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EXHIBIT 10.22
PURCHASE AND SALE AGREEMENT
January 20, 1978
Cynergy, Inc.
00000 Xxxxxxxx Xxx
Xxxxx 00
Xxxxxxxx, XX 00000
Gentlemen:
The undersigned, Pioneer Investors Corp., a New York corporation and a
federally-licensed Small Business Investment Company and Xxxx Resources
Corporation, a Michigan corporation and a federally-licensed Small Business
Investment Company (sometimes hereinafter referred to collectively as the
"Purchasers" and individually as a "Purchaser"), hereby agree, severally and not
jointly, with Cynergy, Inc., a Delaware corporation (the "Company"), as follows:
1. Purchase of Notes. On the closing date defined in Section 7 below (the
"Closing Date"), subject to the terms and conditions hereof and in reliance upon
the representations, warranties and agreements contained herein, the Company
agrees to sell to each Purchaser, and each Purchaser agrees to purchase from the
Company, the Company's 7-year, 10% Subordinated Notes (the "Notes") in the
principal amount of $62,500, each, at a price equal to the principal amount of
the Notes. The Notes shall be dated the Closing Date, shall be issued in the
names of the respective Purchasers and shall be substantially in the form
attached hereto as Exhibit "A". The purchase price for the Notes shall be paid
by certified or official bank check payable to the order of the Company.
The Company, at is election, may prepay the outstanding Notes at any time
as a whole, or from time to time in part, without payment of any premium or
prepayment charge, provided that interest accrued on such principal amount being
prepaid to the date of such prepayment shall be paid together with such
prepayment. In the case of any prepayment notice thereof shall be given not less
than 30 nor more than 60 days prior to the date fixed for such prepayment. In
the case of any prepayment of less than the entire unpaid principal amount of
all outstanding Notes, the amount to be prepaid shall be applied pro rata to all
outstanding Notes according to the respective unpaid principal amounts thereof.
2. Purchase of Stock. On the Closing Date, subject to the terms and
conditions hereof and in reliance upon the representations, warranties and
agreements contained herein, the Company agrees to sell to each Purchaser, and
each Purchaser agrees to purchase from the Company, 142 shares (the "Sale
Stock") of the common stock of the Company, no par value (the "Common Stock"),
at a price of $440.14 per share, or an aggregate purchase price to each
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Purchaser of $62,500. The purchase price for the Sale Stock shall be paid by
certified or official bank check payable to the Company.
3. Delivery of Warrants. On the Closing Date and contemporaneously with
the consummation of the purchase of the Notes and Sale Stock pursuant to
Sections 1 and 2 above, the Company will deliver to each Purchaser a Warrant
Certificate (the "Warrants") evidencing the right to purchase 141 shares (the
"Underlying Shares") of Common Stock. The Warrant Certificates shall be dated
the Closing Date, shall be issued in the names of the respective Purchasers and
shall be in substantially the form attached hereto as Exhibit B. The Warrants
are granted to the Purchasers in consideration of their purchase of the Notes
and Sale Stock and no additional payment shall be made or consideration given to
the Company, except as provided in Sections 1 and 2 above, in respect to the
delivery of the Warrants.
4. Representations and Warranties by the Company. The Company represents
and warrants to the Purchasers, as follows:
4.1 Organization, Standing and Qualification of the Company.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The copies of the Company's
certificate of incorporation, by-laws, and all amendments to each to date, which
have been delivered to the Purchaser, are complete and correct as at the date of
this Agreement. The Company has the corporate power and authority to own its
property, to enter into, deliver and perform its obligations and undertakings
under this Agreement, to issue the Notes, Sale Stock and Warrants and to conduct
its business as now being conducted and as proposed to be conducted. The Company
is qualified to do business as a foreign corporation in the State of Washington,
which is the only jurisdiction in which the nature of the business conducted by
it or its ownership or leasing of property makes such qualification necessary.
4.2 Subsidiaries. The Company has no subsidiaries and does not
control, directly or indirectly, any other corporation, association or business
organization.
4.3 Capitalization. The Company's authorized capital stock consists
of 2,000 shares of Common Stock, of which 630 shares are issued and presently
outstanding. Attached hereto as Schedule 1 is a complete and correct list of all
the holders of Common Stock as of the date of this Agreement and the number of
shares held by each. All such outstanding shares are duly authorized, validly
issued, fully paid and nonassessable. The Sale Stock and Underlying Shares when
issued upon exercise of the Warrants will be validly authorized, issued and
outstanding, fully paid and non-assessable and the Sale Stock and Underlying
Shares have been duly authorized and reserved for issuance. The Company has not
granted or issued, or agreed to grant or issue, any option, warrant or other
commitment to issue or to acquire any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to acquire from the Company or sell to the Company, any shares
of its capital stock, except in accordance with the provisions of Sections 2 and
4.14 of this Agreement and under the terms of the Warrants. The Company holds no
shares of its capital stock in its treasury.
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No holder of any security of the Company is entitled to pre-emptive or similar
rights as of the date of this Agreement. The Company will not place any
restrictions on the transfer of the Notes, Sale Stock, Warrants or Underlying
Shares, except to the extent set forth in Subsection 10.2 hereof. The Company
has not agreed to register any of its securities under the Securities Act of
1933, as amended (the "Act"), except as provided for in this Agreement and
except as set forth in Schedule 10 annexed hereto.
4.4 Financial Information. The Company has delivered to each of the
Purchasers copies of the following financial statements:
(a) A balance sheet of the Company as at November 30, 1977,
and a statement of income, profit and loss for the period from December 16, 1976
and ended November 30, 1977, prepared by the chief financial officer of the
Company.
Subject to normal year-end and audit adjustments, such financial
statements, including the related notes thereto, if any, are complete and
correct, have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods involved and show all
liabilities, absolute or contingent, of the Company, and fairly present the
condition of the Company as at the dates thereof. There has been no change in
the accounting principles applied throughout the periods involved.
4.5 Outstanding Debt. The Company has outstanding no indebtedness
for borrowed money, except as reflected on the Company's balance sheet as at
November 30, 1977 and except the Company is indebted to Pioneer Investors Corp.
in the amount of $20,000 pursuant to the demand loan made December 2, 1977, and
the Company is not a guarantor or otherwise contingently liable for any such
indebtedness. There exists no default under the provisions of any instrument
evidencing such indebtedness or of any agreement relating thereto.
4.6 Absence of Undisclosed Liabilities. At November 30, 1977, the
Company had no material liabilities (fixed or contingent, including without
limitation any tax liabilities due or to become due) which are not fully
reflected or provided for on the balance sheet of the Company as at that date,
except obligations, all of which are listed on Schedule 2 hereto, to perform
after November 30, 1977, under commitments incurred in the ordinary course of
business, which in the aggregate do not involve the payment or expenditure by
the Company of more than $5,000. The Company does not know and has no reasonable
ground to know of any basis for the assertion against the Company, as at
November 30, 1977 (or as the date hereof) of any liability of any nature, direct
or indirect, contingent or otherwise, or in any amount not adequately reflected
or reserved against in said November 30, 1977, balance sheet, except as set
forth on Schedule 2 hereto.
4.7 Absence of Certain Changes. Except to the extent described
in Schedule 3 hereto, since November 30, 1977, there has not been:
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(a) any material adverse change in the condition (financial or
otherwise), assets, liabilities, financial condition, business or prospects of
the Company from that shown on the Company's November 30, 1977 balance sheet;
(b) any damage, destruction or loss of any of the properties
or assets of the Company (whether or not covered by insurance) materially
adversely affecting the business or prospects of the Company;
(c) any declaration, setting-aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company; or
(d) any labor trouble, or any event or condition of any
character, materially adversely affecting the business or prospects of the
Company.
4.8 Taxes. For all periods ended prior to November 30, 1977, the
Company has filed or will file within the time prescribed by law (including
extensions of time approved by the appropriate taxing authority) all tax returns
and reports required to be filed with the United States Internal Revenue
Service, with the States of Delaware and Washington and with all other
jurisdictions where such filing is required by law and has paid or made adequate
provision in said balance sheet dated November 30, 1977, for the payment of all
taxes, interest, penalties, assessments or deficiencies shown to be due or
claimed to be due on or in respect of such tax returns and reports. The Company
knows of (i) no other taxes which are required to be filed which have not been
so filed and (ii) no unpaid assessment for additional taxes for any fiscal
period or any basis thereof. The Company's federal income tax returns have not
been audited by the Internal Revenue Service.
4.9 Contracts; Insurance. Except as set forth in Schedule 4 hereto,
the Company has no presently existing contract, obligation or commitment
(written or oral) of any nature extending beyond June 1, 1978, or involving
payment by the Company of more than $20,000, including without limitation the
following:
(a) Employment, bonus or consulting agreements pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements evidencing rights
to purchase securities of the Company and agreements among shareholders and the
Company;
(b) Loan or other agreements, notes, indentures, or
instruments relating to or evidencing indebtedness for borrowed money, or
mortgaging, pledging or granting or creating a lien or security interest or
other encumbrance on any of the Company's property or any agreement or
instrument evidencing any guaranty by the Company of payment or performance by
any other person;
(c) Agreements with dealers, sales representatives, brokers
and other distributors, jobbers, advertisers, sales agencies;
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(d) Agreements with any labor union or collective bargaining
organization or other labor agreements;
(e) Any contract or series of contracts with the same person
for the furnishing or purchase of machinery, equipment, goods or services,
including without limitation agreements with processors and subcontractors;
(f) Any indenture, agreement, or other document (including
private placement brochures) relating to the sale of repurchase of shares;
(g) Any joint venture contract or arrangement or other
agreement involving a sharing of profits or expenses to which the Company is a
party;
(h) Agreements limiting the freedom of the Company to compete
in any line of business or in any geographic area or with any person;
(i) Agreements providing for disposition of the business and
assets, or shares, of the Company, agreements of merger or consolidation to
which the Company is a party or letters of intent with respect to the foregoing;
and
(j) Agreements involving or letters of intent with respect to
the acquisition of the business, assets or shares of any other business.
True and complete copies including all amendments of the contracts and
commitments listed in Schedule 4 hereto have been delivered to the Purchasers.
The Company has complied with all the material provisions of said contracts and
commitments and of all other contracts and commitments to which it is a party,
and is not in default under any thereof.
The Company maintains the types of insurance with the coverages set forth
in Schedule 4 hereto, which insurance is adequate to protect the Company and its
financial condition against the risks involved in the business conducted by the
Company.
4.10 Shareholders, Directors, and Officers; Compensation;
Indebtedness. Attached hereto as Schedule 5 is a correct and complete list
of the following:
(a) the names of all persons whose compensation from the Company for
the current fiscal year is expected to equal or exceed $10,000 and the annual
rate of such compensation for each such person as of November 30, 1977; and
(b) a list or description of all indebtedness of the Company to its
officers, directors or shareholders or any of their respective relatives and of
all indebtedness of such persons to the Company.
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To the best of the Company's knowledge and belief, none of the officers,
directors or shareholders of the Company, or, their respective spouses or
relatives, owns directly or indirectly, individually or collectively, a material
interest in any entity which is a competitor, customer or supplier of (or has
any existing contractual relationship with) the Company.
4.11 Litigation. There are no actions, suits, proceedings or claims
(whether or not purportedly on behalf of the Company) pending or, to the
Company's knowledge, threatened, against or relating to the Company, its
properties or business, nor does the Company know or have reasonable grounds to
know of any basis for any such action or any claim against the Company
(contingent or otherwise) or of any proceeding before or investigation by any
governmental or professional commission, administrative agency, or accrediting
organization relative to the Company, its properties or business, except as
disclosed on Schedule 6 hereto.
4.12 Validity of this Agreement. The execution, delivery and
performance by the Company of this Agreement, the issue and sale of the Notes,
the Sale Stock and the Warrants and the issue of Underlying Shares on the
exercise of the Warrants have been duly authorized and approved by all necessary
corporate action. The Notes when issued will constitute the legal, valid
obligations of the Company, enforceable in accordance with their terms, except
for bankruptcy, moratorium and similar laws affecting the rights of creditors
generally. The execution and delivery of this Agreement and the issue of the
Notes, Sale Stock, Warrants and the Underlying Shares will not violate any
provision of law and will not conflict with, or result in a breach of any of the
terms of, or constitute a default under, the Company's Certificate of
Incorporation, by-laws or any agreement, instrument or other restriction to
which the Company is a party or by which it is bound.
4.13 Consents. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority, except as
provided in this Agreement, is required in connection with the valid execution,
delivery or performance of this Agreement, or the offer, sale or issuance of the
Notes, Sale Stock, Warrants or Underlying Shares or the consummation of any
other transaction contemplated hereby.
4.14 Brokers. The Company has no contract, arrangement or
understanding with brokers, finders and similar agents with respect to the
transactions contemplated by this Agreement; provided that it is understood and
agreed that on the Closing Date the Company will issue and sell 63 shares of
Common Stock to Channing, Xxxxxxxx & Co., Inc. or its designees in connection
with such transactions, for a total consideration of $500 and services
previously rendered by it to the Company.
4.15 Title to Properties; Liens and Encumbrances. The Company has
good and marketable title in the simple absolute to all the real property and a
valid and indefeasible ownership interest in all the other property and assets
reflected in the Company's November 30, 1977 balance sheet (except as sold or
otherwise disposed of in the ordinary course of business since that date), free
from all mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges, except (i) as shown on said balance sheet
or listed on
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Schedule 7 hereto; (ii) tax, materialmen's or like liens for obligations not yet
due or payable or being contested in good faith by appropriate proceedings, as
set forth on Schedule 7 hereto.
4.16 Leases. Set forth on Schedule 7 hereto is a correct and
complete list of all leases under which the Company is a lessee or under which
it is operating. The Company enjoys peaceful and undisturbed possession under
all such leases, none of such leases contains any unusual or burdensome
provisions which might materially and adversely affect the operation or use of
the property so leased, all of such leases are valid and subsisting and none of
them is in default in any material respect.
4.17 Business of the Company. The Company is engaged in the business
of designing and manufacturing medical electronic equipment consisting primarily
of external cardiac pacemakers, pacemaker follow-up systems and therapeutic
fluid infusion pumps as set forth in the Company's private placement memorandum
dated June 9, 1977 (the "Memorandum") and cardiac rate meters. Nothing has come
to the attention of the Company or of any of its directors or officers to the
effect that (i) there is pending or threatened any claim or litigation against
or affecting the Company contesting its right to produce, manufacture, sell or
use any product, process, method, substance, part or other material presently
produced, manufactured, sold or used or contemplated to be produced,
manufactured, sold or used by the Company in connection with the business of the
Company or (ii) there presently exists, or there is pending or proposed any
patent, invention, device, application or principle, or any statute, rule, law,
regulation, standard or code which would prevent, inhibit or render obsolete the
production or sale of any significant product of, or substantially reduce the
projected revenue of, or otherwise materially adversely affect the business of
the Company.
The Company intends to engage in the business of the same general type as
is now being conducted by it.
4.18 Franchises, Licenses, Trademarks and other Rights. The Company
has all franchises, permits, licenses and other authority as are necessary to
enable it to conduct its business as now being conducted and as proposed to be
conducted, and it is not in default in any material respect under any of such
franchises, permits, licenses or other authority. The Company possesses all
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights and copy rights necessary to conduct its business as now being conducted
and as proposed to be conducted, without conflict with or infringement on any
valid rights of others which could materially and adversely affect the business,
properties, operations or condition, financial or otherwise, of the Company.
4.19 Qualification as Small Business Concern. The Company is a
"small business concern" within the meaning of the Small Business Investment
Act of 1958, as amended.
4.20 Offering. The offer, sale and issuance of the Notes, Sale Stock
and Warrants as contemplated by this Agreement are exempt from the registration
requirements of the Act and neither the Company nor anyone acting on its behalf
will take any action hereafter that would cause the loss of such exemption.
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4.21 Disclosure. This Agreement and the schedules attached hereto,
the Memorandum furnished the Purchasers and the financial statements referred to
herein do not contain any untrue statement of a material fact and do not omit to
state a material fact necessary in order to make the statements contained
therein or herein not misleading in the light of the circumstances under which
they were made. There is, to the best of the Company's knowledge, no fact which
materially adversely affects the business, prospects, condition, affairs or
operations of the Company or any of its properties or assets which has not been
set forth in this Agreement, the schedules hereto, or said financial statements.
5. Representations of Purchasers. Each Purchaser represents and warrants
to the Company, severally and not jointly, as follows:
5.1 Private Offering. Each Purchaser is fully aware that the Company
is selling the Notes, Sale Stock and Warrants in reliance upon the exemption
from registration provided by Section 4(2) of the Act and upon the truth and
accuracies of the representations and warranties contained in this Agreement.
5.2 Investment Representations. Each Purchaser represents, as
follows:
(a) that the Notes, Sale Stock and Warrants to be acquired by
it hereunder are being acquired by it for investment, with no present intention
of distributing or selling any portion thereof or with a view to any
distribution thereof within the meaning of the Act, and none of the Notes, Sale
Stock, Warrants or Underlying Shares will be sold or distributed in violation of
the Act or the rules or regulations thereunder then applicable;
(b) that its financial condition is such that it is able to
bear all risks of holding the Notes, Sale Stock, Warrants and Underlying Shares
for an indefinite period of time;
(c) that it understands that any routine sales of the Sale
Stock, Warrants or Underlying Shares made in reliance upon Rule 144 can be made
only in limited amounts in accordance with the terms and conditions of that Rule
and that in the case of securities to which that Rule is not applicable,
compliance with Regulation A or some other disclosure exemption will be
required;
(d) that it understands and agrees that the certificates
representing the Notes, Sale Stock Warrants and Underlying Shares shall bear a
legend on the face thereof restricting transfer except in compliance with the
Act;
(e) that it has been informed and understands that stop
transfer orders will be placed against the transfer of the Notes, Sale Stock,
Warrants and Underlying Shares on the records of the Company;
(f) that it has been furnished by the Company with all
information which the Purchaser has deemed necessary or appropriate in order to
form a decision concerning
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the purchase of the Notes, Sale Stock and Warrants, including copies of the
Memorandum and the Company's unaudited financial statements as at and for the
period ended November 30, 1977.
(g) that the Company has made available to it all additional
information which it has requested in connection with the transactions
contemplated by this Agreement;
(h) that it has been afforded an opportunity to ask questions
of and receive answers from the Company and from persons authorized to act on
its behalf, concerning the terms and conditions of the purchase of the Notes,
Sale Stock and Warrants, and the opportunity to obtain any additional
information (to the extent the Company had such information or could acquire it
without unreasonable effort or expense) necessary to verify the accuracy of
information otherwise furnished by the Company hereunder;
(i) that it has investigated acquisition of the Notes, Sale
Stock and Warrants to the extent it deems necessary or desirable, and the
Company has provided it with any assistance in connection therewith which it
requested;
(j) that it has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
acquisition of the Notes, Sale Stock and Warrants and of making an informed
investment decision with respect thereto;
(k) that it will not offer for sale, sell, transfer or
otherwise dispose of the Notes, Sale Stock, Warrants or Underlying Shares,
unless (i) such sale, transfer or other disposition is permitted under and made
in accordance with Rule 144, or (ii) it shall have obtained an opinion of
counsel to the Company or Messrs. Xxxxxx & XxXxxxx, to the effect that no
registration (or perfection of an exemption) under the Act is required with
respect to such sale or other disposition or exercise (which opinion may be
conditioned upon the transferee's assuming the Purchaser's obligations under
this Section 5), or (iii) such holder, upon proper submission by such holder to
the Securities and Exchange Commission (the "Commission"), shall have obtained
written assurance that no administrative action is proposed to be taken by the
Commission in the event of such sale, transfer or other disposition, or (iv) an
appropriate registration statement with respect to such sale, transfer or other
disposition has been filed by the Company with the Commission and declared
effective by the Commission.
6. Closing Conditions. The obligations of the Purchasers to purchase the
Notes and Sale Stock and acquire the Warrants are subject to satisfaction of the
following:
6.1 Accuracy of Representations and Warranties. The Company's
representations and warranties herein or otherwise made in connection herewith
shall be true and correct on and as of the Closing Date with the same effect as
though made on and as of the Closing Date.
6.2 Closing Certificates. The Purchasers shall have received a
certificate dated the Closing Date on behalf of the Company and signed by its
president and chief financial officer
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and certificates signed by each director and officer of the Company,
individually, to the effect that the conditions of Section 6.1 hereof have been
satisfied.
6.3 Opinion of Company's Counsel. The Purchasers shall have received
an opinion dated the Closing Date of Messrs. Xxxxx, Grey & Bayley, counsel for
the Company, satisfactory to the Purchasers and their special counsel, Xxxxxx &
XxXxxxx, to the effect that:
(a) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to conduct its business as now being conducted and
presently proposed to be conducted; and the Company is duly qualified as a
foreign corporation to do business in each jurisdiction in which the character
of the properties owned by it therein or in which the transaction of its
business makes such qualification necessary;
(b) this Agreement has been authorized by all necessary
corporate action, has been duly executed and delivered by the Company and is a
legal, valid and binding obligation of the Company in accordance with its terms;
(c) the Company has duly authorized the issuance and sale of
the Notes, Sale Stock and Warrants, and the Notes, Sale Stock and Warrants, when
issued in accordance with the terms hereof, will be duly and validly issued and
in the case of the Sale Stock will be fully paid and non-assessable; the Notes
when issued will constitute the legal, valid obligations of the Company
enforceable in accordance with their terms, subject, as to enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency and similar laws
affecting the rights of creditors generally and to moratorium laws from time to
time in effect.
(d) the Company has duly authorized the issuance of the
Underlying Shares and has duly reserved for such purpose the full number of
shares of Common Stock initially issuable upon the exercise thereof, and, when
issued and paid for in accordance with the terms of the Warrants, the Underlying
Shares will be duly and validly issued, fully paid and non-assessable;
(e) the execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated herein and compliance with the
terms and provisions hereof and of the Notes, Sale Stock and Warrants will not,
violate any provisions of law, any order of any Court or other agency of
government or of the Certificate of Incorporation or by-laws of the Company, and
will not conflict with or result in any breach of any condition or provision of,
or constitute a default under, any agreement or instrument which is binding upon
the Company and all necessary consents under any such agreements or instruments
in this connection have been obtained, and will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company;
(f) no consent, approval or other order of any governmental or
administrative board or body is required for the execution and delivery by the
Company of this Agreement or the Notes, Sale Stock, Warrants or Underlying
Shares;
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(g) there are no actions, suits, proceedings, investigations
or claims pending or, to the knowledge of such counsel, threatened against or
affecting the Company or its subsidiary, which in the opinion of such counsel
might result in any material adverse change in the business, properties or
condition, financial or otherwise, of the Company or its subsidiary;
(h) the statement of the capitalization of the Company set
forth in Section 4.3 hereof and the information set forth therein as to numbers
of shares of Common Stock reserved for issuance, is complete and correct;
(i) to the knowledge of such counsel, there is no material
contract, to which the Company or its subsidiary is a party or by which it may
be bound, except as listed in Schedule 4 hereto;
(j) to the knowledge of such counsel, the Company is not in
default under any provision of its Certificate of Incorporation or by-laws or
any agreement or instrument to which it is a party or by which it may be bound;
(k) to the best of such counsel's knowledge, the matters
specified in Sections 4.15, 4.16, 4.17 (second sentence only) and 4.18 are true
and correct;
(1) based on the facts and circumstances contemplated by this
Agreement, and in reliance on the accuracy of the representations of each
Purchaser under Section 5 hereof, it is not necessary, in connection with the
offer, issuance, sale and delivery of the Notes, Sale Stock and Warrants to you
and the other Purchasers, to register the Notes, Sale Stock, Warrants or
Underlying Shares under the Act or any applicable Blue Sky laws;
(m) the Company qualifies as a "small business concern"
within the meaning of the Small Business Investment Act of 1958;
(n) Upon the filing of the amendment to the Company's
Certificate of Incorporation provided for in Section 6.4 hereof, the holders of
Common Stock will be entitled to and will have the full benefit of the
cumulative voting and preemptive rights contained in the amended Certificate of
Incorporation.
(o) Upon the due execution and delivery of the Shareholders'
Agreement provided for in Section 6.5, that agreement will constitute a legal,
valid obligation of the parties thereto, enforceable in accordance with its
terms.
6.4 Charter Amendments. An amendment to the Company's Certificate of
Incorporation in the form annexed hereto as Schedule 8 shall have been filed
with the Secretary of State of Delaware and shall be in full force and effect.
6.5 Shareholders' Agreement. An agreement in the form annexed hereto
as Schedule 9 between and among Xxxxx Xxxxxxx, Xxxx Xxxxxxx, and Xxxxx Xxxxx,
principal
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stockholders of the Company, and the Purchasers, shall have been executed and
delivered by all the parties thereto.
6.6 No Event of Default. No Event of Default, as defined in Section
9 hereof, shall exist on the Closing Date, and the Company shall have delivered
to the Purchasers a certificate, dated the Closing Date and signed by its
president and chief financial officer to that effect.
6.7 Reservation of Common Stock. The Company shall have duly
authorized and reserved for issuance the Underlying Shares.
6.8 Proceedings. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents incident
thereto shall be satisfactory in form and substance to the Purchasers and their
special counsel and they shall have received all such originals or certified or
other copies of such documents as they may reasonably request.
6.9 Purchase of Notes, Sale Stock and Warrants. Each of the
Purchasers shall have purchased the Notes, Sale Stock and Warrants in the amount
set forth in Sections 1, 2 and 3 hereof in the manner provided in this
Agreement.
6.10 SBA Forms. The Company shall have executed and delivered to the
Purchasers a Size Status Declaration, Assurance of Compliance
(non-discrimination certification) and other standard forms required by the
Small Business Administration in connection with the transactions contemplated
by this Agreement.
7. Closing. The closing shall take place at the offices of counsel to the
Company, Xxxxx, Grey & Bayley, 00xx xxxxx, Xxxxxx Xxxxxxxx, Xxxxxxx, Xxxxxxxxxx,
00000 at 10:00 A.M. on January ____, 1978, or at such time and date thereafter
as the Company and the Purchasers may agree upon (Closing Date). At the closing,
the Company will deliver to the Purchasers the Notes, the Sale Stock and the
Warrants, each duly executed against payment of the purchase prices set forth in
Sections 1 and 2 above; provided, however, the Purchasers shall have the right
to withhold from the purchase price the sum of $5,000 to cover the cost and
expenses of the Purchasers, including the fees and disbursements of the special
counsel, incurred in connection with this Agreement.
8. Affirmative and Negative Covenants. The Company further covenants and
agrees as follows:
8.1 Independent Accountants and Accounting Principles. The Company
will retain the services of a firm of independent public accountants acceptable
to the Purchasers to audit the Company's books of account and certify the
Company's financial statements at the end of each fiscal year. In the event the
services of the independent public accountants, so selected, or any firm of
independent public accountants hereafter employed by the Company are terminated,
the Company will immediately notify the Purchasers and will use its best efforts
to cause the firm
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of independent public accountants whose services are terminated to deliver to
them a letter of such firm setting forth the reasons for the termination of
their services. In the event of such termination the Company will promptly
thereafter engage another firm of independent public accountants acceptable to
the Purchasers. The Company will not make any change in accounting methods or
the generally accepted accounting principles presently employed by the Company
without the written consent of the holders of at least 51% of the aggregate
principal amount of Notes then outstanding.
8.2 Financial Statements. The Company shall furnish to each holder
of record of the Notes and each Purchaser (i) a balance sheet as of the end of
each fiscal year and a statement of income or loss for the fiscal year then
ended, audited and accompanied by the report of independent certified public
accountants, to be furnished not later than 90 days after the fiscal year in
question, (ii) a balance sheet as of the end of each quarterly period and
statements of income or loss for such quarterly period and for the period from
the beginning of the fiscal year through the end of such quarterly period, to be
furnished not later than 45 days after the end of such quarterly period, and
(iii) a balance sheet as of the end of each interim month between quarterly
periods and statements of income or loss for each said month until the Company's
first public offering, to be furnished not later than 15 days after the end of
each such month. The quarterly and monthly balance sheets and statements need
not be audited, but shall be certified as complete and correct, subject to
changes resulting from year-end adjustments, by the chief financial officer of
the Company.
8.3 Certificates of Compliance. At each time of transmittal of the
statements referred to in Subsection 8.2, other than the interim monthly
statements referred to therein, the Company will deliver to the Purchasers a
certificate of the president and chief financial officer of the Company stating
that there exists no condition or event which constitutes, or with the passage
of time or notice or both would constitute, an Event of Default (as hereinafter
defined) or, if such condition or event exists, specifying the nature and period
of its existence and what action the Company is taking or proposes to take with
respect thereto.
8.4 Other Information. Upon the reasonable request of either of the
Purchasers the Company will deliver other information and data pertaining to its
business, financial and corporate affairs. The Company will permit any person
designated by either Purchaser in writing, at the requesting Purchaser's
expense, to visit and inspect any of the properties of the Company, including
its books of account, and to discuss its affairs, finances and accounts with the
Company's officers and its independent public accountants, all at such
reasonable times and as often as the Purchasers may reasonably request;
provided, that no person not an employee of the Purchaser shall be so permitted
if the Company reasonably believes such visit, inspection or discussion would
violate the federal securities laws or make information which is proprietary or
otherwise confidential available to competitors of the Company.
8.5 Punctual Payment. The Company will duly and punctually pay
the principal and interest on the Notes in accordance with the terms of this
Agreement and of the Notes.
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8.6 Prompt Payment of Taxes, Etc. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor. The Company will promptly pay or cause to be paid when due, or in
conformance with customary trade terms, all other indebtedness incident to
operations of the Company.
8.7 Conduct of Business. The Company will continue to engage in
business of the same general type as now conducted by it, and do all things
necessary to preserve, renew and keep in full force and effect its corporate
existence and its rights and franchises necessary to continue its business;
provided, however, that nothing in this Section 8.7 shall prevent the Company
from engaging in other businesses of a different type in addition to those
presently conducted.
8.8 Maintenance of Property and Leases. The Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with the provisions of all leases to which it is a party or under
which it occupies property so as to prevent any loss or forfeiture thereof or
thereunder.
8.9 Insurance. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, extended coverage and explosion in amounts sufficient to
prevent the Company or any subsidiary from becoming a co-insurer and not in any
event less than 100% of the insurable value of the property insured; and
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated. In
addition, the Company will obtain and maintain key man life insurance policies
in the face amount of $100,000, each, on the lives of Xxxxx Xxxxxxx, Xxxx
Xxxxxxx and Xxxxx Xxxxx.
8.10 Accounts and Reports. The Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
8.11 Restrictions on Debt of the Company and Subsidiaries. Unless
the holders of at least 51% of the aggregate principal amount of the Notes
outstanding shall otherwise consent in writing, the ratio of the Company's debt
to equity shall not exceed 4:1.
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8.12 Restrictions on Liens. Unless the holders of at least 51% of
the aggregate principal amount of the Notes then outstanding shall otherwise
consent in writing, the Company will not create or incur or suffer to be created
or incurred or to exist any mortgage, pledge, encumbrance, lien, charge or other
security interest of any kind upon any of its property or assets of any
character, whether now owned or hereafter acquired; provided, however, that the
foregoing shall not apply to (i) purchase money mortgages on new equipment of up
to 80% of the original cost thereof or (ii) mortgages on real property of the
Company, not to exceed in the aggregate the total amount of such mortgages
existing on the date of this Agreement.
8.13 Restrictions on Dividends and Distributions. Until the entire
principal amount of the Notes shall have been paid in full, the Company will not
declare or pay any dividend on any shares of any class of its capital stock, or
directly or indirectly, through a subsidiary or otherwise, purchase, redeem or
otherwise retire or make any other distribution in respect of, any shares of any
class of its capital stock.
8.14 Sale of Assets. Unless the holders of at least 51% of the
aggregate principal amount of the Notes then outstanding shall otherwise consent
in writing, the Company will not sell, lease or otherwise dispose of
substantially all of its assets.
8.15 Sale of Subsidiaries. Unless the holders of at least 51% of the
aggregate principal amount of the Notes then outstanding shall otherwise consent
in writing, the Company will not sell or otherwise dispose of any stock of any
subsidiary.
8.16 Merger or Consolidation. Unless the holders of at least 51% of
the aggregate principal amount of the Notes then outstanding shall otherwise
consent in writing the Company will not, and will not permit any subsidiary to,
become a party to any merger or consolidation; provided, however, that a
subsidiary may be merged into or consolidated with another subsidiary or the
Company.
8.17 Restrictions on Compensation. Unless the holders of at least
51% of the aggregate principal amount of Notes then outstanding shall otherwise
consent in writing, the Company shall not increase the compensation (including
salary, bonus and fringe benefits) of any of its present officers from the
amounts presently payable for the current fiscal year of the Company to such
officers, increase the aggregate compensation to all such officers by over 10%
annually for succeeding fiscal years, or increase the compensation of any person
who shall hereafter become an officer of the Company by over 10% annually.
8.18 Meetings of the Board of Directors. The Company shall convene
________ four meetings, including an annual meeting of the Board of Directors,
each year. At least one representative of each Purchaser will be allowed to
attend all Board meetings and the expenses, including air travel costs, for one
representative of each Purchaser to attend such meetings will be paid by the
Company. The travel costs of other attending representatives of each Purchaser
shall be borne by that Purchaser.
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8.19 Compliance with Requirements of Governmental Authorities. The
Company shall duly observe and conform to all valid requirements of governmental
authorities relating to the conduct of their businesses or to their property of
assets.
8.20 Application of Proceeds. The Company will not use any part of
the proceeds of the sale of the Notes and Sale Stock under this Agreement for
any prohibited purpose under any statute, rule or regulation of any government
authority or agency applicable to the Company. The Company will apply the said
proceeds for the following purposes:
Approximate
Amount Percentage Purpose
----------- ---------- ----------------------------------------
$ 26,000 10.4% Expenses of the Agreement.
21,000 8.0% Equipment and furnishings, including
such items as a milling machine,
lathe, drill, oscilloscope, small
tools, tables, benches, and office
equipment.
204,000 81.6% Working capital, including inventory,
research and development costs, and
marketing expenses.
-------- ---
TOTAL $250,000 100%
8.21 Compliance by Subsidiaries. The Company will cause any
subsidiary it may organize in the future to comply fully with the provisions of
Section 8 to the same extent as if such subsidiary or subsidiaries were the
Company.
8.22 Amendments To The Company's Certificate of Incorporation.
Unless the holders of at least 51% of the aggregate principal amount of Notes
then outstanding otherwise consent in writing, the Company shall not amend the
Company's Certificate of Incorporation in any manner which would eliminate the
cumulative voting or preemptive rights set forth in the amendment in the form
annexed as Schedule 8 hereto.
8.23 Term of Covenants and Agreements. The covenants and agreements
provided in Subsections 8.1 (except the last sentence thereof), 8.2, 8.3, 8.4,
8.6, 8.7, 8.8, 8.9, 8.10, And 8.22 shall remain in effect and be binding on the
Company so long as any amount of the indebtedness evidenced by the Notes remains
unpaid or the Purchasers are stockholders of Company. The covenants and
agreements provided in the last sentence of Subsection 8.1 and Subsections 8.5,
8.11, 8.12, 8.13, 8.14, 8.15, 8.16, 8.17, 8.18 and 8.20 shall remain in effect
and binding on the Company only so long as any amount of the indebtedness
evidenced by the Notes remains unpaid.
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9. Default.
9.1 If one or more of the following events (herein called "Events of
Default") shall have occurred and be continuing, that is to say:
(a) If the Company shall default in the payment of the
principal of the Notes after the same shall become due and payable; or
(b) If the Company shall default in the payment of any
installment of the interest on the Notes, unless such payment shall have been
deferred pursuant to the terms of the Notes, after the same shall have become
due and payable and such default shall not have been remedied within fifteen
(15) days after the occurrence thereof; or
(c) If the Company or any of its subsidiaries shall fail to
make payment when due whether on the stated or accelerated maturity thereof
(including any applicable period of grace) of principal of or any premium or
installment of interest on any indebtedness for borrowed money other than the
Notes unless such failure shall be waived by the person or persons entitled to
such payment; or
(d) If the Company or any of its subsidiaries shall default in
the performance of any of its obligations under Section 8 hereof and such
default shall have continued unremedied for a period of thirty (30) days after
written notice thereof shall have been given to the Company by any holder of the
Notes; or
(e) If the Company shall default in the performance of or
compliance with any other provision hereof and such default shall have continued
unremedied for a period of sixty (60) days after written notice thereof shall
have been given to the Company by any holder of the Notes;
(f) If any representation or warranty made by the Company in
the Agreement (including any Exhibit or Schedule thereto) or in any certificate,
document or instrument furnished to the Purchaser by the Company or its
directors or officers in connection with the transactions contemplated by the
Agreement shall prove to have been false in any material respect as of the date
made and such default shall have continued unremedied for a period of sixty (60)
days after written notice thereof shall have been given to the Company by any
holder of the Notes; or
(g) If the Company or any of its subsidiaries shall default in
any material respect under any material agreement to which it is a party or by
which it is bound, including agreements described in the Schedules attached or
furnished pursuant to this Agreement, and such default shall have continued
unremedied for a period of sixty (60) days after written notice thereof shall
have been given to the Company by any holder of the Notes; or
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(h) If the Company or any of its subsidiaries shall make a
general assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due, or shall file a voluntary
petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent or shall
file any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, dissolution or similar relief under any present or
future statute, law or regulation, or shall file any answer admitting the
material allegations of a petition filed against the Company or any such
subsidiary in such proceeding, or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of the Company or any such
subsidiary, or if the Company or its directors or majority stockholders or any
such subsidiary or its directors shall take any action looking to the
dissolution or liquidation or suspension of the business of the Company or such
subsidiary; or
(i) If, within sixty (60) days after the commencement of any
proceeding against the Company or any of its subsidiaries seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, such
proceeding shall not have been dismissed, or if, within sixty (60) days after
the appointment without the consent of or acquiescence of the Company or any of
its subsidiaries of any trustee, receiver, or liquidator of the Company or any
such subsidiary or of all or any substantial part of the properties of the
Company or any such subsidiary, such appointment shall not have been vacated,
then if any one or more Events of Default shall occur, any holder of the Notes
may at any time at its option by written notice to the Company declare the
principal of and the accrued interest on the Notes to be immediately due and
payable, and thereupon the same shall become so due and payable, without
presentment, demand, protest or notice, all of which are hereby waived by the
Company.
9.2 Non-Waiver and Other Remedies. No course of dealing or delay on
the part of any holder of the Notes in exercising any right shall operate as a
waiver thereof or otherwise prejudice the rights of any holder of the Notes. No
remedy conferred hereby shall be exclusive of any other remedy referred to
herein or now or hereafter available at law, in equity, by statute or otherwise.
10. Transfers; Registration of Shares.
10.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Shares" shall mean the Sale Stock, the Underlying Shares, and any
securities issued with respect to the Sale Stock or the Underlying Shares by
reason of stock dividends, stock splits or combinations, recapitalizations,
reorganizations or other corporate action.
"Holders" shall mean the Purchasers (in their capacity as holder of the
Notes, the Warrants or any Shares), and such of their respective successors and
assigns who agree in writing with the Company to acquire and hold the Notes, the
Warrants or Shares, as the case may be, subject to all the restrictions hereof.
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"Commission" shall mean the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"Registration Expenses" and "Selling Expenses" shall mean the expenses so
described in Subsection 10.8 hereof.
"Act" shall mean the Securities Act of 1933, or any successor Federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
"Transfer" shall mean any pledge, sale, assignment or other transfer of
the Notes, Warrants or any Shares or any interest therein whether or not such
transfer would constitute a "sale" as that term is defined in Section 2(3) of
the Act.
"Underwriter" shall mean each person who is or may be deemed an
"underwriter", as that term is defined in Section 2(11) of the Act, in respect
of Shares which shall have been registered by the Company under the Act pursuant
to any of the provisions of this Section 10.
10.2 Transfer Legends. The Transfer of the Notes, Shares and
Warrants will be restricted in accordance with the terms hereof. The Notes, each
Warrant Certificate and each certificate evidencing the Shares, including any
certificate issued to any transferee thereof, shall be stamped or otherwise
imprinted with legends, in the case of the Note, in the form set forth in
Exhibit A hereto, in the case of the Warrant Certificates in the form set forth
in Exhibit B hereto, and in the case of such share certificates, in
substantially the following form (unless otherwise permitted or unless such
Shares shall have been effectively registered and sold under the Act):
"The Shares represented by this Certificate have not been registered under
the Securities Act of 1933 nor under any state securities law and may not be
pledged, sold, assigned or transferred unless (i) a registration statement with
respect thereto is effective under the Securities Act of 1933 and any applicable
State securities laws, or (ii) in the opinion of counsel to the Company or
Messrs. Xxxxxx & XxXxxxx such shares may be pledged, sold, assigned or
transferred without an effective registration statement under the Securities Act
of 1933 or applicable State securities laws."
Upon request of a Holder of the Notes, the Warrants or any of the Shares,
the Company shall remove the foregoing legends from the Notes, Warrant
Certificate or the certificates evidencing such Shares, as the case may be, or
issue to such Holder a new Note, Warrant Certificate or certificates therefor
free of any transfer legend, if with such request, the Company shall have
received an opinion of Messrs. Xxxxxx & XxXxxxx or other counsel selected by the
Holder and reasonably satisfactory to the Company, to the effect that any
Transfer by said Holder of such Note, Warrant Certificate or the Shares, as the
case may be, will not violate the Act and applicable State securities laws, and
if counsel to the Company shall have approved the removal of such legend in
reliance on such opinion.
10.3 Incidental Registration. If the Company shall at any time or
times hereafter determine to register under the Act any shares of its common
stock (other than a registration
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statement on Form S-8 or other form which does not include substantially the
same information as would be required in a form for the general registration of
securities), it will promptly notify each Holder in writing in each case of such
determination and upon any Holder's written request given within thirty (30)
days after receipt by such Holder from the Company of such notification, the
Company will use its best efforts as soon as practicable thereafter to cause any
of the Shares specified by such Holder to be included in such registration
statement. Notwithstanding the foregoing, the Company shall not be required to
include Shares of such Holder therein if and to the extent the underwriter
managing the offering reasonably believes that such inclusion would adversely
affect the offering of the Shares to be covered by the proposed registration
statement, provided that any such exclusion shall be pro rata to all holders of
the Company's capital stock in proportion to the respective number of shares
that they shall have requested to be registered.
10.4 Required Registration. If any time after one year after the
effective date of the first registration statement filed by the Company under
the Act, the Holders of at least 51% of the Shares shall notify the Company in
writing that such Holders intend to offer or cause to be offered for sale at
least 20% of the Shares and shall request the Company to cause such Shares to be
registered under the Act, the Company will use its best efforts as soon as
practicable thereafter to prepare and file a registration statement covering
such Shares (together with any other unregistered Shares requested by the
Holders thereof to be included in such registration within thirty (30) days
after receipt of a notice from the Company pursuant to Subsection 10.6 hereof).
Such right to require registration shall be in addition to the rights of the
Holders under Subsection 10.3 of this Agreement and shall be available to
Holders on not more than two occasions (exclusive of registration statements on
From S-16, as provided below); provided that each such registration statement
becomes and remains effective in accordance with the provisions hereof;
provided, further, that such Holders of at least 51% of the Shares shall have
the right to require the Company to file an unlimited number of registration
statements on Form S-16, if available, or its successors under the Act (in which
case the minimum percentage of Shares to be covered by any such registration
statement shall be 5%).
10.5 Conditions of Obligations to Register Shares. Any distribution
of Shares registered pursuant to this Agreement shall, unless the Company shall
have given its prior written consent to other arrangements, be effected by means
of a firm or best efforts commitment underwriting managed by an investment
banking firm reasonably satisfactory to the Company. As a condition to the
Company's obligation hereunder to cause a registration statement to be filed or
Shares to be included in a registration statement, the Holder shall provide such
information and execute such documents as may reasonably be required in
connection with such registration. In addition, the Company shall not be
obligated to file a registration statement or to include Shares in a
registration statement hereunder if the Company shall have received opinions of
its counsel and of Messrs. Xxxxxx & XxXxxxx or other counsel to any Holder to
the effect that the proposed disposition of such Shares may be effected without
registration under the Act. No provision of this Section 10 shall be construed
as requiring the Company to register either the Notes or the Warrants under the
Act.
10.6 Notification of Requests. If the Company shall at any time or
times determine, upon receipt of a request of any security holder or otherwise,
to register any of the
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Shares or any other securities under the Act, the Company will, within fifteen
(15) days after such determination, give notice thereof to the Holders. The
Holders shall then be entitled to the right to registration to the extent
provided in Subsection 10.3 or 10.4 hereof, as the case may be.
10.7 Registration Procedures. If and whenever the Company is
required by the provisions of this Section 10 to use its best efforts to include
any of the Shares in a registration statement filed under the Act, the Company
shall, as expeditiously as possible:
10.7.1 Prepare and file with the Commission a registration
statement with respect to such Shares and use its best efforts to cause such
registration statement to become and remain effective.
10.7.2 Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for at least 90 days from the date of its effectiveness or (unless
otherwise required by the Act) until the Shares covered thereunder have been
sold, whichever is earlier.
10.7.3 Furnish to each Holder such number of copies of the
prospectus contained in such registration statement (including each preliminary
prospectus), in conformity with the requirements of the Act, and such other
documents as such Holder shall reasonably request in order to facilitate the
disposition of the Shares owned by such Holder.
10.7.4 Use its best efforts to register or qualify the Shares
covered by such registration statement under the blue sky laws of such
jurisdictions as each Holder shall reasonably request, and do any and all other
acts and things which may be necessary or advisable to enable such Holder to
consummate the disposition of the Shares owned by such Holder in such
jurisdictions during the period covered in Subsection 10.7.2; provided, however,
that in no event shall the Company be obligated (i) to qualify to do business in
any jurisdiction where it is not at the time so qualified; (ii) to take any
action which would subject it to the service of process of suits other than
those arising out of the offer or sale of the Shares covered by such
registration statement in any jurisdiction where it is not at the time so
subject; or (iii) to register or qualify under the securities laws of any such
jurisdiction if and to the extent the underwriter managing the offering
reasonably believes that such registration or qualification would adversely
affect the offering.
10.7.5 Notify each Holder of any shares covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated herein or necessary to make the statements
therein not misleading in the light of the circumstances then existing. Each
Holder agrees, upon receipt of such notice, forthwith to cease making offers and
sales of the Shares pursuant to such registration statement or deliveries of the
prospectus contained therein for any purpose and to return to the Company the
copies of such prospectus not theretofore delivered by such Holder.
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10.7.6 At the request of any Holder, prepare and furnish to
such Holder a reasonable number of copies of any supplement to or amendment of
such prospectus that may be necessary so that, as thereafter delivered to the
Purchasers of such Shares, such prospectus shall not include an 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 in the light
of the circumstances then existing.
10.7.7 Provide an institutional transfer agent for the Shares
at least by the effective date of the first registration of any such Shares.
10.7.8 Promptly notify all selling Holders of any stop order
or similar proceeding initiated by state or federal regulatory bodies and use
its best efforts to take all necessary steps expeditiously to remove such stop
order or similar proceeding.
10.8 Description of Expenses. All expenses incurred by the Company
in complying with any of the foregoing provisions of this Section 10, including
without limitation all filing fees, printing expenses, fees and disbursements of
counsel for the Company and accountants' fees and expenses, but excluding
underwriting discounts and selling commissions, incident to or required by any
such registration are herein called "Registration Expenses." All underwriting
discounts and selling commissions applicable to the sale of Shares hereunder and
all fees and disbursements of counsel to any Holder selling Shares hereunder are
herein called "Selling Expenses." If the Company is required by the provisions
of this Section 10 to use its best efforts to effect the registration of any of
the Shares under the Act, the Registration Expenses and Selling Expenses in
connection with such registration shall be borne by the Company, except that
each Holder shall pay the fees and disbursements of his own counsel and the
underwriting discounts and selling commissions applicable to his shares.
10.9 Indemnification; Underwriting Agreements. In the event that the
Company registers under the Act any Shares held by a Holder:
10.9.1 The Company agrees to indemnify and hold harmless such
Holder, and each person, if any, who controls such Holder within the meaning of
the Act, against any losses, claims, damages or liabilities to which any such
Holder, controlling person or underwriter may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) shall arise out of or be based upon any untrue or allegedly
untrue statement of any material fact contained in the registration statement,
the related prospectus or any amendment or supplement thereto, or upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse any legal or other expenses reasonably incurred by any such
Holder, controlling person or underwriter in connection with investigating or
defending against any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable to any Holder, controlling person
or underwriter for any losses, claims, damages, liabilities or actions arising
out of or based upon any such untrue statement or omission
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made in reliance upon and in conformity with written information furnished to
the Company by such Holder, controlling person or underwriter seeking
indemnification hereunder.
10.9.2 The obligations of the Company under Subsections 10.3
and 10.4 are subject to the conditions that each Holder whose shares are to be
included in any registration or qualification referred to in this Section 10 (i)
agrees, in writing, to indemnify and hold harmless the Company, each person, if
any, who controls the Company within the meaning of the Act and the officers and
directors of the Company, against any and all liability or expense arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact in any related registration statement, prospectus, offering circular,
notification or other document or alleged omission of any material fact required
to be stated therein or necessary to make the statements therein not misleading,
but only with reference to statements or omissions made in reliance upon a
statement in writing furnished by or on behalf of such Holder for inclusion
therein and with reference to statements or omissions made in reliance upon an
omission or failure by such Holder to furnish any statement with respect to such
Holder required to be included therein, and (ii) if such registration or
qualification relates to an offering which is to be underwritten, enters into an
underwriting agreement in usual and standard form respecting such offering.
10.10 Rule 144. The Purchasers recognize that the provisions of Rule
144 under the Securities Act are not presently applicable to securities of the
Company. After the effective date of the first registration statement filed by
the Company under the Act, in order that the Purchasers may make routine sales
of securities of the Company in reliance upon Rule 144 under the Act, the
Company agrees that it will:
(a) file with the Commission and any national securities
exchange on which any of its securities may be listed, on a timely basis, all
reports required by Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), or successor provision of law, and the rules and
regulations promulgated by the Commission thereunder, as the same are or may
hereafter be amended from time to time; include in each such report filed a
statement to the effect that it has been subject to the reporting requirements
of Section 13 or Section 15(d) of the Exchange Act for a period of at least 90
days prior to the date of such report, and has filed all annual, quarterly and
other reports in compliance with such requirement; and deliver to any Holder,
within five days after written request by such Holder, a written statement to
the effect that the Company is subject to the foregoing requirements and every
report of the Company required to be filed by Section 13 or Section 15(d) of the
Exchange Act within a period of at least 90 days prior to the date of such
written statement has been filed by the Company in compliance with the
provisions of such sections of the Exchange Act and the rules and regulations of
the Commission thereunder;
(b) deliver to the Holder, within five days after request by
such Holder, a written statement setting forth as of the close of business on
the day next preceding the date of the statement (i) the number of shares of the
Common Stock issued and outstanding and the aggregate number of shares of Common
Stock issuable upon conversion of any outstanding securities convertible into
Common Stock or upon exercise of any outstanding options, rights or warrants to
subscribe for or purchase Common Stock, (ii) the exact name, address and
telephone
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number (including area code) of the Company, (iii) the I.R.S. employer
identification number of the Company, (iv) the Commission's reporting file
number for the Company, and (v) all other information which may be required by
the Commission in connection with any sale made by a Purchaser pursuant to Rule
144; and
(c) upon such Holder's complying with Rule 144 under the Act
and selling any shares of Common Stock purchased hereunder in accordance with
such rule, authorize and direct its transfer agent to transfer registration of,
and issue new certificates for, any shares of Common Stock so sold, in
accordance with the instructions furnished by such Holder.
10.11 Mergers. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Section 10 and for that purpose
references hereunder to "Shares" shall be deemed to be references to the
securities which such Holders would be entitled to receive in exchange for
Shares under any such merger, consolidation or reorganization.
10.12 Further Agreements of the Company. If the Company hereafter
becomes subject to the reporting requirements of the Exchange Act, or successor
provision of law, the Company further agrees as follows:
10.12.1 Reports to be Furnished. The Company will furnish
copies of the following documents to all Holders:
(a) on the earlier of the date actually filed or the
date due, all reports which the Company shall be required under the Exchange Act
to file with the Commission, including but not limited to Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K; each
thereof shall be accompanied by a certificate of the chief financial officer of
the Company to the effect that such Report and the financial statements included
therein have been properly prepared and are correct and that he has caused the
provisions of this Agreement to be reviewed and has no knowledge of any default
by the Company in the performance or observance of any of the provisions of this
Agreement or the Notes, or if he has such knowledge, specifying such default and
the nature thereof; and the Annual Report shall also be accompanied by reports
or certificates of the Company's independent certified public accountants and
the statement of such public accountants that they have caused the provisions of
this Agreement to be reviewed and have no knowledge of any default by the
Company in the performance or observance of any of the provisions of this
Agreement or the Notes or, if they have such knowledge, specifying such default
and the nature thereof.
(b) promptly after receipt, a copy of all detailed
audits or reports submitted to the Company by independent public accountants in
connection with any annual or interim audits of the books of the Company or any
subsidiary; and
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(c) promptly upon the sending or making available of the
same, a copy of all reports and financial statements as the Company makes
available to its stockholders.
11. Values of Notes and Warrants. For the purpose of fixing the relative
values of the Notes and Warrants received under this Agreement and the amount of
the original issue discount as that term is defined in Section 1232(b) of the
Internal Revenue Code of 1954, as amended, and the regulations thereunder (with
particular reference to Treasury Regulation Section 1.1232-2), the Company
hereby confirms its agreement with each Purchaser that the interest the Notes
would bear if issued apart from the Warrants would be 10 1/4% per annum.
12. Survival of Covenants. All covenants, agreements, representations and
warranties made by the Company hereunder shall survive the execution and
delivery of this Agreement, the Notes, Sale Stock and Warrants. All statements
contained in certificates or other instruments delivered by the Company and its
officers and directors pursuant to this Agreement shall constitute
representations and warranties made by the Company hereunder.
13. Successors and Assigns. All of the terms and provisions of this
Agreement shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns, and to all subsequent holders of the Notes,
Sale Stock, Warrants and Underlying Shares.
14. Amendments and Waivers. This Agreement may not be changed, modified or
discharged orally, nor may any waivers or consents be given orally hereunder,
and every such change, modification, discharge, waiver or consent shall be in
writing signed by the person against which enforcement thereof is sought.
15. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, first class postage prepaid:
(a) if to the Company: Cynergy, Inc.
00000 Xxxxxxxx Xxx
Xxxxx 00
Xxxxxxxx, XX 00000
(b) if to the Purchasers: Pioneer Investors Corp.
Xxx Xxxxxxx Xxxx Xxxxx
Xxx Xxxx, XX 00000
and
Xxxx Resources Corporation
000 Xxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
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or to such other address as either of said parties shall have furnished to the
other party in writing. Delivery of documents by the Company to Messrs. Xxxxxx &
XxXxxxx, Special Counsel for the Purchasers, shall be deemed to constitute for
all purposes the furnishing of such documents to the Purchasers under this
Agreement.
16. Expenses. Except as provided in Section 7, each of the Company
and each Purchaser agrees to bear its own expenses in connection with this
Agreement, the expenses of the Company to include any applicable stock or
note issue or transfer fees or taxes.
17. General. This Agreement may be executed in two or more counterparts
each of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument. This Agreement shall be construed and
enforced in accordance with and the rights of the parties shall be governed by
the laws of the State of Washington.
If the foregoing corresponds with the Company's understanding of its
agreement with the Purchaser, kindly sign and return to the Purchaser the
enclosed counterparts of this letter.
Very truly yours,
XXXX RESOURCES CORPORATION PIONEER INVESTORS CORP.
By /s/ [unreadable] By
------------------------------- --------------------------------------
Vice President President
Agreed to as of the Date First Above
Written:
CYNERGY, INC.
By /s/ D. Xxxxx Xxxxxxx
-------------------------------
President
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