Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 30, 2006,
by and among Pediatric Prosthetics, Inc., an Idaho corporation, with
headquarters located at 00000 Xxxxxxxxxxx Xxxxx, Xxxxxxx, XX 00000 (the
"COMPANY"), and each of the purchasers set forth on the signature pages hereto
(the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
rules and regulations as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement 6% secured convertible
notes of the Company, in the form attached hereto as EXHIBIT "A", in the
aggregate principal amount of One Million Five Hundred Thousand Dollars
($1,500,000) (together with any note(s) issued in replacement thereof or as a
dividend thereon or otherwise with respect thereto in accordance with the terms
thereof, the "NOTES"), convertible into shares of common stock, par value $.001
per share, of the Company (the "COMMON STOCK"), upon the terms and subject to
the limitations and conditions set forth in such Notes and warrants, in the form
attached hereto as EXHIBIT "B", to purchase 50,000,000 shares of Common Stock
(the "WARRANTS").
C. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such principal amount of Notes and number of Warrants as is set
forth immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
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A. PURCHASE OF NOTES AND WARRANTS. On the Closing Date (as
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defined below), the Company shall issue and sell to each Buyer and
each Buyer severally agrees to purchase from the Company such
principal amount of Notes and number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto.
B. FORM OF PAYMENT. On the Closing Date (as defined below), each
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Buyer shall pay the purchase price for the Notes and the Warrants to
be issued and sold to it at the Closing (as defined below) (the
"PURCHASE PRICE") by wire transfer of immediately available funds to
the Company, in accordance with the Company's written wiring
instructions, against delivery of the Notes in the principal amount
equal to the Purchase Price and the number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto, and
the Company shall deliver such Notes and Warrants duly executed on
behalf of the Company, to such Buyer, against delivery of such
Purchase Price.
C. CLOSING DATE. Subject to the satisfaction (or written waiver)
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of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Notes and the
Warrants pursuant to this Agreement (the "CLOSING DATE") shall be
12:00 noon, Eastern Standard Time on May 30, 2006, or such other
mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall occur on the
Closing Date at such location as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
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not jointly) represents and warrants to the Company solely as to such Buyer
that:
A. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
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purchasing the Notes and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Notes (including, without
limitation, such additional shares of Common Stock, if any, as are
issuable on account of interest on the Notes, as a result of the
events described in Sections 1.3 and 1.4(g) of the Notes and Section
2(c) of the Registration Rights Agreement or in payment of the
Standard Liquidated Damages Amount (as defined in Section 2(f) below)
pursuant to this Agreement, such shares of Common Stock being
collectively referred to herein as the "CONVERSION SHARES") and the
Warrants and the shares of Common Stock issuable upon exercise thereof
(the "WARRANT SHARES" and, collectively with the Notes, Warrants and
Conversion Shares, the "SECURITIES") for its own account and not with
a present view towards the public sale or distribution thereof, except
pursuant to sales registered or exempted from registration under the
1933 Act; provided, however, that by making the representations
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herein, the Buyer does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of
the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
B. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
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investor" as that term is defined in Rule 501(a) of Regulation D (an
"ACCREDITED INVESTOR").
C. RELIANCE ON EXEMPTIONS. The Buyer understands that the
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Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the
truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to
acquire the Securities.
D. INFORMATION. The Buyer and its advisors, if any, have been,
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and for so long as the Notes and Warrants remain outstanding will
continue to be, furnished with all materials relating to the business,
finances and operations of the Company and materials relating to the
offer and sale of the Securities which have been requested by the
Buyer or its advisors. The Buyer and its advisors, if any, have been,
and for so long as the Notes and Warrants remain outstanding will
continue to be, afforded the opportunity to ask questions of the
Company. Notwithstanding the foregoing, the Company has not disclosed
to the Buyer any material nonpublic information and will not disclose
such information unless such information is disclosed to the public
prior to or promptly following such disclosure to the Buyer. Neither
such inquiries nor any other due diligence investigation conducted by
Buyer or any of its advisors or representatives shall modify, amend or
affect Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. The Buyer understands that
its investment in the Securities involves a significant degree of
risk.
E. GOVERNMENTAL REVIEW. The Buyer understands that no United
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States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of
the Securities.
F. TRANSFER OR RE-SALE. The Buyer understands that except as
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provided in the Registration Rights Agreement, the sale or re-sale of
the Securities has not been and is not being registered under the 1933
Act or any applicable state securities laws, and the Securities may
not be transferred unless the Securities are sold pursuant to an
effective registration statement under the 1933 Act, the Buyer shall
have delivered to the Company an opinion of counsel that shall be in
form, substance and scope customary for opinions of counsel in
comparable transactions to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the
Company, the Securities are sold or transferred to an "affiliate" (as
defined in Rule 144 promulgated under the 1933 Act (or a successor
rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and
who is an Accredited Investor, the Securities are sold pursuant to
Rule 144, or the Securities are sold pursuant to Regulation S under
the 1933 Act (or a successor rule) ("REGULATION S"), and the Buyer
shall have delivered to the Company an opinion of counsel that shall
be in form, substance and scope customary for opinions of counsel in
corporate transactions, which opinion shall be accepted by the
Company; (ii) any sale of such Securities made in reliance on Rule 144
may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any re-sale of such
Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the 0000 Xxx) may require compliance with some
other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is
under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions
of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be
pledged as collateral in connection with a bona fide margin account or
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other lending arrangement. In the event that the Company does not
accept the opinion of counsel provided by the Buyer with respect to
the transfer of Securities pursuant to an exemption from registration,
such as Rule 144 or Regulation S, within five (5) business days of
delivery of the opinion to the Company unless there is a legal reason
for not accepting the opinion, the Company shall pay to the Buyer
liquidated damages of two percent (2%) of the outstanding amount of
the Notes per month plus accrued and unpaid interest on the Notes,
prorated for partial months, in cash or shares at the option of the
Company ("STANDARD LIQUIDATED DAMAGES AMOUNT"). If the Company elects
to be pay the Standard Liquidated Damages Amount in shares of Common
Stock, such shares shall be issued at the Conversion Price at the time
of payment.
G. LEGENDS. The Buyer understands that the Notes and the Warrants
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and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration
Rights Agreement or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as
of a particular date that can then be immediately sold, the Conversion
Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities
under said Act, or an opinion of counsel, in form, substance and
scope customary for opinions of counsel in comparable
transactions, that registration is not required under said Act or
unless sold pursuant to Rule 144 or Regulation S under said Act."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security
upon which it is stamped, if, unless otherwise required by applicable
state securities laws, (a) such Security is registered for sale under
an effective registration statement filed under the 1933 Act or
otherwise may be sold pursuant to Rule 144 or Regulation S without any
restriction as to the number of securities as of a particular date
that can then be immediately sold, or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the
effect that a public sale or transfer of such Security may be made
without registration under the 1933 Act, which opinion shall be
accepted by the Company so that the sale or transfer is effected or
(c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144 or Regulation S. The
Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance
with applicable prospectus delivery requirements, if any.
H. AUTHORIZATION; ENFORCEMENT. This Agreement and the
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Registration Rights Agreement have been duly and validly authorized.
This Agreement has been duly executed and delivered on behalf of the
Buyer, and this Agreement constitutes, and upon execution and delivery
by the Buyer of the Registration Rights Agreement, such agreement will
constitute, valid and binding agreements of the Buyer enforceable in
accordance with their terms.
I. RESIDENCY. The Buyer is a resident of the jurisdiction set
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forth immediately below such Buyer's name on the signature pages
hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
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represents and warrants to each Buyer that:
A. ORGANIZATION AND QUALIFICATION. The Company and each of its
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Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and
authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned,
leased, used, operated and conducted. SCHEDULE 3(A) sets forth a list
of all of the Subsidiaries of the Company and the jurisdiction in
which each is incorporated. The Company and each of its Subsidiaries
is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of
property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or
in good standing would not have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any of (i) a material and adverse effect on the
legality, validity or enforceability of any document executed in
connection with this financing, (ii) a material and adverse effect on
the results of operations, assets, prospects, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (iii) an adverse impairment to the Company's ability to
perform under any of the documents executed in connection with this
financing. "SUBSIDIARIES" means any corporation or other organization,
whether incorporated or unincorporated, in which the Company owns,
directly or indirectly, any equity or other ownership interest.
B. AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
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corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Notes and the
Warrants and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Notes and the Warrants by the
Company and the consummation by it of the transactions contemplated
hereby and thereby (including without limitation, the issuance of the
Notes and the Warrants and the issuance and reservation for issuance
of the Conversion Shares and Warrant Shares issuable upon conversion
or exercise thereof) have been duly authorized by the Company's Board
of Directors and no further consent or authorization of the Company,
its Board of Directors, or its shareholders is required, (iii) this
Agreement has been duly executed and delivered by the Company by its
authorized representative, and such authorized representative is the
true and official representative with authority to sign this Agreement
and the other documents executed in connection herewith and bind the
Company accordingly, and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Registration Rights
Agreement, the Notes and the Warrants, each of such instruments will
constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
C. CAPITALIZATION. As of the date hereof, the authorized capital
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stock of the Company consists of 100,000,000 shares of common stock,
of which 97,828,462 shares are issued and outstanding, [ ] shares are
reserved for issuance pursuant to the Company's stock option plans, [
] shares are reserved for issuance pursuant to securities (other than
the Notes and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 120,312,500 shares are
reserved for issuance upon conversion of the Notes and the Additional
Notes and the Warrants and Additional Warrants (as defined in Section
4(1)) (subject to adjustment pursuant to the Company's covenant set
forth in Section 4(n) below. No shares of capital stock of the Company
are subject to preemptive rights or any other similar rights of the
shareholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as
disclosed in SCHEDULE 3(C), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of
any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of
the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the
sale of any of its or their securities under the 1933 Act (except the
Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the
Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Notes, the Warrants, the
Conversion Shares or Warrant Shares. The Company has furnished to the
Buyer true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof ("CERTIFICATE OF
INCORPORATION"), the Company's By-laws, as in effect on the date
hereof (the "BY-LAWS"), and the terms of all securities convertible
into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. The Company shall
provide the Buyer with a written update of this representation signed
by the Company's Chief Executive or Chief Financial Officer on behalf
of the Company as of the Closing Date.
D. ISSUANCE OF SHARES. Subject to Stockholder Approval (as
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defined in Section 4(n)), the Conversion Shares and Warrant Shares are
duly authorized and reserved for issuance and, upon conversion of the
Notes and exercise of the Warrants in accordance with their respective
terms, will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims and encumbrances with respect to the
issue thereof and shall not be subject to preemptive rights or other
similar rights of shareholders of the Company and will not impose
personal liability upon the holder thereof.
E. ACKNOWLEDGMENT OF DILUTION. The Company understands and
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acknowledges the potentially dilutive effect to the Common Stock upon
the issuance of the Conversion Shares and Warrant Shares upon
conversion of the Note or exercise of the Warrants. The Company
further acknowledges that its obligation to issue Conversion Shares
and Warrant Shares upon conversion of the Notes or exercise of the
Warrants in accordance with this Agreement, the Notes and the Warrants
is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other
shareholders of the Company.
F. NO CONFLICTS. Subject to Stockholder Approval, the execution,
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delivery and performance of this Agreement, the Registration Rights
Agreement, the Notes and the Warrants by the Company and the
consummation by the Company of the transactions contemplated hereby
and thereby (including, without limitation, the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares)
will not (i) conflict with or result in a violation of any provision
of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time
or both could become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which
the Company or any of its Subsidiaries is a party, or (iii) to the
Company's knowledge, result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject)
applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound
or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect).
Neither the Company nor any of its Subsidiaries is in violation of its
Certificate of Incorporation, By-laws or other organizational
documents and neither the Company nor any of its Subsidiaries is in
default (and no event has occurred which with notice or lapse of time
or both could put the Company or any of its Subsidiaries in default)
under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for
possible defaults as would not, individually or in the aggregate, have
a Material Adverse Effect. The businesses of the Company and its
Subsidiaries, if any, are not being conducted, and shall not be
conducted so long as a Buyer owns any of the Securities, in violation
of any law, ordinance or regulation of any governmental entity. Except
as specifically contemplated by this Agreement and as required under
the 1933 Act and any applicable state securities laws, the Company is
not required to obtain any consent, authorization or order of, or make
any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market or any
third party in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement,
the Notes or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Notes and Warrants in accordance with
the terms hereof and to issue the Conversion Shares upon conversion of
the Notes and the Warrant Shares upon exercise of the Warrants. Except
as disclosed in SCHEDULE 3(F), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof.
G. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in
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SCHEDULE 3(G), since December 31, 2005 the Company has timely filed
all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by
reference therein, being hereinafter referred to herein as the "SEC
DOCUMENTS"). As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to
be amended or updated under applicable law (except for such statements
as have been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with United
States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth
in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to December 31, 2005 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the
aggregate, are not material to the financial condition or operating
results of the Company.
H. ABSENCE OF CERTAIN CHANGES. Since December 31, 2005, there has
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been no material adverse change and no material adverse development in
the assets, liabilities, business, properties, operations, financial
condition, results of operations or prospects of the Company or any of
its Subsidiaries.
I. ABSENCE OF LITIGATION. There is no action, suit, claim,
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proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its
Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. SCHEDULE 3(I)
contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
J. PATENTS, COPYRIGHTS, ETC. The Company and each of its
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Subsidiaries owns or possesses the requisite licenses or rights to use
all patents, patent applications, patent rights, inventions, know-how,
trade secrets, trademarks, trademark applications, service marks,
service names, trade names and copyrights ("INTELLECTUAL PROPERTY")
necessary to enable it to conduct its business as now operated (and,
except as set forth in SCHEDULE 3(J) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the
future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect to
any Intellectual Property necessary to enable it to conduct its
business as now operated (and, except as set forth in SCHEDULE 3(J)
hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the
Company's knowledge, the Company's or its Subsidiaries' current and
intended products, services and processes do not infringe on any
Intellectual Property or other rights held by any person; and the
Company is unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and each of its Subsidiaries have
taken reasonable security measures to protect the secrecy,
confidentiality and value of their Intellectual Property.
K. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor
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any of its Subsidiaries is subject to any charter, corporate or other
legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in
the future to have a Material Adverse Effect. Neither the Company nor
any of its Subsidiaries is a party to any contract or agreement which
in the judgment of the Company's officers has or is expected to have a
Material Adverse Effect.
L. TAX STATUS. Except as set forth on SCHEDULE 3(L), the Company
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and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only
to the extent that the Company and each of its Subsidiaries has set
aside on its books provisions reasonably adequate for the payment of
all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount,
shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any
such claim. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on SCHEDULE
3(L), none of the Company's tax returns is presently being audited by
any taxing authority.
M. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(M) and
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except for arm's length transactions pursuant to which the Company or
any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant
of stock options disclosed on SCHEDULE 3(C), none of the officers,
directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which
any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
N. DISCLOSURE. All information relating to or concerning the
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Company or any of its Subsidiaries set forth in this Agreement and
provided to the Buyers pursuant to Section 2(d) hereof and otherwise
in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists
with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the
Company's reports filed under the 1934 Act are being incorporated into
an effective registration statement filed by the Company under the
1933 Act).
O. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES. The
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Company acknowledges and agrees that the Buyers are acting solely in
the capacity of arm's length purchasers with respect to this Agreement
and the transactions contemplated hereby. The Company further
acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any
statement made by any Buyer or any of their respective representatives
or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely
incidental to the Buyers' purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
P. NO INTEGRATED OFFERING. Neither the Company, nor any of its
------------------------
affiliates, nor any person acting on its or their behalf, has directly
or indirectly made any offers or sales in any security or solicited
any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Securities to
the Buyers. The issuance of the Securities to the Buyers will not be
integrated with any other issuance of the Company's securities (past,
current or future) for purposes of any shareholder approval provisions
applicable to the Company or its securities.
Q. NO BROKERS. Except as set forth in SCHEDULE 3(Q), the Company
----------
has taken no action which would give rise to any claim by any person
for brokerage commissions, transaction fees or similar payments
relating to this Agreement or the transactions contemplated hereby.
R. PERMITS; COMPLIANCE. The Company and each of its Subsidiaries
-------------------
is in possession of all franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "COMPANY PERMITS"), and there is no action pending
or, to the knowledge of the Company, threatened regarding suspension
or cancellation of any of the Company Permits. Neither the Company nor
any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect. Since December 31, 2004, neither the Company nor any of its
Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material Adverse
Effect.
S. ENVIRONMENTAL MATTERS.
----------------------
(I) Except as set forth in SCHEDULE 3(S), there are, to the
best of the Company's knowledge, with respect to the Company or
any of its Subsidiaries or any predecessor of the Company, no
past or present violations of Environmental Laws (as defined
below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or
contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or
similar federal, state, local or foreign laws and neither the
Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to
the Company's knowledge, threatened in connection with any of the
foregoing. The term "ENVIRONMENTAL LAWS" means all federal,
state, local or foreign laws relating to pollution or protection
of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS
MATERIALS") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well
as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
(II) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently
owned, leased or used by the Company or any of its Subsidiaries,
and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any
of its Subsidiaries during the period the property was owned,
leased or used by the Company or any of its Subsidiaries, except
in the normal course of the Company's or any of its Subsidiaries'
business.
(III) Except as set forth in SCHEDULE 3(S), to the best of
the Company's knowledge there are no underground storage tanks on
or under any real property owned, leased or used by the Company
or any of its Subsidiaries that are not in compliance with
applicable law.
T. TITLE TO PROPERTY. The Company and its Subsidiaries have good
-----------------
and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such
as are described in SCHEDULE 3(T) or such as would not have a Material
Adverse Effect. Any real property and facilities held under lease by
the Company and its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
U. INSURANCE. The Company and each of its Subsidiaries are
---------
insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the
Company and its Subsidiaries are engaged. Neither the Company nor any
such Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a
Material Adverse Effect. The Company has provided to Buyer true and
correct copies of all policies relating to directors' and officers'
liability coverage, errors and omissions coverage, and commercial
general liability coverage.
V. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
------------------------------
Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to
provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
W. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
-------------------------
Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the
course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any
direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
X. SOLVENCY. The Company (after giving effect to the transactions
--------
contemplated by this Agreement) is solvent (i.e., its assets have a
----
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to
reasonably conclude that the Company would not, after giving effect to
the transaction contemplated by this Agreement, have the ability to,
nor does it intend to take any action that would impair its ability
to, pay its debts from time to time incurred in connection therewith
as such debts mature.
Y. NO INVESTMENT COMPANY. The Company is not, and upon the
-----------------------
issuance and sale of the Securities as contemplated by this Agreement
will not be an "investment company" required to be registered under
the Investment Company Act of 1940 (an "INVESTMENT COMPANY"). The
Company is not controlled by an Investment Company.
Z. CERTAIN REGISTRATION MATTERS. Assuming the accuracy of the
------------------------------
Buyers' representations and warranties set forth in Section 3, no
registration under the Securities Act is required for the offer and
sale of the Conversion Shares and Warrant Shares by the Company to the
Buyers under the transaction documents. Except as specified in
SCHEDULE 3(Z), the Company has not granted or agreed to grant to any
Person any rights (including "piggy-back" registration rights) to have
any securities of the Company registered with the Commission or any
other governmental authority that have not been satisfied.
AA. BREACH OF REPRESENTATIONS AND WARRANTIES BY THE COMPANY. If
--------------------------------------------------------
the Company materially breaches any of the representations or
warranties set forth in this Section 3, and in addition to any other
remedies available to the Buyers pursuant to this Agreement, the
Company shall pay to the Buyer the Standard Liquidated Damages Amount
in cash or in shares of Common Stock at the option of the Company,
until such breach is cured. If the Company elects to pay the Standard
Liquidated Damages Amounts in shares of Common Stock, such shares
shall be issued at the Conversion Price at the time of payment.
4. COVENANTS.
---------
A. BEST EFFORTS. The parties shall use their best efforts to
-------------
satisfy timely each of the conditions described in Section 6 and 7 of
this Agreement.
B. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
-------------------------
with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyers at the applicable closing pursuant
to this Agreement under applicable securities or "blue sky" laws of
the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.
C. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3, SB-2 OR FORM
-------------------------------------------------------------
S-1. The Company's Common Stock is registered under Section 12(g) of
---
the 1934 Act. The Company represents and warrants that it meets the
requirements for the use of Form S-3 (or if the Company is not
eligible for the use of Form S-3 as of the Filing Date (as defined in
the Registration Rights Agreement), the Company may use the form of
registration for which it is eligible at that time) for registration
of the sale by the Buyer of the Registrable Securities (as defined in
the Registration Rights Agreement). So long as the Buyer beneficially
owns any of the Securities, the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company
further agrees to file all reports required to be filed by the Company
with the SEC in a timely manner so as to become eligible, and
thereafter to maintain its eligibility, for the use of Form S-3. The
Company shall issue a press release describing the material terms of
the transaction contemplated hereby as soon as practicable following
the Closing Date but in no event more than four (4) business days of
the Closing Date, which press release shall be subject to prior review
by the Buyers. The Company agrees that such press release shall not
disclose the name of the Buyers unless expressly consented to in
writing by the Buyers or unless required by applicable law or
regulation, and then only to the extent of such requirement.
D. USE OF PROCEEDS. The Company shall use the net proceeds from
----------------
the sale of the Notes and the Warrants in the manner set forth in
SCHEDULE 4(D) attached hereto and made a part hereof and shall not,
directly or indirectly, use such proceeds for (i) any loan to or
investment in any other corporation, partnership, enterprise or other
person (except in connection with its currently existing direct or
indirect Subsidiaries); (ii) the satisfaction of any portion of the
Company's debt (other than payment of trade payables and accrued
expenses in the ordinary course of the Company's business and
consistent with prior past practices), or (iii) the redemption of any
Common Stock.
E. FUTURE OFFERINGS. Subject to the exceptions described below,
-----------------
the Company will not, without the prior written consent of a
majority-in-interest of the Buyers, negotiate or contract with any
party to obtain additional equity financing (including debt financing
with an equity component) that involves (A) the issuance of Common
Stock at a discount to the market price of the Common Stock on the
date of issuance (taking into account the value of any warrants or
options to acquire Common Stock issued in connection therewith) or (B)
the issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock or (C) the issuance of
warrants during the period (the "LOCK-UP PERIOD") beginning on the
Closing Date and ending on the later of (i) two hundred seventy (270)
days from the Closing Date and (ii) one hundred eighty (180) days from
the date the Registration Statement (as defined in the Registration
Rights Agreement) is declared effective (plus any days in which sales
cannot be made thereunder). In addition, subject to the exceptions
described below, the Company will not conduct any equity financing
(including debt with an equity component) ("FUTURE OFFERINGS") during
the period beginning on the Closing Date and ending two (2) years
after the end of the Lock-up Period unless it shall have first
delivered to each Buyer, at least twenty (20) business days prior to
the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof
and proposed definitive documentation to be entered into in connection
therewith, and providing each Buyer an option during the fifteen (15)
day period following delivery of such notice to purchase its pro rata
share (based on the ratio that the aggregate principal amount of Notes
purchased by it hereunder bears to the aggregate principal amount of
Notes purchased hereunder) of the securities being offered in the
Future Offering on the same terms as contemplated by such Future
Offering (the limitations referred to in this sentence and the
preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATIONS"). In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of
the notice to the Buyers concerning the proposed Future Offering, the
Company shall deliver a new notice to each Buyer describing the
amended terms and conditions of the proposed Future Offering and each
Buyer thereafter shall have an option during the fifteen (15) day
period following delivery of such new notice to purchase its pro rata
share of the securities being offered on the same terms as
contemplated by such proposed Future Offering, as amended. The
foregoing sentence shall apply to successive amendments to the terms
and conditions of any proposed Future Offering. The Capital Raising
Limitations shall not apply to any transaction involving (i) issuances
of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933
Act, an equity line of credit or similar financing arrangement)
resulting in net proceeds to the Company of in excess of $1,500,000,
or (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which
is not to raise equity capital), or in connection with the disposition
or acquisition of a business, product or license by the Company. The
Capital Raising Limitations also shall not apply to the issuance of
securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date
hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or
restricted stock plan approved by the shareholders of the Company.
F. EXPENSES. At the Closing, the Company shall reimburse Buyers
--------
for expenses incurred by them in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and
the other agreements to be executed in connection herewith
("Documents"), including, without limitation, attorneys' and
consultants' fees and expenses, transfer agent fees, fees for stock
quotation services, fees relating to any amendments or modifications
of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow
fees, and costs of restructuring the transactions contemplated by the
Documents. When possible, the Company must pay these fees directly,
otherwise the Company must make immediate payment for reimbursement to
the Buyers for all fees and expenses immediately upon written notice
by the Buyer or the submission of an invoice by the Buyer If the
Company fails to reimburse the Buyer in full within ten (10) business
days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be
reimbursed at a rate of 15% per annum.
G. FINANCIAL INFORMATION. The Company agrees to send the
----------------------
following reports to each Buyer until such Buyer transfers, assigns,
or sells all of the Securities: within ten (10) days after the filing
with the SEC, a copy of its Annual Report on Form 10-KSB its Quarterly
Reports on Form 10-QSB and any Current Reports on Form 8-K; within
three (3) days after release, copies of all press releases issued by
the Company or any of its Subsidiaries; and contemporaneously with the
making available or giving to the shareholders of the Company, copies
of any notices or other information the Company makes available or
gives to such shareholders.
H. AUTHORIZATION AND RESERVATION OF SHARES. Subject to
-------------------------------------------
Stockholder Approval, the Company shall at all times have authorized,
and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion or exercise
of the outstanding Notes and Warrants and issuance of the Conversion
Shares and Warrant Shares in connection therewith (based on the
Conversion Price of the Notes or Exercise Price of the Warrants in
effect from time to time) and as otherwise required by the Notes. The
Company shall not reduce the number of shares of Common Stock reserved
for issuance upon conversion of Notes and exercise of the Warrants
without the consent of each Buyer. The Company shall at all times
maintain the number of shares of Common Stock so reserved for issuance
at an amount ("RESERVED AMOUNT") equal to no less than two (2) times
the number that is then actually issuable upon full conversion of the
Notes and Additional Notes and upon exercise of the Warrants and the
Additional Warrants (based on the Conversion Price of the Notes or the
Exercise Price of the Warrants in effect from time to time). If at any
time the number of shares of Common Stock authorized and reserved for
issuance ("AUTHORIZED AND RESERVED SHARES") is below the Reserved
Amount, the Company will promptly take all corporate action necessary
to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of shareholders to
authorize additional shares to meet the Company's obligations under
this Section 4(h), in the case of an insufficient number of authorized
shares, obtain shareholder approval of an increase in such authorized
number of shares, and voting the management shares of the Company in
favor of an increase in the authorized shares of the Company to ensure
that the number of authorized shares is sufficient to meet the
Reserved Amount. If the Company fails to obtain such shareholder
approval within forty-five (45) days following the date on which the
number of Reserved Amount exceeds the Authorized and Reserved Shares,
the Company shall pay to the Borrower the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the
Buyer, however, the Company shall have a 15 day period to cure before
the Buyer can collect Liquidated Damages. If the Buyer elects to be
paid the Standard Liquidated Damages Amount in shares of Common Stock,
such shares shall be issued at the Conversion Price at the time of
payment. In order to ensure that the Company has authorized a
sufficient amount of shares to meet the Reserved Amount at all times,
the Company must deliver to the Buyer at the end of every month a list
detailing (1) the current amount of shares authorized by the Company
and reserved for the Buyer; and (2) amount of shares issuable upon
conversion of the Notes and upon exercise of the Warrants and as
payment of interest accrued on the Notes for one year. If the Company
fails to provide such list within five (5) business days of the end of
each month, the Company shall pay the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the
Buyer, until the list is delivered. If the Buyer elects to be paid the
Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment.
I. LISTING. [RESERVED]
-------
J. CORPORATE EXISTENCE. So long as a Buyer beneficially owns any
-------------------
Notes or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets,
except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or
successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered
into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq
SmallCap, NYSE or AMEX.
K. NO INTEGRATION. The Company shall not make any offers or sales
--------------
of any security (other than the Securities) under circumstances that
would require registration of the Securities being offered or sold
hereunder under the 1933 Act or cause the offering of the Securities
to be integrated with any other offering of securities by the Company
for the purpose of any stockholder approval provision applicable to
the Company or its securities.
L. SUBSEQUENT INVESTMENT. The Company and the Buyers agree that,
---------------------
upon the filing by the Company of the Registration Statement to be
filed pursuant to the Registration Rights Agreement (the "FILING
DATE"), the Buyers shall purchase additional Notes (the "FILING
NOTES") in the aggregate principal amount of Four Hundred Thousand
Dollars ($400,000) for an aggregate purchase price of Four Hundred
Thousand Dollars ($400,000), with the closing of such purchase to
occur within five (5) days of the Filing Date; provided, however, that
-------- -------
the obligation of each Buyer to purchase the Filing Notes is subject
to the satisfaction, at or before the closing of such purchase and
sale, of the conditions set forth in Section 7. The Company and the
Buyers further agree that, upon the declaration of effectiveness of
the Registration Statement to be filed pursuant to the Registration
Rights Agreement (the "EFFECTIVE DATE"), the Buyers shall purchase
additional notes (the "EFFECTIVENESS NOTES" and, collectively with the
Filing Notes, the "ADDITIONAL NOTES") in the aggregate principal
amount of Five Hundred Thousand Dollars ($500,000) for an aggregate
purchase price of Five Hundred Thousand Dollars ($500,000), with the
closing of such purchase to occur within five (5) days of the
Effective Date; provided, however, that the obligation of each Buyer
-------- -------
to purchase the Additional Notes is subject to the satisfaction, at or
before the closing of such purchase and sale, of the conditions set
forth in Section 7; and, provided, further, that there shall not have
been a Material Adverse Effect as of such effective date. The terms of
the Additional Notes shall be identical to the terms of the Notes to
be issued on the Closing Date. The Common Stock underlying the
Additional Notes shall be Registrable Securities (as defined in the
Registration Rights Agreement) and shall be included in the
Registration Statement to be filed pursuant to the Registration Rights
Agreement.
M. KEY MAN INSURANCE. The Company shall use its best efforts to
------------------
obtain, on or before fifteen (15) business days from the date hereof,
key man life insurance on Xxxxx Xxxxxxx-Xxxx and Xxxxxxx X. Xxxx.
N. STOCKHOLDER APPROVAL. The Company shall file a proxy or
---------------------
information statement with the SEC no later than June 30, 2006 and use
its best efforts to obtain, on or before August 15, 2006, such
approvals of the Company's stockholders as may be required to issue
all of the shares of Common Stock issuable upon conversion or exercise
of, or otherwise with respect to, the Notes and the Warrants in
accordance with Texas law and any applicable rules or regulations of
the OTCBB and Nasdaq, either through a reverse stock split of the
Common Stock or an increase in authorized capital (the "Stockholder
Approval"). The Company shall furnish to each Buyer and its legal
counsel promptly (but in no event less than two (2) business days)
before the same is filed with the SEC, one copy of the proxy or
information statement and any amendment thereto, and shall deliver to
each Buyer promptly 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
proxy or information statement (other than any portion thereof which
contains information for which the Company has sought confidential
treatment). The Company will promptly (but in no event more than three
(3) business days) respond to any and all comments received from the
SEC (which comments shall promptly be made available to each Buyer).
The Company shall comply with the filing and disclosure requirements
of Section 14 under the 1934 Act in connection with the Stockholder
Approval. The Company represents and warrants that its Board of
Directors has approved the proposal contemplated by this Section 4(l)
and shall indicate such approval in the proxy or information statement
used in connection with the Stockholder Approval.
O. RESTRICTION ON SHORT SALES. The Buyers agree that, so long as
--------------------------
any of the Notes remain outstanding, but in no event less than two (2)
years from the date hereof, the Buyers will not enter into or effect
any "short sales" (as such term is defined in Rule 3b-3 of the 0000
Xxx) of the Common Stock or hedging transaction which establishes a
net short position with respect to the Common Stock.
P. BREACH OF COVENANTS. If the Company breaches any of the
---------------------
covenants set forth in this Section 4, and in addition to any other
remedies available to the Buyers pursuant to this Agreement, the
Company shall pay to the Buyers the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the
Company, until such breach is cured. If the Company elects to pay the
Standard Liquidated Damages Amount in shares, such shares shall be
issued at the Conversion Price at the time of payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
-----------------------------
instructions to its transfer agent to issue certificates, registered in the
name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Notes or exercise of the Warrants in
accordance with the terms thereof (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and
Warrant Shares may be sold pursuant to Rule 144 without any restriction as
to the number of Securities as of a particular date that can then be
immediately sold, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof (in the case of the Conversion Shares and Warrant
Shares, prior to registration of the Conversion Shares and Warrant Shares
under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the
number of Securities as of a particular date that can then be immediately
sold), will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any
way the Buyer's obligations and agreement set forth in Section 2(g) hereof
to comply with all applicable prospectus delivery requirements, if any,
upon re-sale of the Securities. If a Buyer provides the Company with (i) an
opinion of counsel in form, substance and scope customary for opinions in
comparable transactions, to the effect that a public sale or transfer of
such Securities may be made without registration under the 1933 Act and
such sale or transfer is effected or (ii) the Buyer provides reasonable
assurances that the Securities can be sold pursuant to Rule 144, the
Company shall permit the transfer, and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue
one or more certificates, free from restrictive legend, in such name and in
such denominations as specified by such Buyer. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable
harm to the Buyers, by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the remedy
at law for a breach of its obligations under this Section 5 may be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
-----------------------------------------------
the Company hereunder to issue and sell the Notes and Warrants to a Buyer
at the Closing is subject to the satisfaction, at or before the Closing
Date of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
A. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the
Company.
B. The applicable Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
C. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date),
and the applicable Buyer shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by the applicable Buyer at or prior to the Closing Date.
D. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority
of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
--------------------------------------------------
of each Buyer hereunder to purchase the Notes and Warrants at the Closing
is subject to the satisfaction, at or before the Closing Date of each of
the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its
sole discretion:
A. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
B. The Company shall have delivered to such Buyer duly executed
Notes (in such denominations as the Buyer shall request) and Warrants
in accordance with Section 1(b) above.
C. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall
have been delivered to and acknowledged in writing by the Company's
Transfer Agent.
D. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and
as of the Closing Date as though made at such time (except for
representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by the Company at or prior to the Closing Date. The Buyer shall have
received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, but not limited to certificates
with respect to the Company's Certificate of Incorporation, By-laws
and Board of Directors' resolutions relating to the transactions
contemplated hereby.
E. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority
of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
F. No event shall have occurred which could reasonably be
expected to have a Material Adverse Effect on the Company.
G. The Conversion Shares and Warrant Shares shall have been
authorized for quotation on the OTCBB and trading in the Common Stock
on the OTCBB shall not have been suspended by the SEC or the OTCBB.
H. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer and in substantially the same
form as EXHIBIT "D" attached hereto.
I. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
------------------------------
A. GOVERNING LAW. 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 IN 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
REGISTERED 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 REASONABLE ATTORNEYS'
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
B. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be
--------------------------------------
executed in one 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.
C. HEADINGS. The headings of this Agreement are for convenience
--------
of reference only and shall not form part of, or affect the
interpretation of, this Agreement.
D. SEVERABILITY. 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.
E. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
------------------------------
instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the
Company nor the Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.
F. NOTICES. Any notices required or permitted to be given under
-------
the terms of this Agreement 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.
00000 Xxxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (281)
With a copy to:
Xxxxx X. Xxxx, Esq.
0000 Xxxxx Xxxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to a Buyer: To the address set forth immediately below such Buyer's name
on the signature pages hereto.
With copy to:
Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000 Xxxxxx Xxxxxx
00xx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide notice to the other party of any change in address.
G. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
-----------------------
and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement
or any rights or obligations hereunder without the prior written
consent of the other. Notwithstanding the foregoing, subject to
Section 2(f), any Buyer may assign its rights hereunder to any person
that purchases Securities in a private transaction from a Buyer or to
any of its "affiliates," as that term is defined under the 1934 Act,
without the consent of the Company.
H. THIRD PARTY BENEFICIARIES. This Agreement is intended for the
-------------------------
benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
I. SURVIVAL. The representations and warranties of the Company
--------
and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company
agrees to indemnify and hold harmless each of the Buyers and all their
officers, directors, employees and agents for loss or damage arising
as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties and covenants set
forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement,
including advancement of expenses as they are incurred.
J. PUBLICITY. The Company and each of the Buyers shall have the
---------
right to review a reasonable period of time before issuance of any
press releases, SEC, OTCBB or NASD filings, or any other public
statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the
-------- -------
prior approval of each of the Buyers, to make any press release or
SEC, OTCBB (or other applicable trading market) or NASD filings with
respect to such transactions as is required by applicable law and
regulations (although each of the Buyers shall be consulted by the
Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity
to comment thereon).
K. FURTHER ASSURANCES. 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.
L. NO STRICT CONSTRUCTION. 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.
M. REMEDIES. The Company acknowledges that a breach by it of its
--------
obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law
for a 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 the provisions of this Agreement, that the Buyers
shall be entitled, in addition to all other available remedies at 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.
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.
PEDIATRIC PROSTHETICS, INC.
/s/ Xxxxx Xxxxxxx-Xxxx
--------------------------------------
Xxxxx Xxxxxxx-Xxxx
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
/s/ Xxxxx X. Xxxxxxxx
--------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $________
Number of Warrants: ________
Aggregate Purchase Price: $________
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
/s/ Xxxxx X. Xxxxxxxx
-------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: Cayman Islands
ADDRESS: AJW Offshore, Ltd.
X.X. Xxx 00000 XXX
Xxxxx Xxxxxx, Xxxxxx Xxxxxx, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $_______
Number of Warrants: _______
Aggregate Purchase Price: $_______
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
/s/ Xxxxx X. Xxxxxxxx
---------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $________
Number of Warrants: ________
Aggregate Purchase Price: $________
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLP
/s/ Xxxxx X. Xxxxxxxx
---------------------------------------
Xxxxx X. Xxxxxxxx
Manager
RESIDENCE: New York
ADDRESS: 0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $______
Number of Warrants: ______
Aggregate Purchase Price: $______
