SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("AGREEMENT") is entered into as of
July 27, 1998, by and between Valence Technology, Inc., a Delaware corporation
(the "COMPANY"), with headquarters located at 000 Xxxxxxxxx Xxx, Xxxxxxxxx, XX
00000, and CC Investments, LDC ("PURCHASER") with regard to the following:
RECITALS
A. The Company and Purchaser are executing and delivering this
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").
B. Purchaser desires to purchase, upon the terms and conditions
stated in this 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 "CERTIFICATE OF DESIGNATION") attached hereto as
EXHIBIT A (the "PREFERRED STOCK" or the "CONVERTIBLE SECURITIES"), which shall
be 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 hereto (a
"WARRANT" and, when taken together with all of the warrants issued hereunder,
the "WARRANTS") entitling the holder thereof to purchase the number of shares
(the "WARRANT SHARES") of Common Stock as set forth below. 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 Preferred Stock,
the Warrants and the Conversion Shares are collectively referred to herein as
the "SECURITIES."
C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to 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. Subject to the terms
and the satisfaction or waiver of the conditions set forth in this Agreement,
the issuance, sale and purchase of the Preferred Stock and Warrants shall be
consummated in three (3) separate closings. The first closing is hereinafter
referred to as the "FIRST CLOSING," the second closing is hereinafter referred
to as the "SECOND CLOSING," and the third closing is hereinafter referred to as
the "THIRD CLOSING" (the First Closing, the Second Closing and the Third Closing
sometimes referred to herein as a "CLOSING"). The purchase price (the "PURCHASE
PRICE") per share of Preferred Stock shall be equal to $1,000.
a. The Company may elect to consummate the Second Closing by (and
only by) delivering a notice satisfying the conditions of this Section (the
"SECOND CLOSING NOTICE") to Purchaser at least three (3) business days prior to
the date that the Company desires to consummate the Second Closing. The Second
Closing may be consummated (i) no earlier than the date the Company has publicly
announced that a material OEM or battery repackager ("POTENTIAL CUSTOMER") has
confirmed in writing to the Company that any of the Company's production
batteries ("BATTERIES") has been tested for both performance and safety and that
such Batteries meet all of such Potential Customer's safety and performance
specifications; (ii) no earlier than the effectiveness of the Registration
Statement contemplated by Section 2.3 of the Registration Rights Agreement (the
"REGISTRATION STATEMENT"); and (iii) no later than January 31, 1999. In the
Second Closing Notice, the Company shall represent to Purchaser that (i) the
Registration Statement is effective; (ii) the Company elects to consummate the
transactions contemplated hereby as the Second Closing; and (iii) the conditions
set forth in Section 7.2 hereof have been satisfied.
b. The Company may elect to consummate the Third Closing by (and only
by) delivering a notice satisfying the conditions of this Section (the "THIRD
CLOSING NOTICE") to Purchaser at least three (3) business days prior to the date
that the Company desires to consummate the Third Closing. The Third Closing may
be consummated (i) no earlier than the effectiveness of the Registration
Statement; (ii) no earlier than the completion of the Second Closing; and (iii)
no later than April 30, 1999. In the Third Closing Notice, the Company shall
represent to Purchaser that: (i) the Registration Statement is effective; (ii)
the Company elects to consummate the transactions contemplated hereby as the
Third Closing; and (iii) the conditions set forth in Section 7.3 hereof have
been satisfied.
c. On the date of the First Closing, subject to the satisfaction of
the conditions set forth in Articles VI and VII, and notwithstanding any
election by the Company, the Company shall issue and sell to Purchaser, and
Purchaser shall purchase from the Company (i) 7,500 shares of Preferred Stock
and (ii) a Warrant entitling the holder thereof to purchase that number of
Warrant Shares as is equal to (x) $2,250,000 divided by (y) the average Closing
Bid Price of the Common Stock for the 10 trading days preceding the First
Closing. The aggregate purchase price for the Securities purchased at the First
Closing shall be seven million five hundred thousand dollars ($7,500,000).
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d. On the date of the Second Closing (if any), 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) 2,500 shares of Preferred Stock and (ii) a Warrant entitling the holder
thereof to purchase that number of Warrant Shares as is equal to (x) $750,000
divided by (y) the average Closing Bid Price of the Common Stock for the 10
trading days preceding the First Closing. The aggregate purchase price for the
Securities purchased at the Second Closing (if any) shall be two million five
hundred thousand dollars ($2,500,000).
e. On the date of the Third Closing (if any), 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) 5,000 shares of Preferred Stock and (ii) a Warrant entitling the holder
thereof to purchase that number of Warrant Shares as is equal to (x) $1,500,000
divided by (y) the average Closing Bid Price of the Common Stock for the 10
trading days preceding the First Closing. The aggregate purchase price for the
Securities purchased at the Third Closing (if any) shall be five million dollars
($5,000,000).
f. For purposes of this Agreement, "CLOSING BID PRICE" means, for any
security as of any date, the closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg Financial Markets, or if the foregoing does not apply, the
last reported sale price of such security in the over-the-counter market on the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc.
1.2 FORM OF PAYMENT. At each Closing, Purchaser shall pay the
aggregate Purchase Price for the Preferred Stock and Warrant being purchased by
Purchaser 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 Preferred Stock
and certificates representing the Warrants against delivery of such aggregate
Purchase Price.
1.3 CLOSING DATES. 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 Securities pursuant to this Agreement shall be (i) for the First
Closing, within forty-eight (48) hours of the execution of this Agreement and
(ii) for the Second Closing or the Third Closing, on the day three (3) business
days following receipt by Purchaser of the Second Closing Notice or the Third
Closing Notice, as the case may be, from the Company. Each Closing shall occur
at 12:00 p.m. Chicago time, at the offices of Altheimer & Xxxx, 00 X. Xxxxxx
Xxxxx, Xxxxxxx, XX 00000.
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
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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 is purchasing the Convertible
Securities 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 Convertible 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 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 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.
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 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.
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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 until such time as the
Conversion Shares 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 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 AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
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.
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2.10 TRANSACTIONS IN COMMON STOCK OF THE COMPANY. As of the date
hereof, Purchaser owns no shares of the Common Stock of the Company. In
addition, Purchaser represents that it has not, within the 90 days prior to the
date hereof, 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 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that as of the date
hereof, as of the First Closing, as of the Second Closing, and as of the Third
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 Certificate of Designation and
the Warrant Shares in accordance with the terms and conditions of the Warrant;
(b) the execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Company and the
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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 or otherwise); (c)
this Agreement, the Registration Rights Agreement and the Convertible
Securities have been duly executed and delivered by the Company; and (d) this
Agreement, the Registration Rights Agreement and the Convertible Securities
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 and the Conversion 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 Closing and as of the first anniversary of the
Closing.
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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 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 unanimously recommended, or will promptly
recommend unanimously, to the stockholders of the Company the approval of the
Rule 4460(i) Authorization. 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 and Conversion 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
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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.
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. 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
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"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, financial condition, results of operations or prospects
of the Company, 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
10
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 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 (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.
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
11
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 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 Xxx X. Xxxxxx, Xxxxx X. Xxxxxxxxx, Xxxxx Xxxxxx
and Xxx Xxxxxxx.
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
First Closing. The Company shall, on or prior to the date of each Closing,
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take such action as is necessary to sell the Securities to Purchaser in
accordance with applicable securities laws of the states of the United
States, and 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
or the Certificate of Designation, from and after the date of the First
Closing, neither the Company nor any person acting on its behalf 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. For a period of three
hundred sixty (360) days following the date of the First Closing, and except as
set forth in the last sentence of this Section 4.5, 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), or (iv) a public offering
of the Company's securities), any equity securities at a price less than the
fair market value thereof or 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 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.
Notwithstanding the above, if the Company elects to consummate the transactions
contemplated hereof as the Second Closing and all conditions set forth in
Section 7.2 have been satisfied, and Purchaser willfully fails to purchase the
amount of shares of Preferred Stock and Warrants set forth herein to be
purchased at the Second Closing, then following the date Purchaser fails to so
purchase such Securities, Purchaser shall have no further rights to restrict the
13
issuance of Company securities as set forth herein, and this Section 4.5 shall
be of no further force and effect.
4.6 EXPENSES. The Company shall pay to Purchaser, or at its
direction, at the First 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 "EXPENSES"); provided, however, that such
reimbursement of Expenses 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 First 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 [Intentionally Deleted]
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, 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 six months following the date of the
Closing, 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 the date which is six months after the First Closing.
4.14 HEDGING TRANSACTIONS. The Company understands that Purchaser is a
so-called "hedge" fund and the Company hereby expressly agrees that Purchaser
shall not in any way be prohibited or restricted from any purchases or sales of
any securities or other instruments of, or related to, the Company or any of
its securities, including, without limitation, puts, call, futures contracts,
short sales and hedging and arbitrage transactions. Neither Purchaser nor any
of its affiliates shall engage in any conduct with the purpose of manipulating
the market price of the Common Stock. Purchaser acknowledges that such
purchases, sales and other transactions may be subject to various Federal and
state securities laws.
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
15
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.
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 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
16
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.
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 Convertible Securities to Purchaser
at each Closing is subject to the satisfaction, as of the date of each 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:
(i) Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
the Company.
(ii) Purchaser shall deliver the applicable Purchase Price for
the Convertible Securities purchased at the Closing.
(iii) The representations and warranties of Purchaser shall be
true and correct as of the date when made and as of the 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 Closing.
(iv) 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 FIRST CLOSING. The obligation of Purchaser
hereunder to purchase the Convertible Securities and Warrants to be purchased by
it on the date of the First Closing is subject to the satisfaction of each of
the following conditions (including conditions to be performed at the First
Closing), 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:
(i) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
Purchaser.
17
(ii) The Company shall have delivered duly executed certificates
for the Preferred Stock (in such denominations as Purchaser shall
request) being so purchased by Purchaser at the Closing.
(iii) 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.
(iv) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the 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 First
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 First Closing to the foregoing effect and as to such
other matters as may be reasonably requested by Purchaser.
(v) 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.
(vi) Purchaser's counsel shall have received the officer's
certificate described in Section 3.3, dated as of the First Closing.
(vii) Purchaser's counsel shall have received opinions of the
Company's outside legal counsel, dated as of the First Closing from firms
and in form and substance reasonably acceptable to Purchaser.
(viii) The Company's transfer agent has agreed to act in
accordance with irrevocable instructions in the form attached hereto as
EXHIBIT D.
(ix) The 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.
(x) The Company shall have borrowed $2,500,000 in cash from
Baccarat Electronics, Inc. ("BACCARAT"), and Baccarat shall have
unconditionally agreed in writing to lend to the Company, from time to
time as requested by the Company prior to July 1, 1999,
18
further amounts totaling $7,500,000, on such terms and conditions as
are reasonably acceptable to the Company.
7.2 CONDITIONS TO THE SECOND CLOSING. The obligation of Purchaser
hereunder to purchase the Convertible Securities and Warrants to be purchased by
it on the date of the Second Closing is subject to the satisfaction of each of
the following conditions (including conditions to be performed at the Second
Closing):
(i) The First Closing shall have been consummated.
(ii) The Company shall have publicly announced that a Potential
Customer has confirmed in writing to the Company that any of the
Company's Batteries has been tested for both performance and safety and
that such Batteries meet all of such Potential Customer's safety and
performance specifications.
(iii) The Company shall have delivered duly executed certificates
for the Preferred Stock (in such denominations as Purchaser shall
request) being so purchased by Purchaser at the Second Closing.
(iv) 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 delisting or
suspension shall be reasonably likely for the foreseeable future.
(v) The representations and warranties of the Company shall be
true and correct 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, in each case, with respect to representations and warranties,
except for such changes as would not have a Material Adverse Effect or a
material adverse effect on Purchaser's investment. 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.
(vi) 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.
19
(vii) Purchaser's counsel shall have received the officer's
certificate described in Section 3.3, dated as of the Second Closing.
(viii) Purchaser's counsel shall have received opinions of the
Company's outside legal counsel, dated as of the Second Closing, in the
form used in the First Closing, with respect to matters as of the Second
Closing.
(ix) The Company's transfer agent has agreed to act in
accordance with irrevocable instructions in the form attached hereto as
EXHIBIT D.
(x) The Registration Statement shall have been declared
effective by the SEC, and shall be available for use by Purchaser for the
resale of all of the Registrable Securities (as defined in the
Registration Rights Agreement), including, without limitation, shares of
Conversion Shares and Warrant Shares receivable upon conversion or
exercise of Securities to be purchased at the Second Closing and the
Third Closing.
(xi) The Closing Bid Price of the Common Stock in each of the
ten (10) trading days immediately prior to the date of the Second Closing
shall have been equal to or greater than $3.00.
(xii) 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 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.
(xiii) No Bankruptcy Event (as defined in the Certificate of
Designation) shall have occurred.
(xiv) Baccarat's agreement to lend the Company amounts totalling
$7,500,000, as described in Section 7.1(x), shall remain in full force
and effect, without any amendment thereto, as of the date of the Second
Closing, and all such amounts shall be available for immediate borrowing
thereunder, except to the extent (x) such amounts have been previously
borrowed by the Company thereunder and not repaid as of such date, and
provided that (i) if, as of the date of the Second Closing, $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, as of the date of the
Second Funding, 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
20
force and effect as to the amount by which $8,000,000 exceeds the
amount so available under such funding.
7.3 CONDITIONS TO THE THIRD CLOSING. The obligation of Purchaser
hereunder to purchase the Convertible Securities and Warrants to be purchased by
it on the date of the Third Closing is subject to the satisfaction of each of
the following conditions (including conditions to be performed at the Third
Closing):
(i) The First Closing and the Second Closing shall have been
consummated.
(ii) The Company shall have delivered duly executed certificates
for the Preferred Stock (in such denominations as Purchaser shall
request) being so purchased by Purchaser at the Third Closing.
(iii) 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 delisting or
suspension shall be reasonably likely for the foreseeable future.
(iv) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Third 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 Third
Closing, in each case, with respect to representations and warranties,
except for such changes as would not have a Material Adverse Effect or a
material adverse effect on Purchaser's investment. 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 Third
Closing to the foregoing effect and as to such other matters as may be
reasonably requested by Purchaser.
(v) 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.
(vi) Purchaser's counsel shall have received the officer's
certificate described in Section 3.3, dated as of the Third Closing.
21
(vii) Purchaser's counsel shall have received opinions of the
Company's outside legal counsel, dated as of the Third Closing, in the
form used in the First Closing, with respect to matters as of the Third
Closing.
(viii) The Company's transfer agent has agreed to act in
accordance with irrevocable instructions in the form attached hereto as
EXHIBIT D.
(ix) The Registration Statement shall have been declared
effective by the SEC, and shall be available for use by Purchaser for the
resale of all of the Registrable Securities (as defined in the
Registration Rights Agreement), including, without limitation, shares of
Conversion Shares and Warrant Shares receivable upon conversion or
exercise of Securities to be purchased at the Third Closing.
(x) The Closing Bid Price of the Common Stock in each of the
ten (10) trading days immediately prior to the date of the Third Closing
shall have been equal to or greater than $3.00.
(xi) 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 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.
(xii) No Bankruptcy Event (as defined in the Certificate of
Designation) shall have occurred.
(xiii) The Company shall have signed and publicly announced a
material contract or material contracts for the sale of Batteries.
(xiv) Baccarat's agreement to lend the Company amounts totalling
$7,500,000, as described in Section 7.1(x), shall remain in full force
and effect, without any amendment thereto, as of the date of the Third
Closing, and all such amounts shall be available for immediate borrowing
thereunder, except to the extent (x) such amounts have been previously
borrowed by the Company thereunder and not repaid as of such date, and
provided that (i) if, as of the date of the Third Closing, $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 Third Closing, Baccarat's agreement need
not be in full force and effect, and (ii) if, as of the date of the Third
Closing, 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 Third 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.
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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.
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
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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.
000 Xxxxxxxxx Xxx
Xxxxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxx Xxxxxxxxx
with a copy to:
Xxxxxx Godward LLP
5 Palo Alto Square
0000 Xx Xxxxxx Xxxx
Xxxx Xxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx Xxxxxxx, 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
000 Xxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Portfolio Manager
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and with a copy to:
Altheimer & Xxxx
00 Xxxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxxx, 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
Certificate of Designation, the Warrants or the Registration Rights Agreement,
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 the Certificate of
Designations 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
25
make the maximum contribution to the payment and satisfaction of each of the
indemnified liabilities which is permissible under applicable law..
8.10 PUBLIC FILINGS; PUBLICITY. Immediately following the First
Closing, the Company shall issue a press release with respect to the
transactions contemplated hereby. Prior to the expiration of five (5) days
following the date of the First 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 First 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.
* * *
26
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:
CC INVESTMENTS, LDC
By: /s/ Xxxx Xxxxxxxxx
------------------------------
Its: Director
-----------------------------
COMPANY:
VALENCE TECHNOLOGY, INC.
By: /s/ Xxx X. Xxxxxx
------------------------------
Its: President, Chairman and
Chief Executive Officer
-----------------------------
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