Exhibit 10.12
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of May 30, 2006,
by and among Pediatric Prosthetics, Inc., an Idaho corporation with its
headquarters located at 12926 Willowchase Drive, Houston, TX 77070 (the
"COMPANY"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors secured convertible notes in
the aggregate principal amount of up to One Million Five Hundred Thousand
Dollars ($1,500,000) (the "Notes") that are convertible into shares of the
Company's common stock (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in such Notes and warrants (the "Warrants")
to acquire an aggregate of 50,000,000 shares of Common Stock, upon the terms and
conditions and subject to the limitations and conditions set forth in the
Warrants; and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
-----------
A. As used in this Agreement, the following terms shall have the
following meanings:
(I) "INVESTORS" means the Initial Investors and any
transferee or assignee who agrees to become bound by the
provisions of this Agreement in accordance with Section 9 hereof.
(II) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and
pursuant to Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous basis ("RULE
415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
(III) "REGISTRABLE SECURITIES" means the Conversion Shares
issued or issuable upon conversion or otherwise pursuant to the
Notes and Additional Notes (as defined in the Securities Purchase
Agreement) including, without limitation, Damages Shares (as
defined in the Notes) issued or issuable pursuant to the Notes,
shares of Common Stock issued or issuable in payment of the
Standard Liquidated Damages Amount (as defined in the Securities
Purchase Agreement), shares issued or issuable in respect of
interest or in redemption of the Notes in accordance with the
terms thereof) and Warrant Shares issuable, upon exercise or
otherwise pursuant to the Warrants and Additional Warrants (as
defined in the Securities Purchase Agreement), and any shares of
capital stock issued or issuable as a dividend on or in exchange
for or otherwise with respect to any of the foregoing.
(IV) "REGISTRATION STATEMENT" means a registration statement
of the Company under the 1933 Act.
B. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities
Purchase Agreement or the Convertible Note.
2. REGISTRATION.
------------
A. MANDATORY REGISTRATION. The Company shall prepare, and, on or
----------------------
prior to sixty (60) days from the date of Closing (as defined in the
Securities Purchase Agreement) (the "FILING DATE"), file with the SEC
a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available
to effect a registration of the Registrable Securities, subject to the
consent of the Initial Investors, which consent will not be
unreasonably withheld) covering the resale of the Registrable
Securities underlying the Notes and Warrants issued or issuable
pursuant to the Securities Purchase Agreement, which Registration
Statement, to the extent allowable under the 1933 Act and the rules
and regulations promulgated thereunder (including Rule 416), shall
state that such Registration Statement also covers such indeterminate
number of additional shares of Common Stock as may become issuable
upon conversion of or otherwise pursuant to the Notes and exercise of
the Warrants to prevent dilution resulting from stock splits, stock
dividends or similar transactions. The number of shares of Common
Stock initially included in such Registration Statement shall be no
less than an amount equal to two (2) times the sum of the number of
Conversion Shares that are then issuable upon conversion of the Notes
and Additional Notes (based on the Variable Conversion Price as would
then be in effect and assuming the Variable Conversion Price is the
Conversion Price at such time), and the number of Warrant Shares that
are then issuable upon exercise of the Warrants, without regard to any
limitation on the Investor's ability to convert the Notes or exercise
the Warrants. The Company acknowledges that the number of shares
initially included in the Registration Statement represents a good
faith estimate of the maximum number of shares issuable upon
conversion of the Notes and upon exercise of the Warrants.
B. UNDERWRITTEN OFFERING. If any offering pursuant to a
----------------------
Registration Statement pursuant to Section 2(a) hereof involves an
underwritten offering, the Investors who hold a majority in interest
of the Registrable Securities subject to such underwritten offering,
with the consent of a majority-in-interest of the Initial Investors,
shall have the right to select one legal counsel and an investment
banker or bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company.
C. PAYMENTS BY THE COMPANY. The Company shall use its best
--------------------------
efforts to obtain effectiveness of the Registration Statement as soon
as practicable. If the Registration Statement(s) covering the
Registrable Securities required to be filed by the Company pursuant to
Section 2(a) hereof is not filed by the Filing Date or declared
effective by the SEC on or prior to one hundred and forty-five (145)
days from the date of Closing (as defined in the Securities Purchase
Agreement), or after the Registration Statement has been declared
effective by the SEC, sales of all of the Registrable Securities
cannot be made pursuant to the Registration Statement, or the Common
Stock is not listed or included for quotation on the Nasdaq National
Market ("NASDAQ"), the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the
New York Stock Exchange (the "NYSE") or the American Stock Exchange
(the "AMEX") after being so listed or included for quotation after the
date hereof, or the Common Stock ceases to be traded on the
Over-the-Counter Bulletin Board (the "OTCBB") or any equivalent
replacement exchange prior to being listed or included for quotation
on one of the aforementioned markets, then the Company will make
payments to the Investors in such amounts and at such times as shall
be determined pursuant to this Section 2(c) as partial relief for the
damages to the Investors by reason of any such delay in or reduction
of their ability to sell the Registrable Securities (which remedy
shall not be exclusive of any other remedies available at law or in
equity). The Company shall pay to each holder of the Notes or
Registrable Securities an amount equal to the then outstanding
principal amount of the Notes (and, in the case of holders of
Registrable Securities, the principal amount of Notes from which such
Registrable Securities were converted) ("OUTSTANDING PRINCIPAL
AMOUNT"), multiplied by the Applicable Percentage (as defined below)
times the sum of: (i) the number of months (prorated for partial
months) after the Filing Date or the end of the aforementioned one
hundred and forty-five (145) day period and prior to the date the
Registration Statement is declared effective by the SEC, provided,
however, that there shall be excluded from such period any delays
which are solely attributable to changes required by the Investors in
the Registration Statement with respect to information relating to the
Investors, including, without limitation, changes to the plan of
distribution, or to the failure of the Investors to conduct their
review of the Registration Statement pursuant to Section 3(h) below in
a reasonably prompt manner; (ii) the number of months (prorated for
partial months) that sales of all of the Registrable Securities cannot
be made pursuant to the Registration Statement after the Registration
Statement has been declared effective (including, without limitation,
when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in
accordance with the terms of this Agreement, but excluding any days
during an Allowed Delay (as defined in Section 3(f)); and (iii) the
number of months (prorated for partial months) that the Common Stock
is not listed or included for quotation on the OTCBB, Nasdaq, Nasdaq
SmallCap, NYSE or AMEX or that trading thereon is halted after the
Registration Statement has been declared effective. The term
"APPLICABLE PERCENTAGE" means two hundredths (.02). (For example, if
the Registration Statement becomes effective one (1) month after the
end of such one hundred and forty-five (145) day period, the Company
would pay $5,000 for each $250,000 of Outstanding Principal Amount. If
thereafter, sales could not be made pursuant to the Registration
Statement for an additional period of one (1) month, the Company would
pay an additional $5,000 for each $250,000 of Outstanding Principal
Amount.) Such amounts shall be paid in cash or, at the Company's
option, in shares of Common Stock priced at the Conversion Price (as
defined in the Notes) on such payment date.
D. PIGGY-BACK REGISTRATIONS. Subject to the last sentence of this
------------------------
Section 2(d), if at any time prior to the expiration of the
Registration Period (as hereinafter defined) the Company shall
determine to file with the SEC a Registration Statement relating to an
offering for its own account or the account of others under the 1933
Act of any of its equity securities (other than on Form S-4 or Form
S-8 or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with stock option
or other bona fide, employee benefit plans), the Company shall send to
---- ----
each Investor who is entitled to registration rights under this
Section 2(d) written notice of such determination and, if within
fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in
such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of
the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be
included in the Registration Statement because, in such
underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement
only such limited portion of the Registrable Securities with respect
to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities
shall be made pro rata among the Investors seeking to include
Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however,
-------- -------
that the Company shall not exclude any Registrable Securities unless
the Company has first excluded all outstanding securities, the holders
of which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with
the Registrable Securities; and provided, further, however, that,
-------- ------- -------
after giving effect to the immediately preceding proviso, any
exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such
securities in the Registration Statement other than holders of
securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No
right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under
Section 2(a) hereof. If an offering in connection with which an
Investor is entitled to registration under this Section 2(d) is an
underwritten offering, then each Investor whose Registrable Securities
are included in such Registration Statement shall, unless otherwise
agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters
and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such
underwritten offering. Notwithstanding anything to the contrary set
forth herein, the registration rights of the Investors pursuant to
this Section 2(d) shall only be available in the event the Company
fails to timely file, obtain effectiveness or maintain effectiveness
of any Registration Statement to be filed pursuant to Section 2(a) in
accordance with the terms of this Agreement.
E. ELIGIBILITY FOR FORM S-3, SB-2 OR S-1; CONVERSION TO FORM S-3.
-------------------------------------------------------------
Except as set forth in Schedule 2(e), the Company represents and
-------------
warrants that it meets the requirements for the use of Form S-3, SB-2
or S-1 for registration of the sale by the Initial Investors and any
other Investors of the Registrable Securities. The Company agrees to
file all reports required to be filed by the Company with the SEC in a
timely manner so as to remain eligible or become eligible, as the case
may be, and thereafter to maintain its eligibility, for the use of
Form S-3. If the Company is not currently eligible to use Form S-3,
not later than five (5) business days after the Company first meets
the registration eligibility and transaction requirements for the use
of Form S-3 (or any successor form) for registration of the offer and
sale by the Initial Investors and any other Investors of Registrable
Securities, the Company shall file a Registration Statement on Form
S-3 (or such successor form) with respect to the Registrable
Securities covered by the Registration Statement on Form SB-2 or Form
S-1, whichever is applicable, filed pursuant to Section 2(a) (and
include in such Registration Statement on Form S-3 the information
required by Rule 429 under the 1933 Act) or convert the Registration
Statement on Form SB-2 or Form S-1, whichever is applicable, filed
pursuant to Section 2(a) to a Form S-3 pursuant to Rule 429 under the
1933 Act and cause such Registration Statement (or such amendment) to
be declared effective no later than thirty (30) days after filing. In
the event of a breach by the Company of the provisions of this Section
2(e), the Company will be required to make payments pursuant to
Section 2(c) hereof.
3. OBLIGATIONS OF THE COMPANY.
-----------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
A. The Company shall prepare promptly, and file with the SEC not
later than the Filing Date, a Registration Statement with respect to
the number of Registrable Securities provided in Section 2(a), and
thereafter use its best efforts to cause such Registration Statement
relating to Registrable Securities to become effective as soon as
possible after such filing but in no event later than one hundred and
forty-five (145) days from the date of Closing), and keep the
Registration Statement effective pursuant to Rule 415 at all times
until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which the
Registrable Securities (in the opinion of counsel to the Initial
Investors) may be immediately sold to the public without registration
or restriction (including, without limitation, as to volume by each
holder thereof) under the 1933 Act (the "REGISTRATION PERIOD"), which
Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements
therein not misleading.
B. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to
the Registration Statements and the prospectus used in connection with
the Registration Statements as may be necessary to keep the
Registration Statements effective at all times during the Registration
Period, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities
of the Company covered by the Registration Statements until such time
as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in the Registration Statements. In the
event the number of shares available under a Registration Statement
filed pursuant to this Agreement is insufficient to cover all of the
Registrable Securities issued or issuable upon conversion of the Notes
and exercise of the Warrants, the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover all of the
Registrable Securities, in each case, as soon as practicable, but in
any event within fifteen (15) days after the necessity therefor arises
(based on the market price of the Common Stock and other relevant
factors on which the Company reasonably elects to rely). The Company
shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable
following the filing thereof, but in any event within thirty (30) days
after the date on which the Company reasonably first determines (or
reasonably should have determined) the need therefor. The provisions
of Section 2(c) above shall be applicable with respect to such
obligation, with the one hundred and forty-five (145) days running
from the day the Company reasonably first determines (or reasonably
should have determined) the need therefor.
C. The Company shall furnish to each Investor whose Registrable
Securities are included in a Registration Statement and its legal
counsel promptly (but in no event more than two (2) business days)
after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of each Registration
Statement and any amendment thereto, each preliminary prospectus and
prospectus and each amendment or supplement thereto, and, in the case
of the Registration Statement referred to in Section 2(a), each letter
written by or on behalf of the Company to the SEC or the staff of the
SEC, and each item of correspondence from the SEC or the staff of the
SEC, in each case relating to such Registration Statement (other than
any portion of any thereof which contains information for which the
Company has sought confidential treatment), and promptly (but in no
event more than two (2) business days) after the Registration
Statement is declared effective by the SEC, such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor. The Company will
immediately notify each Investor by facsimile of the effectiveness of
each Registration Statement or any post-effective amendment. The
Company will promptly respond to any and all comments received from
the SEC (which comments shall promptly be made available to the
Investors upon request), with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the SEC
as soon as practicable, shall promptly file an acceleration request as
soon as practicable (but in no event more than two (2) business days)
following the resolution or clearance of all SEC comments or, if
applicable, following notification by the SEC that any such
Registration Statement or any amendment thereto will not be subject to
review and shall, if required by SEC Rules, promptly file with the SEC
a final prospectus as soon as practicable (but in no event more than
two (2) business days) following receipt by the Company from the SEC
of an order declaring the Registration Statement effective. In the
event of a breach by the Company of the provisions of this Section
3(c), the Company will be required to make payments pursuant to
Section 2(c) hereof.
D. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration
Statements under such other securities or "blue sky" laws of such
jurisdictions in the United States as the Investors who hold a
majority in interest of the Registrable Securities being offered
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to
such registrations and qualifications as may be necessary to maintain
the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration
Period, and take all other actions reasonably necessary or advisable
to (a) qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify
to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (b) subject itself to
general taxation in any such jurisdiction, (c) file a general consent
to service of process in any such jurisdiction, (d) provide any
undertakings that cause the Company undue expense or burden, or (e)
make any change in its charter or bylaws, which in each case the Board
of Directors of the Company determines to be contrary to the best
interests of the Company and its shareholders.
E. In the event Investors who hold a majority-in-interest of the
Registrable Securities being offered in the offering (with the
approval of a majority-in-interest of the Initial Investors) select
underwriters for the offering, the Company shall enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of
such offering.
F. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event,
of which the Company has knowledge, as a result of which the
prospectus included in any Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and use its best efforts promptly
to prepare a supplement or amendment to any Registration Statement to
correct such untrue statement or omission, and deliver such number of
copies of such supplement or amendment to each Investor as such
Investor may reasonably request; provided that, for not more than ten
(10) consecutive trading days (or a total of not more than twenty (20)
trading days in any twelve (12) month period), the Company may delay
the disclosure of material non-public information concerning the
Company (as well as prospectus or Registration Statement updating) the
disclosure of which at the time is not, in the good faith opinion of
the Company, in the best interests of the Company (an "ALLOWED
DELAY"); provided, further, that the Company shall promptly notify the
Investors in writing of the existence of (but in no event, without the
prior written consent of an Investor, shall the Company disclose to
such investor any of the facts or circumstances regarding) material
non-public information giving rise to an Allowed Delay and advise the
Investors in writing to cease all sales under such Registration
Statement until the end of the Allowed Delay. Upon expiration of the
Allowed Delay, the Company shall again be bound by the first sentence
of this Section 3(f) with respect to the information giving rise
thereto.
G. The Company shall use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify
each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the
issuance of such order and the resolution thereof.
H. The Company shall permit a single firm of counsel designated
by the Initial Investors to review such Registration Statement and all
amendments and supplements thereto (as well as all requests for
acceleration or effectiveness thereof) a reasonable period of time
prior to their filing with the SEC, and not file any document in a
form to which such counsel reasonably objects and will not request
acceleration of such Registration Statement without prior notice to
such counsel. The sections of such Registration Statement covering
information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended
method of disposition of Registrable Securities shall conform to the
information provided to the Company by each of the Investors.
I. The Company shall make generally available to its security
holders as soon as practicable, but not later than one hundred and
forty-five (145) days after the close of the period covered thereby,
an earnings statement (in form complying with the provisions of Rule
158 under the 1933 Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
J. At the request of any Investor, the Company shall furnish, on
the date that Registrable Securities are delivered to an underwriter,
if any, for sale in connection with any Registration Statement or, if
such securities are not being sold by an underwriter, on the date of
effectiveness thereof an opinion, dated as of such date, from counsel
representing the Company for purposes of such Registration Statement,
in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the underwriters, if any,
and the Investors and a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and the Investors.
K. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition
pursuant to a Registration Statement, (iii) one firm of attorneys and
one firm of accountants or other agents retained by the Initial
Investors, (iv) one firm of attorneys and (v) one firm of accountants
or other agents retained by all other Investors, and one firm of
attorneys retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and pertinent
corporate documents and properties of the Company, including without
limitation, records of conversions by other holders of convertible
securities issued by the Company and the issuance of stock to such
holders pursuant to the conversions (collectively, the "RECORDS"), as
shall be reasonably deemed necessary by each Inspector to enable each
Inspector to exercise its due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
which any Inspector may reasonably request for purposes of such due
diligence; provided, however, that each Inspector shall hold in
-------- -------
confidence and shall not make any disclosure (except to an Investor)
of any Record or other information which the Company determines in
good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records
is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (b) the release of such Records is ordered
pursuant to a subpoena or other order from a court or government body
of competent jurisdiction, or (c) the information in such Records has
been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to
any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the
Company) with the Company with respect thereto, substantially in the
form of this Section 3(k). Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, the Records deemed confidential.
Nothing herein (or in any other confidentiality agreement between the
Company and any Investor) shall be deemed to limit the Investor's
ability to sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations.
L. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the
Company unless disclosure of such information is necessary to comply
with federal or state securities laws, the disclosure of such
information is necessary to avoid or correct a misstatement or
omission in any Registration Statement, the release of such
information is ordered pursuant to a subpoena or other order from a
court or governmental body of competent jurisdiction, or such
information has been made generally available to the public other than
by disclosure in violation of this or any other agreement. The Company
agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor prior to making such disclosure,
and allow the Investor, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for,
such information.
M. The Company shall cause all the Registrable Securities covered
by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the
Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or to
the extent the securities of the same class or series are not then
listed on a national securities exchange, secure the designation and
quotation, of all the Registrable Securities covered by the
Registration Statement on Nasdaq or, if not eligible for Nasdaq, on
Nasdaq SmallCap or, if not eligible for Nasdaq or Nasdaq SmallCap, on
the OTCBB and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities.
N. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later
than the effective date of the Registration Statement.
O. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends)
representing Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the managing
underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three
(3) business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities (with
copies to the Investors whose Registrable Securities are included in
such Registration Statement) an instruction in the form attached
hereto as EXHIBIT 1 and an opinion of such counsel in the form
attached hereto as EXHIBIT 2.
P. At the request of the holders of a majority-in-interest of the
Registrable Securities, the Company shall prepare and file with the
SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and any prospectus used in
connection with the Registration Statement as may be necessary in
order to change the plan of distribution set forth in such
Registration Statement.
Q. From and after the date of this Agreement, the Company shall
not, and shall not agree to, allow the holders of any securities of
the Company to include any of their securities, in excess of 250,000
shares of Common Stock, in any Registration Statement under Section
2(a) hereof or any amendment or supplement thereto under Section 3(b)
hereof without the consent of the holders of a majority-in-interest of
the Registrable Securities.
R. The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
-------------------------------
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
A. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that
such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be
reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor.
B. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation
and filing of the Registration Statements hereunder, unless such
Investor has notified the Company in writing of such Investor's
election to exclude all of such Investor's Registrable Securities from
the Registration Statements.
C. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the
Initial Investors) determine to engage the services of an underwriter,
each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such
offering and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of the Registrable
Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
D. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
3(f) or 3(g), such Investor will immediately discontinue disposition
of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Investor's receipt of
the copies of the supplemented or amended prospectus contemplated by
Section 3(f) or 3(g) and, if so directed by the Company, such Investor
shall deliver to the Company (at the expense of the Company) or
destroy (and deliver to the Company a certificate of destruction) all
copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
E. No Investor may participate in any underwritten registration
hereunder unless such Investor agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting
arrangements in usual and customary form entered into by the Company,
completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and agrees
to pay its pro rata share of all underwriting discounts and
commissions and any expenses in excess of those payable by the Company
pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
--------------------------
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualification fees, printers and accounting
fees, the fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel selected by the Initial
Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne by the
Company and shall be included in the fees paid to counsel under the
Securities Purchase Agreement for purposes of counsel selected by the
Initial Investors.
6. INDEMNIFICATION.
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
A. To the extent permitted by law, the Company will indemnify,
hold harmless and defend each Investor who holds such Registrable
Securities, the directors, officers, partners, employees, agents and
each person who controls any Investor within the meaning of the 1933
Act or the Securities Exchange Act of 1934, as amended (the "1934
ACT"), if any, any underwriter (as defined in the 1933 Act) for the
Investors, and the directors, officers, partners, employees and each
person who controls any such underwriter within the meaning of the
1933 Act or the 1934 Act, if any (each, an "INDEMNIFIED PERSON"),
against any joint or several losses, claims, damages, liabilities or
expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether
commenced or threatened, in respect thereof, "CLAIMS") to which any of
them may become subject insofar as such Claims arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or the omission or alleged
omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading; (ii) any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective
date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission
or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under
which the statements therein were made, not misleading; or (iii) any
violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the
offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively,
"VIOLATIONS"). Subject to the restrictions set forth in Section 6(c)
with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained
in this Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any
Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of such
Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the
prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any preliminary
prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus
was timely made available by the Company pursuant to Section 3(c)
hereof, and the Indemnified Person was promptly advised in writing not
to use the incorrect prospectus prior to the use giving rise to a
Violation and such Indemnified Person, notwithstanding such advice,
used it. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
B. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not
jointly to indemnify, hold harmless and defend, to the same extent and
in the same manner set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement,
each person, if any, who controls the Company within the meaning of
the 1933 Act or the 1934 Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement
or any of its directors or officers or any person who controls such
shareholder or underwriter within the meaning of the 1933 Act or the
1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may
become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim arises out of or is based upon any Violation by such
Investor, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for
use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses
(promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity
-------- -------
agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor
-------- ------- -------
shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect
to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely
basis in the prospectus, as then amended or supplemented.
C. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and
the indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may
be; provided, however, that an Indemnified Person or Indemnified Party
-------- -------
shall have the right to retain its own counsel with the fees and
expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The indemnifying party
shall pay for only one separate legal counsel for the Indemnified
Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Investors holding a majority-in-interest
of the Registrable Securities included in the Registration Statement
to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are
entitled to indemnification hereunder, or the Company, if the Company
is entitled to indemnification hereunder, as applicable. The failure
to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 6, except to the extent
that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage
or liability is incurred and is due and payable.
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by law;
provided, however, that no contribution shall be made under circumstances
-------- -------
where the maker would not have been liable for indemnification under the
fault standards set forth in Section 6, no seller of Registrable Securities
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the 1933 Act) shall be entitled to contribution from any seller of
Registrable Securities who was not guilty of such fraudulent
misrepresentation, and contribution (together with any indemnification or
other obligations under this Agreement) by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
-------------------------------
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the investors to sell securities of
the Company to the public without registration ("RULE 144"), the Company
agrees to:
A. make and keep public information available, as those terms are
understood and defined in Rule 144;
B. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act
so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase Agreement) and the
filing of such reports and other documents is required for the
applicable provisions of Rule 144; and
C. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement
by the Company that it has complied with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
------------------------------------
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished
to the Company within a reasonable time after such assignment, (ii) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of the name and address of such transferee or
assignee, and the securities with respect to which such registration rights
are being transferred or assigned, (iii) following such transfer or
assignment, the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities
laws, (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence, the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions
contained herein, (v) such transfer shall have been made in accordance with
the applicable requirements of the Securities Purchase Agreement, and (vi)
such transferee shall be an "ACCREDITED INVESTOR" as that term defined in
Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
-----------------------------------
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company,
each of the Initial Investors (to the extent such Initial Investor still
owns Registrable Securities) and Investors who hold a majority interest of
the Registrable Securities. Any amendment or waiver effected in accordance
with this Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
-------------
A. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or
entities with respect to the same Registrable Securities, the Company
shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
B. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by
regular United States mail, or upon receipt, if delivered personally
or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
Pediatric Prosthetics, Inc.
12926 Willowchase Drive
Houston, TX 77070
Attention: Chief Executive Officer
Telephone: (281) 897-1108
Facsimile: (281)
With a copy to:
David M. Loev, Esq.
2777 Allen Parkway, Suite 1000
Houston, TX 77019
Attention: David M. Loev, Esq.
Telephone: (713) 524-4110
Facsimile: (713) 524-4122
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
With a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
51st Floor
Philadelphia, Pennsylvania 19103
Attention: Gerald J. Guarcini, Esq.
Telephone: 215-865-8625
Facsimile: 215-864-8999
C. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
D. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES
HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED
STATES FEDERAL COURTS LOCATED NEW YORK, NEW YORK WITH RESPECT TO ANY
DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES
FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST
CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN
SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE
JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY
OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE
ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND
EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE.
E. In the event that any provision of this Agreement is invalid
or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
F. This Agreement, the Notes, the Warrants and the Securities
Purchase Agreement (including all schedules and exhibits thereto)
constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or
referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and
thereof.
G. Subject to the requirements of Section 9 hereof, this
Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns.
H. The headings in this Agreement are for convenience of
reference only and shall not form part of, or affect the
interpretation of, this Agreement.
I. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall
constitute one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other
party. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
J. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
K. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement
shall be made by Investors holding a majority of the Registrable
Securities, determined as if the all of the Notes then outstanding
have been converted into for Registrable Securities.
L. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Investor by
vitiating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law
for breach of its obligations under this Agreement will be inadequate
and agrees, in the event of a breach or threatened breach by the
Company of any of the provisions under this Agreement, that each
Investor shall be entitled, in addition to all other available
remedies in law or in equity, and in addition to the penalties
assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Agreement and to enforce
specifically the terms and provisions hereof, without the necessity of
showing economic loss and without any bond or other security being
required.
M. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors have
caused this Agreement to be duly executed as of the date first above written.
PEDIATRIC PROSTHETICS, INC.
/s/ Linda Putback-Bean
- --------------------------------------
Linda Putback-Bean
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
/s/ Corey S. Ribotsky
- --------------------------------------
Corey S. Ribotsky
Manager
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
/s/ Corey S. Ribotsky
- --------------------------------------
Corey S. Ribotsky
Manager
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
/s/ Corey S. Ribotsky
- --------------------------------------
Corey S. Ribotsky
Manager
NEW MILLENNIUM CAPITAL PARTNERS, II, LLC
By: First Street Manager II, LLC
/s/ Corey S. Ribotsky
- --------------------------------------
Corey S. Ribotsky
Manager