AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
VALENCE TECHNOLOGY, INC.
AND
CC INVESTMENTS, LDC
TABLE OF CONTENTS
PAGE
ARTICLE I PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . 2
1.1 Purchase of Preferred Stock and Warrants. . . . . . . . . . . . 2
1.2 Form of Payment . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Second Closing Date . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II PURCHASER'S REPRESENTATIONS AND WARRANTIES. . . . . . . . . 3
2.1 Investment Purpose. . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Accredited Investor Status. . . . . . . . . . . . . . . . . . . 3
2.3 Reliance On Exemptions. . . . . . . . . . . . . . . . . . . . . 3
2.4 Information . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Governmental Review . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Transfer or Resale. . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Authorization; Enforcement. . . . . . . . . . . . . . . . . . . 5
2.9 Residency . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Transactions in Common Stock of the Company . . . . . . . . . . 5
2.11 Acknowledgments Regarding Placement Agent . . . . . . . . . . . 5
2.12 Securities Purchase Agreement Representations and Warranties. . 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . 6
3.1 Organization and Qualification. . . . . . . . . . . . . . . . . 6
3.2 Authorization; Enforcement. . . . . . . . . . . . . . . . . . . 6
3.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Issuance of Shares. . . . . . . . . . . . . . . . . . . . . . . 7
3.5 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 Registration and SEC Documents. . . . . . . . . . . . . . . . . 9
3.7 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . 9
3.8 Absence of Litigation . . . . . . . . . . . . . . . . . . . . .10
3.9 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.10 Acknowledgment Regarding Purchaser's Purchase of the
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.11 Current Public Information. . . . . . . . . . . . . . . . . . .10
3.12 No General Solicitation . . . . . . . . . . . . . . . . . . . .10
i.
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.13 No Integrated Offering. . . . . . . . . . . . . . . . . . . . .10
3.14 No Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . .11
3.15 Acknowledgment of Dilution. . . . . . . . . . . . . . . . . . .11
3.16 Intellectual Property . . . . . . . . . . . . . . . . . . . . .11
3.17 Foreign Corrupt Practices . . . . . . . . . . . . . . . . . . .11
3.18 Key Employees . . . . . . . . . . . . . . . . . . . . . . . . .12
3.19 Securities Purchase Agreement Representations and Warranties. .12
3.20 Revised Copies of Transaction Documents . . . . . . . . . . . .12
ARTICLE IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . .12
4.1 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . .12
4.2 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . .12
4.3 Reporting Status. . . . . . . . . . . . . . . . . . . . . . . .13
4.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . .13
4.5 Restriction On Issuance of Securities . . . . . . . . . . . . .13
4.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
4.7 Information . . . . . . . . . . . . . . . . . . . . . . . . . .14
4.8 Waiver of Right to Variable Pricing.. . . . . . . . . . . . . .14
4.9 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
4.10 Prospectus Delivery Requirement . . . . . . . . . . . . . . . .14
4.11 Intentional Acts or Omissions . . . . . . . . . . . . . . . . .15
4.12 Corporate Existence . . . . . . . . . . . . . . . . . . . . . .15
4.13 Share Authorization . . . . . . . . . . . . . . . . . . . . . .15
4.14 No Manipulation . . . . . . . . . . . . . . . . . . . . . . . .15
4.15 Volume Limitations. . . . . . . . . . . . . . . . . . . . . . .15
4.16 Matters Relating to the Series A Certificate of Designation . .15
ARTICLE V LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES . . . . . . . .16
5.1 Removal of Legend . . . . . . . . . . . . . . . . . . . . . . .16
5.2 Transfer Agent Instructions . . . . . . . . . . . . . . . . . .16
5.3 Transfers of Preferred Stock. . . . . . . . . . . . . . . . . .17
5.4 Maintenance of Baccarat Agreement . . . . . . . . . . . . . . .17
ii.
TABLE OF CONTENTS
(CONTINUED)
PAGE
5.5 Filing of Second Registration Statement . . . . . . . . . . . .17
ARTICLE VI CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. . . . . . .18
6.1 Conditions to the Company's Obligation to Sell. . . . . . . . .18
ARTICLE VII CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE. . . . . .18
7.1 Conditions to the Second Closing. . . . . . . . . . . . . . . .18
ARTICLE VIII GOVERNING LAW; MISCELLANEOUS. . . . . . . . . . . . . . . .20
8.1 Governing Law; Jurisdiction.. . . . . . . . . . . . . . . . . .20
8.2 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . .20
8.3 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
8.4 Severability. . . . . . . . . . . . . . . . . . . . . . . . . .20
8.5 Scope of Agreement; Amendments. . . . . . . . . . . . . . . . .21
8.6 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
8.7 Successors and Assigns. . . . . . . . . . . . . . . . . . . . .22
8.8 Third Party Beneficiaries.. . . . . . . . . . . . . . . . . . .22
8.9 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
8.10 Public Filings; Publicity.. . . . . . . . . . . . . . . . . . .23
8.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . .23
8.12 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . .23
8.13 Termination.. . . . . . . . . . . . . . . . . . . . . . . . . .23
8.14 Full Agreement. . . . . . . . . . . . . . . . . . . . . . . . .23
iii.
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT
THIS AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT ("AGREEMENT") is
entered into as of December 11, 1998, by and between VALENCE TECHNOLOGY, INC., a
Delaware corporation (the "COMPANY"), with headquarters located at ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and CC INVESTMENTS, LDC ("PURCHASER") with regard to
the following:
RECITALS
A. The Company and Purchaser previously executed and delivered a
Securities Purchase Agreement, dated as of July 27, 1998 (the "SECURITIES
PURCHASE AGREEMENT"), and closed the First Closing (as defined therein), and now
desire to amend and restate the Securities Purchase Agreement in its entirety by
executing and delivering this Agreement.
B. The Company and Purchaser are executing and delivering this Agreement,
and executed and delivered the Securities Purchase Agreement, in reliance upon
the exemption from securities registration afforded by the provisions of
Regulation D ("Regulation D"), as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "SECURITIES ACT").
C. Purchaser purchased, upon the terms and conditions stated in the
Securities Purchase Agreement, (i) Series A Convertible Participating Preferred
Stock of the Company having the rights set forth in the Certificate of
Designations, Preferences and Rights (the "SERIES A CERTIFICATE OF DESIGNATION")
attached thereto as EXHIBIT A (the "SERIES A PREFERRED STOCK"), which is
convertible into shares of the Company's Common Stock, par value $.001 per share
(the "COMMON STOCK") and (ii) a Warrant in the form of EXHIBIT B thereto (the
"INITIAL WARRANT") entitling the holder thereof to purchase 447,761 shares of
Common Stock.
D. Purchaser desires to purchase, upon the terms and conditions stated in
this Agreement, (i) Series B Convertible Participating Preferred Stock of the
Company having the rights set forth in the Certificate of Designations,
Preferences and Rights (the "SERIES B CERTIFICATE OF DESIGNATION") attached
hereto as EXHIBIT A (the "SERIES B PREFERRED STOCK"), which shall be convertible
into shares of the Company's Common Stock, and (ii) a Warrant in the form of
EXHIBIT B hereto (the "SECOND WARRANT") entitling the holder thereof to purchase
447,761 shares of Common Stock. Purchaser also desires to exchange, upon the
terms and conditions stated in this Agreement, the Initial Warrant for a Warrant
of like tenor of the Second Warrant (such Warrant, when taken together with the
Second Warrant, the "WARRANTS"). The Series A Preferred Stock and the Series B
Preferred Stock are collectively referred to herein as the "PREFERRED STOCK" or
the "CONVERTIBLE SECURITIES." The shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Preferred Stock are referred to
herein as the "CONVERSION SHARES." The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "WARRANT SHARES." The
Preferred Stock, the Warrants and the Conversion Shares are collectively
referred to herein as the "SECURITIES."
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering an Amended and Restated
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to
which the Company has agreed to
1.
provide certain registration rights under the Securities Act, the rules and
regulations promulgated thereunder and applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Purchaser hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 PURCHASE OF PREFERRED STOCK AND WARRANTS. The Company consummated the
sale of Series A Preferred Stock and the Initial Warrant on July 27, 1998 (the
"FIRST CLOSING"). Subject to the terms and the satisfaction or waiver of the
conditions set forth in this Agreement, the issuance, sale and purchase of the
Series B Preferred Stock and Second Warrant shall be consummated in a closing
hereinafter referred to as the "SECOND CLOSING." (each of the First Closing and
Second Closing sometimes referred to herein as a "CLOSING"). The purchase price
(the "PURCHASE PRICE") per share of Series A Preferred Stock was, and Series B
Preferred Stock shall be, equal to $1,000.
(a) On the date of the First Closing, the Company issued and sold to
Purchaser, and Purchaser purchased from the Company (i) 7,500 shares of Series A
Preferred Stock and (ii) the Initial Warrant. The aggregate purchase price for
the Series A Preferred Stock and Initial Warrant purchased at the First Closing
was seven million five hundred thousand dollars ($7,500,000).
(b) On the date of the Second Closing, subject to the satisfaction of
the conditions set forth in Articles VI and VII, the Company shall issue and
sell to Purchaser and Purchaser shall purchase from the Company (i) 7,500 shares
of Series B Preferred Stock and (ii) the Second Warrant. The aggregate purchase
price for such Securities to be purchased at the Second Closing shall be seven
million five hundred thousand dollars ($7,500,000).
(c) On the date of the Second Closing, subject to the satisfaction of
the conditions set forth in Articles VI and VII, the Company shall exchange with
Purchaser a Warrant to purchase 447,761 shares of Common Stock in the form
attached hereto as EXHIBIT B against delivery by Purchaser of the Initial
Warrant.
1.2 FORM OF PAYMENT. At the Second Closing, Purchaser shall (i) pay the
aggregate Purchase Price for the Series B Preferred Stock and Second Warrant
being purchased by Purchaser at the Second Closing by wire transfer to the
Company, in accordance with the Company's written wiring instructions, against
delivery of duly executed stock certificates for the same, and the Company shall
deliver such Series B Preferred Stock and certificate representing the Second
Warrant against delivery of such aggregate Purchase Price, and (ii) deliver the
Initial Warrant to the Company against issuance by the Company of a Warrant to
purchase 447,761 shares of Common Stock in the form attached hereto as EXHIBIT
B.
2.
1.3 SECOND CLOSING DATE. Subject to the satisfaction of the conditions
set forth in Articles VI and VII below, the date and time of the issuance, sale
and purchase of the Series B Preferred Stock and Second Warrant, and exchange of
the Initial Warrant, pursuant to this Agreement shall be December 18, 1998, or
such other date as the Company and Purchaser shall agree. The Second Closing
shall occur at 12:00 p.m. Chicago time, at the offices of Cooley Godward LLP,
Five Palo Alto Square, ▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇.
ARTICLE II
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants to the Company as set forth in this
Article II. Purchaser does not make any other representations or warranties,
express or implied, to the Company in connection with the transactions
contemplated hereby and any and all prior representations and warranties, if
any, which may have been made by Purchaser to the Company in connection with the
transactions contemplated hereby shall be deemed to have been merged in this
Agreement and any such prior representations and warranties, if any, shall not
survive the execution and delivery of this Agreement.
2.1 INVESTMENT PURPOSE. Purchaser purchased the Series A Preferred Stock
and Initial Warrant, and is purchasing the Series B Preferred Stock, Second
Warrant and the Warrant to be issued in exchange for the Initial Warrant, for
Purchaser's own account for investment only and not with a view toward or in
connection with the public sale or distribution thereof. Purchaser will not
resell the Securities or any securities which may be issued upon conversion
thereof except pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales registered under the Securities
Act. Purchaser understands that Purchaser must bear the economic risk of this
investment indefinitely, unless the Securities are registered pursuant to the
Securities Act and any applicable state securities laws or an exemption from
such registration is available, and that the Company has no present intention of
registering any such Securities other than as contemplated by the Registration
Rights Agreement. By making the representations in this Section 2.1, Purchaser
does not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption from registration under
the Securities Act.
2.2 ACCREDITED INVESTOR STATUS. Purchaser is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D.
2.3 RELIANCE ON EXEMPTIONS. Purchaser understands that the Convertible
Securities and Warrants have been and are being offered and sold to Purchaser in
reliance upon specific exemptions from the registration requirements of the
United States federal and state securities laws and that the Company has relied
and is relying upon the truth and accuracy of, and Purchaser's compliance with,
the representations, warranties, agreements, acknowledgments and understandings
of Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of Purchaser to acquire the Convertible
Securities and Warrants.
3.
2.4 INFORMATION. Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Convertible Securities and
Warrants which have been specifically requested by Purchaser. Purchaser has
been afforded the opportunity to ask questions of the Company and has received
what Purchaser believes to be complete and satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by Purchaser or any of its representations shall modify, amend or
affect Purchaser's right to rely on the Company's representations and warranties
contained in Article III. Purchaser understands that Purchaser's investment in
the Securities involves a high degree of risk.
2.5 GOVERNMENTAL REVIEW. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.
2.6 TRANSFER OR RESALE. Purchaser understands that (i) except as provided
in the Registration Rights Agreement, the Securities have not been and will not
be registered under the Securities Act or any state securities laws, and may not
be transferred unless subsequently registered thereunder or an exemption from
such registration is available (which exemption the Company expressly agrees may
be established as contemplated in clauses (b) and (c) of Section 5.1 hereof);
(ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("RULE 144") may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities without registration under the Securities Act under
circumstances in which the seller may be deemed to be an underwriter (as that
term is defined in the Securities Act) may require compliance with some other
exemption under the Securities Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to this Agreement or the
Registration Rights Agreement).
2.7 LEGENDS. Purchaser understands that, subject to Article V hereof, the
certificates for the Convertible Securities and Warrants, and until such time as
the Conversion Shares and Warrant Shares, as the case may be, have been
registered under the Securities Act as contemplated by the Registration Rights
Agreement or otherwise may be sold by Purchaser pursuant to Rule 144, the
certificates for the Conversion Shares and Warrant Shares, as the case may be,
will bear a restrictive legend (the "LEGEND") in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO
4.
AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
Purchaser further understands that, subject to Article V hereof, the
certificates for the Convertible Securities will bear a restrictive legend (the
"SECOND LEGEND") in the following form:
THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED SECURITIES
PURCHASE AGREEMENT DATED DECEMBER 11, 1998 BETWEEN THE COMPANY
AND THE INITIAL PURCHASER OF THE SECURITIES, AS MAY BE AMENDED.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO
THE SECRETARY OF THE COMPANY.
2.8 AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms.
2.9 RESIDENCY. Purchaser is a resident of the Cayman Islands.
2.10 TRANSACTIONS IN COMMON STOCK OF THE COMPANY. As of July 27, 1998,
Purchaser owned no shares of the Common Stock of the Company. In addition,
Purchaser represents that it had not, within the 90 days prior July 27, 1998,
engaged in any purchases or sales of the Common Stock of the Company or, without
limitation, any puts, calls, futures contracts, short sales or hedging or
arbitrage transactions with respect thereto.
2.11 ACKNOWLEDGMENTS REGARDING PLACEMENT AGENT. Purchaser acknowledges
that Gemini Capital, L.L.C. is acting as placement agent (the "PLACEMENT AGENT")
for the Securities being offered hereby and will be compensated by the Company
for acting in such capacity. Purchaser further acknowledges that the Placement
Agent has acted solely as placement agent in connection with the offering of the
Securities by the Company, that the information and data provided to Purchaser
in connection with the transactions contemplated hereby have not been subjected
to independent verification by the Placement Agent, and that the Placement Agent
makes no representation or warranty with respect to the accuracy or completeness
of such information, data or other related disclosure material. Purchaser
further acknowledges that in making its decision to enter into this Agreement
and purchase the Securities it has relied on its own examination of the Company
and the terms of, and consequences, of holding the Securities. Purchaser
further acknowledges that the provisions of this Section 2.11 are for the
benefit of, and may be enforced by, the Placement Agent.
5.
2.12 SECURITIES PURCHASE AGREEMENT REPRESENTATIONS AND WARRANTIES. Each of
the representations and warranties of Purchaser made by Purchaser in the
Securities Purchase Agreement were true and correct as of July 27, 1998.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that as of the date hereof
and as of the Second Closing, and except as specifically set forth in the
Schedule of Exceptions attached hereto:
3.1 ORGANIZATION AND QUALIFICATION. The Company and each of its
subsidiaries is a corporation duly organized, validity existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction where the failure to so qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on either (i) the business, operations, properties, financial condition,
operating results or prospects of the Company and its subsidiaries, taken as a
whole on a consolidated basis or (ii) the transactions contemplated hereby.
3.2 AUTHORIZATION; ENFORCEMENT.
(a) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Warrants and the Registration Rights
Agreement, and to issue and sell, perform its obligations with respect to, the
Convertible Securities and the Warrants in accordance with the terms hereof and
to issue the Conversion Shares in accordance with the terms and conditions of
the Series A Certificate of Designation and Series B Certificate of Designation
and the Warrant Shares in accordance with the terms and conditions of the
Warrants;
(b) the execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation the
issuance of the Convertible Securities and the Warrants and the reservation for
issuance and issuance of the Conversion Shares and the Warrant Shares) have been
duly authorized by all necessary corporate action and, except as set forth on
SCHEDULE 3.2 hereof, no further consent or authorization of the Company, its
board of directors, or its stockholders or any other person, body or agency is
required with respect to any of the transactions contemplated hereby or thereby
(whether under rules of the Nasdaq SmallCap Market or the Nasdaq National Market
System ("NASDAQ"), the National Association of Securities Dealers ("NASD") or
otherwise);
(c) this Agreement, the Registration Rights Agreement, the
Convertible Securities and the Warrants (except with respect to the Series B
Preferred Stock and the
6.
Warrants, which representation is given only as of the date of the Second
Closing) have been duly executed and delivered by the Company; and
(d) this Agreement, the Registration Rights Agreement, the
Convertible Securities and the Warrants (except with respect to the Series B
Preferred Stock and the Warrants, which representation is given only as of the
date of the Second Closing) constitute legal, valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to limitations
on availability of equitable relief, including specific performance.
3.3 CAPITALIZATION. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Convertible Securities and the Warrants)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares to be initially reserved for issuance upon
conversion of the Convertible Securities and the exercise of the Warrants is set
forth on SCHEDULE 3.3. All of such outstanding shares of capital stock have
been, or upon issuance will be, validly issued, fully paid and non-assessable.
No shares of capital stock of the Company (including the Preferred Stock, the
Conversion Shares, the Warrants and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except as disclosed in SCHEDULE 3.3, as of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
and (ii) there are no agreements or arrangements under which the Company or any
of its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement).
The Company has furnished to Purchaser true and correct copies of the Company's
Certificate of Incorporation as currently in effect ("CERTIFICATE OF
INCORPORATION"), and the Company's By-laws as currently in effect (the
"BY-LAWS"). The Company has set forth on SCHEDULE 3.3 all instruments and
agreements (other than the Certificate of Incorporation and By-laws) governing
securities convertible into or exercisable or exchangeable for Common Stock of
the Company (and the Company shall provide to Purchaser copies thereof upon the
request of Purchaser). The Company shall provide Purchaser with a written
update of this representation signed by the Company's Chief Executive Officer or
Chief Financial Officer on behalf of the Company as of the date of the Second
Closing and as of the first anniversary of each of the First Closing and Second
Closing.
3.4 ISSUANCE OF SHARES. The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance, and, upon conversion of the Convertible
Securities in accordance with the terms thereof, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
and will not be subject to preemptive rights or other similar rights of
stockholders of the Company. The Convertible Securities and Warrants
7.
are duly authorized and reserved for issuance, and are validly issued, fully
paid and non-assessable, and free from all taxes, liens claims and encumbrances
and are not and will not be subject to preemptive rights or other similar rights
of stockholders of the Company. The Board of Directors of the Company has
unanimously approved the issuance of shares of Common Stock upon conversion of
shares of Preferred Stock and upon the exercise of the Warrants pursuant to the
terms hereof in the aggregate in excess of twenty percent (20%) of the
outstanding shares of Common Stock (the "RULE 4460(i) AUTHORIZATION") and has
resolved to unanimously recommend, and will recommend unanimously, to the
stockholders of the Company the approval of the Rule 4460(i) Authorization in
accordance with Section 4.13. Accordingly, no further corporate authorization
or approval (other than the Stockholder Approval (as defined in Section 4.13))
is required under the rules of the Nasdaq with respect to the transaction
contemplated by this Agreement, including, without limitation, the issuance of
the Conversion Shares and the Warrant Shares and the inclusion thereof on the
Nasdaq.
3.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and reservation for issuance, as
applicable, of the Convertible Securities, Conversion Shares, Warrants and
Warrant Shares) will not (a) result in a violation of the Certificate of
Incorporation or By-laws, (b) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party (except for such conflicts, defaults,
terminations, amendments, accelerations, and cancellations as would not,
individually or in the aggregate, have a Material Adverse Effect), or (c) result
in a violation of any law, rule, regulation, order, judgment or decree
(including, without limitation, U.S. federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries, or by which
any property or asset of the Company or any of its subsidiaries, is bound or
affected. Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation, By-laws or other organizational documents, and
neither the Company nor any of its subsidiaries is in default (and no event has
occurred which, with notice or lapse of time or both, would put the Company or
any of its subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for possible defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted, and shall not be conducted so long as
Purchaser owns any of the Securities, in violation of any law, ordinance, rule,
regulation, order, judgment or decree of any governmental entity, court or
arbitration tribunal except for possible violations the sanctions for which
either singly or in the aggregate would not have a Material Adverse Effect.
Except as set forth on SCHEDULE 3.5, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or the Registration Rights Agreement or to perform its obligations in
accordance with the terms hereof or thereof. The Company is not in violation of
the listing requirements of Nasdaq and does not reasonably anticipate that the
Common Stock will be de-listed by Nasdaq for the foreseeable future.
8.
3.6 REGISTRATION AND SEC DOCUMENTS. The Common Stock is registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") and has been so registered since May 7, 1992. Except as disclosed in
SCHEDULE 3.6, since December 31, 1993, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed after December 31, 1993 and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being referred to herein as the "SEC DOCUMENTS"). The
Company has delivered to Purchaser true and complete copies of the SEC
Documents, except for exhibits, schedules and incorporated documents (the SEC
documents filed prior to the date hereof, the "FILED SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is currently required to be updated or
amended under applicable law except as a result of the transactions contemplated
hereby. The financial statements of the Company included in the SEC Documents
have been prepared in accordance with U.S. generally accepted accounting
principles, consistently applied, and the rules and regulations of the SEC
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they do not include footnotes or are condensed
or summary statements) and present accurately and completely the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal, immaterial year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the Filed SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred subsequent to the date of such financial statements in the ordinary
course of business consistent with past practice and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, in each case of clause (i) and (ii) next above which,
individually or in the aggregate, are not material to the financial condition,
business, operations, properties, operating results or prospects of the Company
and its subsidiaries taken on a whole. The Filed SEC Documents contain a
complete and accurate list of all material undischarged written or oral
contracts, agreements, leases or other instruments to which the Company or any
subsidiary is a party or by which the Company or any subsidiary is bound or to
which any of the properties or assets of the Company or any subsidiary is
subject (each a "CONTRACT"). None of the Company, its subsidiaries or, to the
best knowledge of the Company, any of the other parties thereto, is in breach or
violation of any Contract, which breach or violation would have a Material
Adverse Effect. No event, occurrence or condition exists which, with the lapse
of time, the giving of notice, or both, or the happening of any further event or
condition, would become a breach or default by the Company or its subsidiaries
under any Contract which breach or default would have a Material Adverse Effect.
3.7 ABSENCE OF CERTAIN CHANGES. Since March 31, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations,
9.
financial condition, results of operations or prospects of the Company or, to
the knowledge of the Company, any development which could reasonably be expected
to have such a material adverse change or development within the next eight
months, except as disclosed in SCHEDULE 3.7.
3.8 ABSENCE OF LITIGATION. Except as disclosed in SCHEDULE 3.8, there is
no action, suit, proceeding, inquiry or investigation before or by any court,
public board, governmental agency or authority, or self-regulatory organization
or body pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect or
would adversely affect the transactions contemplated by this Agreement or any of
the documents contemplated hereby or which would adversely affect the validity
or enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents. There are no
facts which, if known by a potential claimant or governmental agency or
authority, could give rise to a claim or proceeding which, if asserted or
conducted with results unfavorable to the Company or any of its subsidiaries,
could have a Material Adverse Effect.
3.9 DISCLOSURE. No information relating to or concerning the Company set
forth in this Agreement or provided to Purchaser in connection with the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were made, not
misleading. Except for the execution and performance of this Agreement, no
material fact (within the meaning of the federal securities laws of the United
States) exists with respect to the Company or any of its subsidiaries which has
not been publicly disclosed.
3.10 ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF THE SECURITIES. The
Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between Purchaser and
the Company, are "arms-length", and that any statement made by Purchaser, or any
of its representatives or agents, in connection with this Agreement or the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Purchaser's purchase of the Securities and has not been relied
upon in any way by the Company, its officers, directors or other
representatives. The Company further represents to Purchaser that the Company's
decision to enter into this Agreement and the transactions contemplated hereby
has been based solely on an independent evaluation by the Company and its
representatives.
3.11 CURRENT PUBLIC INFORMATION. The Company is currently eligible to
register the resale of the Conversion Shares on a registration statement on Form
S-3 under the Securities Act.
3.12 NO GENERAL SOLICITATION. Neither the Company nor any person acting on
behalf of the Company has conducted any "general solicitation," as described in
Rule 502(c) under Regulation D, with respect to any of the Securities being
offered hereby.
3.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any
10.
security or solicited any offers to buy any security under circumstances that
would prevent the parties hereto from consummating the transactions contemplated
hereby pursuant to an exemption from registration under the Securities Act
pursuant to the provisions of Regulation D. The transactions contemplated hereby
are exempt from the registration requirements of the Securities Act, assuming
the accuracy of the representations and warranties herein contained of Purchaser
to the extent relevant for such determination.
3.14 NO BROKERS. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Gemini Capital, L.L.C. (the fees
of which shall be paid in full by the Company). The Company will indemnify
Purchaser from and against any fees and expenses sought or other claims made by
Gemini Capital, L.L.C.
3.15 ACKNOWLEDGMENT OF DILUTION. The number of Conversion Shares issuable
upon conversion of the Convertible Securities may increase substantially in
certain circumstances, including the circumstance wherein the trading price of
the Common Stock declines. The Company's executive officers and directors have
studied and fully understand the nature of the securities being sold hereunder
and recognize that they have a potential dilutive effect. The board of
directors of the Company has concluded in its good faith business judgment that
such issuance is in the best interests of the Company. The Company acknowledges
that its obligation to issue Conversion Shares upon conversion of the
Convertible Securities and the Warrant Shares upon exercise of the Warrants is
binding upon it and enforceable regardless of the dilution that such issuance
may have on the ownership interests of other stockholders.
3.16 INTELLECTUAL PROPERTY. Each of the Company and its subsidiaries owns
or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") used or necessary for the conduct of its
business as now being conducted and as previously described in the Company's
Annual Report on Form 10-K for its most recently ended fiscal year. To the
knowledge of the Company and its subsidiaries, neither the Company nor any
subsidiary of the Company infringes on or is in conflict with any right of any
other person with respect to any Intangibles nor is there any claim of
infringement made by a third party against or involving the Company or any of
its subsidiaries, which infringement, conflict or claim, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect.
3.17 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or
11.
domestic government official or employee. Without limiting the generality of
the foregoing, the Company and its subsidiaries have not directly or indirectly
made or agreed to make (whether or not said payment is lawful) any payment to
obtain, or with respect to, sales other than usual and regular compensation to
its or their employees and sales representatives with respect to such sales.
3.18 KEY EMPLOYEES. Each Key Employee (as defined below) is currently
serving the Company in the capacity disclosed in SCHEDULE 3.18. No Key
Employee, to the best of the knowledge of the Company and its subsidiaries, is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best of the knowledge of the
Company and its subsidiaries, any intention to terminate or limit his employment
with, or services to, the Company or any of its subsidiaries, nor is any such
Key Employee subject to any constraints (e.g., litigation) which would cause
such employee to be unable to devote his full time and attention to such
employment or services. "Key Employee" means each of ▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇.
3.19 SECURITIES PURCHASE AGREEMENT REPRESENTATIONS AND WARRANTIES. Each of
the representations and warranties of the Company made by the Company in the
Securities Purchase Agreement were true and correct as of July 27, 1998. Each
of the covenants of the Company set forth in the Securities Purchase Agreement,
Registration Rights Agreement dated July 27, 1998 between the Company and
Purchaser, and Initial Warrant have been complied with, other than as have been
specifically waived by Purchaser in writing.
3.20 REVISED COPIES OF TRANSACTION DOCUMENTS. The Company or its legal
counsel has delivered to Castle Creek Partners copies of each of this Agreement,
the Registration Rights Agreement, the Series B Certificate of Designation, the
Second Warrant and the Schedule of Exceptions, in each case accurately marked to
show changes against the Securities Purchase Agreement, the Registration Rights
Agreement dated July 27, 1998, the Series A Certificate of Designation, the
Initial Warrant and the Schedule of Exceptions delivered with the Securities
Purchase Agreement, respectively.
ARTICLE IV
COVENANTS
4.1 BEST EFFORTS. The Company shall use its best efforts timely to satisfy
each of the conditions described in Articles VI and VII of this Agreement.
4.2 SECURITIES LAWS. The Company agrees to file a Form D with respect to
the Securities with the SEC as required under Regulation D. The Company agrees
to file a Form 8-K disclosing this Agreement and the transactions contemplated
hereby with the SEC within five (5) days following the date of the Second
Closing. The Company took, on or prior to the date of the First Closing, and
shall take, on or prior to the date of the Second Closing, such action as is
12.
necessary to sell the Securities to Purchaser in accordance with applicable
securities laws of the states of the United States, and has or shall provide
evidence of any such action so taken to Purchaser on or prior to the date of
each Closing. Without limiting any of the Company's obligations under this
Agreement, the Registration Rights Agreement, Series A Certificate of
Designation or the Series B Certificate of Designation, from and after the date
of the First Closing, neither the Company nor any person acting on its behalf
has taken or shall take any action which would adversely affect any exemptions
from registration under the Securities Act with respect to the transactions
contemplated hereby.
4.3 REPORTING STATUS. So long as Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination.
4.4 USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Preferred Stock only for working capital, the purchase of capital equipment
and to pay costs incident to the transactions contemplated by this Agreement.
4.5 RESTRICTION ON ISSUANCE OF SECURITIES. Until July 27, 1999, the
Company shall not issue or agree to issue, (except (i) to Purchasers pursuant to
this Agreement, (ii) pursuant to a merger entered into by the Company undertaken
at the reasonable discretion of the Board of Directors of the Company, the
primary purpose of which is not to raise equity capital, (iii) in private
placements of such securities to Strategic Investors (as defined below), (iv) a
public offering of the Company's securities, or (v) to one or more vendors in an
asset based financing if the primary purpose of such issuance is not to raise
equity capital) any equity securities at a fixed price less than the greater of
(A) $6.03 and (B) 80% of the fair market value thereof on such date or (b) any
variably priced equity securities or equity like securities of the Company (or
any security convertible into or exercisable or exchangeable, directly or
indirectly, for equity or equity like securities of the Company) (each of the
foregoing in (a) and (b) above being a "RESTRICTED SECURITY"); provided,
however, that the foregoing restriction shall apply only for so long as
Purchaser continues to hold thirty percent (30%) of the Preferred Stock (or
equity securities into which such Preferred Stock was converted) on the date of
such issuance. Without implication that the contrary would otherwise be true,
the Company shall not indirectly accomplish any action which the immediately
preceding sentence would have otherwise prohibited from being effected directly
(e.g., by an asset drop-down to a subsidiary followed by the offering of
securities of such subsidiary). The term "STRATEGIC INVESTORS" shall mean
purchasers of such securities who are prohibited, by contract or otherwise, from
converting such securities into Common Stock (in the case of convertible
securities) or from otherwise transferring such securities for a period of at
least two years from the date of the private placement in question.
4.6 EXPENSES. The Company shall pay to Purchaser, or at its direction, at
the Second Closing, reimbursement for the expenses reasonably incurred by it and
its affiliates and advisors in connection with the negotiation, preparation,
execution, and delivery of this Agreement and the other agreements to be
executed in connection herewith, including, without limitation, Purchaser's and
its affiliates' and advisors' due diligence and attorneys' fees and expenses
(the
13.
"EXPENSES"); provided, however, that such reimbursement of Expenses, together
with the Expenses reimbursed at the First Closing and subsequent thereto
pursuant to Section 4.6 of the Securities Purchase Agreement, shall not exceed
$50,000. In addition, from time to time thereafter, upon Purchaser's written
request, subject to such $50,000 limit, the Company shall pay to Purchaser such
Expenses, if any, not so paid at the Second Closing and/or covered by such
payment, in each case to the extent reasonably incurred by Purchaser.
4.7 INFORMATION. The Company agrees to send the following reports to
Purchaser until Purchaser transfers, assigns or sells all of its Securities: (a)
within five (5) business days after the filing with the SEC, a copy of its
Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy
statements and any Current Reports on Form 8-K; and (b) within three (3)
business days after release, copies of all press releases issued by the Company
or any of its subsidiaries. The Company further agrees to promptly provide to
any Holder any information with respect to the Company, its properties, or its
business or Holder's investment as such Holder may reasonably request; provided,
however, that the Company shall not be required to give any Holder any material
non-public information. Without limitation of the foregoing, if any information
requested by a Holder from the Company contains material non-public information,
the Company shall inform the Holder in writing that the information requested
contains material non-public information and shall in no event provide such
information to Holder without the express prior written consent of such Holder
after being so informed.
4.8 WAIVER OF RIGHT TO VARIABLE PRICING. Purchaser covenants and agrees
not to convert any shares of Series A Preferred Stock on any date in which the
Variable Conversion Price is less than the Fixed Conversion Price (as such terms
are defined in the Series A Certificate of Designation) unless Purchaser shall
deliver to the Company, as a contribution to the capital of the Company, that
number of shares of Common Stock received upon such conversion as shall exceed
the number of shares of Common Stock that would have been issued upon such
conversion if the applicable Conversion Price on such date would have been the
Fixed Conversion Price (as defined in the Series A Certificate of Designation).
Purchaser hereby irrevocably authorizes the Company to reject any conversion
notices for shares of Series A Preferred Stock that result in a conversion at a
Variable Conversion Price below the Fixed Conversion Price unless concurrently
with such conversion the Company receives from Purchaser the capital
contribution specified in the foregoing sentence.
4.9 LISTING. For so long as Purchaser owns any of the Securities, the
Company shall continue the listing and trading of its Common Stock on the Nasdaq
SmallCap Market, the Nasdaq National Market System, the New York Stock Exchange
or the American Stock Exchange, secure and maintain listing and trading of the
Conversion Shares and Warrant Shares on such exchange, and comply in all
respects with the Company's reporting, filing and other obligations under the
by-laws or rules of such exchange.
4.10 PROSPECTUS DELIVERY REQUIREMENT. Purchaser understands that the
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by Purchaser of the Common Stock being
sold, and Purchaser shall use its reasonable efforts to comply with the
applicable prospectus delivery requirements of the Securities Act in connection
with any such sale.
14.
4.11 INTENTIONAL ACTS OR OMISSIONS. The Company shall not intentionally
perform any act which if performed, or intentionally omit to perform any act
which, if omitted to be performed, would prevent or excuse the performance of
this Agreement or any of the transactions contemplated hereby or the benefits
intended to be secured thereby by Purchaser (including, without limitation,
pursuant to any agreements or documents obtained by the Company as a condition
to any Closing hereunder).
4.12 CORPORATE EXISTENCE. So long as Purchaser beneficially owns any
Preferred Stock or Warrants, the Company shall use all commercially reasonable
efforts to maintain its corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the Company's assets, as
long as the surviving or successor entity in such transaction (i) assumes the
Company's obligations hereunder and under the agreements and instruments entered
into in connection herewith regardless of whether or not the Company would have
had a sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the conversion of all Preferred Stock outstanding as
of the date of such transaction and (ii) is a publicly traded corporation whose
Common Stock is listed for trading on the Nasdaq SmallCap Market, the Nasdaq
National Market System, the New York Stock Exchange or the American Stock
Exchange.
4.13 SHARE AUTHORIZATION. The Company covenants and agrees that it shall
(i) solicit by proxy the authorization and approval (the "SHAREHOLDER APPROVAL")
of the Rule 4460(i) Authorization by the stockholders of the Company in its
Proxy Statement for the next annual meeting of stockholders of the Company, and
in any event, not later than February 8, 1999, and (ii) use its best efforts to
obtain the Shareholder Approval at the next annual meeting of stockholders of
the Company, and in any event, not later than February 8, 1999.
4.14 NO MANIPULATION. Neither Purchaser nor any of its affiliates shall
engage in any conduct with the purpose of manipulating the market price of the
Common Stock.
4.15 VOLUME LIMITATIONS. Purchaser covenants and agrees that for so long as
it or any of its affiliates shall own any shares of Series B Preferred Stock,
Purchaser and its affiliates shall not, on any trading day, sell on a public
trading market, at a price less than $12.00 per share (adjusted for any stock
splits, stock dividends or stock combinations), such number of shares of Common
Stock as when aggregated together shall exceed the greatest of (i) 30,000 shares
(as adjusted for any stock splits, stock dividends or stock combinations), (ii)
15% of the total number of shares of Common Stock sold on the Nasdaq National
Market during such trading day, and (iii) 15% of the average daily trading
volume on the Nasdaq National Market for the five consecutive trading days
immediately preceding such sale. In the event that Purchaser shall sell,
transfer or convey any shares of Series B Preferred Stock to a party not an
affiliate, then the above-referenced amounts shall be prorated amongst Purchaser
and the transferee in proportion to the number of shares of Series B Preferred
Stock retained and sold, respectively.
4.16 MATTERS RELATING TO THE SERIES A CERTIFICATE OF DESIGNATION. Purchaser
irrevocably waives any right it has to invoke the option referred to in Section
XI.E. of the Series A Certificate of Designation with respect to the issuance of
any of the securities contemplated by this Agreement. Pursuant to Article XIII
of the Series A Certificate of Designations, Purchaser
15.
expressly consents to and approves the creation and issuance of the Series B
Preferred Stock and the other transactions contemplated by this Agreement.
ARTICLE V
LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES
5.1 REMOVAL OF LEGEND. The Legend shall be removed and the Company shall
issue a certificate without any legend to the holder of any Security upon which
such Legend is stamped, and a certificate for a security shall be originally
issued without any legend, if, unless otherwise required by applicable state
securities laws, (a) the sale of such Security is registered under the
Securities Act, (b) such holder provides the Company with an opinion of counsel,
in form, substance and scope customary for opinions of counsel in comparable
transactions (the reasonable cost of which shall be borne by the Company), to
the effect that a public sale or transfer of such Security may be made without
registration under the Securities Act or (c) such Security can be sold pursuant
to Rule 144. Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the Legend has been removed, or which
were originally issued without the Legend, pursuant to an effective registration
statement and to deliver a prospectus in connection with such sale or in
compliance with an exemption from the registration requirements of the
Securities Act. In the event the Legend is removed from any Security or any
Security is issued without the Legend and thereafter the effectiveness of a
registration statement covering the resale of such Security is suspended or the
Company determines that a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to Purchaser
holding such Security, the Company may require that the Legend be placed on any
such Security that cannot then be sold pursuant to an effective registration
statement or Rule 144 or with respect to which the opinion referred to in clause
(b) next above has not been rendered, which Legend shall be removed when such
Security may be sold pursuant to an effective registration statement or Rule 144
or such holder provides the opinion with respect thereto described in clause (b)
next above. The Second Legend shall remain on any certifiates representing
shares of Preferred Stock.
5.2 TRANSFER AGENT INSTRUCTIONS. The Company shall instruct its transfer
agent to issue certificates, registered in the name of Purchaser or its nominee,
for the Conversion Shares in such amounts as specified from time to time by
Purchaser to the Company upon, and in accordance with, the conversion of the
Preferred Stock. Such certificates shall bear a legend only in the form of the
Legend and only to the extent permitted by Section 5.1 above. The Company
warrants that no instruction other than such instructions referred to in this
Article V, and no stop transfer instructions other than stop transfer
instructions to give effect to Section 2.6 hereof in the case of the Conversion
Shares prior to registration of the Conversion Shares under the Securities Act,
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company.
Nothing in this Section shall affect in any way Purchaser's obligations and
agreement set forth in Section 5.1 hereof to resell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. Without limiting the foregoing, if
(a) Purchaser provides the Company with an opinion of counsel, which opinion of
counsel shall be in form, substance and scope customary for opinions of counsel
in comparable transactions (the
16.
reasonable cost of which shall be borne by the Company), to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) Purchaser transfers Securities to an
affiliate or pursuant to Rule 144, the Company shall permit the transfer, and,
in the case of the Conversion Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denomination as
specified by Purchaser in order to effect such a transfer or sale. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to Purchaser by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Article V will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Article V, that Purchaser shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
5.3 TRANSFERS OF PREFERRED STOCK. Purchaser further covenants and agrees
that it will not sell, assign, transfer or otherwise convey (i) any shares of
Series A Preferred Stock unless the transferee shall also agree in writing
addressed to the Company to be bound by the terms of Section 4.8 and the first
sentence of Section 4.16 to the same extent as Purchaser, and (ii) any shares of
Preferred Stock unless the transferee shall also agree in writing addressed to
the Company to be bound by the terms of Section 4.14, Section 4.15 (allocated in
accordance therewith) and this Section 5.3 to the same extent as Purchaser and
consents to the placement of the Second Legend on such stock certificate.
Purchaser shall, on or within five days of the Second Closing, deliver to the
Company all stock certificates evidencing the Series A Preferred Stock so that
the Company may place the Second Legend on such stock certificates.
5.4 MAINTENANCE OF BACCARAT AGREEMENT. Until the earlier of such time as
(x) Purchaser shall no longer hold Preferred Stock, and (y) the second
anniversary of the Second Closing, the Company shall not terminate the agreement
between Baccarat Electronics, Inc. ("BACCARAT") and the Company to lend the
Company amounts totaling $7,500,000, as described in Section 7.1(x) of the
Securities Purchase Agreement, and shall use its commercially reasonable efforts
to cause (i) such agreement to remain in full force and effect, without any
amendment thereto adversely affecting the rights of the Company, and (ii) all
such amounts to be available for immediate borrowing thereunder, except to the
extent such amounts have been previously borrowed by the Company thereunder and
not repaid as of such date; PROVIDED, HOWEVER, that (i) if $8,000,000 is
immediately available under a working capital line of credit and/or IDB funding,
secured (if secured) by the inventory, accounts receivable and/or fixed assets
of the Company, and the Company shall have no reason to expect that the
availability of such funding shall terminate prior to the second anniversary of
the Second Closing, Baccarat's agreement need not be in full force and effect,
and (ii) if an amount less than $8,000,000 is immediately available under such a
working capital line of credit and/or IDB funding, and the Company shall have no
reason to expect that the availability of such funding shall terminate prior to
the second anniversary of the Second Closing, Baccarat's agreement need only be
in full force and effect as to the amount by which $8,000,000 exceeds the amount
so available under such funding.
5.5 FILING OF SECOND REGISTRATION STATEMENT. Purchaser covenants and
agrees that, immediately upon consummation of the Second Closing, the Company
shall file with the
17.
Securities and Exchange Commission the Second Registration Statement (as defined
in Section 2.1 of the Registration Rights Agreement).
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Series B Preferred Stock and Second
Warrant to Purchaser at the Second Closing is subject to the satisfaction, as of
the date of the Second Closing, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
(a) Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to the
Company.
(b) Purchaser shall deliver the applicable Purchase Price for the
Series B Preferred Stock and Second Warrant purchased at the Second Closing, and
shall have delivered the Initial Warrant to be exchanged at the Second Closing.
(c) The representations and warranties of Purchaser shall be true and
correct in all material respects as of the date when made and as of the Second
Closing as though made at that time, and Purchaser shall have performed,
satisfied and complied in all material respects with the covenants and
agreements required by this Agreement to be performed or complied with by
Purchaser at or prior to the Second Closing.
(d) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
by this Agreement.
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE
7.1 CONDITIONS TO THE SECOND CLOSING. The obligation of Purchaser
hereunder to purchase the Series B Preferred Stock and Second Warrant to be
purchased by it on the date of the Second Closing is subject to the satisfaction
of each of the following conditions, provided that these conditions are for
Purchaser's sole benefit and may be waived by Purchaser (with respect to it) at
any time in Purchaser's sole discretion:
(a) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
Purchaser.
18.
(b) The Company shall have delivered (i) duly executed certificates
for the Series B Preferred Stock (in such denominations as Purchaser shall
request) being so purchased by Purchaser at the Second Closing, (ii) the Second
Warrant, and (iii) the Warrant to be issued in exchange for the Initial Warrant
pursuant to Section 1.1(c).
(c) The Common Stock shall be listed on the Nasdaq SmallCap Market,
the Nasdaq National Market System, the New York Stock Exchange or the American
Stock Exchange and trading in the Common Stock shall not have been suspended by
the Nasdaq SmallCap Market, the Nasdaq National Market System, the New York
Stock Exchange or the American Stock Exchange, the SEC or other regulatory
authority and no de-listing or suspension shall be reasonably likely for the
foreseeable future.
(d) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Second Closing as though made at that time and the Company shall have performed,
satisfied and complied with the covenants and agreements required by this
Agreement to be performed or complied with by the Company at or prior to the
Second Closing. Purchaser's counsel shall have received a certificate, executed
by the Chief Executive Officer or Chief Financial Officer of the Company, dated
as of the Second Closing to the foregoing effect and as to such other matters as
may be reasonably requested by Purchaser.
(e) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(f) Purchaser's counsel shall have received the officer's certificate
described in Section 3.3, dated as of the Second Closing.
(g) Purchaser's counsel shall have received opinions of the Company's
outside legal counsel, dated as of the Second Closing from firms and in form and
substance reasonably acceptable to Purchaser.
(h) The Company's transfer agent has agreed to act in accordance with
irrevocable instructions in the form attached as EXHIBIT D to the Securities
Purchase Agreement, which instructions shall apply to both the Series A
Preferred Stock and Series B Preferred Stock.
(i) There shall be no breach by the Company of this Agreement or of
any other agreement entered into in connection herewith, no Redemption Event (as
defined in the Series A Certificate of Designation) shall have occurred and
there shall be no state of facts which, if continued, would become a Redemption
Event with the lapse of time.
(j) No Bankruptcy Event (as defined in the Series A Certificate of
Designation) shall have occurred.
19.
(k) The Series B Certificate of Designation shall have been accepted
for filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of Delaware shall have been
delivered to Purchaser.
(l) The Company shall have prepared for filing with the Securities
and Exchange Commission, and taken all actions necessary for the filing of
(other than instructing the Company's filing agent to so file), the Second
Registration Statement (as defined in Section 2.1 of the Registration Rights
Agreement), including payment of the registration fee, EDGARization of the
Second Registration Statement, and obtaining all necessary consents and
signatures thereto.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The parties hereto
irrevocably consent to the jurisdiction of the United States federal courts
located in the State of Delaware and the state courts located in the County of
New Castle in the State of Delaware in any suit or proceeding based on or
arising under this Agreement or the transactions contemplated hereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company mailed by the first
class mail shall be deemed in every respect effective service of process upon
the Company in any suit or proceeding arising hereunder. Nothing herein shall
affect Purchaser's right to serve process in any other manner permitted by law.
The parties hereto agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
8.2 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be delivered to the other parties.
8.3 HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4 SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
20.
8.5 SCOPE OF AGREEMENT; AMENDMENTS. Except as specifically set forth
herein, Purchaser makes no representation, warranty, covenant or undertaking
with respect to the transactions contemplated hereby. No provision of this
Agreement may be waived other than by an instrument in writing signed by the
party to be charged with enforcement and no provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and
Purchaser.
8.6 NOTICE. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by
facsimile-machine confirmed telecopy, and shall be deemed delivered at the time
and date of receipt (which shall include telephone line facsimile transmission).
The addresses for such communications shall be:
If to the Company:
Valence Technology, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇
with a copy to:
Cooley Godward LLP
5 Palo Alto Square
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▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
If to Purchaser:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
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▇▇▇▇▇ ▇▇▇▇
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Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Portfolio Manager
21.
and with a copy to:
Altheimer & ▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Each party shall provide notice to the other parties of any change in address.
8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Neither the
Company nor Purchaser shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other. Notwithstanding the
foregoing, Purchaser may assign its rights and obligations hereunder to any of
its "affiliates," as that term is defined under the Exchange Act, without the
consent of the Company so long as such affiliate is an accredited investor.
This provision shall not limit Purchaser's right to transfer the Securities
pursuant to the terms of this Agreement. In addition, and notwithstanding
anything to the contrary contained in this Agreement, the Series A Certificate
of Designation, the Series B Certificate of Designation, the Warrants or the
Registration Rights Agreement (collectively, the "TRANSACTION DOCUMENTS"), the
Securities may be pledged, and all rights of Purchaser under this Agreement or
any other agreement or document related to the transaction contemplated hereby
may be assigned, without further consent of the Company, to a bona fide pledgee
in connection with Purchaser's margin or brokerage accounts.
8.8 THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
8.9 SURVIVAL. The representations and warranties of Purchaser and the
Company and the agreements and covenants set forth in Articles III, IV, V and
VIII shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of Purchaser. The Company agrees to
indemnify and hold harmless Purchaser and each of Purchaser's officers,
directors, employees, partners, agents and affiliates for loss or damage or
expenses (including reasonable attorneys fees) arising as a result of or related
to (a) any breach or alleged breach by the Company of any of its representations
or covenants set forth herein, including advancement of expenses as they are
incurred, (b) any cause of action, suit or claim brought or made against
Purchaser and arising out of or resulting from the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (d) the
status of Purchaser or holder of the Securities as an investor in the Company.
To the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities which is permissible
under applicable law.
22.
8.10 PUBLIC FILINGS; PUBLICITY. Immediately following the Second Closing,
the Company shall issue a press release with respect to the transactions
contemplated hereby. Prior to the expiration of two business (2) days following
the date of the Second Closing, the Company shall file a Form 8-K regarding the
transaction contemplated by this Agreement; such Form 8-K shall have as exhibits
thereto the material documents executed in connection with this transaction
contemplated hereby. The Company and Purchaser's counsel shall have the right
to approve before issuance any press releases (including the foregoing press
release), SEC or other filings, or any other public statements, with respect to
the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of Purchaser, to make any press release
or SEC, Nasdaq, NASD or exchange filings with respect to such transactions as is
required by applicable law and regulations (although Purchaser shall (to the
extent time permits) be consulted by the Company in connection with any such
press release prior to its release and shall be provided with a copy thereof).
8.11 FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.12 REMEDIES. No provision of this Agreement providing for any remedy to
Purchaser shall limit any remedy which would otherwise be available to Purchaser
at law or in equity. Nothing in this Agreement shall limit any rights Purchaser
may have with any applicable federal or state securities laws with respect to
the investment contemplated hereby.
8.13 TERMINATION. In the event that the Second Closing shall not have
occurred within forty-eight (48) hours of the execution of this Agreement,
unless the parties agree otherwise, this Agreement shall terminate.
8.14 FULL AGREEMENT. Except as specifically referenced herein, this
Agreement, the Preferred Stock, Warrants and the Registration Rights Agreement
(including all schedules and exhibits thereto and all certificates and opinions
required thereby) constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the Preferred Stock, the Warrants and the
Registration Rights Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof,
including the Securities Purchase Agreement and the agreement amended and
restated by the Registration Rights Agreement.
* * *
23.
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
PURCHASER: COMPANY:
CC INVESTMENTS, LDC VALENCE TECHNOLOGY, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ By:/s/ ▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇. ▇▇▇▇▇▇
------------------------- -----------------------------
Its: Director Its: President, Chairman and
Chief Executive Officer
24.
Exhibit A
Series B Certificate of Designation
[see Exhibit 4.3]
Exhibit B
Form of Warrant
[see Exhibit 4.4]
