SECOND WAIVER OF RIGHTS AGREEMENT
EXHIBIT 10.1
This
Second Waiver of Rights Agreement (the “Agreement”)
is
made and entered into on April 17, 2007, to be effective as of January 15,
2007 (the “Effective
Date”),
by
and between Pediatric
Prosthetics, Inc.,
an
Idaho corporation (“Pediatric”)
and
AJW
Partners, Inc., AJW Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners,
LLC and New Millennium Capital Partners, II, LLC
(collectively the “Purchasers”),
each
individually a “Party”
and
collectively the “Parties.”
WHEREAS,
pursuant to a Securities Purchase Agreement entered into with the Purchasers
on
May 30, 2006 (the “Closing”
and
the
“Purchase
Agreement”),
Pediatric agreed to sell the Purchasers an aggregate of $1,500,000 in three
tranches of Callable Secured Convertible Notes (the “Notes”),
of
which $600,000 in Notes were sold on May 30, 2006 and $400,000 in Notes were
sold on or around February 16, 2007, with the remaining $500,000 in Notes to
be
sold in a subsequent tranche when Pediatric receives effectiveness of its Form
SB-2 Registration Statement as set forth in the Purchase Agreement.
Additionally, pursuant to the Purchase Agreement and in connection with the
sale
of the Notes, Pediatric granted 50,000,000 Warrants to purchase shares of
Pediatric’s common stock at $0.10 per share to the Purchasers (the “Warrants”
or
“Warrant
Agreements”);
WHEREAS,
Pediatric agreed to register the shares of common stock which the Notes are
convertible into and the shares of common stock which the Warrants are
exercisable for (the “Underlying
Securities”),
pursuant to a Registration Rights Agreement (the “Rights
Agreement”)
entered into with the Purchasers at the Closing;
WHEREAS,
the
Parties have previously entered into a Waiver of Rights Agreement dated October
25, 2006 (the “Waiver
Agreement”),
to
amend certain of the documents entered into by the Parties at the Closing,
including the Rights Agreement, which Waiver Agreement shall not be affected
by
the terms and conditions of this Agreement;
WHEREAS,
pursuant to Section 4(n) of the Purchase Agreement, as amended by the Waiver
Agreement, Pediatric agreed to use its best efforts to obtain shareholders
consent on or before December 15, 2006, to increase its authorized shares of
common stock (the “Shareholder
Approval”);
and
pursuant to Section 2(a) of the Rights Agreement, as amended by the Waiver
Agreement, Pediatric agreed to file a registration statement with the Commission
(the “Registration
Statement”)
covering the Underlying Securities no later than January 15, 2007 (“Filing
Date”)
and
pursuant to Section 3(a) of the Rights Agreement, as amended by the Waiver
Agreement, to obtain effectiveness of such Registration Statement by April
16,
2007 (the “Effectiveness
Date”);
WHEREAS,
pursuant to Section 3(V) of the Securities Purchase Agreement, Pediatric agreed
to maintain effective controls and procedures (the “Controls
and Procedures”),
which
Controls and Procedures Pediatric has had difficultly in maintaining to
date;
WHEREAS,
pursuant to Section 3(X) of the Securities Purchase Agreement, Pediatric agreed
that following the Closing, it would be “solvent,” defined as having assets
with
a
fair market value greater than its liabilities (“Solvency”),
which
Pediatric no longer believes is correct;
WHEREAS,
pursuant to Section 7(G) of the Securities Purchase Agreement and Section 3.9
of
the Notes, Pediatric agreed to obtain authorization to have its common stock
quoted on the OTCBB, which authorization has not been obtained to date (the
“Listing
Requirement”);
NOW,
THEREFORE,
in
consideration for the promises and pledges contained below and other good and
valuable consideration, which consideration Pediatric and the Purchasers
acknowledge receipt of, and the premises and the mutual covenants, agreements,
and considerations herein contained, the Parties hereto agree as
follows:
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Due
to the fact that Pediatric has experienced delays in filing its periodic
reports and information statement filing with the Commission in connection
with comments received from the Commission, which comments were unforeseen
at the Closing, and in consideration for the grant of the Additional
Warrants (as defined below) the Purchasers
agree:
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| (1) |
To
reconfirm the waiver of Pediatric’s failure to file a registration
statement covering the Underlying Securities prior to January 15,
2007,
which was the required filing date as provided in the Waiver Agreement,
which default has previously been waived via
email;
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| (2) |
That
Pediatric is not in default of the Registration Rights Agreement
or
Warrant Agreements as a result of such Registration Statement not
including the shares issuable to the Purchasers in connection with
the
exercise of the Warrants;
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(3)
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To
waive Pediatric’s inability to maintain effective Controls and Procedures
and to require Pediatric moving forward to use its “best efforts” to
maintain effective Controls and
Procedures;
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(4)
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To
waive the Solvency requirement as provided by the Securities Purchase
Agreement;
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(5)
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To
waive the Listing Requirement as provided by the Securities Purchase
Agreement and Notes, and instead to require Pediatric to use its
“best
efforts” to obtain listing of its securities on the OTCBB as soon
hereafter as practicable; and
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which
acknowledgments and waivers shall be effective as of the Effective
Date.
(a) Subject
to satisfaction of the conditions precedent set forth in Section 5 below, and
in
consideration for the issuance of the Additional Warrants, as defined below,
Section 1(a)(iii) of the Rights Agreement is hereby amended and replaced in
its
entirety and the following new Section 1(a)(iii), inserted in lieu
thereof:
““Registrable
Securities”
means
9,356,392 of the Conversion Shares issued or issuable upon conversion or
otherwise pursuant to the Notes and Additional Notes (as defined in the
Securities Purchase Agreement), which amount shall include, without limitation,
any and all Damages Shares (as defined in the Notes) 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); but such term shall not include
any of the Warrant Shares issuable, upon exercise or otherwise pursuant to
the
Warrants and Additional Warrants (as defined in the Securities Purchase
Agreement);”
(b) Subject
to satisfaction of the conditions precedent set forth in Section 5 below, and
in
consideration for the issuance of the Additional Warrants, as defined below,
Section 2(a) of the Rights Agreement is hereby amended and replaced in its
entirety and the following new Section 2(a), inserted in lieu
thereof:
“Mandatory
Registration.
The
Company shall prepare, and, on or prior to February 15, 2007 (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;”
(c) Subject
to satisfaction of the conditions precedent set forth in Section 5 below, and
in
consideration for the issuance of the Additional Warrants, as defined below,
Section 3(a) of the Rights Agreement is hereby amended and replaced in its
entirety and the following new Section 3(a), inserted in lieu
thereof:
“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
August 13, 2007, 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;”
(d) The
Purchasers agree that after the Parties entry into this Agreement, Pediatric
will only be responsible for registering a total of 9,356,392 of the shares
of
common stock underlying the Notes pursuant to the Rights Agreement, the Notes,
Warrant and Purchase Agreement; that the Purchasers will rely on Rule 144 for
the conversion and subsequent sale of any of the additional shares issuable
in
connection with the conversion of the Notes (including the conversion of any
interest on the Notes or any damages on the Notes) which are no longer required
to be registered pursuant to the Rights Agreement by Pediatric; and that the
Purchasers will rely on their cashless exercise provision and the holding
requirements of Rule 144 in connection with the exercise and subsequent sale
of
the Warrant Shares; and
(e)
Each
party hereto agrees that all provisions of the Rights Agreement, Notes,
Warrants, and Purchase Agreement (the “Closing
Documents”),
describing or referring to the “Registrable Securities” or the shares of common
stock which Pediatric is required to register with the Commission, shall refer
only to the shares of common stock issuable in connection with the conversion
of
9,356,392 of the shares of common stock underlying the Notes, and Pediatric
shall not be responsible for registering any of the other shares convertible
in
connection with the Notes, or issuable in connection with the exercise of the
Warrants; and that any references in the Closing Documents to the Filing Date
and/or the Effectiveness Date shall refer to those dates as amended
hereby.
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In
connection with and in consideration for the Purchasers agreeing
to the
terms and conditions of Sections 1 and 2, above, Pediatric agrees
to grant
an additional 1,000,000 Warrants to the Purchasers, on substantially
the
same terms and conditions as the previous Warrants granted in connection
with the Closing, including an exercise price of $0.10 per share
and an
expiration date of May 30, 2013, but with a grant date of the date
of this
Agreement as provided above (the “Additional
Warrants”),
which Additional Warrants shall be distributed to the Purchasers
as
provided on Schedule 1 attached hereto, and which Additional Warrants
shall not be required to be registered with the
Commission.
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The
Purchasers agree that after the Parties entry into this Agreement, Pediatric
will not be in default of any covenant described in the Closing Documents or
Registration Rights Agreement, and that no Event of Default as defined in those
documents shall have occurred or shall be occurring.
5.Conditions
of Effectiveness.
This
Amendment shall become effective upon due execution by each of the Parties
hereto.
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(1)
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Assignment.
All of the terms, provisions and conditions of this Agreement shall
be
binding upon and shall inure to the benefit of and be enforceable
by the
Parties hereto and their respective successors and permitted assigns.
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|
(2)
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Applicable
Law.
This Agreement shall be construed in accordance with and governed
by the
laws of the State of Texas, excluding any provision of this Agreement
which would require the use of the laws of any other
jurisdiction.
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(3)
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Entire
Agreement, Amendments and Waivers.
This Agreement constitutes the entire agreement of the Parties hereto
and
expressly supersedes all prior and contemporaneous understandings
and
commitments, whether written or oral, with respect to the subject
matter
hereof. No variations, modifications, changes or extensions of this
Agreement or any other terms hereof shall be binding upon any Party
hereto
unless set forth in a document duly executed by such Party or an
authorized agent or such Party.
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| (4) |
Waiver.
No
failure on the part of any Party to enforce any provisions of this
Agreement will act as a waiver of the right to enforce that
provision.
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(5)
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Section
Headings.
Section headings are for convenience only and shall not define or
limit
the provisions of this Agreement.
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(6)
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Effect
of Facsimile and Photocopied Signatures.
This Agreement may be executed in several counterparts, each of which
is
an original. It shall not be necessary in making proof of this Agreement
or any counterpart hereof to produce or account for any of the other
counterparts. A copy of this Agreement signed by one Party and faxed
to
another Party shall be deemed to have been executed and delivered
by the
signing Party as though an original. A photocopy of this Agreement
shall
be effective as an original for all
purposes.
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[Remainder
of page left intentionally blank. Signature page follows.]
This
Agreement has been executed by the Parties on the date first written above,
with
an Effective Date as provided above.
Pediatric
Prosthetics, Inc.
Xxxxxxx
X. Xxxx
VP
Operation, C.O.O.
Purchasers:
AJW
Partners, LLC
By:
SMS
Group, LLC
/s/
Xxxxx X.
Xxxxxxxx
Xxxxx
X.
Xxxxxxxx
Manager
AJW
Offshore, Ltd.
By:
First
Street Manager II, LLC
/s/
Xxxxx X.
Xxxxxxxx
Xxxxx
X.
Xxxxxxxx
Manager
AJW
Qualified Partners, LLC
By:
AJW
Manager, LLC
/s/
Xxxxx X.
Xxxxxxxx
Xxxxx
X.
Xxxxxxxx
Manager
New
Millennium Capital Partners, Ii, LLC
By:
First
Street Manager II, LLC
/s/
Xxxxx X.
Xxxxxxxx
Xxxxx
X.
XxxxxxxxManager
SCHEDULE
1
Breakdown
of the Grant of Additional Warrants
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Purchasers:
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Warrants
|
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AJW
Partners, LLC
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102,000 |
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AJW
Offshore, Ltd.
|
606,000 |
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AJW
Qualified Partners, LLC
|
279,000 |
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New
Millennium Capital Partners, II, LLC
|
13,000 |
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Total
Warrants
|
1,000,000
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