Document:

ex10-3.htm

    Exhibit 10.3

     

    

     

    

     

    THIS
WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGIS­TERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  EXCEPT
AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS OF
JUNE 2, 2008, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRA­TION
STATEMENT FOR SUCH 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 SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 OR REGULATION S UNDER SUCH ACT.

     

    Right to
Purchase 20,000,000 Shares of Common Stock, par value $.001 per
share

     

    STOCK
PURCHASE WARRANT

     

    THIS CERTIFIES THAT, for value
received, New Millennium Capital Partners II, LLC or its registered assigns, is
entitled to purchase from Pediatric Prosthetics, Inc.,
an Idaho corporation (the “Company”), at any time or from
time to time during the period specified in Paragraph 2 hereof, 20,000,000
fully paid and nonassessable shares of the Company’s Common Stock, par value
$.001 per share (the “Common
Stock”), at an exercise price per share equal to $.001 (the “Exercise
Price”).  The term “Warrant Shares,” as used herein, refers to
the shares of Common Stock purchasable hereunder.  The Warrant Shares
and the Exercise Price are subject to adjustment as provided in Paragraph 4
hereof.  The term “Warrants” means this Warrant and the other warrants
issued pursuant to that certain Securities Purchase Agreement, dated June 2,
2008, by and among the Company and the Buyers listed on the execution page
thereof (the “Securities
Purchase Agreement”).

     

    This
Warrant is subject to the following terms, provisions, and
conditions:

     

    
      
                       
1.             
Manner of Exercise; Issuance of
Certificates; Payment for Shares.  Subject to the provisions hereof,
this Warrant may be exercised by the holder hereof, in whole or in part, by the
surrender of this Warrant, together with a completed exercise agreement in the
form attached hereto (the “Exercise Agreement”), to the Company during normal
business hours on any business day at the Company’s principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), and upon (i) payment to the Company in cash, by
certified or offi­cial bank check or by wire transfer for the account of the
Company of the Exercise Price for the Warrant Shares specified in the

      

    

     

     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

     

    
      	
              Exercise
      Agreement or (ii) if the resale of the Warrant Shares by the holder is not
      then registered pursuant to an effective registration statement under the
      Securities Act of 1933, as amended (the “Securities Act”),
      delivery to the Company of a written notice of an election to effect a
      “Cashless Exercise” (as defined in Section 11(c) below) for the Warrant
      Shares specified in the Exercise Agreement.  The Warrant Shares
      so purchased shall be deemed to be issued to the holder hereof or such
      holder’s designee, as the record owner of such shares, as of the close of
      business on the date on which this Warrant shall have been surrendered,
      the completed Exercise Agreement shall have been deliv­ered, and
      payment shall have been made for such shares as set forth
      above.  Certifi­cates for the Warrant Shares so purchased,
      representing the aggregate number of shares specified in the Exercise
      Agreement, shall be delivered to the holder hereof within a reasonable
      time, not exceeding five (5) business days, after this Warrant shall have
      been so exercised.  The certificates so delivered shall be in
      such denominations as may be requested by the holder hereof and shall be
      registered in the name of such holder or such other name as shall be
      designated by such holder.  If this Warrant shall have been
      exercised only in part, then, unless this Warrant has expired, the Company
      shall, at its expense, at the time of delivery of such certificates,
      deliver to the holder a new Warrant representing the number of shares with
      respect to which this Warrant shall not then have been
      exercised.  In addition to all other available remedies at law
      or in equity, if the Company fails to deliver certificates for the Warrant
      Shares within five (5) business days after this Warrant is exercised, then
      the Company shall pay to the holder in cash a penalty (the “Penalty”)
      equal to 2% of the number of Warrant Shares that the holder is entitled to
      multiplied by the Market Price (as hereinafter defined) for each day that
      the Company fails to deliver certificates for the Warrant
      Shares.  For example, if the holder is entitled to 100,000
      Warrant Shares and the Market Price is $2.00, then the Company shall pay
      to the holder $4,000 for each day that the Company fails to deliver
      certificates for the Warrant Shares.  The Penalty shall be paid
      to the holder by the fifth day of the month following the month in which
      it has accrued.

            

    

     

    Notwithstanding
anything in this Warrant to the contrary, in no event shall the holder of this
Warrant be entitled to exercise a number of Warrants (or portions thereof) in
excess of the number of Warrants (or portions thereof) upon exercise of which
the sum of (i) the number of shares of Common Stock beneficially owned by the
holder and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised Warrants and the
unexercised or unconverted portion of any other securities of the Company
(including the Notes (as defined in the Securities Purchase Agreement)) subject
to a limitation on conversion or exercise analogous to the limitation contained
herein) and (ii) the number of shares of Common Stock issuable upon exercise of
the Warrants (or portions thereof) with respect to which the determination
described herein is being made, would result in beneficial ownership by the
holder and its affiliates of more than 4.9% of the outstanding shares of Common
Stock.  For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (i) of the preceding
sentence.  Notwithstanding anything to the contrary contained herein,
the limitation on exercise of this Warrant set forth herein may not be amended
without (i) the written consent of the holder hereof and the Company and (ii)
the approval of a majority of shareholders of the Company.

     

     

     

     

     

    
      
        
        

      

      
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      2.         
Period of
Exercise. This
Warrant is exercisable at any time or from time to time on or after the date on
which this Warrant is issued and delivered pursuant to the terms of the
Securities Purchase Agreement and before 6:00 p.m., New York, New York time on
the seventh (7th)
anniversary of the date of issuance (the “Exercise Period”).

       

    

    3.         
Certain Agreements of
the Company.

     

    
      	
                The
      Company hereby covenants and agrees as
follows:

            

    

     

    (a)           Shares to
be Fully Paid.  All Warrant
Shares will, upon issuance in accordance with the terms of this Warrant, be
validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.

     

    (b)           Reservation
of Shares.  During the
Exercise Period, the Company shall at all times have authorized, and reserved
for the purpose of issuance upon exercise of this Warrant, a suf­ficient
number of shares of Common Stock to provide for the exercise of this
Warrant.

     

    (c)           Listing.  The Company shall
promptly secure the listing of the shares of Common Stock issuable upon exercise
of the Warrant upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance upon exercise of this Warrant) and shall maintain,
so long as any other shares of Common Stock shall be so listed, such listing of
all shares of Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such listing
of, any other shares of capital stock of the Company issuable upon the exercise
of this Warrant if and so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.

     

    (d)           Certain
Actions Prohibited.  The Company will
not, by amendment of its charter or through any re­organi­zation,
transfer of assets, consolidation, mer­ger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed by it hereunder,
but will at all times in good faith assist in the carrying out of all the
provisions of this Warrant and in the taking of all such action as may
reasonably be requested by the holder of this Warrant in order to protect the
exercise privilege of the holder of this Warrant against dilu­tion or other
impairment, consistent with the tenor and purpose of this
Warrant.  Without limiting the general­ity of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this
Warrant.

     

    (e)           Successors
and Assigns.  This Warrant will
be binding upon any entity succeeding to the Company by merger, consolidation,
or acquisition of all or sub­stantially all the Company’s
assets.

     

    4.        
Antidilution
Provisions. During the
Exercise Period, the Exercise Price and the number of Warrant Shares shall be
subject to adjustment from time to time as provided in this Paragraph
4.

     

     

     

     

     

     

     

    
      
        
        

      

      
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    In the
event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up to the nearest
cent.

     

    (a)           Adjustment
of Exercise Price and Number of Shares upon Issuance of Common Stock.  Except as
otherwise provided in Paragraphs 4(c) and 4(e) hereof, if and whenever on or
after the date of issuance of this Warrant, the Company issues or sells, or in
accordance with Paragraph 4(b) hereof is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Market Price on
the date of issuance (a “Dilutive Issuance”), then immediately upon the Dilutive
Issuance, the Exercise Price will be reduced to a price determined by
multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Market Price in effect
immediately prior to the Dilutive Issuance, and (ii) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.

     

    (b)           Effect on
Exercise Price of Certain Events.  For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:

     

    (i)           
Issuance
of Rights or Options.  If the Company in
any manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock (“Convertible
Securities”) (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as “Options”) and the price per
share for which Common Stock is issuable upon the exercise of such Options is
less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share.  For purposes of the preceding
sentence, the “price per share for which Common Stock is issuable upon the
exercise of such Options” is determined by dividing (i) the total amount, if
any, received or receivable by the Company as consideration for the issuance or
granting of all such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all such
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Options, the minimum aggregate amount of additional consideration
payable upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if
applicable).  No further adjustment to the Exercise Price will be made
upon the actual issuance of such Common Stock upon the exercise of such Options
or upon the conversion or exchange of Convertible Securities issuable upon
exercise of such Options.

     

    (ii)           Issuance
of Convertible Securities.  If the Company in
any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Market Price on the date of
issuance, then the maximum total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed to be outstanding
and to have been issued and sold by the Company for such price per
share.  For the purposes of the preceding sentence, the “price per
share for which Common Stock is issuable upon such conversion or exchange” is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities.  No further adjustment
to the Exercise Price will be made upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities.

     

     

     

     

     

     

    
      
        
        

      

      
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    (iii)          Change in
Option Price or Conversion Rate.  If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.

     

    (iv)           Treatment
of Expired Options and Unexercised Convertible Securities.  If, in any case,
the total number of shares of Common Stock issuable upon exercise of any Option
or upon conversion or exchange of any Convertible Securities is not, in fact,
issued and the rights to exercise such Option or to convert or exchange such
Convertible Securities shall have expired or terminated, the Exercise Price then
in effect will be readjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof), never been
issued.

     

    (v)           
Calculation
of Consideration Received.  If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or
sale.  In case any Common Stock, Options or Convertible Securities are
issued or sold for a consideration part or all of which shall be other than
cash, the amount of the consideration other than cash received by the Company
will be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the
Company will be the Market Price thereof as of the date of
receipt.  In case any Common Stock, Options or Convertible Securities
are issued in connection with any acquisition, merger or consolidation in which
the Company is the surviving corporation, the amount of consideration therefor
will be deemed to be the fair value of such portion of the net assets and
business of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be.  The
fair value of any consideration other than cash or securities will be determined
in good faith by the Board of Directors of the Company.

     

     

     

     

     

     

     

    
      
        
        

      

      
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    (vi)           Exceptions
to Adjustment of Exercise Price.  No adjustment to
the Exercise Price will be made (i) upon the exercise of any warrants, options
or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan, stock option plan or restricted stock plan of the Company now existing or
to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the independent members of the Board of
Directors of the Company or a majority of the members of a committee of
independent directors established for such purpose; or (iii) upon the exercise
of the Warrants.

     

    (c)           Subdivision
or Combination of Common Stock.  If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced.  If the
Company at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.

     

    (d)           Adjustment
in Number of Shares.  Upon each
adjustment of the Exercise Price pursuant to the provisions of this Paragraph 4,
the number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.

     

    (e)           Consolidation,
Merger or Sale.  In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or
sale or conveyance, adequate provision will be made whereby the holder of this
Warrant will have the right to acquire and receive upon exercise of this Warrant
in lieu of the shares of Common Stock immediately theretofore acquirable upon
the exercise of this Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place.  In any such case, the Company will make appropriate provision
to insure that the provisions of this Paragraph 4 hereof will thereafter be
applicable as nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise of this Warrant.  The
Company
will not effect any consolidation, merger or sale or conveyance unless prior to
the consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Paragraph 4 and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire.

     

     

     

     

     

    
      
        
        

      

      
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    (f)           Distribution
of Assets.  In case the
Company shall declare or make any distribution of its assets (including cash) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise, then, after the date of record for determining
shareholders entitled to such distribution, but prior to the date of
distribution, the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, to receive the amount of such assets which would have been payable to
the holder had such holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such
distribution.

     

    (g)           Notice of
Adjustment.  Upon the
occurrence of any event which requires any adjustment of the Exercise Price,
then, and in each such case, the Company shall give notice thereof to the holder
of this Warrant, which notice shall state the Exercise Price resulting from such
adjustment and the increase or decrease in the number of Warrant Shares
purchasable at such price upon exercise, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is
based.  Such calculation shall be certified by the Chief Financial
Officer of the Company.

     

    (h)           Minimum
Adjustment of Exercise Price.  No adjustment of
the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.

     

    (i)           No
Fractional Shares.  No fractional
shares of Common Stock are to be issued upon the exercise of this Warrant, but
the Company shall pay a cash adjustment in respect of any fractional share which
would otherwise be issuable in an amount equal to the same fraction of the
Market Price of a share of Common Stock on the date of such
exercise.

     

    (j)           Other
Notices.  In case at any
time:

     

    (i)           the
Company shall declare any dividend upon the Common Stock payable in shares of
stock of any class or make any other distribution (including dividends or
distributions payable in cash out of retained earnings) to the holders of the
Common Stock;

     

    (ii)          the
Company shall offer for subscription pro rata to the holders of the Common Stock
any additional shares of stock of any class or other rights;

     

    (iii)         there
shall be any capital reorganiza­tion of the Company, or reclassification of
the Common Stock, or consolidation or merger of the Company with or into, or
sale of all or substan­tially all its assets to, another corporation or
entity; or

     

    (iv)          there
shall be a voluntary or involun­tary dissolution, liquidation or winding up
of the Company;

     

     

     

     

     

    
      
        
        

      

      
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    then, in
each such case, the Company shall give to the holder of this Warrant (a) notice
of the date on which the books of the Company shall close or a record shall be
taken for determining the holders of Common Stock entitled to receive any such
divi­dend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place.  Such notice shall also
specify the date on which the holders of Common Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to exchange their
Common Stock for stock or other securities or property deliverable upon such
reorganization, re­classification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be.  Such notice shall be
given at least 30 days prior to the record date or the date on which the
Company’s books are closed in respect thereto.  Failure to give any
such notice or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.

     

    (k)           Certain
Events.  If any event
occurs of the type contemplated by the adjustment provisions of this Paragraph 4
but not expressly provided for by such provisions, the Company will give notice
of such event as provided in Paragraph 4(g) hereof, and the Company’s Board of
Directors will make an appropriate adjustment in the Exercise Price and the
number of shares of Common Stock acquirable upon exercise of this Warrant so
that the rights of the holder shall be neither enhanced nor diminished by such
event.

     

    (l)           Certain
Definitions.

     

    (i)           “Common
Stock Deemed Outstanding” shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.

     

    (ii)          “Market
Price,” as of any
date, (i) means the average of the last reported sale prices for the shares of
Common Stock on the OTCBB for the five (5) Trading Days immediately preceding
such date as reported by Bloomberg, or (ii) if the OTCBB is not the principal
trading market for the shares of Common Stock, the average of the last reported
sale prices on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if market value cannot be calculated
as of such date on any of the foregoing bases, the Market Price shall be the
fair market value as reasonably determined in good faith by (a) the Board of
Directors of the Company or, at the option of a majority-in-interest of the
holders of the outstanding Warrants by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.

     

    (iii)         “Common
Stock,” for
purposes of this Paragraph 4, includes the Common Stock, par value $.001 per
share, and any additional class of stock of the Company having no preference as
to dividends or distributions on liquidation, provided that the shares
purchasable pursuant to this Warrant shall include only shares of Common Stock,
par value $.001 per share, in respect of which this Warrant is exercisable, or
shares resulting from any subdivision or combination of such Common Stock, or in
the case of any reorganization, reclassification, consolidation, merger, or sale
of the character referred to in Paragraph 4(e) hereof, the stock or other
securities or property provided for in such Paragraph.

     

     

     

     

     

    
      
        
        

      

      
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      5.         
Issue Tax 
The issuance of certificates for Warrant
Shares upon the exercise of this Warrant shall be made without charge to the
holder of this Warrant or such shares for any issuance tax or other costs in
respect thereof, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the holder of this
Warrant.

       

      6.         
No Rights or
Liabilities as a Shareholder.  This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a shareholder of the Company.  No
provision of this Warrant, in the absence of affirmative action by the holder
hereof to purchase Warrant Shares, and no mere enumeration herein of the rights
or privileges of the holder hereof, shall give rise to any liability of such
holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the
Company.

       

    

    7.         
Transfer, Exchange,
and Replacement of Warrant.

     

    (a)           Restriction
on Transfer.  This Warrant and
the rights granted to the holder hereof are transferable, in whole or in part,
upon surrender of this Warrant, together with a properly executed assignment in
the form attached hereto, at the office or agency of the Company referred to in
Paragraph 7(e) below, pro­vided, however, that any transfer or
assignment shall be subject to the conditions set forth in Paragraph 7(f) hereof
and to the applicable provisions of the Securities Purchase
Agreement.  Until due presentment for registration of transfer on the
books of the Company, the Company may treat the registered holder hereof as the
owner and holder hereof for all purposes, and the Company shall not be affected
by any notice to the con­trary.

     

    (b)           Warrant
Exchangeable for Different Denomina­tions.  This Warrant is
exchange­able, upon the surrender hereof by the holder hereof at the office
or agency of the Company referred to in Paragraph 7(e) below, for new Warrants
of like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.

     

    (c)           Replacement
of Warrant.  Upon receipt of
evi­dence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft, or destruc­tion, upon delivery of an indemnity agreement
reason­ably satisfactory in form and amount to the Company, or, in the case
of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.

     

    (d)           Cancellation;
Payment of Expenses.  Upon the
surrender of this Warrant in connection with any trans­fer, exchange, or
replacement as provided in this Paragraph 7, this Warrant shall be promptly
canceled by the Company.  The Company shall pay all taxes (other than
securities transfer taxes) and all other expenses (other than legal expenses, if
any, incurred by the holder or transferees) and charges payable in connection
with the preparation, execution, and delivery of Warrants pursuant to this
Paragraph 7.

     

     

     

     

     

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

     

     

     

     

    (e)          Register.  The Company shall
maintain, at its principal executive offices (or such other office or agency of
the Company as it may designate by notice to the holder hereof), a register for
this Warrant, in which the Company shall record the name and address of the
person in whose name this Warrant has been issued, as well as the name and
address of each transferee and each prior owner of this Warrant.

     

    (f)           Exercise
or Transfer Without Registration.  If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the “Securities Act”) and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
“accredited investor” as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an “accredited investor”
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act.  The first holder of this Warrant, by taking and
holding the same, represents to the Company that such holder is acquiring this
Warrant for investment and not with a view to the distribution
thereof.

     

    8.                       [Intentionally
Omitted]

     

    9.                       Notices.  All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been furnished
to the Company by notice from such holder.  All notices, requests, and
other communications required or permitted to be given or delivered hereunder to
the Company shall be in writing, and shall be personally delivered, or shall be
sent by certified or registered mail or by recognized overnight mail courier,
postage prepaid and addressed, to the office of the Company at 12926 Willowchase
Drive, Houston, TX 77070, Attention: Chief Executive Officer, facsimile No:
(281) 897-8462, or at such other address as shall have been furnished to the
holder of this Warrant by notice from the Company.  Any such notice,
request, or other communication may be sent by facsimile, but shall in such case
be subsequently confirmed by a writing personally delivered or sent by certified
or registered mail or by recognized overnight mail courier as provided
above.  All notices, requests, and other communications shall be
deemed to have been given either at the time of the receipt thereof by the
person entitled to re­ceive such notice
at the address of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier upon
deposit with the United States Post Office or such overnight mail courier, if
postage is prepaid and the mailing is properly addressed, as the case may
be.

     

    
       

    

     

     

     

     

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

     

    
      
        10.                    
Governing
Law.   THIS WARRANT 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 WARRANT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING.  BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A
PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT
A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN
ANY DISPUTE ARISING UNDER THIS WARRANT SHALL BE RESPONSIBLE FOR ALL FEES AND
EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
CONNECTION WITH SUCH DISPUTE

      

    

     

    11.                   
Miscellaneous.

     

    (a)          Amendments.  This Warrant and
any provision hereof may only be amended by an instrument in writing signed by
the Company and the holder hereof.

     

    (b)          Descriptive
Headings.  The descriptive
headings of the several paragraphs of this Warrant are in­serted for
purposes of reference only, and shall not affect the meaning or construction of
any of the provisions hereof.

     

    (c)          Cashless
Exercise.  Notwithstanding
anything to the contrary contained in this Warrant, if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act, this Warrant may be exercised
by presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder’s intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
“Cashless Exercise”).  In the event of a Cashless Exercise, in lieu of
paying the Exercise Price in cash, the holder shall surrender this Warrant for
that number of shares of Common Stock determined by multiplying the number of
Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then current Market Price
per share of the Common Stock and the Exercise Price,  and the
denominator of which shall be the then current Market Price per share of Common
Stock.  For example, if the holder is exercising 100,000 Warrants with
a per Warrant exercise price of $0.75 per share through a cashless exercise when
the Common Stock’s current Market Price per share is $2.00 per share, then upon
such Cashless Exercise the holder will receive 62,500 shares of Common
Stock.

     

     

     

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

     

     

     

    (d)           Remedies.  The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the holder, 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
Warrant will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Warrant, that the holder 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 Warrant and to
enforce specifically the terms and provisions thereof, without the necessity of
showing economic loss and without any bond or other security being
required.

     

    

     

    

     

    

     

    

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

     

     

     

     

     

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

     

     

     

     

    IN WITNESS WHEREOF, the
Company has caused this Warrant to be signed by its duly authorized
officer.

     

    PEDIATRIC
PROSTHETICS, INC.

    

    

    

    By: 
/s/ Linda
Putback-Bean

    Linda
Putback-Bean

    Chief
Executive Officer

    

     

    Dated as
of June 2, 2008

     

     

     

     

     

     

     

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

     

     

     

    FORM
OF EXERCISE AGREEMENT

     

    

    
      
        	 
      	
                Dated:  ________
      __, 200_

              

      

    

    
 

     

    To:           ______________________

     

    

     

    

     

    The
undersigned, pursuant to the provisions set forth in the within Warrant, hereby
agrees to purchase ________ shares of Common Stock covered by such Warrant, and
makes pay­ment herewith in full therefor at the price per share provided by
such Warrant in cash or by certified or official bank check in the amount of,
or, if the resale of such Common Stock by the undersigned is not currently
registered pursuant to an effective registration statement under the Securities
Act of 1933, as amended, by surrender of securities issued by the Company
(including a portion of the Warrant) having a market value (in the case of a
portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________.  Please issue a certificate or
certifi­cates for such shares of Common Stock in the name of and pay any
cash for any fractional share to:

     

     

     

     

    
      
        	 
      	
                Name:                                                    

              	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                Signature:

              	 
      
	 
      	
                Address:                                             
       

              	 
      
	 	                                                              
       	 

      

       

      
        	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                Note:

              	
                The
      above signature should correspond exactly with the name on the face of the
      within Warrant, if
applicable.

              

      

    

     

    and, if
said number of shares of Common Stock shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned covering the balance of the shares purchasable thereunder less any
frac­tion of a share paid in cash.

     

     

     

     

     

     

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

     

     

     

     

    FORM
OF ASSIGNMENT

     

    

     

    

     

    FOR VALUE RECEIVED, the
undersigned hereby sells, assigns, and transfers all the rights of the
undersigned under the within Warrant, with respect to the number of shares of
Common Stock covered thereby set forth hereinbelow, to:

    

     

    Name of
Assignee                                                                Address                                                                No of
Shares

     

    

     

    

     

    

     

    , and
hereby irrevocably constitutes and appoints ___________________________________
as agent and attorney-in-fact to trans­fer said Warrant on the books of the
within-named corporation, with full power of substitution in the
premises.

     

    

     

    Dated:                      ________
__, 200_

     

    

     

    In the
presence of: 

     

                            

    
      	 
      	
              Name:                                             
      

            
	 
      	 
      
	 
      	
              Signature:                                     
       

            
	 
      	
              Title
      of Signing Officer or Agent (if any):

            
	 
      	 
      
	 
      	
              Address:                                        

            

    

    
      	 	                                                       
       
	 	 
      	 
      	 
      
	 	 
      	
              Note:

            	
              The
      above signature should correspond exactly with the name on the face of the
      within Warrant, if applicable.

            

    

                                                               

     

     

     

     

     

     

    
      
        
        

      

      
        -15-ex10-4.htm

    
      Exhibit
10.4

       

      REGISTRATION
RIGHTS AGREEMENT

       

      REGISTRATION
RIGHTS AGREEMENT (this “Agreement”), dated as of June
2, 2008, by and among Pediatric Prosthetics, Inc., an Idaho corporation with its
headquarters located at 12926 Willowchase Drive, Houston, TX
77070  (the “Company”), and each of the
undersigned (together with their respective affiliates and any assignee or
transferee of all of their respective rights hereunder, the “Initial
Investors”).

       

      WHEREAS:

       

      A.           In
connection with the Securities Purchase Agreement by and among the parties
hereto of even date herewith (the “Securities Purchase
Agreement”), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors
 secured convertible notes in the aggregate principal amount of up to One
Hundred Fifty Thousand Dollars ($150,000) (the “Notes”) that are convertible
into shares of the Company’s common stock (the “Common Stock”), upon the terms
and subject to the limitations and conditions set forth in such Notes and
 warrants (the “Warrants”) to acquire an
aggregate of 20,000,000 shares of Common Stock, upon the terms and conditions
and subject to the limitations and conditions set forth in the Warrants;
and

       

      B.           To
induce the Initial Investors to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the “1933 Act”), and applicable
state securities laws;

       

      NOW, THEREFORE, in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and each of the Initial Investors hereby agree
as follows:

       

      1.     
DEFINITIONS.

       

      a.           As
used in this Agreement, the following terms shall have the following
meanings:

       

      (i)           “Additional Registration
Statement” means any Registration Statement necessary to register shares
of the Registrable Securities at any time after the date such initial
Registration Statement is required to be declared effective pursuant to Section
2(d), and for any reason are not covered by an effective Registration
Statement.

       

      (ii)           “Investors” means the Initial
Investors and any transferee or assignee who agrees to become bound by the
provisions of this Agreement in accordance with Section 9 hereof.

       

      (iii)           “register,” “registered,” and “registration” refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis (“Rule 415”), and
the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the “SEC”).

       

       

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

       

       

       

      (iv)           “Registrable Securities” means
the Conversion Shares issued or issuable upon conversion or otherwise pursuant
to the Notes including, without limitation, Damages Shares (as defined in the
Notes) issued or issuable pursuant to the Notes, shares of Common Stock issued
or issuable in payment of the Standard Liquidated Damages Amount (as defined in
the Securities Purchase Agreement), shares issued or issuable in respect of
interest or in redemption of the Notes in accordance with the terms thereof) and
Warrant Shares issuable, upon exercise or otherwise pursuant to the Warrants,
and any shares of capital stock issued or issuable as a dividend on or in
exchange for or otherwise with respect to any of the foregoing.

       

      (v)           “Registration Statement” means
a registration statement of the Company under the 1933 Act.

       

      (vi)           “Rule 415” means Rule 415
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar Rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

       

      b.           Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement or the
Notes.

       

      2.     
REGISTRATION.

       

      a.           Mandatory
Registration.  At any time after a period of six (6) months
from the date hereof, the Company shall prepare, and, on or prior to thirty (30)
days from the date of receipt of written demand of the Investors (the “Filing Date”), file with the
SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then available,
on such form of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities underlying the Notes and Warrants issued or
issuable pursuant to the Securities Purchase Agreement, which Registration
Statement, to the extent allowable under the 1933 Act and the rules and
regulations promulgated thereunder (including Rule 416), shall state that such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of or otherwise
pursuant to the Notes and exercise of the Warrants to prevent dilution resulting
from stock splits, stock dividends or similar transactions.  However, no
Registration Statement or Additional Registration Statement shall be required to
be filed by the Company regardless of the provisions of this Section 2, at any
time that the Registrable Securities can be sold pursuant to a valid exemption
from registration provided by Rule 144 of the Securities Act of 1933, as
amended. The number of shares of Common Stock initially included in such
Registration Statement shall be equal to thirty percent (30%) of the Company’s
then current public float, or as many as the Commission will then allow, with
priority given to the Conversion Shares, and pro rata between the Investors,
without regard to any limitation on the Investor’s ability to convert the Notes
or exercise the Warrants.  The Company acknowledges that the number of
shares initially
included in the Registration Statement represents a good faith estimate of the
maximum number of shares issuable upon conversion of the Notes and upon exercise
of the Warrants.  Assuming the Company uses its best efforts to register as
many Registrable Securities as possible on the initial Registration Statement or
any Additional Registration Statements, the Company shall not be in default of
the Section 2(d) below.

       

       

       

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

       

       

       

       

       

      b.           Additional
Registration.

       

      (i)           If
at any time and for any reason, an Additional Registration Statement is required
to be filed because at such time the actual number of shares of Registrable
Securities exceeds the number of shares of Registrable Securities remaining
under an effective Registration Statement, the Company shall have thirty (30)
days to file such Additional Registration Statement, and the Company shall use
its best efforts to cause such Additional Registration Statement to be declared
effective by the Commission as soon as possible, but in no event later
than  one hundred forty-five ( 145) days after filing (the “Additional Effectiveness
Date”).

       

      (ii)            In
the event that the Commission does not permit the Company to register all of the
Registrable Securities in the initial Registration Statement or any Additional
Registration Statement (required to be filed pursuant to Section 2(a)) because
of the Commission’s application of Rule 415, the Company shall use its best
efforts to file Additional Registration Statements to register the Registrable
Securities that were not registered in the Initial Registration Statement, in an
amount equal to thirty percent (30%) of the Company’s then public float or as
many as the Commission will then allow, as promptly as possible, pursuant to the
Additional Filing Date deadline set forth below, and in a manner permitted by
the Commission.  For purposes of this Section, “Additional Filing Date”
means with respect to each Additional Registration Statement filed pursuant
hereto thirty (30) days following notice received by the Company from the
Initial Investors of the sale of substantially all of the Registrable Securities
included in the initial Registration Statement or any Additional Registration
Statement

       

      c.           Underwritten
Offering.  If any offering pursuant to a Registration Statement
pursuant to Section 2(a) hereof involves an underwritten offering, the Investors
who hold a majority in interest of the Registrable Securities subject to such
underwritten offering, with the consent of a majority-in-interest of the Initial
Investors, shall have the right to select one legal counsel and an investment
banker or bankers and manager or managers to administer the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company.

       

      d.           Payments
by the Company.  The Company shall use its best efforts to
obtain effectiveness of the Registration Statement as soon as
practicable.  If  the Registration Statement(s) covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not filed by the Filing Date or declared effective by the SEC on
or prior to one hundred forty-five (145) days from the date of receipt of
written demand of the Investors, or  after the Registration Statement has
been declared effective by the SEC, sales of all of the Registrable Securities
cannot be made pursuant to the Registration Statement, or  the Common Stock
is not listed or included for quotation on the Nasdaq National Market
(“Nasdaq”), the Nasdaq
SmallCap Market (“Nasdaq
SmallCap”), the New York Stock Exchange (the “NYSE”) or the American Stock
Exchange (the “AMEX”)
after being 

       

       

       

       

       

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

       

       

       

       

       

       

      so listed
or included for quotation after the date hereof, or  the Common Stock
ceases to be traded on the Over-the-Counter Bulletin Board (the “OTCBB”) or any equivalent
replacement exchange prior to being listed or included for quotation on one of
the aforementioned markets, then the Company will make payments to the Investors
in such amounts and at such times as shall be determined pursuant to this
Section 2(c) as partial relief for the damages to the Investors by reason of any
such delay in or reduction of their ability to sell the Registrable Securities
(which remedy shall not be exclusive of any other remedies available at law or
in equity).  The Company shall pay to each holder of the Notes or
Registrable Securities an amount equal to the then outstanding principal amount
of the Notes (and, in the case of holders of Registrable Securities, the
principal amount of Notes from which such Registrable Securities were converted)
(“Outstanding Principal
Amount”), multiplied by the Applicable Percentage (as defined below)
times the sum of:  (i) the number of months (prorated for partial
months) after the Filing Date or the end of the aforementioned one hundred
forty-five (145) day period and prior to the date the Registration Statement is
declared effective by the SEC, provided, however, that there shall be excluded
from such period any delays which are solely attributable to changes required by
the Investors in the Registration Statement with respect to information relating
to the Investors, including, without limitation, changes to the plan of
distribution, or to the failure of the Investors to conduct their review of the
Registration Statement pursuant to Section 3(h) below in a reasonably prompt
manner; (ii) the number of months (prorated for partial months) that sales of
all of the Registrable Securities cannot be made pursuant to the Registration
Statement after the Registration Statement has been declared effective
(including, without limitation, when sales cannot be made by reason of the
Company’s failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this Agreement, but excluding any days
during an Allowed Delay (as defined in Section 3(f)); and (iii) the number of
months (prorated for partial months) that the Common Stock is not listed or
included for quotation on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX or
that trading thereon is halted after the Registration Statement has been
declared effective.  The term “Applicable Percentage” means
two hundredths (.02).  (For example, if the Registration Statement
becomes effective one (1) month after the end of such one hundred forty-five
(145) day period, the Company would pay $5,000 for each $250,000 of Outstanding
Principal Amount.  If thereafter, sales could not be made pursuant to
the Registration Statement for an additional period of one (1) month, the
Company would pay an additional $5,000 for each $250,000 of Outstanding
Principal Amount.)  Such amounts shall be paid in cash or, at the
Company’s option, in shares of Common Stock priced at the Conversion Price (as
defined in the Notes) on such payment date.

       

      e.           Piggy-Back
Registrations.  Subject to the last sentence of this Section
2(d), if at any time prior to the expiration of the Registration Period (as
hereinafter defined) the Company shall determine to file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other bona fide, employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within fifteen (15) days after the effective
date of such notice, such Investor shall so request in 

       

       

       

       

       

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      

       

       

       

       

      writing,
the Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)’ judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement only such
limited portion of the Registrable Securities with respect to which such
Investor has requested inclusion hereunder as the underwriter shall permit. Any
exclusion of Registrable Securities shall be made pro rata among the Investors
seeking to include Registrable Securities in proportion to the number of
Registrable Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided, further, however, that, after
giving effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights.  No
right to registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a)
hereof.  If an offering in connection with which an Investor is
entitled to registration under this Section 2(d) is an underwritten offering,
then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering.  Notwithstanding anything to the contrary set
forth herein, the registration rights of the Investors pursuant to this Section
2(d) shall only be available in the event the Company fails to timely file,
obtain effectiveness or maintain effectiveness of any Registration Statement to
be filed pursuant to Section 2(a) in accordance with the terms of this
Agreement.

       

      f.           Eligibility
for Form S-3 or S-1; Conversion to Form S-3.  Except as set
forth in Schedule
2(e), the Company represents and warrants that it meets the requirements
for the use of Form S-3 or S-1 for registration of the sale by the Initial
Investors and any other Investors of the Registrable
Securities.   The Company agrees to file all reports required to
be filed by the Company with the SEC in a timely manner so as to remain eligible
or become eligible, as the case may be, and thereafter to maintain its
eligibility, for the use of Form S-3.  If the Company is not currently
eligible to use Form S-3, not later than five (5) business days after the
Company first meets the registration eligibility and transaction requirements
for the use of Form S-3 (or any successor form) for registration of the offer
and sale by the Initial Investors and any other Investors of Registrable
Securities, the Company shall file a Registration Statement on Form S-3 (or such
successor form) with respect to the Registrable Securities covered by the
Registration Statement on Form S-1, whichever is applicable, filed pursuant to
Section 2(a) (and include in such Registration Statement on Form S-3 the
information required by Rule 429 under the 1933 Act) or convert the Registration
Statement on Form S-1, whichever is applicable, filed pursuant to Section 2(a)
to a Form S-3 pursuant to Rule 429 under the 1933 Act and
cause such Registration Statement (or such amendment) to be declared effective
no later than thirty (30) days after filing.  In the event of a breach
by the Company of the provisions of this Section 2(e), the Company will be
required to make payments pursuant to Section 2(c) hereof.

       

       

       

       

       

      
        
          
          

        

        
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      3.     
OBLIGATIONS OF THE
COMPANY.

       

      In
connection with the registration of the Registrable Securities, the Company
shall have the following obligations:

       

      a.           The
Company shall prepare promptly, and file with the SEC not later than the Filing
Date, a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing but in no event later than one
hundred forty-five (145) days from the date of receipt of written demand of the
Investors, and keep the Registration Statement effective pursuant to Rule 415 at
all times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which the Registrable
Securities (in the opinion of counsel to the Initial Investors) may be
immediately sold to the public without registration or restriction (including,
without limitation, as to volume by each holder thereof) under the 1933 Act (the
“Registration Period”),
which Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.

       

      b.           The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statements and
the prospectus used in connection with the Registration Statements as may be
necessary to keep the Registration Statements effective at all times during the
Registration Period, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statements until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statements.  In the event the number of shares available
under a Registration Statement filed pursuant to this Agreement is insufficient
to cover all of the Registrable Securities issued or issuable upon conversion of
the Notes and exercise of the Warrants, the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover all of the Registrable
Securities, in each case, as soon as practicable, but in any event within
fifteen (15) days after the necessity therefor arises (based on the market price
of the Common Stock and other relevant factors on which the Company reasonably
elects to rely).  The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof, but in any event within thirty (30)
days after the date on which the Company reasonably first determines (or
reasonably should have determined) the need therefor.  The provisions
of Section 2(c) above shall be applicable with respect to such obligation, with
the one hundred forty-five (145) days running from the day the Company
reasonably first determines (or reasonably should have determined) the need
therefor.

       

       

       

       

      
        
          
          

        

        
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      c.           The
Company shall furnish to each Investor whose Registrable Securities are included
in a Registration Statement and its legal counsel  promptly (but in no
event more than two (2) business days) after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one copy of each
Registration Statement and any amendment thereto, each preliminary prospectus
and prospectus and each amendment or supplement thereto, and, in the case of the
Registration Statement referred to in Section 2(a), each letter written by or on
behalf of the Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating to
such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential treatment),
and  promptly (but in no event more than two (2) business days) after the
Registration Statement is declared effective by the SEC, such number of copies
of a prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.  The Company will immediately notify each
Investor by facsimile of the effectiveness of each Registration Statement or any
post-effective amendment.  The Company will promptly respond to any
and all comments received from the SEC (which comments shall promptly be made
available to the Investors upon request), with a view towards causing each
Registration Statement or any amendment thereto to be declared effective by the
SEC as soon as practicable, shall promptly file an acceleration request as soon
as practicable (but in no event more than two (2) business days) following the
resolution or clearance of all SEC comments or, if applicable, following
notification by the SEC that any such Registration Statement or any amendment
thereto will not be subject to review and shall, if required by SEC Rules,
promptly file with the SEC a final prospectus as soon as practicable (but in no
event more than two (2) business days) following receipt by the Company from the
SEC of an order declaring the Registration Statement effective.  In
the event of a breach by the Company of the provisions of this Section 3(c), the
Company will be required to make payments pursuant to Section 2(c)
hereof.

       

      d.           The
Company shall use reasonable efforts to  register and qualify the
Registrable Securities covered by the Registration Statements under such other
securities or “blue sky” laws of such jurisdictions in the United States as the
Investors who hold a majority in interest of the Registrable Securities being
offered reasonably request,  prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period,  take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and  take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to  qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(d),  subject itself to
general taxation in any such jurisdiction,  file a general consent to
service of process in any such jurisdiction,  provide any undertakings that
cause the Company undue expense or burden, or  make any change in its
charter or bylaws, which in each case the Board of Directors of the Company
determines to be contrary to the best interests of the Company and its
shareholders.

       

      e.           In
the event Investors who hold a majority-in-interest of the Registrable
Securities being offered in the offering  (with the approval of a
majority-in-interest of the
Initial Investors) select underwriters for the offering, the Company shall enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.

       

       

       

       

       

      
        
          
          

        

        
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      f.           As
promptly as practicable after becoming aware of such event, the Company shall
notify each Investor of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in any Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and use its best efforts promptly to
prepare a supplement or amendment to any Registration Statement to correct such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request; provided that, for not more than ten (10) consecutive trading days (or
a total of not more than twenty (20) trading days in any twelve (12) month
period), the Company may delay the disclosure of material non-public information
concerning the Company (as well as prospectus or Registration Statement
updating) the disclosure of which at the time is not, in the good faith opinion
of the Company, in the best interests of the Company (an “Allowed Delay”); provided,
further, that the Company shall promptly  notify the Investors in writing
of the existence of (but in no event, without the prior written consent of an
Investor, shall the Company disclose to such investor any of the facts or
circumstances regarding) material non-public information giving rise to an
Allowed Delay and  advise the Investors in writing to cease all sales under
such Registration Statement until the end of the Allowed Delay. Upon expiration
of the Allowed Delay, the Company shall again be bound by the first sentence of
this Section 3(f) with respect to the information giving rise
thereto.

       

      g.           The
Company shall use its best efforts to prevent the issuance of any stop order or
other suspension of effectiveness of any Registration Statement, and, if such an
order is issued, to obtain the withdrawal of such order at the earliest possible
moment and to notify each Investor who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance of such order and the resolution thereof.

       

      h.           The
Company shall permit a single firm of counsel designated by the Initial
Investors to review such Registration Statement and all amendments and
supplements thereto (as well as all requests for acceleration or effectiveness
thereof) a reasonable period of time prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably objects and will
not request acceleration of such Registration Statement without prior notice to
such counsel.  The sections of such Registration Statement covering
information with respect to the Investors, the Investor’s beneficial ownership
of securities of the Company or the Investors intended method of disposition of
Registrable Securities shall conform to the information provided to the Company
by each of the Investors.

       

      i.           The
Company shall make generally available to its security holders as soon as
practicable, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the 1933 Act) covering a twelve-month period beginning not later
than the first day of the Company’s fiscal quarter next following the effective
date of the Registration Statement.

       

       

       

       

       

      
        
          
          

        

        
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      j.           At
the request of any Investor, the Company shall furnish, on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with any Registration Statement or, if such securities are not being
sold by an underwriter, on the date of effectiveness thereof  an opinion,
dated as of such date, from counsel representing the Company for purposes of
such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the underwriters, if any,
and the Investors and  a letter, dated such date, from the Company’s
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any, and the
Investors.

       

      k.           The
Company shall make available for inspection by  any Investor,  any
underwriter participating in any disposition pursuant to a Registration
Statement,  one firm of attorneys and one firm of accountants or other
agents retained by the Initial Investors,  one firm of attorneys and one
firm of accountants or other agents retained by all other Investors, and
 one firm of attorneys retained by all such underwriters (collectively, the
“Inspectors”) all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company, including without limitation, records of conversions
by other holders of convertible securities issued by the Company and the
issuance of stock to such holders pursuant to the conversions (collectively, the
“Records”), as shall be
reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company’s officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that each
Inspector shall hold in confidence and shall not make any disclosure (except to
an Investor) of any Record or other information which the Company determines in
good faith to be confidential, and of which determination the Inspectors are so
notified, unless  the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement,  the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction, or  the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement.  The Company
shall not be required to disclose any confidential information in such Records
to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k).  Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential.  Nothing herein (or in any other confidentiality
agreement between the Company and any Investor) shall be deemed to limit the
Investor’s ability to sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations.

       

      l.           The
Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless  disclosure of such
information is necessary to comply with federal or state securities laws,
 the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement,  the release of
such information is ordered pursuant to a subpoena or other order from
a court
or governmental body of competent jurisdiction, or  such information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement.  The Company agrees that it
shall, upon learning that disclosure of such information concerning an Investor
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to such Investor prior to making such
disclosure, and allow the Investor, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, such
information.

       

       

       

       

       

      
        
          
          

        

        
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      m.           The
Company shall  cause all the Registrable Securities covered by the
Registration Statement to be listed on each national securities exchange on
which securities of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable Securities is then permitted
under the rules of such exchange, or  to the extent the securities of the
same class or series are not then listed on a national securities exchange,
secure the designation and quotation, of all the Registrable Securities covered
by the Registration Statement on Nasdaq or, if not eligible for Nasdaq, on
Nasdaq SmallCap or, if not eligible for Nasdaq or Nasdaq SmallCap, on the OTCBB
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the Financial Industry Regulatory Authority
(“FINRA”) as such with
respect to such Registrable Securities.

       

      n.           The
Company shall provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement.

       

      o.           The
Company shall cooperate with the Investors who hold Registrable Securities being
offered and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in such denominations
or amounts, as the case may be, as the managing underwriter or underwriters, if
any, or the Investors may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may request, and,
within three (3) business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel selected by the Company to deliver, to
the transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
instruction in the form attached hereto as Exhibit 1 and an opinion of
such counsel in the form attached hereto as Exhibit 2.

       

      p.           At
the request of the holders of a majority-in-interest of the Registrable
Securities, the Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and any prospectus used in connection with the Registration Statement
as may be necessary in order to change the plan of distribution set forth in
such Registration Statement.

       

      q.           From
and after the date of this Agreement, the Company shall not, and shall not agree
to, allow the holders of any securities of the Company to include any of their
securities, in excess of 250,000 shares of Common Stock, in any Registration
Statement under Section
2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof
without the consent of the holders of a majority-in-interest of the Registrable
Securities.

       

       

       

       

       

       

      
        
          
          

        

        
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      r.           The
Company shall take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of Registrable Securities pursuant to a
Registration Statement.

       

      4.     
OBLIGATIONS OF THE
INVESTORS.

       

      In
connection with the registration of the Registrable Securities, the Investors
shall have the following obligations:

       

      a.           It
shall be a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.  At least three (3) business
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor.

       

      b.           Each
Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of the Registration Statements hereunder, unless
such Investor has notified the Company in writing of such Investor’s election to
exclude all of such Investor’s Registrable Securities from the Registration
Statements.

       

      c.           In
the event Investors holding a majority-in-interest of the Registrable Securities
being registered (with the approval of the Initial Investors) determine to
engage the services of an underwriter, each Investor agrees to enter into and
perform such Investor’s obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities, unless such Investor
has notified the Company in writing of such Investor’s election to exclude all
of such Investor’s Registrable Securities from such Registration
Statement.

       

      d.           Each
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(f) or 3(g), such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor’s
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice.

       

       

       

       

      
        
          
          

        

        
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      e.           No
Investor may participate in any underwritten registration hereunder unless such
Investor  agrees to sell such Investor’s Registrable Securities on the
basis provided in any underwriting arrangements in usual and customary form
entered into by the Company,  completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and
 agrees to pay its pro rata share of all underwriting discounts and
commissions and any expenses in excess of those payable by the Company pursuant
to Section 5 below.

       

      5.     
EXPENSES OF
REGISTRATION.

       

      All
reasonable expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h)
hereof shall be borne by the Company and shall be included in the fees paid to
counsel under the Securities Purchase Agreement for purposes of counsel selected
by the Initial Investors.

       

      6.     
INDEMNIFICATION.

       

      In the
event any Registrable Securities are included in a Registration Statement under
this Agreement:

       

      a.           To
the extent permitted by law, the Company will indemnify, hold harmless and
defend  each Investor who holds such Registrable Securities,  the
directors, officers, partners, employees, agents and each person who controls
any Investor within the meaning of the 1933 Act or the Securities Exchange Act
of 1934, as amended (the “1934
Act”), if any,  any underwriter (as defined in the 1933 Act) for the
Investors, and  the directors, officers, partners, employees and each
person who controls any such underwriter within the meaning of the 1933 Act or
the 1934 Act, if any (each, an “Indemnified Person”), against
any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in respect
thereof, “Claims”) to
which any of them may become subject insofar as such Claims arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of a material
fact in a Registration Statement or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make the
statements therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including,
without limitation, any state securities law, or any rule or regulation
thereunder relating to the offer or sale of the Registrable
Securities

       

       

       

       

       

       

      
        
          
          

        

        
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      (the
matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”).  Subject
to the restrictions set forth in Section 6(c) with respect to the number of
legal counsel, the Company shall reimburse the Indemnified Person, promptly as
such expenses are incurred and are due and payable, for any reasonable legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim.  Notwithstanding anything
to the contrary contained herein, the indemnification agreement contained in
this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
such Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (ii) shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, such corrected prospectus was timely made
available by the Company pursuant to Section 3(c) hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it.  Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.

       

      b.           In
connection with any Registration Statement in which an Investor is
participating, each such Investor agrees severally and not jointly to indemnify,
hold harmless and defend, to the same extent and in the same manner set forth in
Section 6(a), the Company, each of its directors, each of its officers who signs
the Registration Statement, each person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such shareholder or
underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an “Indemnified Party”), against
any Claim to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim arises out of or is based upon any
Violation by such Investor, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and subject to Section 6(c) such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement.  Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.

       

       

       

       

       

      
        
          
          

        

        
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      c.           Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding.  The
indemnifying party shall pay for only one separate legal counsel
for  the Indemnified Persons or the Indemnified Parties, as
applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the  Registrable Securities included in the
Registration Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable.  The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action.  The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.

       

       

       

       

      
        
          
          

        

        
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      7.     
CONTRIBUTION.

       

      To the
extent any indemnification by an indemnifying party is prohibited or limited by
law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however, that
 no contribution shall be made under circumstances where the maker would
not have been liable for indemnification under the fault standards set forth in
Section 6,  no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable
Securities.

       

      8.     
REPORTS UNDER THE 1934
ACT.

       

      With a
view to making available to the Investors the benefits of Rule 144 promulgated
under the 1933 Act or any other similar rule or regulation of the SEC that may
at any time permit the investors to sell securities of the Company to the public
without registration (“Rule
144”), the Company agrees to:

       

      a.           make
and keep public information available, as those terms are understood and defined
in Rule 144;

       

      b.           file
with the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements (it being understood that nothing herein shall
limit the Company’s obligations under Section 4(c) of the Securities Purchase
Agreement) and the filing of such reports and other documents is required for
the applicable provisions of Rule 144; and

       

      c.           furnish
to each Investor so long as such Investor owns Registrable Securities, promptly
upon request,  a written statement by the Company that it has complied with
the reporting requirements of Rule 144, the 1933 Act and the 1934 Act,  a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and  such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.

       

      9.     
ASSIGNMENT OF
REGISTRATION RIGHTS.

       

      The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (ii) the Company is, within
a reasonable time after such transfer or assignment, furnished with written
notice of  the name and address of such transferee or assignee, and
 the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment, the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this sentence, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein, (v) such transfer shall have been made in accordance with the
applicable requirements of the Securities Purchase Agreement, and (vi) such
transferee shall be an “accredited investor” as that
term defined in Rule 501 of Regulation D promulgated under the 1933
Act.

       

       

       

       

       

      
        
          
          

        

        
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      10.    AMENDMENT OF REGISTRATION
RIGHTS.

       

      Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities.  Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.

       

      11.    MISCELLANEOUS.

       

      a.           A
person or entity is deemed to be a holder of Registrable Securities whenever
such person or entity owns of record such Registrable Securities.  If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.

       

      b.           Any
notices required or permitted to be given under the terms hereof shall be sent
by certified or registered mail (return receipt requested) or delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile and shall be effective five days after being placed in the mail, if
mailed by regular United States mail, or upon receipt, if delivered personally
or by courier (including a recognized overnight delivery service) or by
facsimile, in each case addressed to a party.  The addresses for such
communications shall be:

       

      If to the
Company:

       

      Pediatric
Prosthetics, Inc.

      12926
Willowchase Drive

      Houston,
TX 77070

      Attention:  Chief
Executive Officer

      Telephone:  (281)
897-1108

      Facsimile:   (281)
897-8462

       

       

       

       

       

      
        
          
          

        

        
          -16-

          
            

          

        

        
          
          

        

      

       

       

       

       

      With a
copy to:

       

      David M.
Loev, Esq.

      6300 West
Loop South, Suite 280

      Bellaire,
TX 77401

      Attention:   David
M. Loev, Esq.

      Telephone:  (713)
524-4110

      Facsimile:   (713)
524-4122

       

      If to an
Investor: to the address set forth immediately below such Investor’s name on the
signature pages to the Securities Purchase Agreement.

       

      With a
copy to:

       

      Ballard
Spahr Andrews & Ingersoll, LLP

      1735
Market Street

      51st
Floor

      Philadelphia,
Pennsylvania  19103

      Attention:  Gerald
J. Guarcini, Esq.

      Telephone:  215-865-8625

       

      

       

      c.           Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.

       

      d.           
THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED NEW YORK, NEW YORK WITH
RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO
IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH
PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT
A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN
ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES
AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
CONNECTION WITH SUCH DISPUTE.

       

       

       

       

      
        
          
          

        

        
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      e.           In
the event that any provision of this Agreement is invalid or unenforceable under
any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law.  Any provision
hereof which may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision hereof.

       

      f.           This
Agreement, the Notes, the Warrants and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and
thereof.  There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and
therein.  This Agreement and the Securities Purchase Agreement
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.

       

      g.           Subject
to the requirements of Section 9 hereof, this Agreement shall be binding upon
and inure to the benefit of the parties and their successors and
assigns.

       

      h.           The
headings in this Agreement are for convenience of reference only and shall not
form part of, or affect the interpretation of, this Agreement.

       

      i.           This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party.  This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of a
copy of this Agreement bearing the signature of the party so delivering this
Agreement.

       

      j.           Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.

       

      k.           Except
as otherwise provided herein, all consents and other determinations to be made
by the Investors pursuant to this Agreement shall be made by Investors holding a
majority of the Registrable Securities, determined as if the all of the Notes
then outstanding have been converted into for Registrable
Securities.

       

      l.           The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to each Investor by vitiating the intent and purpose of the
transactions contemplated hereby.  Accordingly, the Company
acknowledges that the remedy at law for breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of any of the provisions under this Agreement, that each
Investor shall be entitled, in addition to all other available remedies in law
or in equity, and in addition to the penalties assessable herein,  to
an injunction or injunctions restraining, preventing
or curing any breach of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and without
any bond or other security being required.

       

       

       

       

       

      
        
          
          

        

        
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      m.           The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.

       

      

       

      

       

      

       

      

       

      

      [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

       

      
        
          
          

        

        
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      IN WITNESS WHEREOF, the
Company and the undersigned Initial Investors have caused this Agreement to be
duly executed as of the date first above written.

       

      PEDIATRIC
PROSTHETICS, INC.

       

      /s/
Linda Putback-Bean

      Linda
Putback-Bean

      Chief
Executive Officer

       

      NEW
MILLENNIUM CAPITAL PARTNERS, II, LLC

       

      By:  First
Street Manager II, LLC

       

      /s/
Corey S. Ribotsky

      Corey S.
Ribotsky

      Manager

      

      
        
          
          

        

        
          -20-

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