Document:

Exhibit 10.1

 

THIS NOTE HAS NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

 

 

	
  No. A1

  	
   

  	
  U.S. $396,500.00

  	
   

  	
  Original Issue Date: June 13, 2005

  
	
  Holder:

  	
   

  	
  John Fife

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  303 Wacker Drive

  	
   

  	
   

  
	
   

  	
   

  	
  Suite 301

  	
   

  	
   

  
	
   

  	
   

  	
  Chicago, IL 60601

  	
   

  	
   

  

 

SERIES
2005 SECURED NOTE DUE AUGUST 11, 2005

 

THIS Note is one of a duly authorized issue of Notes of POWER 3 MEDICAL
PRODUCTS, INC., a New York corporation, having a principal place of business at
3400 Research Forest Drive, The Woodlands, Texas 77381 (the “Company”),
designated as its Note (the “Note”), due upon the earlier of (i) August 11,
2005; or (ii) on the fifth day following the effective date of the Company’s
registration statement on Form SB-2 (file no.           )  (“Maturity Date”), in an aggregate face
amount of up Three Hundred Ninety Six Thousand Five Hundred and 00/100 Dollars
($396,500.00).

 

FOR VALUE RECEIVED, the Company promises to pay to the Holder or
registered assigns, the principal sum of Three Hundred Ninety Thousand and
00/100 Dollars ($390,000.00), on the Maturity Date.  Upon default, all amounts due hereunder shall
bear interest at the rate of 18% per annum from the day such interest is due
hereunder through and including the date of payment.  The principal of, and interest on, this Note
are payable in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts, at the
address of the Holder last appearing on the Note Register.

 

This Note is subject to the following additional provisions:

 

Section 1.      The Notes are exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiples of Twenty Thousand Dollars
($20,000) unless such amount represents the full principal balance of Notes
outstanding to such Holder.  No service
charge will be made for such registration of transfer or exchange.

 

 

Section 2.

 

(a)           The Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Note;
such notice will describe briefly the proposed transfer and will give the
Company the name, address, and tax identification number of the proposed
transferee, and will further provide the Company with an opinion of the Holder’s
counsel that such transfer can be accomplished in accordance with federal and
applicable state securities laws (unless such transaction is permitted by the
plan of distribution in an effective Registration Statement).  Promptly upon receiving such written notice,
the Company shall present copies thereof to the Company’s counsel.

 

(i)            If in the opinion
of such counsel the proposed transfer may be effected without registration or
qualification (under any federal or state securities laws), the Company, as
promptly as practicable, shall notify the Holder of such opinion, whereupon the
Holder shall be entitled to transfer this Note or to dispose of Underlying
Shares received upon the previous conversion of this Note, all in accordance
with the terms of the notice delivered by the Holder to the Company; provided
that an appropriate legend may be endorsed on this Note respecting restrictions
upon transfer thereof necessary or advisable in the opinion of counsel and
satisfactory to the Company to prevent further transfers which would be in
violation of Section 5 of the Securities Act and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Note.

 

(ii)           If in the opinion
of the counsel referred to in this Section 2, the proposed transfer or
disposition of this Note described in the written notice given pursuant to this
Section 2 may not be effected without registration or qualification of
this Note, the Company shall promptly give written notice thereof to the
Holder, and the Holder will limit its activities in respect to such as, in the
opinion of such counsel, are permitted by law.

 

(b)           Prior to transfer of
this Note in compliance with this Section 2, the Company and any agent of
the Company may treat the person in whose name this Note is duly registered on
the Note Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.

 

Section 3.               Events of Default.

 

“Event of Default” wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any
administrative or governmental body):

 

(i)            any
default in the payment of the principal of, interest on, or other obligations
in respect of, this Note, free of any claim of subordination, as and when the
same shall become due and payable, (whether on the Maturity Date or by
acceleration or otherwise);

 

(ii)           the
Company or any Pledgor shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach of, this
Note or the Stock

 

 

Pledge Agreement, including but not limited to the obligation of the
Pledgor to issue additional Collateral, and such failure or breach shall not
have been remedied within 10 days after the date on which notice of such
failure or breach shall have been given;

 

(iii)          the
Company shall commence a voluntary case under the United States Bankruptcy Code
or insolvency laws as now or hereafter in effect or any successor thereto (the “Bankruptcy
Code”); or an involuntary case is commenced against the Company under the
Bankruptcy Code and the petition is not controverted within 30 days, or is not
dismissed within 60 days, after commencement of such involuntary case; or a “custodian”
(as defined in the Bankruptcy Code) is appointed for, or takes charge of, all
or any substantial part of the property of the Company or the Company commences
any other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or
there is commenced against the Company any such proceeding which remains
undismissed for a period of 60 days; or the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company suffers any appointment of any custodian
or the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Company makes a
general assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay its debts generally as they become
due;r the Company shall call a meeting of all of its creditors with a view to
arranging a composition or adjustment of its debts; or the Company shall by any
act or failure to act indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
for the purpose of effecting any of the foregoing;

 

(iv)          the
Company shall default in any of its obligations under any mortgage, credit
agreement or other facility, indenture, agreement or other instrument under
which there may be issued, or by which there may be secured or evidenced any
indebtedness of the Company in an amount exceeding twenty thousand dollars
($20,000), whether such indebtedness now exists or shall hereafter be created
and such default shall result in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and
payable;

 

(v)           the
Company shall be a party to any Change of Control Transaction (as defined in Section 6),
shall agree to sell or dispose of all or in excess of 49% of its assets (based
on book value calculation as reflected in the Company’s most recent financial
statements) in one or more transactions (whether or not such sale would
constitute a Change of Control Transaction).

 

Section 4.               Interest
Rate Limitation. The parties intend to conform strictly to the applicable
usury laws in effect from time to time during the term of the Loan.
Accordingly, if any transaction contemplated hereby would be usurious under
such laws, then notwithstanding any other provision hereof: (i) the
aggregate of all interest that is contracted for, charged, or received under
this Agreement or under any other Loan Document shall not exceed the maximum
amount of interest allowed by applicable law (the “Highest Lawful Rate”), and
any excess shall be promptly credited to Borrower by Lender (or, to the extent
that such consideration shall have been paid, such excess shall be promptly
refunded to Borrower by Lender); (ii) neither Borrower nor any other
Person now or hereafter liable hereunder shall be obligated to pay the amount
of such interest to the extent that it is in excess of the Highest Lawful Rate;
and (iii) the effective

 

 

rate of interest shall be reduced to the Highest Lawful Rate. All sums
paid, or agreed to be paid, to Lender for the use, forbearance, and detention
of the debt of Borrower to Lender shall, to the extent permitted by applicable
law, be allocated throughout the full term of the Note until payment is made in
full so that the actual rate of interest does not exceed the Highest Lawful
Rate in effect at any particular time during the full term thereof. If at any
time the rate of interest under the Note exceeds the Highest Lawful Rate, the
rate of interest to accrue pursuant to this Agreement shall be limited, notwithstanding
anything to the contrary in this Agreement, to the Highest Lawful Rate, but any
subsequent reductions in the Base Rate shall not reduce the interest to accrue
pursuant to this Agreement below the Highest Lawful Rate until the total amount
of interest accrued equals the amount of interest that would have accrued if a
varying rate per annum equal to the interest rate under the Note had at all
times been in effect. If the total amount of interest paid or accrued pursuant
to this Agreement under the foregoing provisions is less than the total amount
of interest that would have accrued if a varying rate per annum equal to the
interest rate under the Note had been in effect, then Borrower agrees to pay to
Lender an amount equal to the difference between (x) the lesser of (A) the
amount of interest that would have accrued if the Highest Lawful Rate had at
all times been in effect, or (B) the amount of interest that would have
accrued if a varying rate per annum equal to the interest rate under the Note had
at all times been in effect, and (y) the amount of interest accrued in
accordance with the other provisions of this Agreement.

 

Section 5.               Prepayment.

 

(a)           The Company shall
have the right to prepay this Note in whole or in part thereon prior to the Maturity
Date.

 

(b)           (i)            The Company shall give at least five
(5)  business days, but not more than ten (10) business days, written
notice of any intention to prepay this Note prior to the Maturity Date to the
Holder which notice shall specify the “Prepayment Date”.

 

Section 6.               Definitions.  For the purposes hereof, the following terms
shall have the following meanings:

 

“Business Day” means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the State
of New York are authorized or required by law or other government action to
close.

 

“Change of Control Transaction” means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act)
of in excess of 49% of the voting securities of the Company coupled with a
replacement of more than one-half of the members of the Company’s board of
directors which is not approved by those individuals who are members of the
board of directors on the date hereof in one or a series of related
transactions, or (ii) the merger of the Company with or into another
entity, consolidation or sale of all or substantially all of the assets of the
Company in one or a series of related transactions, unless following such
transaction, the holders of the Company’s securities continue to hold at least
40% of such securities following such transaction.  The execution by the Company of an agreement
to which the Company is a party or by which it is

 

 

bound providing for any of the events set forth above in (i) or (ii) does
not constitute the occurrence of the event until after the event in fact
occurs.

 

Section 7.               Except as expressly provided
herein, no provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, interest
and liquidated damages (if any) on, this Note at the time, place, and rate, and
in the coin or currency, herein prescribed. 
This Note is a direct obligation of the Company.

 

Section 8.               If this Note shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Note, or in lieu of
or in substitution for a lost, stolen or destroyed Note, a new Note for the
principal amount of this Note so mutilated, lost, stolen or destroyed but only
upon receipt of evidence of such loss, theft or destruction of such Note, and
of the ownership hereof, and indemnity, if requested, all reasonably
satisfactory to the Company.

 

Section 9.

 

Choice of Law and Venue; Submission to
Jurisdiction; Service of Process.

 

(a)           THE VALIDITY OF THIS
NOTE, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE
PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO THE
CHOICE OF LAW PRINCIPLES THEREOF). THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE
OF NEW YORK OR, AT THE SOLE OPTION OF HOLDER, IN ANY OTHER COURT IN WHICH
HOLDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY.

 

(b)           COMPANY HEREBY
SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES, TO THE
EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION.

 

(c)           COMPANY HEREBY
WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT, OR OTHER PROCESS ISSUED IN
ANY ACTION OR PROCEEDING AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT, OR
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
COMPANY.

 

(d)           NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF HOLDER TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
ENFORCEMENT BY HOLDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE
TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER
APPROPRIATE FORUM OR JURISDICTION.

 

(e)                                  To the extent
determined by such court, the Company shall reimburse the Holder for any
reasonable legal fees and disbursements incurred by the Holder in enforcement
of or protection of any of its rights under any of this Note.

 

 

Section 10.             Any waiver by the Company or the Holder of a breach of
any provision of this Note shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision
of this Note.  The failure of the Company
or the Holder to insist upon strict adherence to any term of this Note on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Note.  Any waiver must be in
writing.

 

Section 11.             If any provision of this Note is invalid, illegal or
unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.

 

Section 12.             Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day (or, if such next succeeding Business Day falls in
the next calendar month, the preceding Business Day in the appropriate calendar
month).

 

Section 13.             Security. 
The obligation of the Company for payment of principal, interest and all
other sums hereunder, in the event of a default and failure of the Company to
perform hereunder, is secured by the pledge of certain securities (the “Pledged
Shares”) by Steven B. Rash as Pledgor under the terms and conditions of a
Stock Pledge Agreement, and a Guaranty executed and delivered by Steven B. Rash
as Guarantor.

 

Section 14.             Registration
Rights. If, at any time prior to payment in full of this Note, the Company
participates (whether voluntarily or by reason of an obligation to a third
party) in the registration of any shares of the Company’s stock (other than a
registration on Form S-4, S-8 or successor form), the Company shall give
written notice thereof to the Holder and the Holder shall have the right,
exercisable within ten (10) business days after receipt of such notice, to
demand inclusion of all or a portion of the Pledged Shares in such registration
statement.  If the Holder exercises such
election, the Pledged Shares so designated shall be included in the
registration statement at no cost or expense to the Holder (other than any
costs or commissions which would be borne by the Holder ).  The Holder’s rights under this Section 7
shall expire at such time as the Holder can sell all of the Pledged Shares
under Rule 144(k) without volume or other restrictions or limit.

 

Section 15.             Waiver
of Jury Trial

 

COMPANY HEREBY WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE. COMPANY REPRESENTS
THAT EACH HAS REVIEWED THIS WAIVER AND KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL BY THE COURT.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

IN WITNESS WHEREOF,
the Company has caused this instrument to be duly executed by an officer duly
authorized for such purpose, as of the date first above indicated.

 

	
   

  	
  POWER 3 MEDICAL PRODUCTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/: Steven B. Rash

  	
   

  
	
   

  	
  Steven B. Rash, Chief
  Executive Officer

  
	
   

  	
   

  
	
  Attest:

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Linh Rivera

  	
   

  	
   

  
	
  Linh Rivera, Executive Administrative AssistantExhibit
10.2

 

KP COMMENTS 6-12

 

STOCK
PLEDGE AGREEMENT

 

STOCK PLEDGE AGREEMENT (“Agreement”)
entered into as of the 9th day of June 2005 by and among John
Fife (the “Secured Party”), and those persons identified on the signature page hereof
(each a “Pledgor”).

 

RECITALS

 

A.            Pledgors have agreed to pledge certain shares as security
for: (i) the performance by Power 3 Medical Products, Inc. A New York
corporation of its obligations under its Series 2005 Note in an aggregate
face amount of Three Hundred Ninety Thousand and 00/100 Dollars ($390,000.00)
payable to the Secured Party (the “Note”)and (ii) the performance
by Pledgor of its Guaranty delivered to Secured Party of even date
herewith.   Capitalized terms in this
Agreement which are not identified herein will have the meanings given such
terms in the Note. 

 

B.            The Secured Party is willing to accept the Note from the
Company only upon receiving Pledgors’ Guaranty and pledge of certain stock as
set forth in this Agreement.

 

NOW, THEREFORE, in
consideration of the premises, the mutual covenants and conditions contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:

 

1.             Grant
of Security Interest.  Pledgors
hereby pledge to the Secured Party as collateral and security for the Secured
Obligations (as defined in paragraph 2) the securities initially set forth on
the attached Schedule 1 of this Agreement, (the “Pledged Shares”).
If on any monthly anniversary during the term of the Note, the market value of
the Collateral then held by the escrow agent, does not equal or exceeed 300% of
the principal amount of the Note then the Pledgor shall deliver to escrow
within 3 days of such date, a certificate for additional shares and necessary
stock powers equal to not less than 300% of the principal amount of the
Note.  The Pledgor shall deliver same and
a statement setting forth the necessary amount of Collateral not later than the
first business day following such monthly anniversary.  Unless otherwise set forth on Schedule 1
of this Agreement, each Pledgor is the beneficial and record owner of the
Pledged Shares set forth opposite such Pledgor’s name on such Schedule.  Such Pledged Shares, together with any additions,
replacements, accessions substitutes therefor, or proceeds thereof, are
hereinafter referred to collectively as the “Collateral.” 

 

2.             Secured Obligations.  During the term hereof, the Collateral shall
secure the following:

 

a.     The performance by the Company of its
obligations, covenants, and agreements under the Note.

 

b.     The performance by the Pledgor of its
obligations, covenants, and agreements under the Guaranty.

 

The obligations,
covenants and agreements described in clause (a)and (b)  are the “Secured
Obligations.”

 

3.             Perfection of Security Interests.  (a)  Upon execution of this Agreement by
each Pledgor, such Pledgor shall deliver the Pledge Shares, together with Stock
Powers (with Medallion Guarantees annexed).

 

(b)           The Company and each Pledgor will, at
its expense, cause to be searched the public records with respect to the
Collateral and will execute, deliver, file and record (in such manner and form
as each Secured Party may require), or permit each Secured Party to file and
record, as its attorney in fact, any financing statements, any carbon,
photographic or other reproduction of a financing statement or this Agreement
(which shall be sufficient as a financing statement hereunder), any specific
assignments or other paper that may be reasonably necessary or desirable, or
that such Secured Party may request, in order to create, preserve, perfect or
validate any Security Interest or to enable such Secured Party to exercise and
enforce its rights hereunder with respect to any of the Collateral.  The Company and each of the Pledgors hereby
appoints each Secured Party as the Company’s or such Pledgor’s attorney-in-fact
to execute in the name and behalf of the Company or such Pledgor, as the case
may

 

 

be, such additional
financing statements as such Secured Party may request.

 

4.             Assignment. 
In connection with the transfer of the Note in accordance with their
terms, a Secured Party may assign or transfer the whole or any part of its
security interest granted hereunder, and may transfer as collateral security
the whole or any part of Secured Party’s security interest in the
Collateral.  Any transferee of the
Collateral shall be vested with all of the rights and powers of Secured Party
hereunder with respect to the Collateral. 

 

5.             Pledgors’ Warranty.  (A) Title.  Each Pledgor represents and warrants hereby
to the Secured Party as follows with respect to the Pledged Shares set forth
opposite such Pledgors name on Schedule 2 to this Agreement: 

 

(i)            that the Collateral is free and
clear of any encumbrances of every nature whatsoever, and such Pledgor is the
sole owner of the Pledged Shares; 

 

(ii)           Such Pledgor further agree not to
grant or create, any security interest, claim, lien, pledge or other
encumbrance with respect to such Collateral or attempt to sell, transfer or
otherwise dispose of the Collateral, until the Secured Obligations have been
paid in full or this Agreement terminates; and

 

(iii)          this Agreement constitutes a legal,
valid and binding obligation of such Pledgor enforceable in accordance with its
terms (except as the enforcement thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, and similar
laws, now or hereafter in effect),

 

B.            Other:     (i) Pledgor
has made necessary inquiries of the Company and believes that the Company fully
intends to fulfill and has the capability of fulfilling the Secured Obligations
to be performed by the Company in accordance with the terms of the Notes. 

 

(ii)           The Pledgors are not (and neither of
them is ) acting, and have not (and neither of them has) agreed to act, in any
plan to sell or dispose of any Shares in a manner intended to circumvent the
registration requirements of the Securities Act of 1933, as amended, or any
applicable state law.

 

(iii)          Pledgor has been advised by counsel of
the elements of a bona-fide pledge for purposes of Rule 144(d)(3)(iv) under
the Securities Act of 1933, as amended, including the relevant SEC
interpretations and affirm the pledge of shares by each of the undersigned
pursuant to this Pledge Agreement will constitute a bona-fide pledge of such
shares for purposes of such Rule.

 

6.             Collection of Dividends and Interest.  During the term of this Agreement and so long
as Pledgors are not in default under the Notes, Pledgors are authorized to
collect all dividends, distributions, interest payments, and other amounts that
may be, or may become, due on any of the Collateral.  

 

7.             Voting Rights. 
During the term of this Agreement and until such time as this Agreement
has terminated or Secured Party has exercised its rights under this Agreement
to foreclose its security interest in the Collateral, Pledgors shall have the
right to exercise any voting rights evidenced by, or relating to, the
Collateral.

 

8.             Warrants and Options.  In the event that, during the term of this
Agreement, subscription, spin-off, warrants, dividends, or any other rights or
option shall be issued in connection with the Collateral, such warrants,
dividends, rights and options shall be immediately delivered to Secured Party
to be held under the terms hereof in the same manner as the Collateral.

 

9.             Preservation of the Value of the Collateral.  Pledgors shall pay all taxes, charges, and
assessments against the Collateral and do all acts necessary to preserve and
maintain the value thereof. 

 

10.           Secured Party as Pledgor’s
Attorney-in-Fact.

 

(a)           Pledgor hereby irrevocably appoints
Secured Party as Pledgor’s attorney-in-fact, with full authority in the place
and stead of Pledgor and in the name of Pledgor, Secured Party or otherwise,
from time to time at Secured Party’s discretion, to take any action and to
execute any instrument that Secured Party may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including: (i) upon
the occurrence and during the continuance of an Event of Default, to receive,
indorse, and collect all instruments made payable to Pledgor representing any
dividend, interest payment or other distribution in respect of the Collateral
or any part thereof to the extent permitted hereunder and to give full
discharge for the same and to execute and file governmental notifications and
reporting forms; (ii) to arrange for the transfer of the Collateral on the
books of any

 

 

of the Company or any
other Person to the name of Secured Party or to the name of Secured Party’s
nominee.

 

(b)           In addition to the designation of
Secured Party as Pledgor’s attorney-in-fact in subsection (a), Pledgor
hereby irrevocably appoints Secured Party as Pledgor’s agent and
attorney-in-fact to make, execute and deliver any and all documents and
writings which may be necessary or appropriate for approval of, or be required
by, any regulatory authority located in any city, county, state or country
where Pledgor or any of the Company engage in business, in order to transfer or
to more effectively transfer any of the Pledged Interests or otherwise enforce
Secured Party’s rights hereunder.

 

11.           Remedies upon Default.

 

Upon the occurrence and
during the continuance of an Event of Default under the Note and/or the
Guaranty “Event of Default”):

 

(a)           Secured Party may exercise in respect
of the Collateral, in addition to other rights and remedies provided for herein
or otherwise available to it, all the rights and remedies of a secured party on
default under the Code (irrespective of whether the Code applies to the
affected items of Collateral), and Secured Party may also without notice
(except as specified below) sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any exchange, broker’s board or at
any of Secured Party’s offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Secured Party may deem commercially reasonable, irrespective of the
impact of any such sales on the market price of the Collateral. To the maximum
extent permitted by applicable law, Secured Party may be the purchaser of any
or all of the Collateral at any such sale and shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply all or any part of the Secured Obligations as a credit on account of the
purchase price of any Collateral payable at such sale. Each purchaser at any
such sale shall hold the property sold absolutely free from any claim or right
on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by
law) all rights of redemption, stay, or appraisal that it now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted. Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) calendar days notice to Pledgor of the
time and place of any public sale or the time after which a private sale is to
be made shall constitute reasonable notification. Secured Party shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. Secured Party may adjourn any public or private sale from tme to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. To the maximum extent permitted by law, Pledgor hereby waives any
claims against Secured Party arising because the price at which any Collateral
may have been sold at such a private sale was less than the price that might
have been obtained at a public sale, even if Secured Party accepts the first
offer received and does not offer such Collateral to more than one offeree.

 

(b)           Pledgor hereby agrees that any sale
or other disposition of the Collateral conducted in conformity with reasonable
commercial practices of banks, insurance companies, or other financial
institutions in the city and state where Secured Party is located in disposing
of property similar to the Collateral shall be deemed to be commercially
reasonable.

 

(c)           Pledgor hereby acknowledges that the
sale by Secured Party of any Collateral pursuant to the terms hereof in
compliance with the Securities Act of 1933 as now in effect or as hereafter
amended, or any similar statute hereafter adopted with similar purpose or
effect (the “Securities Act”), as well as applicable “Blue Sky” or other state
securities laws, may require strict limitations as to the manner in which
Secured Party or any subsequent transferee of the Collateral may dispose
thereof. Pledgor acknowledges and agrees that in order to protect Secured Party’s
interest it may be necessary to sell the Collateral at a price less than the
maximum price attainable if a sale were delayed or were made in another manner,
such as a public offering under the Securities Act. Pledgor has no objection to
sale in such a manner and agrees that Secured Party shall have no obligation to
obtain the maximum possible price for the Collateral. Without limiting the
generality of the foregoing, Pledgor agrees that, upon the occurrence and
during the continuation of an Event of Default, Secured Party may, subject to
applicable law, from time to time attempt to sell all or any part of the
Collateral by a private placement, restricting the bidders and prospective
purchasers to those who will represent and agree that they are purchasing for
investment only and not for distribution. In so doing, Secured Party may
solicit offers to buy the Collateral or any part thereof for cash, from a
limited number of investors reasonably believed by Secured Party to be
institutional investors or other accredited investors who might be interested
in purchasing the Collateral. If Secured Party shall solicit such offers, then
the acceptance by Secured Party of one of the offers shall be deemed to be a
commercially reasonable method of disposition of the Collateral.

 

 

(d)           If Secured Party shall determine to
exercise its right to sell all or any portion of the Collateral pursuant to
this Section, Pledgor agrees that, upon request of Secured Party, Pledgor will,
at its own expense:

 

(i)            execute and deliver, or cause the
officers and directors of the Company to execute and deliver, to any person,
entity or governmental authority as Secured Party may choose, any and all
documents and writings which, in Secured Party’s reasonable judgment, may be
necessary or appropriate for approval, or be required by, any regulatory
authority located in any city, county, state or country where Pledgor or the
Company engage in business, in order to transfer or to more effectively
transfer the Pledged Interests or otherwise enforce Secured Party’s rights
hereunder; and

 

(ii)           do or cause to be done all such other
acts and things as may be necessary to make such sale of the Collateral or any
part thereof valid and binding and in compliance with applicable law; and

 

(iii)          cause the Company to timely file all
periodic reports required to be filed by the Company under the Securities
Exchange Act of 1934.

 

Pledgor acknowledges that
there is no adequate remedy at law for failure by it to comply with the
provisions of this Section and that such failure would not be adequately
compensable in damages, and therefore agrees that its agreements contained in
this Section may be specifically enforced.

 

(e)           PLEDGOR EXPRESSLY WAIVES TO THE
MAXIMUM EXTENT PERMITTED BY LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO
A JUDICIAL HEARING PRIOR TO THE TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF
THE COLLATERAL AS PROVIDED IN THIS SECTION; (ii) ALL RIGHTS OF REDEMPTION,
STAY, OR APPRAISAL THAT IT NOW HAS OR MAY AT ANY TIME IN THE FUTURE HAVE
UNDER ANY RULE OF LAW OR STATUTE NOW EXISTING OR HEREAFTER ENACTED; AND (iii) EXCEPT
AS SET FORTH IN SUBSECTION (a) OF THIS SECTION 11, ANY
REQUIREMENT OF NOTICE, DEMAND, OR ADVERTISEMENT FOR SALE.

 

12.           (a) Term of Agreement.  This Agreement shall continue in full force
and effect until the earlier of the payment in full of the Note.  If the Note is paid in full, the security
interests in the relevant Collateral shall be deemed released, and any portion
of the Collateral not transferred to or sold by any one or more Secured Parties
shall be returned to the Pledgor (and for such purpose, delivery to Darrin
Ocasio, Esq., of Sichenzia Ross Friedman Ference LLP of New York, NY shall
deemed to comply with such return requirement). 
Upon termination of this Pledge Agreement, the relevant Collateral shall
be returned within five (5) Trading Days to Debtor or to the Pledgor, as
contemplated above.

 

(b) Application
of Proceeds.  Upon the occurrence and
during the continuance of an Event of Default, any cash held by Secured Party
as Collateral and all cash Proceeds received by Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral pursuant to the exercise by Secured Party of its remedies as a
secured creditor as provided in Section 9 shall be applied from time to
time by the Secured Part as provided in the Note.

 

13.           Indemnity and Expenses.

 

Pledgor agrees:

 

(a)           To indemnify and hold harmless
Secured Party and each of its directors, officers, employees, agents and
affiliates from and against any and all claims, damages, demands, losses,
obligations, judgments and liabilities (including, without limitation,
reasonable attorneys’ fees and expenses) in any way arising out of or in
connection with this Agreement or the Secured Obligations, except to the extent
the same shall arise as a result of the gross negligence or willful misconduct
of the party seeking to be indemnified; and

 

(b)           To pay and reimburse Secured Party
upon demand for all reasonable costs and expenses

 

 

(including, without
limitation, reasonable attorneys’ fees and expenses) that Secured Party may
incur in connection with (i) the custody, use or preservation of, or the
sale of, collection from or other realization upon, any of the Collateral,
including the reasonable expenses of re-taking, holding, preparing for sale or
lease, selling or otherwise disposing of or realizing on the Collateral, (ii) the
exercise or enforcement of any rights or remedies granted hereunder, under the
Note or otherwise available to it (whether at law, in equity or otherwise), or (iii) the
failure by Pledgor to perform or observe any of the provisions hereof. The
provisions of this Section shall survive the execution and delivery of
this Agreement, the repayment of any of the Secured Obligations, the
termination of the commitments of Secured Party under the Note and the
termination of this Agreement.

 

14.           Duties of Secured Party.

 

The powers conferred on
Secured Party hereunder are solely to protect its interests in the Collateral
and shall not impose on it any duty to exercise such powers. Except as provided
in Section 9-207 of the Code, Secured Party shall have no duty with
respect to the Collateral or any responsibility for taking any necessary steps
to preserve rights against any Persons with respect to any Collateral.

 

15.           Choice of Law and Venue;
Submission to Jurisdiction; Service of Process.

 

(a)           THE VALIDITY OF THIS AGREEMENT, ITS
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO THE CHOICE OF LAW
PRINCIPLES THEREOF). THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK OR, AT
THE SOLE OPTION OF SECURED PARTY, IN ANY OTHER COURT IN WHICH SECURED PARTY
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. 

 

(b)           PLEDGOR HEREBY SUBMITS FOR ITSELF AND
IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, TO THE JURISDICTION
OF THE AFORESAID COURTS AND WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE
LAW, ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS
OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE
WITH THIS SECTION. 

 

(c)           PLEDGOR HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT, OR OTHER PROCESS ISSUED IN ANY ACTION OR
PROCEEDING AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT, OR OTHER PROCESS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO PLEDGOR AT ITS
ADDRESS FOR NOTICES IN ACCORDANCE WITH THIS AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF PLEDGOR’S ACTUAL RECEIPT THEREOF
OR THREE DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID.

 

(d)           NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO AFFECT THE RIGHT OF SECURED PARTY TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY SECURED
PARTY OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY
ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.

 

16.           Amendments; etc.

 

No amendment or waiver of
any provision of this Agreement nor consent to any departure by Pledgor
herefrom shall in any event be effective unless the same shall be in writing
and signed by Secured Party, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
failure on the part of Secured Party to exercise, and no delay in exercising
any right under this Agreement, any other Credit Document, or otherwise with
respect to any of the Secured Obligations, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right under this Agreement, any
other Credit Document, or otherwise with respect to any of the Secured
Obligations preclude any other or further exercise thereof or the exercise of
any other right. The remedies provided for in this Agreement or otherwise with
respect to any of the Secured Obligations are cumulative and not exclusive of
any remedies provided by law.

 

 

17.           Notices.

 

Unless otherwise specifically
provided herein, all notices shall be in writing addressed to the respective
party as set forth below: and may be personally served, faxed, telecopied or
sent by overnight courier service or United States mail:

 

If to Pledgor:

 

Steven B. Rash

c/o Power3 Medical
Products, Inc.

3400 Research Forest
Drive

The Woodlands, Texas
77381

Fax No.:  281-466-1481

 

with a copy to:

 

Sichenzia Ross Friedman
Ference LLP

1065 Avenue of the
Americas

New York, NY 10018

 

Fax No.:  212-930-9725

Attn:       Darrin M. Ocasio, Esq.

 

If to Secured Party:

 

John Fife

303 Wacker Drive

Suite 301 

Chicago, Il 60601  

 

Fax No.: 312 819  9701

Attn:

 

with a copy to:      Samuel
M. Krieger, Esq.

Krieger and Prager LLP

39 Broadway

New York, NY. 10006

 

Fax No.: 212 363 2999

Attn:

 

Any notice given pursuant
to this section shall be deemed to have been given: (a) if delivered
in person, when delivered; (b) if delivered by fax, on the date of
transmission if transmitted on a Business Day before 4:00 p.m. at the
place of receipt or, if not, on the next succeeding Business Day; (c) if
delivered by overnight courier, two (2) days after delivery to such
courier properly addressed; or (d) if by United States mail, four (4) Business
Days after depositing in the United States mail, with postage prepaid and properly
addressed. Any party hereto may change the address or fax number at which it is
to receive notices hereunder by notice to the other party in writing in the
foregoing manner.

 

18.           Continuing Security Interest.

 

This Agreement shall
create a continuing security interest in the Collateral and shall: (a) remain
in full force and effect until the indefeasible payment in full of the Secured
Obligations, including the cash collateralization, expiration, or cancellation
of all Secured Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Credit Agreement; (b) be binding upon Pledgor and
its successors and assigns; and (c) inure to the benefit of Secured Party and
its successors, transferees, and assigns. Upon the indefeasible payment in full
of the Secured Obligations, including the cash collateralization, expiration,
or cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Credit

 

 

Agreement, the security
interests granted herein shall automatically terminate and all rights to the
Collateral shall revert to Pledgor. Upon any such termination, Secured Party
will, at Pledgor’s expense, execute and deliver to Pledgor such documents as
Pledgor shall reasonably request to evidence such termination. Such documents
shall be prepared by Pledgor and shall be in form and substance reasonably satisfactory
to Secured Party.

 

19.           Security Interest Absolute.

 

To the maximum extent
permitted by law, all rights of Secured Party, all security interests
hereunder, and all obligations of Pledgor hereunder, shall be absolute and
unconditional irrespective of:

 

(a)           any lack of validity or
enforceability of any of the Secured Obligations or any other agreement or
instrument relating thereto, including any of the Credit Documents;

 

(b)           any change in the time, manner, or
place of payment of, or in any other term of, all or any of the Secured
Obligations, or any other amendment or waiver of or any consent to any
departure from any of the Credit Documents, or any other agreement or
instrument relating thereto;

 

(c)           any exchange, release, or
non-perfection of any other collateral, or any release or amendment or waiver
of or consent to departure from any guaranty for all or any of the Secured
Obligations; or

 

(d)           any other circumstances that might
otherwise constitute a defense available to, or a discharge of, Pledgor.

 

20.           Headings.

 

Section and subsection headings
in this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement or be given any substantive
effect.

 

21.           Severability.

 

In case any provision in
or obligation under this Agreement shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.

 

22.           Counterparts; Telefacsimile
Execution.

 

This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
and all of which together shall constitute one and the same Agreement. Delivery
of an executed counterpart of this Agreement by telefacsimile shall be equally
as effective as delivery of an original executed counterpart of this Agreement.
Any party delivering an executed counterpart of this Agreement by telefacsimile
also shall deliver an original executed counterpart of this Agreement but the
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, or binding effect hereof.

 

23.           Waiver of Marshaling.

 

Each of Pledgor and Secured
Party acknowledges and agrees that in exercising any rights under or with
respect to the Collateral: (a) Secured Party is under no obligation to
marshal any Collateral; (b) may, in its absolute discretion, realize upon
the Collateral in any order and in any manner it so elects; and (c) may,
in its absolute discretion, apply the proceeds of any or all of the Collateral
to the Secured Obligations in any order and in any manner it so elects. Pledgor
and Secured Party waive any right to require the marshaling of any of the
Collateral.

 

24.           Waiver of Jury Trial.

 

PLEDGOR AND SECURED PARTY
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. PLEDGOR AND SECURED PARTY
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS

 

 

AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

 

IN WITNESS WHEREOF,
Pledgor and Secured Party have caused this Agreement to be duly executed and
delivered by their officers thereunto duly authorized as of the date first
written above.

 

 

	
   

  	
  STEVEN B. RASH

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/: Steven B. Rash

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [SECURED PARTY],

  
	
   

  	
  a

  
	
   

  	
   

  
	
   

  	
  By: Steven B. Rash

  
	
   

  	
  Title: Chairman and CEO

  
					

 

 

	
  Schedule 1

  
	
   

  
	
   

  
	
  Pledged Interests:
  6,000,000 shares of common stock of Power3 Medical Products, Inc.

  
	
   

  
	
  Name of Issuer: Power3
  Medical Products, Inc.

  
	
   

  
	
  Jurisdiction of
  Organization: New York

  
	
   

  
	
  Type of Interest: Share
  of common stock

  
	
   

  
	
  Number of Shares/Units
  (if applicable): 6,000,000

  
	
   

  
	
  Certificate Number(s)
  (if
  any)                    Percentage
  of Outstanding Interests in Issuer: approximately 8%

  
	
   

  
	
  Additional Collateral
  as Set forth in Section 1.

  
	
   

  
	
   

  
	
  Schedule 2

  
	
   

  
	
   

  
	
  Pledgor Information:

  
	
   

  
	
  For Pledgor That Is a
  Registered Organization Jurisdiction of Organization:

  
	
   

  
	
  Type of Organization:

  
	
   

  
	
  Organizational ID
  Number (if any):

  
	
   

  
	
  For Pledgor That Is An
  Individual:   Steven B. Rash

  
	
   

  
	
  Address of Principal
  Residence:     See Notice section

  
	
   

  
	
  For Pledgor That Is
  Neither a Registered Organization nor an Individual:

  
	
   

  
	
  Type of Organization:

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