|
Exhibit 10.5
SECURITY AGREEMENT
SECURITY
AGREEMENT (this “ Agreement
”), effective as of June 2, 2008, by and among Pediatric
Prosthetics, Inc., an Idaho corporation (“ Parent
” and Pediatric Prosthetics, Inc., a Texas
corporation (the "Subsidiary") (hereinafter the Parent and the
Subsidiary shall collectively be referred to as
the “ Company
”) and the secured parties signatory hereto and their
respective endorsees, transferees and
assigns (collectively, the “ Secured
Party ”).
W
I T N E S S E T H:
WHEREAS,
pursuant to a Securities Purchase Agreement, dated the date
hereof, between Parent and the Secured Party (the “
Purchase
Agreement ”), Parent has agreed to issue to the
Secured Party and the Secured Party has agreed to purchase
from Parent certain of Parent’s 6% Callable Secured
Convertible Notes, due three years from the date of issue (the
“ Notes
”), which are convertible into shares of Company’s
Common Stock, par value $.001 per share (the “
Common
Stock ”). In connection therewith,
Parent shall issue the Secured Party certain Common Stock
purchase warrants (the “ Warrants
”); and
WHEREAS,
the Parent has been, and is now, engaged as a national
provider of specialized pediatric prosthetics for both upper
and lower limbs; and
WHEREAS, substantially all of the operations
of the Parent are conducted through the Subsidiary; and
WHEREAS, in the past, as now, the Company has
provided financing for the Subsidiary, and the Subsidiary has
relied upon the Company to provide such financing. In
addition, it is anticipated that, if the Subsidiary executes
and delivers this Agreement, the Company will continue to
provide such financing to the Subsidiary, and that the
proceeds of the Purchase Agreement and Notes will be used, in
part, for the general working capital purposes of the
Subsidiary; and
WHEREAS,
in order to induce the Secured Party to purchase the Notes,
Company has agreed to execute and deliver to the Secured Party
this Agreement for the benefit of the Secured Party and to
grant to it a first priority security interest in certain
property of Company to secure the prompt payment, performance
and discharge in full of all of Company’s obligations
under the Notes and exercise and discharge in full of
Company’s obligations under the Warrants;
and
WHEREAS,
in light of the foregoing, the Company expects to derive
substantial benefit from the Purchase Agreement and sale of
the Notes and the transactions contemplated thereby and, in
furtherance thereof, has agreed to execute and deliver
this.
NOW,
THEREFORE, in consideration of the agreements herein contained
and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1.
Certain
Definitions . As used in this Agreement, the
following terms shall have the meanings set forth in this
Section 1. Terms used but not otherwise defined in
this Agreement that are defined in Article 9 of the UCC (such
as “ general
intangibles ” and “ proceeds
”) shall have the respective meanings given such terms
in Article 9 of the UCC.
(a) “
Collateral
” means the collateral in which the Secured Party is
granted a security interest by this Agreement and which shall
include the following, whether presently owned or existing or
hereafter acquired or coming into existence, and all additions
and accessions thereto and all substitutions and replacements
thereof, and all proceeds, products and accounts thereof,
including, without limitation, all proceeds from the sale or
transfer of the Collateral and of insurance covering the same
and of any tort claims in connection therewith:
(i) All
Goods of the Company, including, without limitations, all
machinery, equipment, computers, motor vehicles, trucks,
tanks, boats, ships, appliances, furniture, special and
general tools, fixtures, test and quality control devices and
other equipment of every kind and nature and wherever
situated, together with all documents of title and documents
representing the same, all additions and accessions thereto,
replacements therefor, all parts therefor, and all substitutes
for any of the foregoing and all other items used and useful
in connection with the Company’s businesses and all
improvements thereto (collectively, the “ Equipment
”); and
(ii) All
Inventory of the Company; and
(iii) All
of the Company’s contract rights and general
intangibles, including, without limitation, all partnership
interests, stock or other securities, licenses, distribution
and other agreements, computer software development rights,
leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, trademarks, service
marks, trade styles, trade names, patents, patent
applications, copyrights, deposit accounts, and income tax
refunds (collectively, the “ General
Intangibles ”); and
(iv) All
Receivables of the Company including all insurance proceeds,
and rights to refunds or indemnification whatsoever owing,
together with all instruments, all documents of title
representing any of the foregoing, all rights in any
merchandising, goods, equipment, motor vehicles and trucks
which any of the same may represent, and all right, title,
security and guaranties with respect to each Receivable,
including any right of stoppage in transit; and
(v) All
of the Company’s documents, instruments and chattel
paper, files, records, books of account, business papers,
computer programs and the products and proceeds of all of the
foregoing Collateral set forth in clauses (i)-(iv)
above.
(b) “
Company
” shall mean, collectively, Company and all of the
subsidiaries of Company, a list of which is contained in
Schedule
A , attached hereto.
(c) “
Obligations
” means all of the Company’s obligations under
this Agreement and the Notes, in each case, whether now or
hereafter existing, voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated,
whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later
decreased, created or incurred, and all or any portion of such
obligations or liabilities that are paid, to the extent all or
any part of such payment is avoided or recovered directly or
indirectly from the Secured Party as a preference, fraudulent
transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to
time.
(d) “
UCC
” means the Uniform Commercial Code, as currently in
effect in the State of New York.
2.
Grant of
Security Interest . As an inducement for the
Secured Party to purchase the Notes and to secure the complete
and timely payment, performance and discharge in full,
as the
case may be, of all of the Obligations, the Company hereby,
unconditionally and irrevocably, pledges, grants and
hypothecates to the Secured Party, a continuing security
interest in, a continuing first lien upon, an unqualified
right to possession and disposition of and a right of set-off
against, in each case to the fullest extent permitted by law,
all of the Company’s right, title and interest of
whatsoever kind and nature in and to the Collateral (the
“ Security
Interest ”).
3.
Representations,
Warranties, Covenants and Agreements of the Company
. The Company represents and warrants to, and
covenants and agrees with, the Secured Party as
follows:
(a) The
Company has the requisite corporate power and authority to
enter into this Agreement and otherwise to carry out its
obligations thereunder. The execution, delivery and
performance by the Company of this Agreement and the filings
contemplated therein have been duly authorized by all
necessary action on the part of the Company and no further
action is required by the Company. This Agreement
constitutes a legal, valid and binding obligation of the
Company enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditor’s rights generally.
(b) The
Company represents and warrants that it has no place of
business or offices where its respective books of account and
records are kept (other than temporarily at the offices of its
attorneys or accountants) or places where Collateral is stored
or located, except as set forth on Schedule
A attached hereto;
(c) The
Company is the sole owner of the Collateral (except for
non-exclusive licenses granted by the Company in the ordinary
course of business), free and clear of any liens, security
interests, encumbrances, rights or claims, and is fully
authorized to grant the Security Interest in and to pledge the
Collateral. There is not on file in any
governmental or regulatory authority, agency or recording
office an effective financing statement, security agreement,
license or transfer or any notice of any of the foregoing
(other than those that have been filed in favor of the Secured
Party pursuant to this Agreement) covering or affecting any of
the Collateral. So long as this
Agreement shall be in effect, the Company shall not execute
and shall not knowingly permit to be on file in any such
office or agency any such financing statement or other
document or instrument (except to the extent filed or recorded
in favor of the Secured Party pursuant to the terms of this
Agreement).
(d) No
part of the Collateral has been judged invalid or
unenforceable. No written claim has been received
that any Collateral or the Company’s use of any
Collateral violates the rights of any third party. There has
been no adverse decision to the Company’s claim of
ownership rights in or exclusive rights to use the Collateral
in any jurisdiction or to the Company’s right to keep
and maintain such Collateral in full force and effect, and
there is no proceeding involving said rights pending or, to
the best knowledge of the Company, threatened before any
court, judicial body, administrative or regulatory agency,
arbitrator or other governmental authority.
(e) The
Company shall at all times maintain its books of account and
records relating to the Collateral at its principal place of
business and its Collateral at the locations set
forth
on Schedule
A attached hereto and may not relocate such books of
account and records or tangible Collateral unless it delivers
to the Secured Party at least 30 days prior to such relocation
(i) written notice of such relocation and the new location
thereof (which must be within the United States) and
(ii) evidence that appropriate financing statements and
other necessary documents have been filed and recorded and
other steps have been taken to perfect the Security Interest
to create in favor of the Secured Party valid, perfected and
continuing first priority liens in the
Collateral.
(f) This
Agreement creates in favor of the Secured Party a valid
security interest in the Collateral securing the payment and
performance of the Obligations and, upon making the filings
described in the immediately following sentence, a perfected
first priority security interest in such
Collateral. Except for the filing of financing
statements on Form-1 under the UCC with the jurisdictions
indicated on Schedule
B , attached hereto, no authorization or approval of or
filing with or notice to any governmental authority or
regulatory body is required either for the grant by the
Company of, or the effectiveness of, the Security Interest
granted hereby or for the execution, delivery and performance
of this Agreement by the Company or for the perfection
of or exercise by the Secured Party of its rights and remedies
hereunder.
(g) On
the date of execution of this Agreement, the Company will
deliver to the Secured Party one or more executed UCC
financing statements on Form-1 with respect to the Security
Interest for filing with the jurisdictions
indicated on Schedule
B , attached hereto and in such other jurisdictions as
may be requested by the Secured Party.
(h) The
execution, delivery and performance of this Agreement does not
conflict with or cause a breach or default, or an event that
with or without the passage of time or notice, shall
constitute a breach or default, under any agreement to which
the Company is a party or by which the Company is
bound. No consent (including, without limitation,
from stock holders or creditors of the Company) is required
for the Company to enter into and perform its obligations
hereunder.
(i)
The Company shall at all times maintain the liens and Security
Interest provided for hereunder as valid and perfected first
priority liens and security interests in the Collateral in
favor of the Secured Party until this Agreement and the
Security Interest hereunder shall terminate pursuant to
Section 11. The Company hereby agrees to defend the
same against any and all persons. The Company shall
safeguard and protect all Collateral for the account of the
Secured Party. At the request of the Secured Party,
the Company will sign and deliver to the Secured Party at any
time or from time to time one or more financing statements
pursuant to the UCC (or any other applicable statute) in form
reasonably satisfactory to the Secured Party and will pay the
cost of filing the same in all public offices wherever filing
is, or is deemed by the Secured Party to be, necessary or
desirable to effect the rights and obligations provided for
herein. Without limiting the generality of the foregoing, the
Company shall pay all fees, taxes and other amounts necessary
to maintain the Collateral and the Security Interest
hereunder, and the Company shall obtain and furnish to the
Secured Party from time to time, upon demand, such releases
and/or subordinations of claims and liens which may be
required to maintain the priority of the Security Interest
hereunder.
(j) The
Company will not transfer, pledge, hypothecate, encumber,
license (except for non-exclusive licenses granted by the
Company in the ordinary course of business), sell or otherwise
dispose of any of the Collateral without the prior written
consent of the Secured Party.
(k) The
Company shall keep and preserve its Equipment, Inventory and
other tangible Collateral in good condition, repair and order
and shall not operate or locate any such Collateral (or cause
to be operated or located) in any area excluded from insurance
coverage.
(l)
The Company shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Party promptly, in sufficient
detail, of any substantial change in the Collateral, and of
the occurrence of any event which would have a material
adverse effect on the value of the Collateral or on the
Secured Party’s security interest therein.
(m) The
Company shall promptly execute and deliver to the Secured
Party such further deeds, mortgages, assignments, security
agreements, financing statements or other instruments,
documents, certificates and assurances and take such further
action as the Secured Party may from time to time request and
may in its sole discretion deem neces
|
