company’s board of directors. 

    


    Nothing
      in this Agreement shall preclude Individual from devoting reasonable periods
      required for:

    


    
      	 	
              (a)

            	
              serving
                as a director or member of a committee of any organization or corporation
                involving no conflict of interest with the interests of the
                Company;

            


    

    


    
      	 	
              (b)

            	
              serving
                as a consultant in his area of expertise (in areas other than in
                connection with the business of the Company), to government, industrial,
                and academic panels where it does not conflict with the interests
                of the
                Company; and

            


    

    


    
      	 	
              (c)

            	
              managing
                his personal investments or engaging in any other non-competing business;
                provided
                that such activities do not materially interfere with the regular
                performance of his duties and responsibilities under this Agreement
                as
                determined by the Company.

            


    

    


    3.
      Best Efforts of Individual.
      During
      his employment hereunder, Individual shall, subject to the direction and
      supervision of the Company’s Chief Executive Officer, devote his full business
      time, best efforts, business judgment, skill, and knowledge to the advancement
      of the Company's interests and to the discharge of his duties and
      responsibilities hereunder. Notwithstanding the foregoing, nothing herein shall
      be construed as preventing Individual from investing his assets in any
      business.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    


    4.
      Employment Term.
      Unless
      terminated pursuant to Section 12 of this Agreement, the term of this Agreement
      shall commence as of the Effective Date of this Agreement and shall continue
      for
      a term of twenty-four (24) months (the “Initial Term”), and shall be
      automatically renewed for successive one (1) year terms (the “Renewal Term”)
      unless a party hereto delivers to the other party written notice of such party's
      intention not to renew at least thirty (30) days prior to the end of the Initial
      Term or the applicable Renewal Term, as the case may be.(the terms “Initial
      Term” and “Renewal Term” will collectively hereinafter be referred to as the
“Employment Term”). 

    


    5.
      Compensation of Individual. 

    


    	(a)  	
            Base
              Compensation.
              As
              compensation for the services provided by Individual under this Agreement,
              the Company shall pay Individual an annual salary of One Hundred Thousand
              Dollars ($100,000) during the Employment Term. The compensation of
              Individual under this Section shall be paid in accordance with the
              Company's usual payroll procedures. 

          


    


    	(b)  	
            Bonus.
              In
              addition to the above base compensation, Individual shall be eligible
              to
              receive an annual bonus determined by the Chief Executive Officer and
              detailed herein: Individual will be granted Fifty Thousand Dollars
              ($50,000) annually in restricted stock, to be vested (i) on the Effective
              Date for first annual payment (August 8, 2005) and (ii) on the anniversary
              of the Effective Date of the second year (August 8, 2006) Should
              employment terminate under Section 12(b) prior to the first anniversary
              of
              the Effective Date, Individual will still be entitled to receive bonus
              for
              the second year. 

          


    


    	(c)  	
            Stock
              and Stock Options.
              Individual shall also be eligible to receive shares of the Company’s
              authorized stock and options to purchase shares of the Company’s
              authorized stock from time to time as determined by the Chief Executive
              Officer and detailed herein: Individual will be granted One Hundred
              Twenty-Five Thousand (125,000) stock options, vesting quarterly over
              four
              (4) years at a strike price of Five Dollars
              ($5.00).

          


    


    6.
      Benefits. Individual
      shall also be entitled to participate in any and all Company benefit plans,
      from
      time to time, in effect for employees of the Company. Such participation shall
      be subject to the terms of the applicable plan documents and generally
      applicable Company policies. Individual shall also receive an automobile
      allowance of Six Thousand Dollars ($6,000) per year (given that Individual
      adheres to Company policy on auto allowance) and use of a Company cellular
      telephone, paid for by Company.

    


    7.
      Vacation, Sick Leave and Holidays.
      Individual shall be entitled to three (3) weeks of paid vacation, with such
      vacation to be scheduled and taken in accordance with the Company's standard
      vacation policies. In addition, Individual shall be entitled to such sick leave
      and holidays at full pay in accordance with the Company's policies established
      and in effect from time to time.

    


    8.
      Business Expenses.
      The
      Company shall promptly reimburse Individual for all reasonable out-of-pocket
      business expenses incurred in performing Individual’s duties and
      responsibilities hereunder in accordance with the Company's policies, provided
      Individual promptly furnishes to the Company adequate records of each such
      business expense. Individual shall receive a Relocation/Moving Expense of Eight
      Thousand ($8,000).

    


    9.
      Location of Individual's Activities. Individual’s
      principal place of business in the performance of his duties and obligations
      under this Agreement shall be at a place to be determined by the Chief Executive
      Officer. Notwithstanding the preceding sentence, Individual will engage in
      such
      travel and spend such time in other places as may be necessary or appropriate
      in
      furtherance of his duties hereunder.

    


    10.
      Confidentiality.
      Individual recognizes that the Company has and will have business affairs,
      products, future plans, trade secrets, customer lists, and other vital
      information (collectively "Confidential Information") that are valuable assets
      of the Company. Individual agrees that he shall not at any time or in any
      manner, either directly or indirectly, divulge, disclose, or communicate in
      any
      manner any Confidential Information to any third party without the prior written
      consent of the Company’s board of directors. Individual will protect the
      Confidential Information and treat it as strictly confidential.

     

    
      
         

      

      
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    11.
      Non-Competition.
      Individual acknowledges that he has gained, and will gain extensive knowledge
      in
      the business conducted by the Company and has had, and will have, extensive
      contacts with customers of the Company. Accordingly, Individual agrees that
      he
      shall not compete directly or indirectly with the Company, either during the
      Employment Term or during the one (1) year period immediately after the
      termination of Individual’s employment under Section 12 and shall not, during
      such period, make public statements in derogation of the Company. For the
      purposes of this Section 11, competing directly or indirectly with the Company
      shall mean engaging, directly or indirectly, as principle owner, officer,
      partner, consultant, advisor, or otherwise, either alone or in association
      with
      others, in the operation of any entity engaged in a business similar to that
      of
      the Company’s. 

    


    12.
      Termination.
      Notwithstanding any other provisions hereof to the contrary, Individual’s
      employment hereunder shall terminate under the following
      circumstances:

    


    	(a)  	
            Voluntary
              Termination by Individual.
              Individual shall have the right to voluntarily terminate this Agreement
              and his employment hereunder at any time during the Employment Term.
              

          


    


    	(b)  	
            Voluntary
              Termination by the Company. The
              Company shall have the right to voluntarily terminate this Agreement
              and
              Individual’s employment hereunder at any time after the Employment Term.
              

          


    


    	(c)  	
            Termination
              for Cause.
              The Company shall have the right to terminate this Agreement and
              Individual’s employment hereunder at any time for cause. As used in this
              Agreement, "cause" shall mean refusal by Individual to implement or
              adhere
              to lawful policies or directives of the Company’s board of directors,
              breach of this Agreement, Individual’s conviction of a felony, other
              conduct of a criminal nature that may have a material adverse impact
              on
              the Company's reputation, breach of fiduciary duty or the criminal
              misappropriation by Individual of funds from or resources of the Company.
              Cause shall not be deemed to exist unless the Company shall have first
              given Individual a written notice thereof specifying in reasonable
              detail
              the facts and circumstances alleged to constitute "cause" and thirty
              (30)
              days after such notice such conduct has, or such circumstances have,
              as
              the case may be, not entirely ceased and not been entirely
              remedied.

          


    


    	(d)  	
            Termination
              Upon Death or for Disability.
              This Agreement and Individual’s employment hereunder, shall automatically
              terminate upon Individual’s death or upon written notice to Individual and
              certification of Individual’s disability by a qualified physician or a
              panel of qualified physicians if Individual becomes disabled beyond
              a
              period of twelve (12) months and is unable to perform the duties contain
              in this Agreement. 

          


    


    	(e)  	
            Effect
              of Termination.
              In
              the event that this Agreement and Individual’s employment is voluntarily
              terminated by Individual pursuant to Section 12(a), or in the event
              the
              Company voluntarily terminates this Agreement pursuant to Section 12(b)
              or
              for cause pursuant to Section 12(c), all obligations of the Company
              and
              all duties, responsibilities and obligations of Individual under this
              Agreement shall cease, except for those obligations set forth in Sections
              10, 11 and 17 hereof. Upon such termination pursuant to Section 12(a),
              all
              unvested stock options and restricted stock will be forfeited. Upon
              such
              termination pursuant to Section 12(b), the Company shall (i) pay
              Individual a cash lump sum equal to (x) all accrued base salary through
              the date of termination plus all accrued vacation pay and bonuses,
              if any,
              plus (y) as severance compensation, an amount equal to twelve (12)
              months
              of Individual’s base salary, however if Individual is within the final
              twelve (12) months of the remaining Employment Term of this Agreement,
              then Individual will receive whatever base salary is remaining on the
              Employment Term. In the event of a merger, consolidation, sale, or
              change
              of control, the Company's rights hereunder shall be assigned to the
              surviving or resulting company, which company shall then honor this
              Agreement with Individual.

          


     

    13.
      Resignation as Officer.
      In the
      event that Individual’s employment with the Company is terminated for any reason
      whatsoever, Individual agrees to immediately resign as an Officer and/or
      Director of the Company, if applicable, and any related entities. For the
      purposes of this Section 13, the term the "Company" shall be deemed to include
      subsidiaries, parents, and affiliates of the Company. 

     

    
      
         

      

      
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    14.
      Governing Law, Jurisdiction and Venue.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of California without giving effect to any applicable conflicts of law
      provisions.

    


    15.
      Business Opportunities.
      During
      the Employment Term Individual agrees to bring to the attention of the Company’s
      Chief Executive Officer and board of directors all written business proposals
      that come to Individual’s attention and all business or investment opportunities
      of whatever nature that are created or devised by Individual and that relate
      to
      areas in which the Company conducts business and might reasonably be expected
      to
      be of interest to the Company or any of its subsidiaries.

    


    16.
      Employee’s Representations and Warranties.
      Individual hereby represents and warrants that he is not under any contractual
      obligation to any other company, entity or individual that would prohibit or
      impede Individual from performing his duties and responsibilities under this
      Agreement and that he is free to enter into and perform the duties and
      responsibilities required by this Agreement. Individual hereby agrees to
      indemnify and hold the Company and its officers, directors, employees,
      shareholders and agents harmless in connection with the representations and
      warranties made by Individual in this Section 16.

    


    17.
      Indemnification.

    


    	(a)  	
            The
              Company agrees that if Individual is made a party, or is threatened
              to be
              made a party, to any action, suit or proceeding, whether civil, criminal,
              administrative or investigative (a "Proceeding"), by reason of the
              fact
              that he is or was a director, officer or employee of the Company or
              is or
              was serving at the request of the Company as a director, officer, member,
              employee or agent of another corporation, partnership, joint venture,
              trust or other enterprise, including service with respect to employee
              benefit plans, whether or not the basis of such Proceeding is Individual’s
              alleged action in an official capacity while serving as a director,
              officer, member, employee or agent, Individual shall be indemnified
              and
              held harmless by the Company to the fullest extent permitted or authorized
              by the Company's certificate of incorporation or bylaws or, if greater,
              by
              the laws of the State of California, against all cost, expense, liability
              and loss (including, without limitation, attorney's fees, judgments,
              fines, ERISA excise taxes or penalties and amounts paid or to be paid
              in
              settlement) reasonably incurred or suffered by Individual in connection
              therewith, and such indemnification shall continue as to Individual
              even
              if he has ceased to be a director, member, employee or agent of the
              Company or other entity and shall inure to the benefit of Individual’s
              heirs, executors and administrators. The Company shall advance to
              Individual to the extent permitted by law all reasonable costs and
              expenses incurred by him in connection with a Proceeding within 20
              days
              after receipt by the Company of a written request, with appropriate
              documentation, for such advance. Such request shall include an undertaking
              by Individual to repay the amount of such advance if it shall ultimately
              be determined that he is not entitled to be indemnified against such
              costs
              and expenses.

          


    


    	(b)  	
            Neither
              the failure of the Company (including its board of directors, independent
              legal counsel or stockholders) to have made a determination prior to
              the
              commencement of any proceeding concerning payment of amounts claimed
              by
              Individual that indemnification of Individual is proper because he
              has met
              the applicable standard of conduct, nor a determination by the Company
              (including its board of directors, independent legal counsel or
              stockholders) that Individual has not met such applicable standard
              of
              conduct, shall create a presumption that Individual has not met the
              applicable standard of conduct.

          


    


    	(c)  	
            The
              Company agrees to continue and maintain directors' and officers' liability
              insurance policy covering Individual to the extent the Company provides
              such coverage for its other executive
              officers.

          


    


    	(d)  	
            Promptly
              after receipt by Individual of notice of any claim or the commencement
              of
              any action or proceeding with respect to which Individual is entitled
              to
              indemnity hereunder, Individual shall notify the Company in writing
              of
              such claim or the commencement of such action or proceeding, and the
              Company shall (i) assume the defense of such action or proceeding,
              (ii)
              employ counsel reasonably satisfactory to Individual, and (iii) pay
              the
              reasonable fees and expenses of such counsel. Notwithstanding the
              preceding sentence, Individual shall be entitled to employ counsel
              separate from counsel for the Company and from any other party in such
              action if Individual reasonably determines that a conflict of interest
              exists which makes representation by counsel chosen by the Company
              not
              advisable. In such event, the reasonable fees and disbursements of
              such
              separate counsel for Individual shall be paid by the Company to the
              extent
              permitted by law.

          


    


    
      
         

      

      
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    	(e)  	
            After
              the termination of this Agreement and upon the request of Individual,
              the
              Company agrees to reimburse Individual for all reasonable travel, legal
              and other out-of-pocket expenses related to assisting the Company to
              prepare for or defend against any action, suit, proceeding or claim
              brought or threatened to be brought against the Company or to prepare
              for
              or institute any action, suit, proceeding or claim to be brought or
              threatened to be brought against a third party arising out of or based
              upon the transactions contemplated herein and in providing evidence,
              producing documents or otherwise participating in any such action,
              suit,
              proceeding or claim. In the event Individual is required to appear
              after
              termination of this Agreement at a judicial or regulatory hearing in
              connection with Individual's employment hereunder, or Individual's
              role in
              connection therewith, the Company agrees to pay Individual a sum, to
              be
              mutually agreed upon by Individual and the Company, per diem for each
              day
              of his appearance and each day of preparation
              therefore.

          


    


    18.
      Notices.
      All
      demands, notices, and other communications to be given hereunder, if any, shall
      be in writing and shall be sufficient for all purposes if personally delivered,
      sent by facsimile or sent by United States mail to the address below or such
      other address or addresses as such party may hereafter designate in writing
      to
      the other party as herein provided.



    
      
        	
                Company:

              	
                Patient
                  Safety Technologies, Inc.

              	
                Individual:

              	
                James
                  Schafer

              
	 	
                100
                  Wilshire Blvd., Suite 1500

              	 	
                1215
                  Pinehurst Road

              
	 	
                Santa
                  Monica, CA 90401

              	 	
                Chula
                  Vista, CA 91915

              
	 	
                Fax:
                  (310) 752-1486

              	 	
                Phone:
                  (619) 934-7800

              
	 	
                Phone:
                  (310) 752-1416

              	 	
                Cell:
                  (619) 843-7014

              
	 	
                Schafer001@msn.com

              	 	 


      

    

     

    19.
      Entire Agreement.
      This
      Agreement contains the entire agreement of the parties and there are no other
      promises or conditions in any other agreement, whether oral or written. This
      Agreement supersedes any prior written or oral agreements between the parties.
      This Agreement may be modified or amended, if the amendment is made in writing
      and is signed by both parties. This Agreement is for the unique personal
      services of Individual and is not assignable or delegable, in whole or in part,
      by Individual. This Agreement may be assigned or delegated, in whole or in
      part,
      by the Company and, in such case, shall be assumed by and become binding upon
      the person, firm, company, corporation or business organization or entity to
      which this Agreement is assigned. The headings contained in this Agreement
      are
      for reference only and shall not in any way affect the meaning or interpretation
      of this Agreement. If any provision of this Agreement shall be held to be
      invalid or unenforceable for any reason, the remaining provisions shall continue
      to be valid and enforceable. The failure of either party to enforce any
      provision of this Agreement shall not be construed as a waiver or limitation
      of
      that party's right to subsequently enforce and compel strict compliance with
      every provision of this Agreement. This Agreement may be executed in two or
      more
      counterparts, each of which shall be deemed an original, but all of which
      together shall constitute one and the same instrument and, in pleading or
      proving any provision of this Agreement, it shall not be necessary to produce
      more than one of such counterparts.

    


    IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the day and
      year
      first above written.

     

    
      
        	
                Company:

              	
                Patient
                  Safety Technologies, Inc.

              	 	
                INDIVIDUAL:

              
	 	 	 	 
	
                By:

              	
                /s/
                  Milton Ault

              	 	
                /s/
                  James Schafer

              
	 	 	 	 
	
                Name:

              	
                Milton
                  C. Ault, III

              	 	
                James
                  Schafer

              
	 	 	 	 
	
                Title:

              	
                Chairman
                  and CEO

              	 	 


      

    

     

    
      
         

      

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