Document:

EX-10.2 Note & Security Agreement

 

Exhibit 10.2

NOTE AND SECURITY AGREEMENT

     FOR VALUE RECEIVED, CELLULAR TECHNICAL SERVICES COMPANY, INC., a Delaware corporation with
offices at 4400 Biscayne Boulevard, Miami, Florida 33137 (“CTSC”) and SAFESTITCH LLC, a
Virginia limited liability company and wholly-owned subsidiary of CTSC (“SafeStitch”, and,
collectively with CTSC, “Borrower”), pursuant to this Note and Security Agreement (this
“Note”), hereby promise to pay to THE FROST GROUP, LLC, a Florida limited liability company
(the “Frost Group”), and JEFFREY G. SPRAGENS, an individual (“Spragens” and,
together with the Frost Group, “Lender”), at such place as Lender may designate from time
to time in writing, in lawful money of the United States of America, the principal amount of
$4,000,000, or such lesser amount as shall equal the outstanding principal balance of the loan (the
“Loan”) made to Borrower by Lender pursuant to that certain Share Transfer, Exchange and
Contribution Agreement, dated as of July 25, 2007, by and among Borrower, Lender and others (the
“Share Exchange Agreement”) and this Note, and to pay all other amounts due with respect to
the Loan on the dates and in the amounts set forth in the Share Exchange Agreement and this Note.
The Frost Group will fund an aggregate amount equal to 97.5% of the Loan, and Spragens will fund an
aggregate amount equal to 2.5% of the Loan; and Borrower shall repay the Loan and issue the Warrant
(as defined below) to each of the Frost Group and Spragens in proportion to such funding
percentages, respectively.

     1. Definitions. All terms used, but not defined herein, shall have the meanings
ascribed to them in the Share Exchange Agreement. In addition, the terms set forth below shall
have the following meanings:

          (a) “Advances” means amounts advanced under the Note upon prior written notice to the
Lender by the Borrower not later than 3:00 p.m., Eastern Standard Time, on the third business day
prior to the date of any advance of credit pursuant hereto. Any such notice shall be in the form
of the Borrowing Notice (as hereafter defined), shall be certified by the president of Borrower and
shall set forth the aggregate amount of the requested Advance. Upon receiving a request for an
Advance to which Borrower is entitled hereunder, the Lender shall make the requested Advance
available to Borrower by wire transfer of immediately available funds to a bank account designated
by Borrower.

          (b) “Affiliate” means any Person that owns or controls directly or indirectly ten
percent (10%) or more of the stock of another entity, any Person that controls or is controlled by
or is under common control with such Persons or any Affiliate of such Persons and each of such
Person’s officers, directors, joint venturers or partners.

          (c) “Available Amount” means Four Million Dollars ($4,000,000).

          (d) “Borrowing Notice” means the Notice of Borrowing set forth as Exhibit A to this
Note.

          (e) “Code” means the Uniform Commercial Code as adopted and in effect in the State of
Florida, as amended from time to time; provided that if by reason of mandatory
provisions of law, the creation and/or perfection or the effect of perfection or non-perfection of
the security interest in any Collateral is governed by the Uniform Commercial Code as in effect

 

 

in a jurisdiction other than Florida, then the term “Code” shall also mean the Uniform
Commercial Code as in effect from time to time in such jurisdiction for purposes of the provisions
hereof relating to such creation, perfection or effect of perfection or non-perfection.

          (f) “Default Rate” shall mean a rate that shall be five percent (5.0%) in excess of
the Interest Rate but not more than the maximum rate allowed by law. The Default Rate is imposed
as liquidated damages for the purpose of defraying the Lender’s expenses incident to the handling
of delinquent payments, but are in addition to, and not in lieu of, the Lender’s exercise of any
rights and remedies hereunder or under applicable law, and any fees and expenses of any agents or
attorneys which the Lender may employ in respect of such rights and remedies. In addition, the
Default Rate reflects the increased credit risk to the Lender of carrying a loan that is in
default. Borrower agrees that the Default Rate is a reasonable forecast of just compensation for
anticipated and actual harm incurred by the Lender in the event of Borrower’s default hereunder,
and that the actual harm incurred by the Lender cannot be estimated with certainty and without
difficulty.

          (g) “Equity Securities” of Borrower means (1) all common stock, preferred stock,
participations, shares, partnership interests, membership interests or other equity interests in
and of Borrower (regardless of how designated and whether or not voting or non-voting) and (2) all
warrants, options and other rights to acquire any of the foregoing.

          (h) “Event of Default” shall mean the occurrence of one or more of the following
events:

               (1) Borrower shall fail to make any payment due to Lender under this Note when the same shall
become due and payable, whether at maturity, by acceleration or otherwise, within five (5) days
after receipt of written notice from Lender that such payment is due and unpaid.

               (2) Borrower violates any of the covenants contained in Sections 7 and 8 of this Note and
fails to remedy such violation within ten (10) days after receipt of written notice from Lender
that such a violation has occurred.

               (3) Any material portion of Borrower’s assets is attached, seized, subjected to a writ or
distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or
person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined,
restrained, or in any way prevented by court order from continuing to conduct all or any material
part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon
any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower’s assets by the United States Government, or any department,
agency, or instrumentality thereof, or by any state, county, municipal or governmental agency, and
the same is not paid within ten (10) days after Borrower receives notice thereof; provided that
none of the foregoing shall constitute an Event of Default where such action or event is stayed or
an adequate bond has been posted pending a good faith contest by Borrower.

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               (4) One or more defaults shall exist under any agreement with any third party or parties which
consists of the failure to pay any Indebtedness at maturity or which results in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of Indebtedness in an
aggregate amount in excess of One Hundred Fifty Thousand Dollars ($150,000).

               (5) A judgment or judgments for the payment of money in an amount, individually or in the
aggregate, of at least One Hundred Fifty Thousand Dollars ($150,000) shall be rendered against
Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days or more.

               (6) Any material misrepresentation or material misstatement that exists now or hereafter in
any warranty, representation, statement, certification or report made to Lender by Borrower or any
officer, employee, agent or director of Borrower.

               (7) Any document executed in connection with the Loan ceases to be, or Borrower asserts that
such document is not, in any material respect, a legal, valid and binding obligation of Borrower
enforceable in accordance with its terms.

               (8) A proceeding shall have been instituted in a court having jurisdiction in the premises
seeking a decree or order for relief in respect of Borrower in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the
appointment of a receiver, liquidator, assignee, custodian, trustee (or similar official) of
Borrower or for any substantial part of its property, or for the winding-up or liquidation of its
affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of
sixty (60) consecutive days or such court shall enter a decree or order granting the relief sought
in such proceeding.

               (9) Borrower commences a voluntary case under any applicable bankruptcy, insolvency or other
laws affecting creditors’ rights generally now or hereafter in effect, consents to the entry of an
order for relief in an involuntary case under any such law, or consents to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian (or other similar
official) of Borrower or for any substantial part of its property, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action in furtherance of any of the foregoing.

          (i) “Indebtedness” means, with respect to Borrower, the aggregate amount of, without
duplication, (a) all obligations of Borrower for borrowed money, (b) all obligations of Borrower
evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of Borrower
to pay the deferred purchase price of property or services (excluding trade payables aged less than
one hundred eighty (180) days), (d) all capital lease obligations of Borrower, (e) all obligations
or liabilities of others secured by a Lien on any asset of Borrower, whether or not such obligation
or liability is assumed, (f) all obligations or liabilities of others guaranteed by Borrower, and
(g) any other obligations or liabilities which are required by GAAP to be shown as debt on the
balance sheet of Borrower.

          (j) “Interest Rate” shall be 10% per annum.

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          (k) “Intellectual Property” means all of Borrower’s right, title and interest in and
to patents, patent rights (and applications and registrations therefor), trademarks and service
marks (and applications and registrations therefor), inventions, copyrights, mask works (and
applications and registrations therefor), trade names, trade styles, software and computer
programs, source code, object code, trade secrets, methods, processes, know how, drawings,
specifications, descriptions, and all memoranda, notes, and records with respect to any research
and development, all whether now owned or licensed to, or subsequently acquired or developed by or
licensed to Borrower and whether in tangible or intangible form or contained on magnetic media
readable by machine together with all such magnetic media (but not including embedded computer
programs and supporting information included within the definition of “goods” under the Code) and
including all licenses and sublicenses with respect to any of the foregoing granted to or otherwise
acquired by Borrower or to which Borrower is a successor or assignee, including specifically but
without limitation the Exclusive License and Development Agreement by and between Creighton
University and SafeStitch (the “Creighton License”).

          (l) “Lender’s Expenses” means all reasonable attorneys’ fees, costs and expenses
incurred in amending (except as contemplated hereby), enforcing or defending the Note (including
fees and expenses of appeal or review), including the exercise of any rights or remedies afforded
under the Note or under applicable law, whether or not suit is brought, whether before or after
bankruptcy or insolvency, including without limitation all fees and costs incurred by Lender in
connection with Lender’s enforcement of its rights in a bankruptcy or insolvency proceeding filed
by or against Borrower or its property.

          (m) “Lien” means any voluntary or involuntary security interest, pledge, bailment,
lease, mortgage, hypothecation, conditional sales and title retention agreement, encumbrance or
other lien with respect to any property of the Borrower in favor of any person.

          (n) “Obligations” shall mean actual indebtedness, principal, interest, fees, charges,
expenses and reasonable attorneys’ fees and costs and other amounts, obligations, covenants and
duties owing by Borrower to the Lender (or any permitted assignee) of any kind and description
(whether pursuant to or evidenced by this Note or the Share Exchange Agreement), whether direct or
indirect, absolute or contingent, due or to become due, now existing or hereafter arising,
including Lender’s Expenses, in each case as then outstanding hereunder.

          (o) “Permitted Indebtedness” means and includes:

               (1) Indebtedness of Borrower to Lender;

               (2) Indebtedness arising from the endorsement of instruments in the ordinary course of
business;

               (3) Indebtedness existing on the date hereof and disclosed in the Disclosure Schedules to the
Share Exchange Agreement;

               (4) Indebtedness of Borrower in an aggregate original principal amount not to exceed $250,000
which is secured by Liens permitted under clause (5) of the definition of Permitted Liens;

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               (5) Other Indebtedness in an aggregate amount not exceeding $100,000 at any time; and

               (6) Extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness above, provided that the principal amount thereof is not increased or the
terms thereof are not modified to impose more burdensome terms upon Borrower.

          (p) “Permitted Investments” means and includes any of the following investments:

               (1) Deposits and deposit accounts with commercial banks organized under the laws of the United
States or a state thereof to the extent: (i) the deposit accounts of each such institution are
insured by the Federal Deposit Insurance Corporation up to the legal limit; and (ii) each such
institution has an aggregate capital and surplus of not less than One Hundred Million Dollars
($100,000,000).

               (2) Investments in marketable obligations issued or fully guaranteed by the United States and
maturing not more than one (1) year from the date of issuance.

               (3) Investments in open market commercial paper rated at least “A1” or “P1” or
higher by a national credit rating agency and maturing not more than one (1) year from the creation
thereof.

               (4) Investments pursuant to or arising under currency agreements or interest rate agreements
entered into in the ordinary course of business.

               (5) Investments, not requiring the use of cash or the assumption of liabilities, in joint
ventures, partnerships or similar business arrangements entered into in the ordinary course of
business in substantially the same industry and growth stage as Borrower.

               (6) Other investments aggregating not in excess of Five Hundred Thousand Dollars ($500,000)
at any time.

          (q) “Permitted Liens” means:

               (1) The Lien created by this Agreement.

               (2) Liens for fees, taxes, levies, imposts, duties or other governmental charges of any kind
which are not yet delinquent or which are being contested in good faith by appropriate proceedings
which suspend the collection thereof (provided that such appropriate proceedings do
not involve any substantial danger of the sale, forfeiture or loss of any material item of
Collateral or Collateral which in the aggregate is material to Borrower and that Borrower has
adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the
books of Borrower).

               (3) Liens existing as of the date of this Note and identified in a Disclosure Schedule or
otherwise referred to in the Share Exchange Agreement.

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               (4) Carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other similar Liens
arising in the ordinary course of business and which are not delinquent or remain payable without
penalty or which are being contested in good faith and by appropriate proceedings (provided
that such appropriate proceedings do not involve any substantial danger of the sale,
forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is
material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to
discharge such Lien have been provided on the books of Borrower).

               (5) Liens upon any equipment or other personal property acquired by Borrower after the date
hereof to secure (i) the purchase price of such equipment or other personal property, or (ii) lease
obligations or indebtedness incurred solely for the purpose of financing the acquisition of such
equipment or other personal property; provided that such Liens are confined solely to the equipment
or other personal property so acquired and the proceeds thereof and the amount secured does not
exceed the acquisition price thereof.

               (6) Licenses of Intellectual Property entered into in the ordinary course of business (whether
as licensor or licensee);

               (7) Bankers’ liens, rights of setoff and similar Liens incurred on deposits made in the
ordinary course of business and Liens in favor of financial institutions arising in connection with
Borrower’s deposit accounts or securities accounts held at such institutions to secure customary
fees and charges;

               (8) Any judgment, attachment or similar Lien not resulting in an Event of Default hereunder;
and

               (9) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described above but any extension, renewal or replacement Lien must be limited to the
property encumbered by the existing Lien and the principal amount of the indebtedness may not
increase.

          (r) “Person” means and includes any individual, any partnership, any corporation, any
business trust, any joint stock company, any limited liability company, any unincorporated
association or any other entity and any domestic or foreign national, state or local government,
any political subdivision thereof, and any department, agency, authority or bureau of any of the
foregoing.

          (s) “Share Exchange Agreement” means the Share Transfer, Exchange and Contribution
Agreement, dated as of the date hereof, among Borrower, Lender and others.

          (t) “Subsidiary” means any corporation or other entity of which a majority of the
outstanding equity securities entitled to vote for the election of directors or other governing
body (otherwise than as the result of a default) is owned by Borrower directly or indirectly
through Subsidiaries.

          (u) “Warrant” means, collectively, each of two warrants issued to the Frost Group and
Spragens to acquire, in aggregate, a number of shares equal to five percent (5%) of the total
fully-diluted shares of common stock of CTSC, dated as of the date hereof.

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     2. Advances Under the Note and Obligations. From time to time prior to the Maturity
Date, subject to the provisions below, the Lender may make Advances to the Borrower, which the
Borrower shall repay to the Lender and, the Borrower after such Advances, may reborrow, so long as
the aggregate amount of Advances outstanding at any one time shall not exceed the Available Amount,
which the Borrower shall again repay to the Lender. Notwithstanding the face amount of the Note,
Borrower’s liability under the Note shall include the Obligations. Lender may determine to include
Obligations other than interest payable at the Interest Rate in calculating the Available Amount.
The obligation of the Lender to make Advances shall be subject to the Lender’s receipt of a
completed Borrowing Notice and such documents as the Lender may reasonably request and the absence
of any continuing Event of Default. Prior to making the first Advance and as a condition to such
Advance, Borrower shall provide Lender with a certificate of the duly authorized Secretary of
Borrower as to its Bylaws and resolutions adopted by its board of directors authorizing the Share
Exchange Agreement, this Note and the transactions contemplated hereby and thereby, and a certified
copy of Borrower’s Certificate of Incorporation, as well as any and all third-party consents which
are required to be procured by Borrower before it can incur the indebtedness evidenced by this
Note, issue the Warrants, and otherwise commit itself to its obligations hereunder and under the
Share Exchange Agreement.

     3. Payments of Obligations, including Principal and Interest. The principal amount of
the Loan evidenced hereby, together with any accrued and unpaid interest, and any and all the
Obligations, including unpaid costs, fees and expenses accrued, such as Lender’s Expenses, shall be
due and payable in full on December 31, 2009 (the “Maturity Date”).

     4. Interest. All amounts outstanding from time to time hereunder shall bear interest
until such amounts are paid at the Interest Rate. Following any Event of Default (including before
or after any judgment is entered) and after the Maturity Date, the principal balance outstanding
hereunder, together with all such other amounts outstanding hereunder, shall bear interest at the
Default Rate.

     5. Prepayments. Borrower may prepay in cash, at any time or from time to time, all or
any portion of the amounts due hereunder, without penalty or premium; provided,
however, that any prepayment (whether voluntary or involuntary) shall be applied first to
accrued and unpaid interest and second to outstanding principal and other Obligations due
hereunder. Prepayments of all or any portion of the Obligations shall not reduce the Available
Amount, and funds may be reborrowed hereunder up to the Available Amount, subject to the provision
hereof and the Note. If Borrower makes a payment or payments and such payment or payments, or any
part thereof, are subsequently invalidated, declared to be fraudulent or preferential, set aside or
are required to be repaid to a trustee, receiver, or any other person under any bankruptcy act,
state, provincial or federal law, common law or equitable cause, then to the extent of such payment
or payments, the obligations or part thereof hereunder intended to be satisfied shall be revived
and continued in full force and effect as if said payment or payments had not been made.

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     6. Security Interest.

          (a) Grant of Security Interest. Borrower grants to Lender a valid and continuing
first priority security interest in all presently existing and hereafter acquired or arising
Collateral in order to secure prompt, full and complete payment of the amounts due hereunder and in
order to secure prompt, full and complete performance by Borrower of each of its covenants and
duties under the Share Exchange Agreement and this Note. “Collateral” shall mean and
include all right, title, interest, claims and demands of Borrower in and to all personal property
of Borrower, including without limitation, all of the following:

               (1) All goods (and embedded computer programs and supporting information included within the
definition of “goods” under the Code) and equipment now owned or hereafter acquired,
including, without limitation, all laboratory equipment, computer equipment, office equipment,
machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of
the foregoing, and all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing, wherever located.

               (2) All inventory now owned or hereafter acquired, including, without limitation, all
merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and
finished products including such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower’s books relating to any of the
foregoing.

               (3) All contract rights and general intangibles, now owned or hereafter acquired, including,
without limitation, goodwill, license agreements, franchise agreements, blueprints, drawings,
purchase orders, customer lists, route lists, infringements, claims, software, computer programs,
computer disks, computer tapes, literature, reports, catalogs, design rights, income tax refunds,
payment intangibles, commercial tort claims, payments of insurance and rights to payment of any
kind.

               (4) All now existing and hereafter arising accounts, contract rights, royalties, license
rights, license fees and all other forms of obligations owing to Borrower arising out of the sale
or lease of goods, the licensing of technology or the rendering of services by Borrower (subject,
in each case, to the contractual rights of third parties to require funds received by Borrower to
be expended in a particular manner), whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise returned to or
reclaimed by Borrower and Borrower’s books relating to any of the foregoing, including specifically
with respect to all of the foregoing, but without limitation, the Creighton License.

               (5) All documents, cash, deposit accounts, letters of credit (whether or not the letter of
credit is evidenced by a writing), certificates of deposit, instruments, promissory notes, chattel
paper (whether tangible or electronic) and investment property, including, without limitation, all
securities, whether certificated or uncertificated, security entitlements, securities

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accounts, commodity contracts and commodity accounts, and all financial assets held in any
securities account or otherwise, wherever located, now owned or hereafter acquired and Borrower’s
books relating to the foregoing.

               (6) All Intellectual Property of the Borrower.

               (7) Any and all claims, rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof, including, without limitation, insurance,
condemnation, requisition or similar payments and proceeds of the sale or licensing of Intellectual
Property to the extent such proceeds no longer constitute Intellectual Property.

          (b) After-Acquired Property. If Borrower shall at any time acquire a commercial tort
claim, as defined in the Code, Borrower shall immediately notify Lender in writing signed by
Borrower of the brief details thereof and grant to Lender in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Note, with such writing to be in
form and substance satisfactory to Lender.

          (c) Duration of Security Interest. Lender’s security interest in the Collateral shall
continue until the payment in full and the satisfaction of all obligations of Borrower under this
Note, and the termination of any commitment to fund any Loan, whereupon such security interest
shall terminate. Lender shall, at Borrower’s sole cost and expense, execute such further documents
and take such further actions as may be reasonably necessary to make effective the release
contemplated by this Section 6(c). including duly executing and delivering termination statements
for filing in all relevant jurisdictions under the Code.

          (d) Location and Possession of Collateral. The Collateral is and shall remain in the
possession of Borrower at its location at 4400 Biscayne Boulevard, Miami, Florida 33137. Borrower
shall remain in full possession, enjoyment and control of the Collateral (except only as may be
otherwise required by Lender for perfection of its security interest therein) and so long as no
Event of Default has occurred and is continuing, shall be entitled to manage, operate and use the
same and each part thereof with the rights and franchises appertaining thereto; provided
that the possession, enjoyment, control and use of the Collateral shall at all time be
subject to the observance and performance of the terms of this Agreement.

          (e) Delivery of Additional Documentation Required. Borrower shall from time to time
execute and deliver to Lender, at the request of Lender, all financing statements and other
documents Lender may reasonably request, in form satisfactory to Lender, to perfect and continue
Lender’s perfected security interests in the Collateral and in order to consummate fully all of the
transactions contemplated under this Note and the Share Exchange Agreement.

          (f) Right to Inspect. Lender (through any of its officers, employees, or agents)
shall have the right, upon reasonable prior notice, from time to time during Borrower’s usual
business hours, to inspect Borrower’s books and records and to make copies thereof and to inspect,
test, and appraise the Collateral in order to verify Borrower’s financial condition or the amount,
condition of, or any other matter relating to, the Collateral.

          (g) Protection of Intellectual Property. Borrower shall use its commercially
reasonable efforts to (i) protect, defend and maintain the validity and enforceability of its

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material Intellectual Property and promptly advise Lender in writing of material infringements
which become known to Borrower and (ii) not allow any Intellectual Property material to Borrower’s
business to be abandoned, forfeited or dedicated to the public except in the ordinary course of
Borrower’s business. Specifically but without limitation, Borrower shall cause the Creighton
License to remain in full force and effect at all times while this Agreement is in effect.

     7. Affirmative Covenants. Borrower covenants that, so long as any amounts are due and
payable hereunder to Lender or any commitment to make any Loan still exists, Borrower shall:

          (a) Maintain its corporate existence and its good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the failure to so qualify
could reasonably be expected to have a material adverse effect on the financial condition,
operations or business of Borrower. Borrower shall maintain in force all licenses, approvals and
agreements, the loss of which could reasonably be expected to have a material adverse effect on its
financial condition, operations or business.

          (b) Comply with all statutes, laws, ordinances and government rules and regulations to which
it is subject, noncompliance with which could reasonably be expected to materially adversely affect
the financial condition, operations or business of Borrower.

          (c) Deliver to Lender: (i) as soon as available, but in any event within forty five (45) days
after the end of each month, a company prepared balance sheet, income statement and cash flow
statement covering Borrower’s operations during such period, certified by Borrower’s president,
treasurer or chief financial officer (each, a “Responsible Officer”); (ii) as soon as
available, but in any event within one hundred twenty (120) days after the end of Borrower’s fiscal
year, audited financial statements of Borrower prepared in accordance with GAAP, together with an
unqualified opinion on such financial statements of a nationally recognized or other independent
public accounting firm reasonably acceptable to Lender; and (iii) as soon as available, but in any
event within ninety (90) days after the end of Borrower’s fiscal year or the date of Borrower’s
board of directors’ adoption, Borrower’s operating budget and plan for the next fiscal year; and
(iv) such other financial information as Lender may reasonably request from time to time. For so
long as Borrower is a publicly reporting company, promptly as they are available and in any event:
(x) at the time of filing of Borrower’s Form 10-K with the Securities and Exchange Commission after
the end of each fiscal year of Borrower, the financial statements of Borrower filed with such Form
10-K; and (y) at the time of filing of Borrower’s Form 10-Q with the Securities and Exchange
Commission after the end of each of the first three fiscal quarters of Borrower, the financial
statements of Borrower filed with such Form 10-Q. In addition, Borrower shall deliver to Lender:
(i) promptly upon becoming available, copies of all statements, reports and notices sent or made
available generally by Borrower to its security holders; (ii) immediately upon receipt of notice
thereof, a report of any material legal actions pending or threatened against Borrower or the
commencement of any action, proceeding or governmental investigation involving Borrower is
commenced that is reasonably expected to result in damages or costs to Borrower of One Hundred
Fifty Thousand Dollars ($150,000) or more; and (iii) such other financial information as Lender may
reasonably request from time to time.

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          (d) Each time financial statements are furnished pursuant to Section 7(c) above, deliver to
Lender an Officer’s Certificate signed by a Responsible Officer in form satisfactory to Lender,
certifying such financial statements, Borrower’s compliance with the terms of this Note and that no
default or Event of Default has occurred under this Note.

          (e) As soon as possible, and in any event within five (5) days after the discovery of a
default or an Event of Default, provide Lender with an Officer’s Certificate setting forth the
facts relating to or giving rise to such default or Event of Default and the action which Borrower
proposes to take with respect thereto.

          (f) Make due and timely payment or deposit of all federal, state, and local taxes,
assessments, or contributions required of it by law or imposed upon any property belonging to it,
and will execute and deliver to Lender, on demand, appropriate certificates attesting to the
payment or deposit thereof; and Borrower will make timely payment or deposit of all tax payments
and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request,
furnish Lender with proof satisfactory to Lender indicating that Borrower has made such payments or
deposits; provided that Borrower need not make any payment if the amount or validity of such
payment is contested in good faith by appropriate proceedings which suspend the collection thereof
(provided that such proceedings do not involve any substantial danger of the sale, forfeiture or
loss of any material item of Collateral or Collateral which in the aggregate is material to
Borrower and that Borrower has adequately bonded such amounts or reserves sufficient to discharge
such amounts have been provided on the books of Borrower).

          (g) Keep and maintain all items of equipment and other similar types of personal property that
form any significant portion or portions of the Collateral in good operating condition and repair
and shall make all necessary replacements thereof and renewals thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved. Borrower shall not
permit any such material item of Collateral to become a fixture to real estate or an accession to
other personal property, without the prior written consent of Lender. Borrower shall not permit
any such material item of Collateral to be operated or maintained in violation of any applicable
law, statute, rule or regulation. With respect to items of leased equipment (to the extent Lender
has any security interest in any residual Borrower’s interest in such equipment under the lease),
Borrower shall keep, maintain, repair, replace and operate such leased equipment in accordance with
the terms of the applicable lease.

          (h) Keep its business and the Collateral insured for risks and in amounts as Lender may
reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are
satisfactory to Lender. All property policies shall have a lender’s loss payable endorsement
showing Lender as an additional loss payee and all liability policies shall show Lender as an
additional insured and all policies shall provide that the insurer must give Lender at least thirty
(30) days notice before canceling its policy. At Lender’s request, Borrower shall deliver
certified copies of policies and evidence of all premium payments. Proceeds payable under any
policy shall, at Lender’s option, be payable to Lender on account of the Obligations.
Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing,
Borrower shall have the option of applying the proceeds of any casualty policy, toward the
replacement or repair of destroyed or damaged property; provided that (i) any such replaced or

 - 11 - 

 

repaired property (a) shall be of equal or like value as the replaced or repaired Collateral
and (b) shall be deemed Collateral in which Lender has been granted a security interest and (ii)
after the occurrence and during the continuation of an Event of Default all proceeds payable under
such casualty policy shall, at the option of Lender, be payable to Lender, on account of the
Indebtedness evidenced by this Note and the Share Exchange Agreement. If Borrower fails to obtain
insurance as required under this Section 7(h) or to pay any amount or furnish any required proof of
payment to third persons and Lender, Lender may make all or part of such payment or obtain such
insurance policies required in this Section 7(h) and take any action under the policies Lender
deems prudent. On or prior to the Initial Closing Date and prior to each policy renewal, Borrower
shall furnish to Lender certificates of insurance or other evidence reasonably satisfactory to
Lender that insurance complying with all of the above requirements is in effect.

          (i) Assuming the proper filing of one or more financing statement(s) identifying the
Collateral with the proper state and/or local authorities, the security interests in the Collateral
granted to Lender pursuant to this Agreement (i) constitute and will continue to constitute first
priority security interests (except to the extent any Permitted Liens may have a superior priority
to Lender’s Lien under this Agreement) and (ii) are and will continue to be superior and prior to
the rights of all other creditors of Borrower (except to the extent of such Permitted Liens).

          (j) At any time and from time to time Borrower shall execute and deliver such further
instruments and take such further action as may reasonably be requested by Lender to make effective
the purposes of this Agreement, including without limitation, the continued perfection and priority
of Lender’s security interest in the Collateral.

     8. Negative Covenants. Borrower covenants that so long as any amounts are due and
payable hereunder to Lender or any commitment to make any Loan still exists, without the prior
approval of Lender, Borrower shall not:

          (a) Change its name, jurisdiction of incorporation or principal place of business without
thirty (30) days prior written notice to Lender.

          (b) Subject to its rights under Section 8(d), remove any items of Collateral from the
Collateral location(s) specified in this Note.

          (c) Create, incur, assume or suffer to exist any Lien of any kind upon any of Borrower’s
property, whether now owned or hereafter acquired, except Permitted Liens.

          (d) Convey, sell, lease or otherwise dispose of all or any part of the Collateral to any
Person (collectively, a “Transfer”), except for: (i) Transfers of inventory in the ordinary
course of business; or (ii) Transfers of worn-out or obsolete equipment.

          (e) Except as set forth in the Schedule of Exceptions to the Share Exchange Agreement
delivered by Borrower as of the date hereof: (i) pay any dividends or make any distributions on its
Equity Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for value any of its
Equity Securities (other than repurchases pursuant to the terms of employee stock purchase plans,
employee restricted stock agreements or similar arrangements in an aggregate amount not to exceed
One Hundred Thousand Dollars ($100,000)); (iii) return any

 - 12 - 

 

capital to any holder of its Equity Securities as such; (iv) make any distribution of assets,
Equity Securities, obligations or securities to any holder of its Equity Securities as such; or (v)
set apart any sum for any such purpose; provided, however, that Borrower may pay
dividends payable solely in common stock.

          (f) Engage in or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto.

          (g) Enter into any contractual obligation with any Affiliate or engage in any other
transaction with any Affiliate except upon terms at least as favorable to Borrower as an
arms-length transaction with persons who are not Affiliates of Borrower.

          (h) (i) Prepay, redeem, purchase, defease or otherwise satisfy in any manner prior to the
scheduled repayment thereof any Indebtedness for borrowed money (other than amounts due or
permitted to be prepaid under this Agreement) or lease obligations, (ii) amend, modify or otherwise
change the terms of any Indebtedness for borrowed money or lease obligations so as to accelerate
the scheduled repayment thereof or (iii) repay any notes to officers, directors or shareholders.

          (i) Create, incur, assume or permit to exist any Indebtedness except Permitted Indebtedness.

          (j) Make any investment except for Permitted Investments.

          (k) Become an “investment company” or a company controlled by an “investment
company” under the Investment Company Act of 1940 or undertake as one of its important
activities extending credit to purchase or carry margin stock, or use the proceeds of any Loan for
that purpose; fail to meet the minimum funding requirements of the Employment Retirement Income
Security Act of 1974, and its regulations, as amended from time to time (“ERISA”), permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could
reasonably be expected to have a material adverse effect on Borrower’s business or operations or
could reasonably be expected to cause a material adverse change, or permit any of its Subsidiaries
to do so.

          (l) Create, incur, assume or suffer to exist any Lien of any kind upon any Intellectual
Property or Transfer any Intellectual Property, whether now owned or hereafter acquired, other than
licenses of Intellectual Property entered into in the ordinary course of business.

     9. Lender’s Rights and Remedies.

          (a) Rights and Remedies. Upon the occurrence of an Event of Default, while such Event
of Default is continuing (provided that an Event of Default shall be continuing at all times after
any cure period therefor expires), Lender shall not have any further obligation to advance money or
extend credit to or for the benefit of Borrower. In addition, upon the occurrence and during the
continuance of an Event of Default, the entire unpaid principal sum hereunder, plus any and all
interest accrued thereon, plus all other sums due and payable to

 - 13 - 

 

Lender hereunder shall, at the option of Lender, become due and payable immediately without
presentment, demand, notice of nonpayment, protest, notice of protest, or other notice of dishonor,
all of which are hereby expressly waived by Borrower. Lender shall have the rights, options,
duties and remedies of a secured party as permitted by applicable law and, in addition to and
without limitation of the foregoing, Lender may, at its election, without notice of election and
without demand, do any one or more of the following, all of which are authorized by Borrower:

               (1) Make such payments and do such acts as Lender considers necessary or reasonable to protect
Lender’s security interest in the Collateral. Borrower agrees to assemble the Collateral if Lender
so requires and to make the Collateral available to Lender as Lender may designate. Borrower
authorizes Lender and its designees and agents to enter the premises where the Collateral is
located, to take and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any Lien which in Lender’s determination appears or is claimed to
be prior or superior to its security interest and to pay all expenses incurred in connection
therewith. With respect to any of Borrower’s owned premises, Borrower hereby grants Lender a
license to enter into possession of such premises and to occupy the same, without charge, for up to
one hundred twenty (120) days in order to exercise any of Lender’s rights or remedies provided
herein, at law, in equity, or otherwise;

               (2) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell (in the manner provided for herein) the Collateral. Lender and its agents and any
purchasers at or after foreclosure are hereby granted a non-exclusive, irrevocable, perpetual,
fully paid, royalty-free license or other right, solely pursuant to the provisions of this Section
8, to use, without charge, Borrower’s Intellectual Property, including without limitation, labels,
patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service
marks and advertising matter, or any property of a similar nature, now or at any time hereafter
owned or acquired by Borrower or in which Borrower now or at any time hereafter has any rights;
provided that such license shall only be exercisable in connection with the
disposition of Collateral upon Lender’s exercise of its remedies hereunder;

               (3) Sell the Collateral at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and at such places (including
Borrower’s premises) as Lender determines are commercially reasonable; and

               (4) Credit bid and purchase all or any portion of the Collateral at any public sale.

Any deficiency that exists after disposition of the Collateral as provided above will be paid
immediately by Borrower.

          (b) Set Off Right. Lender may set off and apply to the obligations hereunder any and
all indebtedness at any time owing to or for the credit or the account of Borrower or any other
assets of Borrower in Lender’s possession or control.

          (c) Effect of Sale. Upon the occurrence of an Event of Default and during the
continuation thereof, to the extent permitted by applicable law, Borrower covenants that it will

 - 14 - 

 

not at any time insist upon or plead, or in any manner whatsoever claim or take any benefit or
advantage of, any stay or extension law now or at any time hereafter in force, nor claim, take nor
insist upon any benefit or advantage of or from any law now or hereafter in force providing for the
valuation or appraisement of the Collateral or any part thereof prior to any sale or sales thereof
to be made pursuant to any provision herein contained, or to the decree, judgment or order of any
court of competent jurisdiction; nor, after such sale or sales, claim or exercise any right under
any statute now or hereafter made or enacted by any state or otherwise to redeem the property so
sold or any part thereof, and, to the full extent legally permitted, except as to rights expressly
provided herein, hereby expressly waives for itself and on behalf of each and every Person, except
decree or judgment creditors of Borrower, acquiring any interest in or title to the Collateral or
any part thereof subsequent to the date of this Agreement, all benefit and advantage of any such
law or laws, and covenants that it will not invoke or utilize any such law or laws or otherwise
hinder, delay or impede the execution of any power herein granted and delegated to Lender, but will
suffer and permit the execution of every such power as though no such power, law or laws had been
made or enacted. Any sale, whether under any power of sale hereby given or by virtue of judicial
proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever,
either at law or in equity, of Borrower in and to the property sold, and shall be a perpetual bar,
both at law and in equity, against Borrower, its successors and assigns, and against any and all
Persons claiming the property sold or any part thereof under, by or through Borrower, its
successors or assigns.

          (d) Power of Attorney in Respect of the Collateral. Borrower does hereby irrevocably
appoint Lender (which appointment is coupled with an interest), the true and lawful attorney in
fact of Borrower with full power of substitution, for it and in its name to file any notices of
security interests, financing statements and continuations and amendments thereof pursuant to the
Code or federal law, as may be necessary to perfect, or to continue the perfection of Lender’s
security interests in the Collateral. Borrower does hereby irrevocably appoint Lender (which
appointment is coupled with an interest) on the occurrence of an Event of Default and during the
continuation thereof, the true and lawful attorney in fact of Borrower with full power of
substitution, for it and in its name: (a) to ask, demand, collect, receive, receipt for, sue for,
compound and give acquittance for any and all rents, issues, profits, avails, distributions,
income, payment draws and other sums in which a security interest is granted under Section 6 with
full power to settle, adjust or compromise any claim thereunder as fully as if Lender were Borrower
itself; (b) to receive payment of and to endorse the name of Borrower to any items of Collateral
(including checks, drafts and other orders for the payment of money) that come into Lender’s
possession or under Lender’s control; (c) to make all demands, consents and waivers, or take any
other action with respect to, the Collateral; (d) in Lender’s discretion to file any claim or take
any other action or proceedings, either in its own name or in the name of Borrower or otherwise,
which Lender may reasonably deem necessary or appropriate to protect and preserve the right, title
and interest of Lender in and to the Collateral; (e) endorse Borrower’s name on any checks or other
forms of payment or security; (f) sign Borrower’s name on any invoice or bill of lading for any
account or drafts against account debtors; (g) make, settle, and adjust all claims under Borrower’s
insurance policies; (h) settle and adjust disputes and claims about the accounts directly with
account debtors, for amounts and on terms Lender determines reasonable; (i) transfer the Collateral
into the name of Lender or a third party as the Code permits; and (j) to otherwise act with respect
thereto as though Lender were the outright owner of the Collateral.

 - 15 - 

 

     10. Remedies Cumulative, Etc.

          (a) No right or remedy conferred upon or reserved to Lender hereunder or now or hereafter
existing at law or in equity is intended to be exclusive of any other right or remedy, and each and
every such right or remedy shall be cumulative and concurrent, and in addition to every other such
right or remedy, and may be pursued singly, concurrently, successively or otherwise, at the sole
discretion of Lender, and shall not be exhausted by any one exercise thereof but may be exercised
as often as occasion therefor shall occur.

          (b) Borrower hereby waives presentment, demand, notice of nonpayment, protest, notice of
protest, notice of dishonor and any and all other notices in connection with any default in the
payment of, or any enforcement of the payment of, all amounts due under this Note. To the extent
permitted by law, Borrower waives the right to any stay of execution and the benefit of all
exemption laws now or hereafter in effect.

          (c) Costs and Expenses. Following the occurrence of any Event of Default, Borrower
shall pay upon demand all costs and expenses (including reasonable attorneys’ fees and expenses)
incurred by Lender in the exercise of any of its rights, remedies or powers under this Note and any
amount thereof not paid promptly following demand therefor shall be added to the principal sum
hereunder and shall bear interest at the Default Rate from the date of such demand until paid in
full.

     11. Indemnification and Waiver. Whether or not the transactions contemplated hereby
shall be consummated:

          (a) General Indemnity. Borrower agrees upon demand to pay or reimburse Lender for all
liabilities, obligations and out-of-pocket expenses, including Lender’s expenses and reasonable
fees and expenses of counsel for Lender from time to time arising in connection with the
enforcement or collection of sums due under this Note or the Share Exchange Agreement, and in
connection with any amendment or modification of such documents or any “work-out” in
connection with such documents. Borrower shall indemnify, reimburse and hold Lender and each of
its respective successors, assigns, agents, attorneys, officers, directors, shareholders, servants,
agents and employees (each an “Indemnified Person”) harmless from and against all
liabilities, losses, damages, actions, suits, demands, claims of any kind and nature (including
claims relating to environmental discharge, cleanup or compliance), all costs and expenses
whatsoever to the extent they may be incurred or suffered by such Indemnified Person in connection
therewith (including reasonable attorneys’ fees and expenses), fines, penalties (and other charges
of any applicable governmental authority), licensing fees relating to any item of Collateral,
damage to or loss of use of property (including consequential or special damages to third parties
or damages to Borrower’s property), or bodily injury to or death of any person (including any agent
or employee of Borrower) (each, a “Claim”), directly or indirectly relating to or arising
out of the use of the proceeds of the Loans or otherwise, the falsity of any representation or
warranty of Borrower or Borrower’s failure to comply with the terms of this Note or the Share
Exchange Agreement. The foregoing indemnity shall cover, without limitation, (i) any Claim in
connection with a design or other defect (latent or patent) in any item of equipment or product
included in the Collateral, (ii) any Claim for infringement of any patent, copyright, trademark or
other intellectual property right, (iii) any Claim resulting from the

 - 16 - 

 

presence on or under or the escape, seepage, leakage, spillage, discharge, emission or release
of any Hazardous Substances on the premises owned, occupied or leased by Borrower, including any
Claims asserted or arising under any environmental law, or (iv) any Claim for negligence or strict
or absolute liability in tort; provided, however, Borrower shall not indemnify
Lender for any liability incurred by Lender as a direct and sole result of Lender’s gross
negligence or willful misconduct. Such indemnities shall continue in full force and effect,
notwithstanding the expiration or termination of this Note. Upon Lender’s written demand, Borrower
shall assume and diligently conduct, at its sole cost and expense, the entire defense of Lender,
each of its partners, and each of their respective, agents, employees, directors, officers,
shareholders, successors and assigns against any indemnified Claim described in this Section.
Borrower shall not settle or compromise any Claim against or involving Lender without first
obtaining Lender’s written consent thereto, which consent shall not be unreasonably withheld.

     12. Notices. All notices required to be given to any of the parties hereunder shall
be in writing and shall be deemed to have been sufficiently given for all purposes when presented
personally to such party or sent by hand delivery, facsimile, courier service guaranteeing next
business day delivery, or overnight U.S. express mail, return receipt requested, to such party at
its address set forth in the Share Exchange Agreement with copies to the parties designated to
receive copies in the Share Exchange Agreement. Such notice shall be deemed to be given when
received. Any notice of any change in such address shall also be given in the manner set forth
above. Whenever the giving of notice is required, the giving of such notice may be waived in
writing by the party entitled to receive such notice.

     13. Severability. In the event that any provision of this Note is held to be invalid,
illegal or unenforceable in any respect or to any extent, such provision shall nevertheless remain
valid, legal and enforceable in all such other respects and to such extent as may be permissible.
Any such invalidity, illegality or unenforceability shall not affect any other provisions of this
Note, but this Note shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.

     14. Successors and Assigns. This Note inures to the benefit of Lender and binds
Borrower, and their respective successors and assigns, and the words “Borrower” and
“Lender” whenever occurring herein shall be deemed and construed to include such respective
successors and assigns; provided, however, neither this Note nor any rights hereunder may be
assigned by Borrower without Lender’s prior written consent, which consent may be granted or
withheld in Lender’s sole discretion.

     15. Governing Law. This Note shall be governed by and construed in accordance with
the laws of the State of Florida. Borrower agrees that any action or proceeding against it to
enforce the Note may be commenced in state or federal court in any county in the State of Florida,
and Borrower waives personal service of process and agrees that a summons and complaint commencing
an action or proceeding in any such court shall be properly served and shall confer personal
jurisdiction if served by registered or certified mail in accordance with the notice provisions set
forth herein.

 - 17 - 

 

     16. Entire Agreement; Construction; Amendments and Waivers.

          (a) Entire Agreement. This Note and each of the related loan documents dated as of
the date hereof, taken together, constitute and contain the entire agreement between Borrower and
Lender with respect to the subject matter hereof and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications between the parties, whether
written or oral, with respect to such subject matter. Borrower acknowledges that it is not relying
on any representation or agreement made by Lender or any employee, attorney or agent thereof, other
than the specific agreements set forth in this Note and the related loan documents.

          (b) Construction. This Note is the result of negotiations between and has been
reviewed by each of Borrower and Lender as of the date hereof and their respective counsel;
accordingly, this Note shall be deemed to be the product of the parties hereto, and no ambiguity
shall be construed in favor of or against Borrower or Lender. Borrower and Lender agree that they
intend the literal words of this Note and the related loan documents and that no parol evidence
shall be necessary or appropriate to establish Borrower’s or Lender’s actual intentions.

          (c) Amendments and Waivers. Any and all amendments, modifications, discharges or
waivers of, or consents to any departures from any provision of this Note or of any of the related
loan documents shall not be effective without the written consent of Lender and Borrower. Any
waiver or consent with respect to any provision of such loan documents shall be effective only in
the specific instance and for the specific purpose for which it was given. No notice to or demand
on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar
or other circumstances. Any amendment, modification, waiver or consent affected in accordance with
this Section shall be binding upon Lender and on Borrower.

     17. Reliance by Lender. All covenants, agreements, representations and warranties
made herein by Borrower shall be deemed to be material to and to have been relied upon by Lender,
notwithstanding any investigation by Lender.

     18. No Set-Offs by Borrower. All sums payable by Borrower pursuant to this Note or
any of the related loan documents shall be payable without notice or demand and shall be payable in
United States Dollars without set-off or reduction of any manner whatsoever.

     19. Survival. All covenants, representations and warranties made in this Agreement
shall continue in full force and effect so long as any obligations hereunder or commitment to fund
remain outstanding. The obligations of Borrower to indemnify Lender with respect to the expenses,
damages, losses, costs and liabilities described in Section 11 shall survive until all applicable
statute of limitations periods with respect to actions that may be brought against Lender have run.

     20. WAIVER OF TRIAL BY JURY. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO TRIAL BY JURY.

[SIGNATURE PAGE FOLLOWS]

 - 18 - 

 

     IN WITNESS WHEREOF, Borrower has duly executed this Note and Security Agreement as of the day
and year first above written.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	CELLULAR TECHNICAL SERVICES COMPANY, INC.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Kenneth Block
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	Kenneth Block
	 

	 	 	 	 	 	Title:
	 	Chief Financial Officer
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	SAFESTITCH LLC
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Jeffrey Spragens
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	Jeffrey Spragens
	 

	 	 	 	 	 	Title:
	 	Managing Member
	 
	 	 	 	 	 	 	 	 
	Agreed and Accepted:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	THE FROST GROUP, LLC	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	/s/ Phillip Frost, M.D. 
	 	 	 	 	 	 
	Name:
	 	Phillip Frost, M.D.	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ Jeffrey Spragens	 	 	 	 	 	 
	 	 	 	 	 	 	 
	Jeffrey G. Spragens	 	 	 	 	 	 

 - 19 -EX-10.3 Creighton University License Agreement

 

Exhibit 10.3

EXCLUSIVE LICENSE AND DEVELOPMENT AGREEMENT

     THIS EXCLUSIVE LICENSE AND DEVELOPMENT AGREEMENT (this “Agreement”) is made as of the
26th day of May 2006, by and between Creighton University (the “University”) and
SafeStitch LLC, a Virginia limited liability company (the “Company”). References to an Article,
Section, or paragraph mean an Article, Section or paragraph of this Agreement, unless otherwise
specified.

     WHEREAS, the University is the owner of United States Provisional Patent Application No.
60/698,748 filed July 13, 2005, and titled SUTURING SYSTEM FOR TRANSORAL GASTROPLASTY and United
States Provisional Patent Application No. 60/742,826 filed December 6, 2005, and titled SYSTEMS AND
TECHNIQUES FOR TRANSORAL GASTROPLASTY, as well as International Patent Application No.
PCT/US04/028516 entitled SUTURING DEVICES AND METHODS, filed September 2, 2004 (claiming benefit of
U.S. Provisional Patent Application Serial No. 60/499,539, filed September 2, 2003; U.S.
Provisional Patent Application Serial No. 60/507,837, filed October 1, 2003; and U.S. Provisional
Patent Application Serial No. 60/576,510, filed June 3, 2004), including any current and future
Improvements (defined below) under the above-listed patents, and the University wishes to license
such technologies to the Company under the terms of this Agreement; and

     WHEREAS, the University has developed and will continue to develop Additional Technologies
(defined below), and the University wishes to grant the Company an option to license such
Additional Technologies during the first thirty-six (36) months of this Agreement; and

     WHEREAS, the University agrees to grant the Company an Exclusive License (defined below) to
use, develop and sell such technologies described above; and

     NOW, THEREFORE, for and in consideration of the mutual representations and covenants
hereinafter set forth, the parties hereby agree as follows:

Section 1. Definitions. The following terms, when used with initial capital letters,
shall have the meanings set forth below:

     1.1 “Additional Technologies” or “Additional Technologies and associated Know-How” shall mean
any current technologies in development or future technologies commenced within the first
thirty-six (36) months after the effective date of this Agreement by the University (with Dr.
Charles Filipi as an inventor) related to any devices, material, and methods used in the practice
of bariatric medicine and treatment of gastroesophageal reflux disease (“GERD”), transoral surgical
techniques, and further relating to all alimentary and gastrointestinal components associated
therewith, including but not limited to the esophagus, stomach, intestines and digestive tract, as
well as such conditions as gastric bleeding, hernias, and other medical conditions that may benefit
from such technologies.

     1.2 “Affiliate” shall mean any entity that directly or indirectly controls, is controlled by,
or is under common control with the Company, and for such purpose “control” shall mean the
possession, direct or indirect, of the power to direct or cause the direction of the management

SafeStitch LLC

Exclusive License and Development Agreement

Page 1 of 17

 

 

and policies of the entity, whether through the ownership of voting securities, by contract or
otherwise.

     1.3 “Development” or “Developed” shall mean actions constituting commercially reasonable
development activities with a goal such that, if successful and commercially viable, the inventions
of the Licensed Patents will be utilized to provide Licensed Products for sale in the retail
market.

     1.4 “Improvements” shall mean any inventions, discoveries, trade secrets, improvements, and
technical, clinical and other information, whether or not patented or patentable, together with all
experience, data, formulas, procedures and results, and including all chemical, pharmacological,
toxicological, clinical, and assay information relating to any Licensed Patent Rights.

     1.5 “Know-How” shall mean all know-how, trade secrets, inventions, data processes, techniques,
procedures, compositions, devices, methods, formulas, protocols and information, whether or not
patentable, which are confidential and useful or necessary in making or using the devices set forth
in the Licensed Patents, including, without limitation, all chemical, biochemical, toxicological
and scientific research information necessary or useful in making, using, or obtaining approval for
any device or method disclosed in the Licensed Patents.

     1.6 “Licensed Patent Rights” and “Licensed Patents” shall mean (1) United States Provisional
Patent Application No. 60/698,748 filed July 13, 2005, and titled SUTURING SYSTEM FOR TRANSORAL
GASTROPLASTY and United States Provisional Patent Application No. 60/742,826 filed December 6,
2005, and titled SYSTEMS AND TECHNIQUES FOR TRANSORAL GASTROPLASTY; (2) International Patent
Application No. PCT/US04/028516 entitled SUTURING DEVICES AND METHODS, filed September 2, 2004
(claiming benefit of U.S. Provisional Patent Application Serial No. 60/499,539, filed September 2,
2003; U.S. Provisional Patent Application Serial No. 60/507,837, filed October 1, 2003; and U.S.
Provisional Patent Application Serial No. 60/576,510, filed June 3, 2004); (3) any and all Patent
Rights under the patents or patent applications for any Additional Technologies and associated
Know-How licensed by the Company pursuant to the Option granted in Section 5.3; and (4) future
Improvements resulting from items described in (1), (2), and (3).

     1.7 “Licensed Product” shall mean any device, instrument or other product, (i) which, but for
the license granted under this Agreement, would infringe at least one Valid Claim in any country or
(ii) the making or use of which, but for the license granted under this Agreement, would infringe
at least one Valid Claim in any country. For the purposes of clarifying the meaning of “Licensed
Product” by way of an illustrative example, it is to be understood that a product that would
infringe a Valid Claim in the United States (but for the license granted under this Agreement) is a
“Licensed Product” for all countries (e.g., England, China, etc.), irrespective of whether or not a
Valid Claim exists in England, China, etc., and irrespective of whether or not the product would
infringe a Valid Claim in England, China, etc.

     1.8 “Patent Rights” shall mean all rights under patents and patent applications, disclosures
of invention and any and all patents that issue therefrom (including utility, model and

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design patents and certificates of invention), together with any and all substitutions, extensions
(including supplemental protection certificates), registrations, confirmations, reissues,
divisionals, continuations, continuations-in-part, reexaminations, renewals and foreign
counterparts of the foregoing.

     1.9 “Regulatory Filing” shall mean the formal submission of information, including clinical
data if required, to the Food and Drug Agency (FDA) or other similar regulatory agencies in other
countries in order to apply for approval to market any Licensed Product within the United States or
other countries.

     1.10 “Valid Claim” shall mean a bona fide, unexpired issued claim in a Licensed Patents which
has not been held invalid or unenforceable by a decision of a court or other governmental agency of
competent jurisdiction, unappealable or unappealed within the time allowed for appeal, which has
not been admitted to be invalid by the licensor or its successors or assigns though reissue or
disclaimer.

Section 2. Grant of Exclusive License.

     2.1 Exclusive License. Subject to the terms and conditions of this Agreement, the
University grants the Company an exclusive (even as to the University), worldwide license under the
Licensed Patent Rights and associated Know-How, including the exclusive right to make, have made,
use, sell, offer for sale, import or otherwise dispose of and enjoy any and all Licensed Products,
subject to the University retaining a non-exclusive, non-assignable and non-sublicensable right
limited solely to non-commercial practice under the Licensed Patents and associated Know-How solely
for educational, research, and clinical study purposes. The University shall, at the Company’s
request, execute a confirmatory license having the terms set forth herein with respect to any
patent application or patent included in the Licensed Patents.

     2.2 Transfer to Affiliates. The Company shall have the right to extend the rights
granted herein to any of its Affiliates, upon the terms and conditions of this Agreement, provided
the Company agrees in writing to be responsible for the performance by such Affiliates of all of
the Company’s obligations hereunder, including the payment of earned royalties set forth below on
Net Sales of any Licensed Product by the Affiliates to whom the licenses have been extended.

     2.3 Sublicense Rights. The Company shall have the right under any and all of the
licenses granted by the University herein to grant sublicenses to third parties at earned royalties
not less than those the Company is required to pay as set forth in Section 3 of this Agreement.

          (a) With respect to sublicenses that the Company grants under this Section 2.3, the Company
shall pay the University that proportion of earned royalties received from its licensees necessary
to provide the University with an amount of revenue from the Licensed Product sold by such
sublicensees equal to the amount the University would have received from the Company if the Company
had sold such Licensed Product. Additionally, with respect to sublicenses that the Company grants
under this Section 2.3 within the first thirty-six months of the effective date of this Agreement,
the Company shall pay to the University a percentage of all up-front sublicense revenues or fees
actually paid to the Company pursuant to the grant of such

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sublicense, other than royalties, lines of credit, research and development funding, and other
expense payments or reimbursements, in accordance with the following schedule:

	 	 	 	 	 
	    Date of Sublicense Grant	 	Percent of Revenues to University
	(from date of this Agreement)	 	 
	First six months
	 	 	50	%
	Second six months
	 	 	45	%
	Third six months
	 	 	35	%
	Fourth six months
	 	 	30	%
	Third year
	 	 	20	%

The University shall not be entitled to any percentage of up-front sublicense revenues or fees
derived from sublicensing agreements entered into by the Company after the third year from the date
of this Agreement.

               (b) The granting of such sublicenses shall be in the discretion of the Company, and the
Company shall have the sole power to determine whether or not to grant sublicenses, the identity of
sublicensees, and the royalty rates and terms and conditions of such sublicenses, provided that:

               (i) The University shall be provided with a complete, unredacted, fully executed copy of each
executed sublicense agreement (including all exhibits, appendices, and other attachments) within
thirty (30) days following its execution;

               (ii) Each sublicense agreement shall contain terms requiring that the sublicense maintain
complete and accurate records and permitting the University to audit such records, and said terms
shall be at least as favorable to the University as those set forth in Section 3.4(vi) of this
Agreement; and

               (iii) Each sublicense agreement shall acknowledge that the University is a third-party
beneficiary to the sublicense agreement.

     2.4 Enforcement Rights. The University expressly grants the Company the first right
to enforce any Licensed Patent, with the Company bearing all costs of such enforcement. In the
event that the Company is found to have insufficient standing to be entitled to such enforcement
rights, then the University agrees to enforce the Licensed Patent at the Company’s reasonable
request and at the Company’s expense, with the Company having the right to be participate in such
enforcement with counsel of the Company’s choice and expense.

Section 3. Royalty Payments.

     3.1 Royalty Defined. In further consideration for the Exclusive License and
development services granted under this Agreement, the Company shall pay the University on a
quarterly basis an earned royalty of one and one-half percent (1.5%) on Net Sales (defined below)
of any Licensed Product sold worldwide.

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     3.2. Net Sales. (i) For purposes of this Agreement, the term “Net Sales” shall mean
the revenue that the Company or its Affiliates actually collect from the sale of any Licensed
Product to an unaffiliated third party, less the following amounts: (a) payments made or credits
allowed to customers for promotional purposes, allowances, rebates, discounts, profit share
payments and other usual and customary discounts, including, without limitation, volume and prompt
payment discounts, to customers, (b) the amount of chargebacks, and amounts repaid or credited by
reason of rejections, damages or returns of goods, or because of retroactive price adjustments, (c)
specific amounts not collectible after reasonable collection efforts, (d) invoiced taxes, duties,
tariffs, surcharges and other governmental charges paid, absorbed or allowed in connection with the
sale, import or export of the Licensed Product, (e) freight, postage, insurance charges and other
transportation costs incurred in connection with transporting the Licensed Product, and (f)
discounts or rebates or other payments required by law to be made under Medicaid, Medicare or other
governmental special medical assistance programs, all as determined in accordance with generally
accepted accounting principles in the U.S. consistently applied.

               (ii) In the event that a Licensed Product is sold in a finished combination package with one
or more other products, devices, equipment or components (a “Combination Product”), Net Sales for
such Combination Product will be calculated by multiplying actual Net Sales of such Combination
Product by the fraction A/(A+B) where A is the selling price of the Licensed Product if sold
separately in finished form and B is the selling price of any other products, devices, equipment or
components in the Combination Product if sold separately in finished form provided that the selling
price of any Combination Product shall not be less than A+B. In the event that a product
containing such Licensed Product or one or more of such products, devices, equipment or components
in the Combination Product are not sold separately, then the parties shall negotiate in good faith
a formula for calculating Net Sales for such Combination Product that reflects the respective
contributions of the product containing the Licensed Product and such other products, devices,
equipment or components to the overall value of such Combination Product. The Company covenants
that it will not intentionally manipulate the fraction A/ (A+B) to avoid or reduce royalty payments
or obligations that would otherwise be due for sales of the Licensed Product in combination form or
otherwise.

               (iii) Net Sales shall not include the distribution of the Licensed Product free of charge for
use in clinical trials or research or for charitable uses. The “Net Sales” for a Licensed Product
that is otherwise transferred to a third party for promotional purposes without charge or at a
discount shall be the average invoiced price to customers who purchased the Licensed Product during
the applicable calendar quarter.

     3.3 Earned Royalty Reduction for Third Party License. The Company or its Affiliates,
in its sole discretion, may take a license under, or assignment of, patents or know-how of an
unaffiliated third party that arguably cover in whole or in part any aspect of a Licensed Product
under the terms requiring the Company to pay such third party an earned royalty for the sale of
such Licensed Product. If the Company takes such a third party license or assignment, the Company
shall be entitled to negotiate and enter into agreements with such third parties and fifty percent
(50%) of any amounts payable by the Company, its Affiliates or sublicensees with respect to the

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Licensed Product under such agreements shall be credited against amounts payable to the
University under this Section 2; provided, however, that the earned royalty amount due to the
University shall not be reduced below 50% of royalties otherwise due (not less than 0.75% of Net
Sales) for such Licensed Product.

     3.4 Accounting for Payments. (i) Amounts owing to the University under this Section 3
shall be paid on a quarterly basis commencing with the calendar quarter in which the first
commercial sale of any Licensed Product is made, with such amounts due and payable to the
University on or before the forty-fifth (45th) day following the end of the calendar
quarter ending on March 31, June 30, September 30 or December 31 in which such amounts were earned.
Any amounts which remain unpaid after the date they are due to the University shall accrue
interest from the due date at the rate of 1.5% per month. However, in no event shall this interest
provision be construed as a grant of permission for any payment delays. The Company shall also be
responsible for repayment to the University of any attorney, collection agency, or other
out-of-pocket University expenses required to collect overdue payments due from this Section, or
any other applicable section of this Agreement.

               (ii) Except as otherwise directed, all amounts owing to the University under this Agreement
shall be paid in U.S. dollars to the University at the following address:

Lee I. Fenicle, Director

Office of Technology Transfer

Creighton University

601 North 30th Street

Suite 1609

Omaha, NE 68131

               (iii) All royalties owing with respect to Net Sales stated in currencies other than U.S.
dollars shall be converted at the rate shown in the Federal Reserve Noon Valuation — Value of
Foreign Currencies on the last day of the relevant calendar quarter.

               (iv) A statement showing how any amounts payable to the University under this Section have
been calculated, including a description of any offsets or credits deducted therefrom, shall be
submitted to the University on the date of each such payment. Such accounting statements shall
also contain the total number of Licensed Products transferred by the Company, by each Affiliate,
and by each sublicense, with country-by-country breakdowns, during the relevant calendar quarter;
the revenue due to the Company for each of the aforementioned transfers; and the number of Licensed
Products distributed during the relevant calendar quarter by the Company, by each Affiliate, and by
each sublicense free of charge or at a discount per Section 3.2(iii). Such accounting statements
shall contain a written representation signed by an executive officer of the Company that states
that the statements are true, accurate, and fairly represent all amounts payable to the University
pursuant to this Agreement.

               (v) The University is exempt from paying income taxes under U.S. law. Therefore, all payments
due under this Agreement shall be made without deduction for taxes, assessments, or other charges
of any kind which may be imposed on the University by any

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government outside of the United States or any political subdivision of such government with
respect to any amounts payable to the University pursuant to this Agreement. The Company may
withhold the appropriate tax from any payment to be made to the University under this Agreement
provided that such withholding is required by applicable law and the Company submits the amounts
withheld to the applicable tax authorities. In such event the Company will furnish the University
with proof of payment of such tax together with official or other appropriate evidence issued by
the applicable governmental authority.

               (vi) During the term of this Agreement, and for a period of three years thereafter, the
Company shall keep complete and accurate records in sufficient detail to permit the University to
confirm the accuracy of all payments and reports due hereunder. The University shall have the
right to cause an independent, certified public accountant reasonably acceptable to the Company and
subject to terms of a confidentiality agreement to audit such records to confirm royalty payments
for the preceding three years. Such audits may be exercised during normal business hours no more
than once in any 12-month period upon at least 30 days’ prior written notice to the Company. The
University shall bear the full cost of such audit unless such audit discloses an underpayment by
more than 5% of the amount due under this Agreement. In such case, the Company shall bear the full
cost of such audit.

     3.5 Survival of Royalty. The Company expressly agrees that any transfer, in whole or
in part, of any rights in and/or to any Licensed Product, including but not limited to an
assignment, sale of the assets of the Company, the acquisition of the Company, or merger of the
Company with a third-party or parties shall not affect the Royalty or any other obligation of the
Company to the University set forth in this Agreement.

     3.6 Minimum Royalty Payments. The Company shall have no minimum royalty obligations
to the University during the term of this Agreement.

Section 4. Scope of Development, Resources.

     4.1 Facilities. The University shall provide and make available all necessary
facilities, including animal research laboratories to accommodate Dr. Filipi’s research and
development of any Licensed Product. The University shall be compensated by the Company or
otherwise reimbursed by the Company for use of such facilities as provided in the Research and
Development Budget, which is appended hereto as Exhibit A and which is hereby incorporated into
this Agreement, or as otherwise agreed upon by the parties. The Company agrees to update the
Research and Development Budget not less frequently than once per year, with input from the
University.” The University shall not be held liable for the decisions of any third party or
University authority or regulatory committee to disallow any animal research studies at the
University. To the extent the University is prohibited from conducting any animal research studies
on behalf of the Company, the funding requirements set forth under Section 5.1 shall be reduced by
an amount equal to the amount allocated towards animal research in the Research and Development
Budget and any extensions and renewals thereof.

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     4.2 Dr. Filipi’s Research and Development. For as long as Dr. Filipi is an employee
of the University, the University agrees that Dr. Filipi shall devote at least ninety percent (90%)
of his working time over the next four (4) years commencing on the effective date of this Agreement
and at least fifty percent (50%) of his time for two (2) years thereafter, using his best efforts,
towards the research and development of any Licensed Product to a final design and prototype as a
commercially viable product and assist the Company with the prosecution of any and all patent
applications related thereto. Dr. Filipi shall be compensated for such work as provided for in the
Research and Development Budget, or as otherwise agreed upon by the parties.

     4.3 Company Ownership of Intellectual Property.

          (a) Ownership of Intellectual Property Rights. The Company shall own all inventions
conceived of and reduced to practice solely by its employees and agents, and all patent
applications and patents claiming such inventions developed without the use of any Licensed Patent
Rights or associated Know-How; and such inventions, patent applications and all resulting Patent
Rights shall not be subject to this Agreement. The University shall own all inventions conceived
of and reduced to practice solely by Dr. Filipi, its other employees, and/or its agents in the
course of this Agreement, and all patent applications and patents claiming such inventions; and
such inventions, patent applications and all resulting Licensed Patent Rights shall be subject to
the exclusive license, royalty, and associated provisions of this Agreement. Company and
University shall jointly own all inventions conceived of and reduced to practice jointly by (i) Dr.
Filipi, the University’s other employees, and/or the University’s agents and (ii) the Company’s
employees and/or the Company’s agents in the course of this Agreement; and such inventions, patent
applications and all resulting Licensed Patent Rights shall be subject to the exclusive license,
royalty, and associated provisions of this Agreement. Notwithstanding anything to the contrary
contained in this Section 4.3, the University shall solely own all inventions conceived of or
reduced to practice under the Research and Development Budget and any extensions and renewals
thereof, and all patent applications and patents claiming such inventions, irrespective of whether
such inventions are conceived of solely by Company employees and agents, solely by University
employees and agents, or jointly by University employees and agents and Company employees and
agents; and such inventions, patent applications and all resulting Licensed Patent Rights shall be
subject to the exclusive license, royalty, and associated provisions of this Agreement.

          (b) Ownership of Copyright and Trademark Materials. It is also contemplated that the
University and its employees may create copyrightable and trademark- or servicemark-eligible work
related to the Company’s or any Licensed Product’s marketing, promotion, and public relations
(“Other Work”) in connection with the performance of the development services under this Agreement.
The University agrees that the copyright or mark and all other rights in and to the Other Work
shall belong completely and in all respects to the Company and that the University and its
employees shall retain no rights in or to such Other Work. The University further expressly agrees
that the aforementioned Other Work will be considered and deemed as work made for hire for the
benefit and exclusive ownership of the Company to the fullest extent permitted by law, provided,
however, that if any copyrightable work shall not be legally qualified as work made for hire, the
University agrees to assign, and does hereby so assign to the

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Company, all rights, title and interest in and to such Other Work, including, but not limited to,
the copyright or mark therein. Where the Company has authorized the University to subcontract all
or a portion of any services or to engage any other organization to perform all or a portion of any
services, the University further agrees to require by contract that any such subcontractor or
organization assign, either to the University or to the Company as the designated client, all such
Other Work created by such subcontractor or organization the University also agrees to furnish and
execute such additional documents as the Company may require to establish the Company’s ownership
of the copyright or mark in the Other Work including, without limitation, such assignments of the
copyright or mark therein throughout the world as the Company may deem appropriate.
Notwithstanding the Company’s ownership of any Other Work set forth above, the Company agrees that
the University shall have the right to publish or present the results of scientific investigations
associated with this Agreement, provided that confidential and/or propriety information of the
Company not publicly known shall not be disclosed without the Company’s prior written permission.
The University shall provide the Company with a copy of the manuscript, paper, or poster not less
than 30 days prior to any submission to any third party. If identified by the Company, the
University will delete any of the Company’s proprietary or confidential information contained
herein. Additionally, the trademarks “SafeStitch” and “SafeStitch LLC”, as well as any and all
variants thereof, any domain names thereof, and goodwill associated therewith, shall be the
property of the Company. The parties agree that all goodwill generated by any Licensed Product or
the marks “SafeStitch” and “SafeStitch LLC”, as well as any variants thereof, shall inure to the
benefit of the Company.

          (c) Prosecution and Maintenance of Patent Rights. The University shall, using agents
or attorneys agreed to by the parties (including agreement with respect to costs associated with
drafting and prosecuting patent applications), file, prosecute and maintain the Licensed Patents
and all patent applications and patents disclosing and claiming inventions made in whole or in part
by the University employees, agents or contractors resulting from the research and development the
University engages in on behalf of the Company under the Agreement. The University shall file,
prosecute and maintain one or more patent applications and patents in those countries designated by
the Company. The University shall provide copies of all documents filed with or received from any
domestic or foreign patent office to the Company to allow the Company adequate time to review and
comment. For any patent prosecution or maintenance in any country designated by the Company, the
Company shall reimburse the University within 45 days or receipt of written invoices provided to
the Company by the University for all expenses, including attorney’s fees and government fees
associated with such filings, prosecution and maintenance costs, and for patent searches performed
as part of an analysis of whether to file a patent application claiming such an invention.
Reimbursement by the Company for legal services would be limited to an amount no greater than the
median amount set forth in the then current AIPLA Report of the Economic Survey for comparable
legal services unless otherwise agreed to in writing in advance. The amounts of this reimbursement
would not be subjected to the limits or deducted from any other payments due from the Company to
the University under the Agreement. The Company would reserve the right to discontinue
reimbursement of such patent drafting, prosecution and/or maintenance in any country or for any
patent application or patent by giving the University thirty days written notice. The Company
would be responsible only for costs or fees incurred prior to such notice to the University, and
the University would have the right, but not the obligation, to continue such drafting,
prosecution, or maintenance at

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the University’s own expense. In the event that the Company chooses to discontinue reimbursement
of patent drafting, prosecution, and/or maintenance in any country for any patent, then the
associated Patent Rights in that country shall revert back to the University. A decision by the
Company to discontinue reimbursement for patent costs in a particular country shall not affect the
Company’s reporting and payment obligations with respect to sales of Licensed Products by the
Company, its Affiliates, and its sublicensees in the particular country.

          (d) Infringement by Third Parties. If a party to this Agreement becomes aware of any
infringement or potential infringement of any Licensed Patent Right, the party to this agreement
shall promptly notify the other party of such infringement or potential infringement. During the
term of this Agreement the Company shall have the right, but not the obligation, at is sole expense
and with counsel of its own choice, to enforce the Licensed Patent Rights and associated Know-How
against any infringer, including the right to file suit for patent infringement naming the
University as a party, and the right to settle such suit with the University’s consent, which
consent shall not be unreasonably withheld . The University shall permit the use of its name in
all such suits, sign all necessary papers, and do all reasonable things necessary, at the Company’s
expense, to facilitate the prosecution of such infringement suits. The Company shall pay to the
University one and one-half percent (1.5%) of any amount collected as a result of such judgement or
settlement within 30 days of the receipt thereof. The Company shall incur no other liability to
the University as a consequence of such litigation, the conduct of such litigation or any
unfavorable decision resulting from it, including any decision holding any of the Licensed Patent
Rights invalid or unenforceable. In the event that the Company chooses not to file suit for patent
infringement within 180 days after becoming aware of infringement, the University shall have the
right, but not the obligation, at its sole expense and with counsel of its own choice, to enforce
the Licensed Patent Rights and associated Know-How against any infringer, including the right to
file suit for patent infringement naming the Company as a party, and the right to settle such suit
with the Company’s consent, which consent shall not be unreasonably withheld. The Company shall
permit the use of its name in all such suits, sign all necessary papers, and do all reasonable
things necessary, at the University’s expense, to facilitate the prosecution of such infringement
suits. The University shall pay to the Company one and one-half percent (1.5%) of any amount
collected as a result of such judgement or settlement within 30 days of the receipt thereof. The
University shall incur no other liability to the Company as a consequence of such litigation, the
conduct of such litigation or any unfavorable decision resulting from it, including any decision
holding any of the Licensed Patent Rights invalid or unenforceable.

Section 5. Commercial Funding and Development.

     5.1 Funding Requirements. Company shall invest, in aggregate, at least $2,500,000
within thirty-six (36) months of the effective date of this Agreement (i) under the Research and
Development Budget and any extensions and renewals thereof, and (ii) towards development of any
Licensed Product. If the Company fails to do so, all rights in the Licensed Patent Rights and
associated Know-How shall revert back to the University. Further, Company agrees to pay to the
University a 20% overhead fee on expenditures pursuant to the Research and Development Budget as
set forth in Exhibit A. It is understood that the first $150,000 of costs related to the
prosecution of patents, including costs related to the defense or claims related thereto,
associated

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with the Licensed Patent Rights and associated Know-How are not included in the $2,500,000 amount
recited in this Section 5.1.

     5.2 Commercial Exploitation Term. The Company shall exercise its own business
judgment and its sole and absolute discretion over the marketing, sale, distribution, promotion, or
other commercial exploitation (collectively, the “Commercial Exploitation” or “Commercially
Exploited”) of any Licensed Product. In the event the Company has not Commercially Exploited or
commenced Development of a Licensed Patent and its associated Know-How by the seventh
(7th) anniversary of the later of the effective date of this Agreement or the date such
technology is disclosed to and accepted by the Company, then Company shall promptly execute such
papers as are necessary to cause the reversion of such Licensed Patent and associated Know-How back
to the University, with no rights retained by Company, and the University will have the right to
seek a third party with whom to commercialize such Patent and associated Know-How. Company may
purchase one year extensions in addition to the seven years provided for Commercial Exploitation at
a cost of $100,000 per Licensed Patent per year of extension to avoid the reversion of any Patent
Right that has not been Commercially Exploited or Developed. At any time, the Company may choose
at its discretion not to develop one or more of the Licensed Patents. In such event, the Company
will promptly notify the University in writing that the Company has decided to not commercialize
such Licensed Patent, and all rights to such Licensed Patent and its associated Know-How shall
revert back to the University.

     5.3 New Technology Disclosure and Grant of Option. During the first thirty-six (36)
months from the effective date of this Agreement, the University shall have an ongoing obligation
to disclose any Additional Technologies and associated Know-How, and the Company shall have an
option for thirty (30) days after such disclosure (the “Option”) to accept or reject such disclosed
technology for continued Development. Such disclosures shall be made no less than quarterly, and
the date of written acceptance by the Company shall commence the 7-year term set forth in Section
5.2 with respect to each disclosed and accepted item. The University shall not have any right to
reimbursement under this Agreement for any technology not specifically referenced in this Agreement
until disclosed to and accepted by the Company subject to the terms of this Section 5.3.

     5.4 Enforceability. The Company agrees to cooperate in executing any documents
necessary to cause rights in the Licensed Patent Rights and associated Know-How to revert back to
the University pursuant to Sections 5.1 and 5.2, and the rights of the University to such reversion
shall be enforceable by specific performance. The parties agree to submit any dispute to
non-binding arbitration as governed under the rules of arbitration in the Omaha, NE area before
filing suit in any court of law. The prevailing party shall be entitled to reimbursement of any
legal fees incurred pursuant to this Section 5.4.

 Section 6. Confidentiality and Disclosure.

     6.1  Confidentiality.

     (a) By the University. From and after the execution of this Agreement, the University
shall keep secret and retain in the strictest confidence, and shall not use for the benefit of any
person other than the Company, all confidential information and trade secrets disclosed to

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the University relating to any Licensed Product or the business and other operations of the
Company, including, without limitation, the Licensed Patent Rights and associated Know-How that
will be developed, designed, and/or otherwise created, whether or not any of such technology is
protected or can be protected by patents, trademarks, copyrights or other intellectual property
rights. The University shall use reasonable efforts to ensure that all employees, contractors and
consultants employed or engaged by the University in furtherance of its business shall maintain the
same confidentiality related to Company matters that are required by the University. For purposes
of this Agreement, the parties understand and agree that the term “confidential information” does
not include information which (i) has been published or is now in the public domain, or in the
future becomes published or in the public domain through no action of the University; (ii)
subsequent to disclosure hereunder, is received by the University from a third party not known by
the University to be under an obligation of confidentiality to the Company; (iii) is independently
developed by the University without reference to the confidential information of the Company; or
(iv) is disclosed with the prior written approval of the Company. Company understands that in the
course of prosecution of Patent Rights, it may be desirable and/or necessary that certain
information be disclosed to one or more patent offices or otherwise, and nothing in this Agreement
shall be construed as restricting the University from making such disclosures.

     (b) By the Company. From and after the execution of this Agreement, the Company shall
keep secret and retain in the strictest confidence, and shall not use for the benefit of any person
other than the University, all confidential information and trade secrets disclosed to the Company
relating to any Licensed Product or the business and other operations of the University, including,
without limitation, the Licensed Patent Rights and associated Know-How that will be developed,
designed, and/or otherwise created, whether or not any of such technology is protected or can be
protected by patents, trademarks, copyrights or other intellectual property rights. The Company
shall use reasonable efforts to ensure that all employees, contractors and consultants employed or
engaged by the Company in furtherance of its business shall maintain the same confidentiality
related to University matters that are required by the Company. For purposes of this Agreement,
the parties understand and agree that the term “confidential information” does not include
information which (i) has been published or is now in the public domain, or in the future becomes
published or in the public domain through no action of the Company; (ii) subsequent to disclosure
hereunder, is received by the Company from a third party not known by the Company to be under an
obligation of confidentiality to the University; (iii) is independently developed by the Company
without reference to the confidential information of the University; or (iv) is disclosed with the
prior written approval of the University. Notwithstanding the foregoing, the Company may exercise
its sole business judgment in disclosing information related to any Licensed Product in furtherance
of the Development or Commercial Exploitation of such Licensed Product and may also disclose any
information legally required to be disclosed by any regulatory body related to the Commercial
Exploitation or Development of any Licensed Product without the consent or prior approval of the
University.

     6.2 Disclosure.

     (a) By the University. If the University is requested or required by a court having
competent jurisdiction, by oral questions, by interrogatories, or similar requests for information
or

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documents, by subpoena, civil investigative demand or similar process, to disclose any
confidential information of the Company, the University shall provide the Company with written
notice of such request or requirement so that the Company may seek an appropriate protective order
and/or waive compliance with the provisions of this Agreement. The University agrees to cooperate
with the Company, at the Company’s sole expense, in obtaining such protective order. If the
Company does not obtain such protective order or provide a waiver of the obligations of this
Agreement within a reasonable time after the University has provided written notice under this
paragraph, the University may disclose such confidential information pursuant to such request or
requirement without liability under this Agreement.

     (b) By the Company. If the Company is requested or required by a court having
competent jurisdiction, by oral questions , by interrogatories, or similar requests for information
or documents, by subpoena, civil investigative demand or similar process, to disclose any
confidential information of the University, the Company shall provide the University with written
notice of such request or requirement so that the University may seek an appropriate protective
order and/or waive compliance with the provisions of this Agreement. The Company agrees to
cooperate with the University, at the University’s sole expense, in obtaining such protective order
or provide a waiver of the obligations of this Agreement within a reasonable time after the Company
has provided written notice under this paragraph; the Company may disclose such confidential
information pursuant to such request or requirement without liability under this Agreement.

Section 7. Indemnification.

     7.1 By the University. The University agrees to defend and indemnify and hold the
Company harmless against any and all claims, suits, proceedings, expenses, recoveries and damages,
including court costs and reasonable attorneys fees and expenses, arising out of, based on, or
caused by the breach by the University of any representation of warranty contained in this
Agreement, except to the extent that such claims, suits, proceedings, expenses, recoveries or
damages arise from or are aggravated by acts of or failure to act by the Company; provided that the
Company shall provide the University with reasonably prompt written notice of any claim or action
for which it seeks indemnification under this Section 7.1. The University shall have sole control
of the defense and settlement of any such claim or action; and the Company shall reasonably
cooperate and provide reasonable assistance in connection with the defense and settlement of any
such claim or action. Nothing in this Section 7.1 shall be construed as requiring the University
to defend, indemnify, or hold the Company harmless with respect to any claim, suit, proceeding,
expense, recovery, or damage related to alleged infringement of any third party Patent Right by any
product, device, or method developed by the University under this Agreement.

     7.2 By the Company. The Company agrees to defend and indemnify and hold the
University harmless against any and all claims, suits, proceedings, expenses, recoveries, and
damages including court costs and reasonable attorneys feeds and expenses, in connection with any
of the Licensed Products sold by the Company or its Affiliates arising out of, based on, or caused
by (i) the Company’s use, manufacture, sale, offer for sale or disposal of the Licensed Product;
(ii) the storage, sale, shipment, promotion or distribution of the Licensed Products by the Company
or its Affiliates; or (iii) the breach by the Company of any representation or warranty contained
in this Agreement, in each case except to the extent that such claims, suits,

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proceedings, expenses, recoveries or damages arise from or are aggravated by acts of or
failure to act by the University; provided that (a) the University shall provide the Company with
reasonably prompt written notice of any claim or action for which it seeks indemnification under
this Article; (b) the Company shall have sole control of the defense and settlement of any such
claim or action; and (c) the University shall reasonably cooperate and provide reasonable
assistance in connection with the defense and settlement of any such claim or action.

Section 8. Representations and Warranties.

     8.1 University Representations and Warranties. The University represents and warrants
to the Company that all necessary university, corporate, and governmental authorizations, consents
and approvals which are necessary or required for the entering into of this Agreement have been
duly obtained; and the entering into of this Agreement by the University will not violate any
provision of law, statute, rule or regulation or any ruling, writ, injunction, order, judgment or
decree of any court, administrative agency or other governmental body to which the University is
subject.

     8.2. Company Representations and Warranties. The Company represents and warrants to
the University that:

          (a) all necessary corporate and other authorizations, consents and approvals which are
necessary or required for the entering into of this Agreement have been duly obtained; the entering
into of this Agreement by the Company shall not (i) violate any provision of law, statute, rule or
regulation or any ruling, writ, injunction, order, judgment or decree of any court, administrative
agency or other governmental body or (ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default (or give raise to any right of
termination, cancellation or acceleration) under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the Company under its
organizational documents, as amended to date, or any material note, indenture, mortgage, lease,
agreement, contract, purchase order or other instrument, document or agreement in which the Company
is a party or by which it or any of its properties or assets is bound or affected.

     8.3 Disclaimer of Warranties.

          (a) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT AND THIS ARTICLE 9, NEITHER PARTY MAKES
ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY KIND INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

          (b) NEITHER PARTY MAKES ANY WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE SUCCESS OF THE
DEVELOPMENT OR THE COMMERCIAL EXPLOITATION OF ANY PRODUCT.

Section 9. Governing Law; Construction; Severability. This Agreement and the rights and
liabilities of the parties hereunder shall be governed by and determined in accordance with the
laws of the State of Illinois. All pronouns shall be deemed to be the masculine, feminine, neuter,
singular or plural as the identity of the person or persons may require. References to a person or

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persons shall include partnerships, corporations, companies, unincorporated associations, trusts,
estates and other types of entities. Every provision of this Agreement is intended to be
severable. To the extent any provision of this Agreement is prohibited or otherwise ineffective
under applicable law, such provision shall be considered to be ineffective to the smallest degree
possible in order to make this Agreement effective under applicable law. In any judicial
proceeding, if a court shall refuse to enforce the scope of any restrictions herein, including
geographic and/or time restrictions, to their fullest extent, then such scope, including the
geographic and/or time restrictions, shall be reduced to the extent necessary to permit enforcement
of such restrictions to the fullest extent possible.

Section 10. No Partnership. Nothing contained herein shall be construed as creating a
partnership (including, without limitation, a limited partnership) or joint venture between or
among the parties hereto. No party shall act as or be deemed to be a partner or joint venturer of
any other party.

Section 11. Captions; Headings. The captions and headings in this Agreement are for
convenience only and are not to be considered in construing this Agreement.

Section 12. Counterparts. This Agreement, and any amendments hereto may be executed in
counterparts all of which taken together shall constitute one agreement.

Section 13. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto with respect to the subject matter hereof. With the exception of such agreements or
other documents that are expressly incorporated herein, it is the intention of the parties that
this Agreement shall be the sole source of agreement of the parties and this Agreement shall govern
even when inconsistent with or different from, the provisions of any applicable law or rule.

Section 14. Amendments. This Agreement may not be altered, amended, changed, supplemented,
waived or modified in any respect or particular unless the same shall be in writing and unanimously
agreed to by the parties hereto.

Section 15. Effect on Successors. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and to their respective heirs, executors, administrators, successors
and assigns.

     IN WITNESS WHEREOF, this Agreement has been executed by the parties as of the date first
written above.

     [signature page follows]

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Signature Page

Creighton University

	 	 	 	 	 
	By:

	 	/s/ Daniel E. Burkey
	 	May 26, 2006
	 

	 	 
	 	 
	 

	 	Daniel E. Burkey
	 	Date
	 

	 	VP, Administration and Finance	 	 
	 

	 	Creighton University	 	 
	 
	 	 	 	 
	SafeStitch LLC	 	 
	 
	 	 	 	 
	By:

	 	/s/ Jeffrey G. Spragens
	 	May 4, 2006
	 

	 	 
	 	 
	 

	 	Jeffrey G. Spragens
	 	Date
	 

	 	Business Manager	 	 
	 

	 	SafeStitch LLC	 	 

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EXHIBIT A

RESEARCH AND DEVELOPMENT BUDGET

	 	 	 	 	 	 	 	 	 
	 	 	Annual	 	Total
	Personnel
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Director
	 	 	150,000	 	 	 	300,000	*
	Biomedical engineer – consultant
	 	 	100,000	 	 	 	200,000	*
	Biomedical engineer – knotting / electrical
	 	 	100,000	 	 	 	200,000	 
	Biomedical engineer – needle mechanism
	 	 	100,000	 	 	 	200,000	 
	Biomedical engineer – automation
	 	 	100,000	 	 	 	200,000	 
	Animal technician
	 	 	30,000	 	 	 	60,000	 
	Research fellow
	 	 	40,000	 	 	 	40,000	 
	Administrative assistant
	 	 	30,000	 	 	 	60,000	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	SUBTOTAL SALARIES
	 	 	 	 	 	 	1,260,000	 
	Taxes and Benefits – 37%
	 	 	 	 	 	 	281,200	 
	 
	 	 	 	 	 	 	 	 
	TOTAL PERSONNEL
	 	 	 	 	 	 	1,541,200	 
	 
	 	 	 	 	 	 	 	 
	Direct Costs
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Animals
	 	 	 	 	 	 	82,400	 
	Surgical supplies
	 	 	 	 	 	 	20,000	 
	Office supplies
	 	 	 	 	 	 	10,000	 
	Operating room equipment
	 	 	 	 	 	 	10,000	 
	Consultant costs
	 	 	 	 	 	 	300,000	 
	Prototype expense
	 	 	 	 	 	 	350,000	 
	 
	 	 	 	 	 	 	 	 
	TOTAL DIRECT COSTS
	 	 	 	 	 	 	772,400	 
	 
	 	 	 	 	 	 	 	 
	Indirect Costs and Overhead
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Creighton University Indirect Cost Allowance – 20%
	 	 	 	 	 	 	462,700	 
	Legal
	 	 	 	 	 	 	150,000	 
	Accounting
	 	 	 	 	 	 	30,000	 
	Insurance
	 	 	 	 	 	 	50,000	 
	Licenses and fees
	 	 	 	 	 	 	10,000	 
	Travel
	 	 	 	 	 	 	20,000	 
	Marketing
	 	 	 	 	 	 	10,000	 
	Contingency at 10%
	 	 	 	 	 	 	304,630	 
	 
	 	 	 	 	 	 	 	 
	TOTAL INDIRECT COSTS
	 	 	 	 	 	 	1,037,330	 
	 
	 	 	 	 	 	 	 	 
	TOTAL BUDGET
	 	 	 	 	 	 	3,350,930	 

 

			
	*	 	No benefits included

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