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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MARCH 2, 1998
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SRS LABS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-21123 33-0714264
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2909 DAIMLER STREET, SANTA ANA, CALIFORNIA 92705
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 442-1070
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
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SRS LABS, INC.
FORM 8-K
INDEX
INFORMATION INCLUDED IN THE REPORT PAGE
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Item 2. Acquisition or Disposition of Assets . . . . . . . . . 3
Item 7. Financial Statements and Exhibits. . . . . . . . . . . 5
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to a Stock Purchase Agreement dated as of February 24, 1998
(the "Valence Agreement") by and among SRS Labs, Inc. (the "Company"), Valence
Technology Inc. ("Valence"), Thomrose Holdings (BVI) Limited ("Thomrose"), Cape
Spencer International Limited ("Cape"), Rayfa (BVI) Limited ("Rayfa"), and Anki
(BVI) Limited ("Anki"), the Company acquired 45% of the outstanding shares of
capital stock of Valence, a British Virgin Islands company, with its principal
executive offices in Hong Kong and principal business operations in Hong Kong
and China (the "Valence Transaction"). Thomrose, Cape, Rayfa and Anki are
collectively referred to herein as the "Selling Shareholders." The aggregate
purchase price paid by the Company to the Selling Shareholders was
U.S.$13,500,000, payable U.S. $1,394,222.40 in cash and 1,680,611 shares of the
Company's common stock, par value U.S. $.001 per share, valued at U.S.
$12,105,777.60 (the "SRS Shares"). The value of the SRS Shares was computed
pursuant to a formula set forth in the Valence Agreement. The SRS Shares were
issued in reliance on the exemption from registration afforded by Section 4(2)
under the Securities Act of 1933, as amended ("Section 4(2)"). The transaction
closed in Hong Kong on March 3, 1998, March 2, 1998, California time (the
"Closing").
Under the terms of the Valence Agreement and the Escrow Agreement dated
as of March 2, 1998, by and among the Company, Thomrose, Rayfa, Cape and Harris
Trust Company of California, an aggregate of 1,176,427 of the SRS Shares will be
held in escrow for one year from the date of the Escrow Agreement for the
purpose of indemnifying the Company against certain liabilities, if necessary.
In connection with the consummation of the transactions contemplated by
the Valence Agreement, the Company issued to Thomrose, Rayfa and Cape at the
Closing an additional 68,750, 37,500 and 18,750 shares of the Company's common
stock, respectively (collectively, the "SRS Non-Compete Shares"), in
consideration for (a) such companies and their sole shareholder entering into
noncompetition agreements with the Company and Valence or one of Valence's
subsidiaries and (b) such companies paying to the Company the par value for such
shares. The SRS Non-Compete Shares also were issued in reliance on the exemption
from registration afforded by Section 4(2).
Pursuant to the terms of the Valence Agreement and a Registration
Rights Agreement dated as of March 2, 1998, by and among the Company, Thomrose,
Rayfa and Cape, the Company granted to Thomrose, Rayfa and Cape certain
registration rights relating to the SRS shares and the SRS Non-Compete Shares.
In a separate, but related transaction, the Company acquired from North
22 Capital Partners 2, Inc., a British Virgin Islands company ("North 22"), the
remaining 55% of the outstanding shares of capital stock of Valence for U.S.
$6,000,000 pursuant to a Stock Purchase Agreement (the "North 22 Agreement")
dated as of February 24, 1998 by and between the Company and North 22 (the
"North 22 Transaction"). The North 22 Transaction closed simultaneously with the
Valence Transaction. Both the North 22 Transaction and the Valence Transaction
are being accounted for as purchase transactions.
Valence is a holding company comprised of four directly wholly-owned
Hong Kong Subsidiaries, Valence Semiconductor Design Limited ("VSD"), ASP
Microelectronics Limited
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("ASP"), LEC Electronics Components Limited ("LEC") and VSD Electronics Limited.
In turn, ASP is the sole beneficial shareholder of LEC Microelectronics Limited,
a Hong Kong company, and LEC is the sole beneficial shareholder of LEC
Electronics Limited, a Hong Kong company, and VSD Electronics (Hui Yang) Ltd., a
foreign enterprise established under the laws of the People's Republic of China.
Valence and its subsidiaries are collectively referred to herein as the "Valence
Group."
The Valence Group is engaged in two primary areas of business: the
design, manufacture and marketing of ASIC (application-specific integrated
circuit) products; and the design, manufacture and marketing of consumer
electronics products. In this latter area of business, the Valence Group also
manufactures and sells its own Valence brand product line of high-end VCD (video
compact disc) players, amplifiers and electronic games. Valence is operating as
a wholly-owned subsidiary of the Company. The Company intends to continue the
business of the Valence Group. It intends to utilize the plant, equipment and
other physical property acquired as a result of the Company's acquisition of
100% of the outstanding capital stock of Valence.
In connection with the acquisition of all of the outstanding shares of
capital stock of Valence, Thomas Wah Tong Wan, the Chief Executive Officer of
Valence, became a Class I Director of the Company for a term expiring at the
Annual Meeting of the Company's stockholders to be held in the year 2000. Mr.
Wan also was elected as a Vice President of the Company and retained his
position as Chief Executive Officer of Valence. Mr. Wan, together with the
Valence Group's two other principal executive officers, signed (a) employment
agreements and (b) noncompetition agreements (referenced above), with the
Company.
As part of its obligations under the North 22 Agreement, the Company
provided Valence with U.S. $7,000,000 on March 6, 1998 to enable Valence to pay
certain indebtedness owned to North 22 or its affiliates on the date of Closing.
The Company also expects to provide to, or guarantee the obligations of, the
Valence Group up to an additional U.S. $13,000,000 to fund working capital
requirements and repay certain indebtedness.
The source of funds used by the Company to fund the cash portion of the
Valence Transaction (including the above-referenced funds provided or to be
provided to and/or guarantees to be made by the Company to the Valence Group)
and the North 22 Transaction was general working capital raised by the Company
in connection with its initial public offering which was completed in August
1996 and funds drawn from the Company's $10 million credit facility with Bank of
America NT&SA.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Pursuant to Instruction (a)(4) to Item 7 of Form 8-K, the
financial information required by Item 7(a) will be filed by
Amendment no later than May 18, 1998.
(b) Pro Forma Financial Statements.
Pursuant to Instruction (a)(4) to Item 7 of Form 8-K, the
financial information required by Item 7(b) will be filed by
Amendment no later than May 18, 1998.
(c) Exhibits.
2.1 Stock Purchase Agreement dated as of February 24, 1998, by
and among SRS Labs, Inc., Valence Technology Inc., and
Thomrose Holdings (BVI) Limited, Cape Spencer
International Limited, Rayfa (BVI) Limited, and Anki (BVI)
Limited.
2.2 Stock Purchase Agreement dated as of February 24, 1998, by
and between SRS Labs, Inc. and North 22 Capital Partners 2
Inc.
2.3 Registration Rights Agreement dated as of March 2, 1998 by
and among SRS Labs, Inc., Thomrose Holdings (BVI) Limited,
Cape Spencer International Limited and Rayfa (BVI)
Limited.
2.4 Escrow Agreement dated as of March 2, 1998 by and among
SRS Labs, Inc., Thomrose Holdings (BVI) Limited, Cape
Spencer International Limited, Rayfa (BVI) Limited, Thomas
Wah Tong Wan, as the Shareholders' Representative and
Harris Trust Company of California.
2.5 Noncompetition Agreement dated as of March 2, 1998 by and
among SRS Labs, Inc., Valence Technology Inc., Thomrose
Holdings (BVI) Limited and Thomas Wah Tong Wan.
2.6 Noncompetition Agreement dated as of March 2, 1998 by and
among SRS Labs Inc., Valence Technology Inc., Cape Spencer
International Limited and Wong Yin Bun.
2.7 Noncompetition Agreement dated as of March 2, 1998 by and
among SRS Labs, Inc., Valence Technology Inc., Rayfa (BVI)
Limited and Choi Yat Ming.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SRS LABS, INC.,
a Delaware corporation
(Registrant)
Date: March 12, 1998 By: /s/ THOMAS C.K. YUEN
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Thomas C. K. Yuen
Chairman of the Board and
Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
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2.1 Stock Purchase Agreement dated as of February 24, 1998, by and
among SRS Labs, Inc., Valence Technology Inc., and Thomrose
Holdings (BVI) Limited, Cape Spencer International Limited, Rayfa
(BVI) Limited, and Anki (BVI) Limited.
2.2 Stock Purchase Agreement dated as of February 24, 1998, by and
between SRS Labs, Inc. and North 22 Capital Partners 2 Inc.
2.3 Registration Rights Agreement dated as of March 2, 1998 by and
among SRS Labs, Inc., Thomrose Holdings (BVI) Limited, Cape
Spencer International Limited and Rayfa (BVI) Limited.
2.4 Escrow Agreement dated as of March 2, 1998 by and among SRS Labs,
Inc., Thomrose Holdings (BVI) Limited, Cape Spencer International
Limited, Rayfa (BVI) Limited, Thomas Wah Tong Wan, as the
Shareholders' Representative and Harris Trust Company of
California.
2.5 Noncompetition Agreement dated as of March 2, 1998 by and among
SRS Labs, Inc., Valance Technology Inc., Thomrose Holdings (BVI)
Limited and Thomas Wah Tong Wan.
2.6 Noncompetition Agreement dated as of March 2, 1998 by and among
SRS Labs Inc., Valence Technology Inc., Cape Spencer
International Limited and Wong Yin Bun.
2.7 Noncompetition Agreement dated as of March 2, 1998 by and among
SRS Labs, Inc., Valence Technology Inc., Rayfa (BVI) Limited and
Choi Yat Ming.
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
SRS LABS, INC.,
VALENCE TECHNOLOGY INC.,
AND
THOMROSE HOLDINGS (BVI) LIMITED,
CAPE SPENCER INTERNATIONAL LIMITED,
RAYFA (BVI) LIMITED
AND ANKI (BVI) LIMITED
DATED AS OF FEBRUARY 24, 1998
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TABLE OF CONTENTS
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ARTICLE 1 PURCHASE, SALE AND EXCHANGE OF SHARES; CLOSING.........................2
1.1 Purchase, Sale and Exchange of Shares..................................2
1.2 Consideration..........................................................2
1.3 Closing................................................................3
1.4 The Selling Shareholders' and Valence's Deliveries.....................3
1.5 Buyer's Deliveries.....................................................5
1.6 All Transactions Simultaneous..........................................5
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.............5
2.1 Authority..............................................................5
2.2 Due Execution..........................................................6
2.3 The Valence Shares.....................................................6
2.4 No Conflict............................................................6
2.5 Consents...............................................................7
2.6 Actions and Proceedings, etc...........................................7
2.7 Investment Representations and Warranties..............................7
2.8 Accuracy of Documents and Information.................................10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF
THE SELLING SHAREHOLDERS AND VALENCE..................................10
3.1 Authority.............................................................11
3.2 No Conflict...........................................................11
3.3 Consents..............................................................11
3.4 Organization, Good Standing and Qualification.........................12
3.5 Capital Structure.....................................................12
3.6 Financial Statements..................................................12
3.7 Absence of Undisclosed Liabilities....................................14
3.8 Tax Returns and Payments..............................................14
3.9 Absence of Certain Changes or Events..................................16
3.10 Accounts Receivable...................................................17
3.11 Inventories...........................................................17
3.12 Interests in Real Property............................................17
3.13 Personal Property.....................................................18
3.14 Intangible Property Rights............................................19
3.15 Title to Assets.......................................................19
3.16 Litigation............................................................20
3.17 Contracts and Permits.................................................20
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3.18 Existing Employment Contracts.........................................21
3.19 Insurance.............................................................22
3.20 Compliance with Laws..................................................22
3.21 Interest in Customers, Suppliers and Competitors......................22
3.22 Corporate Documents...................................................22
3.23 Personnel Identification and Compensation.............................23
3.24 Powers of Attorney and Suretyships....................................23
3.25 Employees.............................................................23
3.26 Credit Cards..........................................................24
3.27 Bank Accounts.........................................................24
3.28 Environmental Matters.................................................25
3.29 Labor Relations.......................................................25
3.30 Customers and Suppliers...............................................25
3.31 Unlawful Payment......................................................25
3.32 Restrictive Covenants.................................................26
3.33 Hart-Scott-Rodino Act.................................................26
3.34 Insolvency............................................................26
3.35 Tax Status............................................................26
3.36 Accuracy of Documents and Information.................................26
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER...............................27
4.1 Corporate Existence and Authority.....................................27
4.2 No Conflict...........................................................27
4.3 Consents..............................................................28
4.4 Binding Obligations...................................................28
4.5 Representations.......................................................28
4.6 Capital Stock.........................................................28
4.7 Shares Acquired for Investment........................................28
4.8 Corporate Documents...................................................28
4.9 Financial Statements..................................................29
4.10 Absence of Undisclosed Liabilities....................................29
4.11 Status of Buyer's Shares and Common Stock.............................30
4.12 Governmental Proceedings..............................................30
4.13 No Conflict...........................................................30
4.14 Intellectual Property.................................................30
4.15 Absence of Certain Changes or Events..................................31
4.16 Compliance with Laws..................................................31
4.17 Accuracy of Documents and Information.................................32
ARTICLE 5 COVENANTS OF THE SELLING SHAREHOLDERS
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AND VALENCE...........................................................32
5.1 Buyer's Access to Premises and Information............................32
5.2 Representations and Warranties True at Closing........................32
5.3 Interim Operations....................................................32
5.4 Notice of Proceedings.................................................35
5.5 Proposals to Valence and the Selling Shareholders.....................36
5.6 Non-Competition.......................................................36
5.7 Additional Financial Statements.......................................36
5.8 Tax Returns...........................................................37
ARTICLE 6 COVENANTS OF BUYER....................................................37
6.1 Representations and Warranties True at Closing........................37
6.2 Notice of Proceedings.................................................38
6.3 Additional Financial Statements, Press Releases and SEC Filings.......38
ARTICLE 7 REMAKING OF REPRESENTATIONS, WARRANTIES,
ETC. AT CLOSING AND SURVIVAL OF TERMS.................................38
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF BUYER................................39
8.1 Representations and Warranties True at Closing........................39
8.2 Performance of the Selling Shareholders and Valence...................39
8.3 Authority Relating to this Agreement..................................39
8.4 Opinion of Counsel for the Selling Shareholders and Valence...........39
8.5 Documents from the Selling Shareholders and Valence...................39
8.6 Absence of Litigation, Etc............................................40
8.7 Material Changes in Business..........................................40
8.8 Consents..............................................................40
8.9 All Conditions Satisfied..............................................41
8.10 Stock Purchase Agreement..............................................41
8.11 Option Agreement......................................................41
8.12 Shareholders Agreement................................................41
8.13 Valence Options.......................................................41
8.14 Due Diligence.........................................................41
8.15 Currency Fluctuation..................................................42
8.16 Shares Held by Nominee Shareholder....................................42
8.17 Employment Agreements.................................................42
8.18 Non-Competition Agreement.............................................42
ARTICLE 9 CONDITIONS TO THE OBLIGATIONS OF
THE SELLING SHAREHOLDERS AND VALENCE..................................42
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9.1 Representations and Warranties True at Closing........................42
9.2 Buyer's Performance...................................................43
9.3 Authority Relating to this Agreement..................................43
9.4 Opinion of Counsel....................................................43
9.5 Documents from Buyer..................................................43
9.6 Consents..............................................................43
9.7 All Conditions Satisfied..............................................43
9.8 Absence of Litigation, Etc............................................44
9.9 Material Changes in Business..........................................44
9.10 Employment Agreements.................................................44
9.11 Due Diligence.........................................................44
9.12 Currency Fluctuation..................................................45
9.13 Board of Directors....................................................45
9.14 Additional Cash Payment...............................................45
ARTICLE 10 INDEMNIFICATION.......................................................45
10.1 Indemnification by Valence and the Selling Shareholders...............45
10.2 Indemnification by Buyer..............................................46
10.3 Notice of Claim.......................................................46
10.4 Defense...............................................................46
10.5 Duration of Parties' Obligations......................................47
10.6 Arbitration...........................................................47
10.7 Limitations on Amount -- Valence and the Selling Shareholders.........48
10.8 Limitations on Amount -- Buyer........................................48
10.9 Right of Offset.......................................................48
ARTICLE 11 TERMINATION...........................................................49
11.1 Mutual Agreement......................................................49
11.2 Termination by Buyer..................................................49
11.3 Termination by the Selling Shareholders and Valence...................49
11.4 Effect of Termination.................................................49
ARTICLE 12 COSTS.................................................................49
12.1 Finder's or Broker's Fees.............................................49
12.2 Expenses..............................................................50
12.3 Audit Fees............................................................50
ARTICLE 13 DEFINITIONS AND ACCOUNTING TERMS......................................50
13.1 Certain Defined Terms.................................................50
13.2 Accounting Terms......................................................53
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ARTICLE 14 MISCELLANEOUS.........................................................53
14.1 Headings..............................................................53
14.2 Entire Agreement; Modification; Waiver................................53
14.3 Counterparts..........................................................53
14.4 Parties in Interest...................................................53
14.5 Assignment............................................................54
14.6 Notices...............................................................54
14.7 Governing Law.........................................................55
14.8 Venue.................................................................55
14.9 Prior Agreements......................................................55
14.10 Further Assurances....................................................55
14.11 Gender................................................................55
14.12 Validity; Severability................................................56
14.13 Press Release.........................................................56
14.14 Tax Elections.........................................................56
14.15 Statutory Books and Records...........................................56
SIGNATURES ..........................................................................57
INDEX TO SCHEDULES AND EXHIBITS .....................................................59
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SCHEDULES
1.2 Allocation of Purchase Price Consideration
1.4(c) Resigning Officers and Directors
2.4 Conflicts of the Selling Shareholders
2.5 Consents of the Selling Shareholders
2.7 Unaudited Representations of Buyer
3.2 Conflicts of the Companies
3.3 Consents of the Companies
3.5 Capital Structure of the Companies
3.6 Outstanding Debt owned by Valence Technology, Inc.
3.7 Material Liability, Indebtedness or Obligation Since Balance
Sheet Date
3.8 Tax Returns and Payments
3.9 Certain Changes and Events of the Companies Since April 1,
1997
3.12 Leases by the Companies of Real Property
3.13 Personal Property
3.14 Design Library
3.15 Title to Assets
3.16 Litigation
3.17 Certain Contracts and Permits of the Companies
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3.18 Employment Contracts with Termination Notification Periods
Exceeding 30 days
3.19 Insurance Policies
3.20 Violation of Laws
3.21 Interest in Customers, Suppliers and Competitors
3.24 Powers of Attorney and Suretyships
3.25 Employees - Non-Cash Compensation
3.26 Credit Cards
3.27 Bank Accounts of The Companies
3.28 Environmental Matters
3.29 Labor Relations
3.30(a) Certain Customers Accounting for over 5% of the Revenue of a
Company for the Twelve Months ended December 31, 1997
3.30(b) Customers and Suppliers who may be Prejudicially Affected by
the Execution or Completion of this Stock Purchase Agreement
3.32 Restrictive Covenants and Agreements of the Companies
4.3 Consents and Filings
4.6 Outstanding Warrants and Options
4.10 Undisclosed Liabilities of Buyer
4.11 Status of Buyer's Shares and Common Stock
4.15 Transactions Outside the Ordinary Course of Business
4.16 Violations/Non-Compliance with Laws
5.3(b)(xiii) Commitment for Capital Expenditures over US $25,000
EXHIBITS
1.2(c) Form of Escrow Agreement
8.4 A Form of Opinion of Milbank, Tweed, Hadley & McCloy
8.4 B Form of Opinion of Harney Westwood & Riegels
8.4 C Form of Opinion of Victor Chu & Co.
8.17 A Form of Employment Agreement (Thomas Wah Tong Wan)
8.17 B Form of Employment Agreement (Choi Yat Ming)
8.17 C Form of Employment Agreement (Wong Yin Bun)
8.18 A Form of Noncompetition Agreement (Thomas Wah Tong Wan)
8.18 B Form of Noncompetition Agreement (Choi Yat Ming)
8.18 C Form of Noncompetition Agreement (Wong Yin Bun)
9.4 Form of Opinion of Paul, Hastings, Janofsky & Walker, LLP
13.1 Consolidated Balance Sheet
The Schedules and Exhibits referenced above have not been filed herewith.
The Company will furnish supplementally a copy of any omitted schedule to the
U.S. Securities and Exchange Commission upon request.
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this Stock Purchase Agreement, including
all exhibits attached hereto are collectively referred to as the "Agreement") is
made and entered into as of the 24th day of February, 1998, by and among SRS
Labs, Inc., a Delaware corporation ("Buyer"), Valence Technology Inc., a British
Virgin Islands company ("Valence"), and Thomrose Holdings (BVI) Limited
("Thomrose"),Cape Spencer International Limited ("Cape"), Rayfa (BVI) Limited
("Rayfa") and Anki (BVI) Limited ("Anki"), each a British Virgin Islands company
(unless otherwise referenced herein, each, a "Selling Shareholder," and
collectively, the "Selling Shareholders").
W I T N E S S E T H:
WHEREAS, Valence beneficially owns 100% of the issued share capital of the
following companies: Valence Semiconductor Design Limited ("VSD"), ASP
Microelectronics Limited ("ASP"), LEC Electronic Components Limited ("LEC"), and
VSD Electronics Limited ("VEL"), each of which is a company limited by shares
incorporated in Hong Kong;
WHEREAS, ASP beneficially owns 100% of the issued share capital of LEC
Microelectronics Limited, a company limited by shares incorporated in Hong Kong
("LML"), and LEC owns 100% of the issued share capital of LEC Electronics
Limited, a company limited by shares incorporated in Hong Kong ("LEL"), and the
entire equity interest in VSD Electronics (Hui Yang) Ltd., a wholly
foreign-owned enterprise established under the laws of the PRC ("VHY");
WHEREAS, the Selling Shareholders are the beneficial owners of 3,375,000
ordinary shares, U.S. $0.13 par value per share, of Valence, representing
approximately 45% of the issued and outstanding shares of capital stock of
Valence (the "Valence Shares");
WHEREAS, Buyer is separately pursuing an acquisition of all of the shares
of capital stock of Valence held by North 22 Capital Partners 2, Inc., a British
Virgin Islands company ("North 22"), the record and beneficial owner of all of
the shares of capital stock of Valence not held by the Selling Shareholders (the
"North 22 Valence Shares");
WHEREAS, Buyer desires to acquire the Valence Shares from the Selling
Shareholders, and each of the Selling Shareholders desires to transfer the
Valence Shares to Buyer, upon the terms and subject to the conditions contained
in this Agreement;
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NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations, and warranties contained herein, the parties agree as follows:
(Capitalized terms not defined where used shall have the meanings provided
in Article 13 herein.)
ARTICLE 1
PURCHASE, SALE AND EXCHANGE OF SHARES; CLOSING
1.1 Purchase, Sale and Exchange of Shares. Subject to the terms
and conditions set forth in this Agreement, each Selling Shareholder shall sell,
convey, transfer, assign, exchange and deliver its respective Valence Shares to
Buyer and Buyer shall acquire the respective Valence Shares from each of the
Selling Shareholders at the Closing (as defined in Section 1.3).
1.2 Consideration. The aggregate purchase price to be paid by
Buyer to the Selling Shareholders for the Valence Shares shall be U.S.
$13,500,000, payable U.S. $1,394,222.40 in cash at the Closing and the remainder
in shares of common stock, U.S. $.001 par value per share, of Buyer ("SRS
Common"), determined by the method of computation as provided in Section 1.2(a)
below, but subject to the limitations provided in Section 1.2(b) below (such
number of shares of SRS Common computed pursuant to Section 1.2(a) below and
delivered to the Selling Shareholders is referred to herein as the "SRS
Shares"). The allocation of the purchase price consideration among the Selling
Shareholders is set forth on Schedule 1.2 of this Agreement.
(a) Computation. In making the computation of the SRS
Shares, the parties shall determine a number of full shares of SRS Common which
have a total value as nearly equal to U.S.$12,105,777.60 as is practicable, by
dividing into U.S. $12,105,777.60 the average of the high and low sales prices
for the SRS Common on The Nasdaq Stock Market, Inc. as reported in The Wall
Street Journal (with the exception of any errors in such reports) for each
trading day during the period beginning on and including January 20, 1998, and
ending on and including February 19, 1998, three (3) business days prior to the
date of this Agreement (the share price so computed, the "Share Price"). The
parties agree that the Share Price equals U.S.$7.2032 per share and the number
of SRS Shares computed pursuant to this Section 1.2(a) equals 1,680,611.
(b) Limitation. If the sum of the number of SRS Shares plus
the number of SRS Non-Compete Shares (the "Total SRS Shares") exceeds 19.5% of
the total number of issued and outstanding shares of SRS Common on the Closing
Date (the "Maximum SRS Shares"), such number of Total SRS Shares shall be deemed
to be equal to
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the number of Maximum SRS Shares, and Buyer shall have the right (but not the
obligation) to elect to pay to the Selling Shareholders (other than Anki) an
amount in cash (U.S. $) equal to the product of (i) the Share Price multiplied
by (ii) the excess of the number of Total SRS Shares over the number of Maximum
SRS Shares.
(c) Escrow Deposit. At the Closing, Buyer and each of the
Selling Shareholders with the exception of Anki shall execute and deliver an
escrow agreement substantially in the form attached hereto as Exhibit 1.2(c)
(the "Escrow Agreement"), and each of Thomrose, Rayfa and Cape shall deliver to
the Escrow Agent 70% of the SRS Shares (rounded to the nearest whole share)
delivered to them pursuant to Section 1.5(b) of this Agreement (the "Escrow
Deposit"). The Escrow Deposit shall be held by the Escrow Agent under the terms
of the Escrow Agreement.
1.3 Closing. The closing of the transactions provided for in this
Agreement (the "Closing") shall take place on the Closing Date. Unless otherwise
agreed by the parties, the Closing shall occur at the offices of Victor Chu &
Co., located on the 19th Floor, Tower II, The Gateway, Harbour City, Kowloon,
Hong Kong, prior to 3:00 p.m. (Hong Kong time) on the designated Closing Date.
1.4 The Selling Shareholders' and Valence's Deliveries. At the
Closing, each Selling Shareholder, Valence shall:
(a) deliver to Buyer certificates representing such Selling
Shareholder's Valence Shares duly endorsed in blank or accompanied by stock
powers duly executed in blank, with signatures appropriately guaranteed, and in
proper form for transfer, together with such other documents, including but not
limited to any governmental approvals, as may be necessary to convey to Buyer
good, valid and marketable title to the Valence Shares, free and clear of all
liens, encumbrances, pledges, equities, rights of first refusal and claims of
any nature whatsoever;
(b) cause such persons as Buyer may nominate to be validly
appointed as directors or secretaries of Valence and/or the Valence
Subsidiaries, and upon such appointment, forthwith cause the directors, officers
and the secretaries of Valence and the Valence Subsidiaries listed on Schedule
1.4(c) to resign or to have resigned from their respective offices in Valence or
the Valence Subsidiaries and as employees, each delivering to Buyer their
resignation acknowledging that the person so retiring has no claim outstanding
for compensation or otherwise;
(c) deliver to Buyer such other instruments and documents as
are required to be delivered at Closing by the Selling Shareholders and Valence
pursuant to the provisions of this Agreement or as are reasonably required to
evidence compliance with the
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<PAGE> 11
representations, warranties and covenants of the Selling Shareholders and
Valence contained in this Agreement;
(d) deliver to Buyer the statutory books and common seals of
Valence and the Valence Subsidiaries and the share certificates for all the
issued shares in the Valence Subsidiaries together with indemnities in a form
approved by Buyer in respect of missing certificates, if any, and duly executed
transfers and sold notes in favor of Buyer's nominees of any shares in the
Valence Subsidiaries beneficially held by Valence presently registered in any
name other than or in addition to that of Valence;
(e) use its best efforts to deliver to Buyer certified
copies of the Certificate of Incumbency and a Certificate of Good Standing for
Valence;
(f) use its best efforts to procure that a board meeting of
Valence be held at which it shall be resolved that the transfer in respect of
the Valence Shares be passed for registration and procure that a board meeting
of each of the Valence Subsidiaries be held at which it shall be resolved that
the transfer in respect of the nominee's share in each of the Valence
Subsidiaries be passed for registration;
(g) deliver to Buyer all other books of account and records
of Valence and each of the Valence Subsidiaries whatsoever;
(h) deliver to Buyer a certified copy of Valence's stock
transfer register;
(i) revoke all existing authorities in respect of the
operation of any bank account (if any) in the name of Valence or any of the
Valence Subsidiaries;
(j) use its best efforts to deliver to Buyer a certified
copy of the board resolution of North 22 approving and authorizing the execution
and closing of this Agreement; and
(k) deliver to Buyer certified copies of the board
resolutions of the Selling Shareholders approving and authorizing the execution
and closing of this Agreement and the entry of SRS in Valence's stock transfer
register;
(l) deliver to Buyer certified copies of the shareholder
resolutions of the Selling Shareholders approving and authorizing the execution
and closing of this Agreement, where such approval and authorization is required
under the laws of the British Virgin Islands;
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<PAGE> 12
(m) execute and do all such other documents, acts and things
as Buyer shall require in order to perfect the right, title and interest of
Buyer to and in the Valence Shares and the share capital of each of the Valence
Subsidiaries.
1.5 Buyer's Deliveries. At the Closing, Buyer shall deliver the
following as provided under this Agreement:
(a) cash in the amounts set forth adjacent to the names of
the Selling Shareholders in Schedule 1.2 hereto in immediately available U.S.
funds by electronic bank fund transfers to the applicable Selling Shareholder as
specified by each Selling Shareholder on or before the Closing Date;
(b) the number of shares of SRS Common set forth adjacent to
the names of the Selling Shareholders in Schedule 1.2 hereto, 70% of which
(rounded to the nearest whole share) shall be delivered by each Selling
Shareholder receiving SRS Shares to the Escrow Agent to be held pursuant to the
terms of the Escrow Agreement; and
(c) such other instruments and documents as are required to
be delivered at Closing by Buyer pursuant to the provisions of this Agreement or
as are reasonably required to evidence compliance with the representations,
warranties and covenants of Buyer contained herein.
1.6 All Transactions Simultaneous. All transactions at the Closing
shall be deemed to take place simultaneously and no party shall have any
obligations to deliver any document or take any action contemplated by this
Agreement to be delivered or taken at the Closing unless at the Closing there
occurs simultaneously each and every other transaction contemplated by this
Agreement to occur at the Closing.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE SELLING SHAREHOLDERS
In order to induce Buyer to enter into this Agreement, each of the
Selling Shareholders for itself hereby makes the representations and warranties
set forth below, which representations and warranties shall be deemed to
continue in full force and effect until the time of Closing and thereafter as
set forth herein.
2.1 Authority. The Selling Shareholder has full corporate power,
authority and legal right to enter into and perform its obligations under this
Agreement, and to consummate the transactions contemplated hereby.
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2.2 Due Execution. This Agreement has been duly executed and
delivered by the Selling Shareholder and this Agreement constitutes a legal,
valid and binding obligation of the Selling Shareholder, enforceable against the
Selling Shareholder in accordance with its terms, except as such enforceability
may be subject to or limited by (a) bankruptcy, insolvency, moratorium,
fraudulent conveyance or other similar laws relating to the rights of creditors
generally, (b) limitations imposed by law or equitable principles upon the
availability of specific performance, injunctive relief or other equitable
remedies, and (c) concepts of materiality.
2.3 The Valence Shares. The Selling Shareholder has good and valid
title to the Valence Shares listed in relation to its name on Schedule 1.2 being
sold by it hereunder, free and clear of any liens, claims, encumbrances,
security interests, options, charges and restrictions of any kind. Upon delivery
to Buyer at the Closing of certificates representing the Valence Shares being
sold hereunder by the Selling Shareholder duly endorsed by the Selling
Shareholder for transfer to Buyer, and upon the Selling Shareholder's receipt of
the consideration hereunder, good and valid title to such Valence Shares will
pass to Buyer, free and clear of any liens, claims, encumbrances, security
interests, options, pledges, equities, right of first refusal, charges, claims
and restrictions of any kind. Other than this Agreement, the Valence Shares
being sold by the Selling Shareholder hereunder are not subject to any voting
trust agreement or other contract, agreement, arrangement, commitment or
understanding, including any such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting, dividend rights
or disposition of the Valence Shares.
2.4 No Conflict. Except as stated in Schedule 2.4 and except where
a breach, violation, conflict or default as set forth in this Section 2.4 would
not reasonably be expected to have a Material Adverse Effect, the execution and
delivery of this Agreement does not, and the performance of this Agreement and
the consummation of the transactions contemplated hereby in accordance with the
terms, conditions and provisions hereof will not result in a breach or violation
of, or be in conflict with, or constitute (with or without the giving of notice
or the passage of time or both) a default under (a) any statute, law, ordinance,
rule or regulation (including, without limitation, all laws regulating
franchises) applicable to the Selling Shareholder or any of its properties; (b)
the terms, conditions or provisions of the memorandum and articles of
association or any other charter documents of the Selling Shareholder, or any
lease, license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust, partnership agreement or other agreement,
contract, instrument, or arrangement (whether or not in writing) to which the
Selling Shareholder is a party or by which the Selling Shareholder or any of its
properties is bound; or (c) any permit, license, order, judgment or decree of
any court, arbitrator or governmental authority by which the Selling Shareholder
or any of its properties is bound.
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<PAGE> 14
2.5 Consents. No consent, permit, approval, order, authorization
of, or filing with or notice to, any BVI, Hong Kong, PRC or other foreign, U.S.
federal, state or local governmental department, commission, board, bureau,
agency, instrumentality or authority or any person (whether or not governmental
in character) has been or is required to be obtained, made or given by the
Selling Shareholder in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby or the
fulfillment of or the compliance with the terms, conditions and provisions
hereof, except as set forth in Schedule 2.5 to this Agreement and except for the
failure to obtain, make, give, fulfill or comply with such consent, permit,
approval, order, authorization, filing, notice or registration that would not
result in a Material Adverse Effect.
2.6 Actions and Proceedings, etc. There are no (a) outstanding
judgments, orders, writs, preliminary or permanent injunctions or other decrees
of any court, administrative agency, governmental authority or instrumentality
or arbitration tribunal against the Selling Shareholder which have or could
reasonably have a Material Adverse Effect on the ability of the Selling
Shareholder to consummate the transactions contemplated hereby or (b) actions,
suits, claims or legal, administrative or arbitration proceedings or
investigations pending or, to the best Knowledge of the Selling Shareholder,
threatened against the Selling Shareholder, which have or could reasonably have
a Material Adverse Effect on the ability of the Selling Shareholder to
consummate the transactions contemplated hereby.
2.7 Investment Representations and Warranties. Each of the Selling
Shareholders receiving SRS Shares and SRS Non-Compete Shares understands and
represents and warrants for itself (except where the representation is made on
behalf of a named Selling Shareholder) to, and agrees with, Buyer that:
(a) The Selling Shareholder understands that no U.S. federal
or state agency and no foreign agency has passed on, or made any recommendation
or endorsement of the SRS Shares and the SRS Non-Compete Shares.
(b) The Selling Shareholder acknowledges that, in making the
decision to accept (i) the SRS Shares as part of the purchase price for the
Valence Shares and (ii) the SRS Non-Compete Shares as part of the consideration
for entering into the Non-Competition Agreements referenced in Section 5.6 of
this Agreement, it has relied solely upon independent investigations made by it
and not upon any representations made by Buyer with respect to Buyer or the SRS
Shares or the SRS Non-Compete Shares, except for the representations and
warranties in this Agreement, except that the Selling Shareholder has received,
reviewed and relied upon (i) Buyer's Annual Report to Stockholders for the year
ended December 31, 1996, (ii) copies of Buyer's report on Form 10-KSB for the
year ended December 31, 1996, Buyer's reports on Form 10-QSB for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997, and Buyer's
definitive Proxy Statement dated
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<PAGE> 15
April 30, 1997, each filed by Buyer pursuant to the Exchange Act, and all other
filings, including filings on Form 8-K, by Buyer under the Exchange Act since
September 30, 1997, which, together with any filings by Buyer under the Exchange
Act after the date hereof and prior to the Closing, are defined as "Exchange Act
Reports", (iii) any unaudited financial statements of Buyer provided to the
Selling Shareholders pursuant to Section 6.4, and (iv) certain other written
information provided by Buyer to the Selling Shareholders set forth on Schedule
2.7.
(c) The Selling Shareholder understands that the SRS Shares
and the SRS Non-Compete Shares are being offered and sold to it in reliance on
specific exemptions from or non-application of the registration requirements of
U.S. federal and state securities laws and that Buyer is relying upon the truth
and accuracy of the representations, warranties, agreements, acknowledgments and
understandings of the Selling Shareholder set forth herein in order to determine
the applicability of such exemptions and the suitability of the Selling
Shareholder to acquire the SRS Shares and the SRS Non-Compete Shares.
(d) The Selling Shareholder is not a "U.S. Person" as
defined in Regulation S promulgated under the Securities Act and at the time the
Selling Shareholder proposed to purchase the SRS Shares or the SRS Non-Compete
Shares, such Selling Shareholder was "outside the United States" as defined in
Regulation S. The Selling Shareholder certifies under penalty of perjury that it
is neither a citizen nor a resident of the U.S. and that its address set forth
in this Agreement is correct.
(e) The Selling Shareholder is acquiring the SRS Shares and
the SRS Non-Compete Shares for investment for such Selling Shareholder's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, within the meaning of the Securities Act, and
the Selling Shareholder has no present intention of selling, granting any
participation in, or otherwise distributing the same within the meaning of the
Securities Act. By executing this Agreement, the Selling Shareholder further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person with respect to any of the SRS Shares or the SRS
Non-Compete Shares.
(f) The Selling Shareholder represents that it has had an
opportunity to ask questions and receive answers from Buyer regarding the terms
and conditions of the offering of the SRS Shares and the SRS Non-Compete Shares
and that it has received the information it requested regarding the business and
affairs of Buyer.
(g) The Selling Shareholder acknowledges that it is able to
fend for itself and bear the economic risk of its investment and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the SRS Shares and the SRS
Non-Compete Shares. Thomrose and
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<PAGE> 16
Rayfa each represent it has not been organized for the purpose of acquiring the
SRS Shares or the SRS Non-Compete Shares.
(h) The Selling Shareholder understands that the SRS Shares
and the SRS Non-Compete Shares it is acquiring are characterized as "restricted
securities" under the U.S. federal securities laws inasmuch as they are being
acquired from Buyer in a transaction not involving a public offering and that
under such laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances. In
this connection, the Selling Shareholder represents that it is familiar with
Rule 144 promulgated under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
(i) Without in any way limiting the representations set
forth above, the Selling Shareholder further agrees not to make any disposition
of all or any portion of the SRS Shares or the SRS Non-Compete Shares unless and
until:
(A) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(B) (x) The Selling Shareholder shall have notified
Buyer of the proposed disposition and shall have furnished Buyer with a detailed
statement of the circumstances surrounding the proposed disposition, and (y) if
requested by Buyer, the Selling Shareholder shall have furnished Buyer with an
opinion of counsel, reasonably satisfactory to Buyer, that such disposition will
not require registration of such shares under the Securities Act.
(j) The Selling Shareholder has the financial ability to
bear the economic risk of its investment in the SRS Shares, has adequate means
of providing for its current needs and foreseeable future contingencies and has
no need for liquidity with respect to its investment in the SRS Shares. The sole
shareholder of each of Thomrose, Rayfa and Cape is an "accredited investor," as
that term is defined in Regulation D promulgated under the Securities Act. Cape
is an "accredited investor" as defined in Regulation D promulgated under the
Securities Act.
(k) The Selling Shareholder knows of no public solicitation
or advertisement in connection with the offer or sale of the SRS Shares and the
SRS Non- Compete Shares.
(l) The Selling Shareholder acknowledges that the
certificates representing the SRS Shares and the SRS Non-Compete Shares shall
contain the following legend:
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<PAGE> 17
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR
REGISTERED OR QUALIFIED UNDER ANY OTHER SECURITIES LAW; THEY HAVE
BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE
PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER SUCH ACT AND ANY APPLICABLE SECURITIES
LAWS, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
AND SRS LABS, INC. ("SRS") SHALL HAVE RECEIVED, AT THE EXPENSE OF
THE HOLDER HEREOF, EVIDENCE OF THE EXEMPTION REASONABLY
SATISFACTORY TO SRS (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO SRS)."
2.8 Accuracy of Documents and Information. The copies of all
instruments, agreements, other documents and written information delivered to
Buyer by or on behalf of the Selling Shareholder or its representatives,
pursuant to this Article 2 are and will be complete and correct in all material
respects as of the date hereof and as of the Closing Date. The representations
and warranties made by the Selling Shareholder in this Article 2, or in other
written materials furnished to Buyer pursuant to the representations and
warranties in this Article 2 or in connection with the transactions contemplated
by this Article 2, taken as a whole, do not contain any untrue statement of
material fact and do not omit any material fact necessary to make the statements
or facts contained herein or therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
THE SELLING SHAREHOLDERS AND VALENCE
In order to induce Buyer to enter into this Agreement, each of the
Selling Shareholders (except for Anki) and Valence hereby, jointly and
severally, makes the representations and warranties set forth below, which
representations and warranties shall be deemed to continue in full force and
effect until the time of Closing and thereafter as set forth herein. It is
understood that any representation or warranty herein by Valence or any of the
other Companies expressly excludes any knowledge held or reasonably deemed to be
held by North 22 but not actually known by the Selling Shareholders and the
Companies.
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<PAGE> 18
3.1 Authority. Valence has full corporate power, authority and
legal right to enter into and perform its obligations under this Agreement, and
to consummate the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by Valence, and this Agreement constitutes a
legal, valid and binding obligation of Valence enforceable against Valence in
accordance with its terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws, or by equitable principles, relating to or limiting the
rights of creditors generally, (b) limitations imposed by law or equitable
principles upon the availability of specific performance, injunctive relief or
other equitable remedies, and (c) concepts of materiality.
3.2 No Conflict. Except as stated in Schedule 3.2 and except where
an acceleration, rescission, modification, encumbrance, breach, violation,
conflict or default as set forth in this Section 3.2 would not reasonably be
expected to have a Material Adverse Effect, the execution and delivery of this
Agreement does not, and the performance of this Agreement and the consummation
of the transactions contemplated hereby in accordance with the terms, conditions
and provisions hereof will not (a) accelerate the maturity of, or give any
person any rights under, or the right to rescind, or otherwise modify, any
obligation, indebtedness, license, agreement or instrument to which any of the
Companies is a party or by which any of them or any of their respective
properties or assets is bound, (b) result in the creation of any lien,
encumbrance or charge upon any of the properties or assets of any of the
Companies or (c) result in a breach or violation of, or be in conflict with, or
constitute (with or without the giving of notice or the passage of time or both)
a default under (i) any statute, law, ordinance, rule or regulation (including,
without limitation, all laws regulating franchises) applicable to any of the
Companies or any of their properties or assets; (ii) the terms, conditions or
provisions of the memorandum and articles of organization or any other charter
documents of any of the Companies, or any lease, license, promissory note,
conditional sales contract, commitment, indenture, mortgage, deed of trust,
partnership agreement or other agreement, contract, instrument or arrangement or
other undertaking (whether or not in writing) to which any of the Companies is a
party or by which any of the Companies, or any of their respective properties or
assets, is bound; or (iii) any permit, license, order, judgment or decree of any
court, arbitrator or governmental authority of the BVI, Hong Kong, the PRC or
any other government by which any of the Companies, or any of their respective
properties or assets, is bound.
3.3 Consents. No consent, permit, approval, order, authorization
of, or filing with or notice to, any BVI, Hong Kong, PRC or other foreign, U.S.
federal, state or local governmental department, commission, board, bureau,
agency, instrumentality or authority or any person (whether or not governmental
in character), nor any consent, license, approval or authorization of or filing
or registration with or other requirement of any governmental department,
authority or agent in the BVI, Hong Kong or the PRC or any part thereof, has
been or is required to be obtained, made or given by any of the Companies in
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<PAGE> 19
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby or the fulfillment of or the compliance
with the terms, conditions and provisions hereof, except as set forth in
Schedule 3.3 to this Agreement and except for the failure to obtain, make, give,
fulfill or comply with such consent, permit, approval, order, authorization,
filing, notice or registration that would not result in a Material Adverse
Effect.
3.4 Organization, Good Standing and Qualification. Each of the
Companies is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of organization and has all
necessary power and authority to own and lease its properties and assets and to
conduct its businesses as now owned and presently operated by it. Neither the
nature of the businesses of any of the Companies, nor the character or location
of properties or assets owned or leased by any of the Companies, has made or
makes necessary licensing or qualification by any of the Companies in any
jurisdiction other than its respective jurisdiction of organization.
3.5 Capital Structure. Set forth on Schedule 3.5 is a complete and
accurate listing of the authorized capital stock and the issued and outstanding
shares of capital stock of each of the Companies. Valence is the registered and
beneficial owner of 100% of the issued shares of the issued share capital of
VSD, ASP, LEC and VEL. ASP is the registered and beneficial owner of 100% of the
issued shares of the issued share capital of LML. LEC is the registered and
beneficial owner of 100% of the issued shares of the issued share capital of LEL
and the beneficial owner of the entire equity interest in VHY. Except as set
forth in this Section 3.5, none of the Companies owns or holds an interest in
any corporation, company, limited liability company, partnership, proprietorship
or other business. All of the issued and outstanding shares of the capital stock
of each of the Companies are validly issued, fully paid and nonassessable.
Except as described on Schedule 3.5, all of the registered capital of VHY has
been fully paid by LEC. Except as stated in Schedule 3.5, there are no
outstanding subscriptions, options, rights, warrants, convertible securities or
other agreements, commitments or arrangements pursuant to which any of the
Companies is or may become obligated to issue, or to transfer from treasury, any
additional shares of its capital stock or any options or rights relating
thereto. Neither Valence nor any of the Valence Subsidiaries has reduced, repaid
or repurchased any of its share capital since April 1, 1997.
3.6 Financial Statements.
(a) The Selling Shareholders and the Companies have caused
to be delivered to Buyer true and complete copies of the audited financial
statements of the Companies for the year ended March 31, 1997, prepared in
accordance with H.K. GAAP, together with the report thereon by Coopers &
Lybrand, and unaudited pro forma Consolidated financial statements of the
Companies for the nine-month period ended
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December 31, 1997, prepared by Deloitte & Touche LLP in accordance with U.S.
GAAP. The Valence Financial Statements: (i) are in agreement with the books and
records of each of the Companies; and (ii) present fairly and accurately the
assets, liabilities and financial position of the Companies at the respective
dates of the balance sheets included in the Valence Financial Statements, and
the results of operations and changes in financial position and shareholders'
equity thereof for the respective periods covered thereby. The Valence Financial
Statements have been prepared in accordance with H.K. GAAP or U.S. GAAP, as
applicable, consistently applied throughout the periods indicated. The Selling
Shareholders and the Companies have made available to Buyer and its agents and
representatives for inspection true and correct copies of the accountants'
working papers and other materials with respect to the Companies utilized in
preparing the Valence Financial Statements.
(b) The accounting and other books and records of each of
the Companies have been properly prepared and accurately present and reflect in
accordance with H.K. GAAP all the transactions entered into by the relevant
Company or to which it has been a party and there are at the date hereof no
material inaccuracies or discrepancies of any kind contained or reflected in any
of the said books and records, and as of the date thereof they give and reflect
a true and fair view of the financial position of the Companies and of their
respective fixed and current and contingent assets and liabilities and debtors
and creditors.
(c) The borrowing limits imposed by each of the Companies'
respective articles of association or other charter documents have not been
exceeded at any time.
(d) Except as set forth on Schedule 3.6, to the Knowledge of
the Selling Shareholders and the Companies, in relation to all debentures,
acceptance credits, overdrafts, loans or other financial facilities outstanding
or available to Valence and each of the Valence Subsidiaries (referred to in
this clause as "facilities"): (i) material details of all facilities have been
disclosed and there have been delivered to Buyer accurate copies of all material
documents relating to the facilities; (ii) there has been no contravention of,
or non-compliance with, any material provision of any of such documents; (iii)
no steps for the early repayment of any indebtedness relating to the facilities
have been taken or threatened; (iv) there are no circumstances whereby the
continuation of any of the facilities are likely to be prejudiced, or which may
give rise to any alteration in the terms and conditions of any of the
facilities; (v) none of the facilities is dependent on the guarantee or
indemnity of, or any security provided by, a third party other than Valance or
any of the Valence Subsidiaries; and (vi) the Selling Shareholders have no
reason to anticipate that as a result of anything contemplated in this
Agreement, any of the facilities might be terminated or mature prior to its
stated maturity.
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3.7 Absence of Undisclosed Liabilities. As of April 1, 1997 (the
"Balance Sheet Date"), the Companies did not have and were not subject to any
material liability, indebtedness, claim, obligation or responsibility, fixed or
contingent, liquidated or unliquidated, secured or unsecured, or otherwise,
which was not either:
(a) specifically included in the full amount as a liability
or adequately and specifically reserved for or against in the full amount in the
Consolidated Balance Sheet; or
(b) fully and specifically set forth in Schedule 3.7.
Since the Balance Sheet Date, the Companies have not incurred or
become subject to any material liability, indebtedness, claim, obligation or
responsibility, fixed or contingent, liquidated or unliquidated, secured or
unsecured, or otherwise, other than those incurred since the Balance Sheet Date
in the ordinary course of business of the Companies consistent with past
practice .
3.8 Tax Returns and Payments.
(a) The Selling Shareholders and the Companies have
furnished to Buyer true and complete copies of all the respective BVI, Hong
Kong, PRC and other foreign, U.S. federal, state and local income, franchise,
sales and use, real estate and personal property tax returns which include any
of the Companies for each tax year ended on or after March 31, 1997, for which a
return has been required to be filed, and all BVI, Hong Kong, PRC and other
foreign, U.S. federal, state and local income, franchise, sales and use, real
estate and personal property tax returns filed prior to the Closing which
include any of the Companies with respect to periods ending after March 31, 1997
and prior to Closing, if any. All such returns were prepared in the manner
required by applicable law and regulation, and are complete and correct in all
material respects. Also, the Selling Shareholders and the Companies prior to
Closing will have made available to Buyer true and complete copies of any and
all existing BVI, Hong Kong, PRC or other foreign, U.S. federal, state and local
tax authorities audit reports and revenue agent's reports and any and all
existing determination letters, private letter rulings, consents and closing
agreements obtained from or filed with any BVI, Hong Kong, PRC and other
foreign, U.S. federal, state or local tax authority for the tax year ended March
31, 1997 relating to any of the Companies and all related settlement documents
and correspondence. Except as set forth in Schedule 3.8, no unsettled claim for
tax, assessment, fee, levy or other governmental charge of any nature for which
any of the Companies is presently or may become liable exists or has been
threatened. No agreement which is now in effect has been made with respect to
any of the Companies for the waiver of any statute of limitation or the
extension of time for the assessment of any tax, assessment, fee, levy or other
governmental charge of any nature for which they are presently or may become
liable. All tax returns, reports and related information with respect to any of
the
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<PAGE> 22
Companies required by law to be filed under the laws of any BVI, Hong Kong, PRC
or other foreign, U.S. federal, state or local jurisdiction have been duly and
timely filed. Except as set forth in Schedule 3.8, all taxes, assessments, fees,
levies and other governmental charges of any nature which were required to have
been paid by any of the Companies prior to the date of this Agreement have been
fully and duly paid, and none of the Companies are under any liability or
obligation to pay any penalty or interest in connection therewith. The tax
liabilities and reserves for taxes which are set forth and reserved against on
the Consolidated Balance Sheet are sufficient to cover fully all accrued or
unpaid taxes, assessments, fees, levies, and other governmental charges of any
nature at the Balance Sheet Date which are or might become payable by or with
respect to any of the Companies or any of their properties for all tax periods
or partial periods through the Balance Sheet Date. Except as set forth in
Schedule 3.8, at and after the Closing Date, under applicable law as in effect
at the time when the tax obligation was incurred, neither Buyer nor any of the
Companies shall become liable for any tax, assessment, fee, levy, or other
governmental charge of any nature (including any interest or penalties thereon)
relating to any periods ending on or prior to the Closing Date, except for taxes
set forth and reserved against in the Consolidated Balance Sheet; taxes payable
by reason of any of the transactions under or contemplated by this Agreement on
or after the Closing Date; and any taxes, assessments, fees, levies, and other
governmental charges of any nature incurred in the ordinary course of business
with respect to the Companies or any of their properties after the Balance Sheet
Date and prior to Closing. Except as set forth in Schedule 3.8, to the Knowledge
of the Selling Shareholders and the Companies, all documents in the possession
of or under the control of Valence or any of the Valence Subsidiaries or in the
enforcement of which it may be interested or to which Valence or any of the
Valence Subsidiaries is a party and which attract stamp duty have been properly
stamped.
(b) The affiliated group of which the Companies currently
are members is the only affiliated, consolidated, combined or unitary group of
which the Companies have been members since April 1, 1997. None of the Companies
has any liability, fixed or contingent, as a result of being a member of any
affiliated, consolidated, combined or unitary group prior to April 1, 1997. All
tax sharing or similar agreements or arrangements with respect to, or involving,
any of the Companies have been, or will be prior to the Closing Date,
terminated, and from and after the Closing Date, none of the Companies or their
respective assets will be bound under any such tax sharing or similar agreement
or arrangement or have any liability, fixed or contingent, to any of the Selling
Shareholders or any Affiliate of any of the Selling Shareholders arising out of
or resulting from any such tax sharing or similar agreements or arrangements.
(c) There has been no transfer of any property to any of the
Companies which has given or may reasonably give rise to any claim, assessment
or demand in relation to estate duty under Section 35 of the Estate Duty
Ordinance (Chapter 111 of the laws of Hong Kong) as in effect at the time when
such transfer occurred, and there is no
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charge or potential charge on any property or assets of the Companies under
Section 18 or Section 43(6) of the Estate Duty Ordinance as in effect at the
time when such transfer occurred.
3.9 Absence of Certain Changes or Events. Since the Balance Sheet
Date and except as specifically authorized hereunder or as set forth in Schedule
3.9:
(a) none of the Companies has entered into any transaction
other than in the ordinary course of business, consistent with past practice;
(b) there have been no changes in the financial condition,
results of operations, assets, liabilities, prospects or business of any of the
Companies other than changes in the ordinary course of business, consistent with
past practice which in the aggregate have not had a Material Adverse Effect to
any of the Companies, nor any event or circumstance which could reasonably be
expected to result in any such changes and, without limiting the foregoing,
there has not been any damage, destruction or loss, whether or not covered by
insurance, affecting any of the assets or properties of the Companies amounting
to more than U.S. $50,000 in the aggregate;
(c) none of the Companies has (i) increased or decreased any
of the rates of compensation payable or to become payable by them to any
employee, agent or consultant, or granted, made or accrued any bonus, percentage
compensation, service award or other like benefit to or to the credit of any
such employee, agent or consultant; (ii) entered into or amended any bonus,
incentive compensation, deferred compensation, profit sharing, retirement,
pension, group insurance or other benefit plan or any employment or consulting
agreement; (iii) created or otherwise become liable with respect to any
indebtedness for money borrowed or purchase money indebtedness, except in the
ordinary course of their businesses consistent with past practice; (iv) amended
any of their memorandum or articles of association or any other charter
documents; (v) issued, purchased or disposed of or contracted to issue,
purchase, or dispose of any of their capital stock or any options, warrants or
rights with respect thereto or interests therein; (vi) entered into, assumed,
modified or terminated any contract, liability or obligation, except in the
ordinary course of business, consistent with past practice or settled,
discharged or waived any right or claim without adequate consideration; (vii)
sold, leased or otherwise disposed of or encumbered in any way any assets,
except for sales in the ordinary course of business, consistent with past
practice; (viii) acquired any property or asset, except in the ordinary course
of business, consistent with past practice; (ix) directly or indirectly declared
or paid any non-cash dividend or distribution with respect to the capital stock
of any of the Companies, (x) entered into any transaction with any of the
Selling Shareholders or any Affiliate of any of the Selling Shareholders, except
in the ordinary course of business consistent with past practice; or (xi) agreed
to take any action specified in (i)-(x) hereof.
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3.10 Accounts Receivable. The accounts receivable and other
receivables of the Companies shown on the Consolidated Balance Sheet, and the
accounts receivable and other receivables arising since the Balance Sheet Date,
are valid and binding obligations of the debtors requiring no further
performance by any of the Companies and, subject to such reserves as have been
disclosed in writing to Buyer, the Selling Shareholders believe that as of the
date of this Agreement they are fully collectible in the ordinary course of
business in amounts not less than the aggregate amount thereof carried on the
books of the Companies.
3.11 Inventories. The values at which the inventories of the
Companies are shown on the Consolidated Balance Sheet have been determined in
accordance with the normal valuation policies of the Companies. The inventories
of the Companies shown on the Consolidated Balance Sheet and the inventories
thereafter acquired by the Companies consist only of items of a quality and
quantity commercially usable or salable in the ordinary course of business, and
the Selling Shareholders believe such inventory can be sold at the values
reflected on the Consolidated Balance Sheet (in the case of inventories acquired
prior to the Balance Sheet Date) and on the books of the Companies (in the case
of inventories acquired after the Balance Sheet Date), except for items of
excess or obsolete material, all of which have been written down to realizable
market value as of the Balance Sheet Date or for which adequate reserves have
been reflected on the Consolidated Balance Sheet or established since the
Balance Sheet Date (with respect to inventory acquired since that date) in
accordance with past practices. Such inventories represent a reasonable
distribution of the types of inventories utilized in the conduct of the
Companies' businesses in accordance with good business practices. Additions to
and deletions from such inventories since the Balance Sheet Date have been only
in the ordinary course of business, consistent with past practice.
3.12 Interests in Real Property. None of the Companies owns any
real property. Schedule 3.12 sets forth a true and complete list of each parcel
of real property leased by any of the Companies. A true and complete copy of
each lease listed on Schedule 3.12 has been provided to Buyer. All of such
leases are valid and enforceable, and there does not exist any default under any
of such leases, or any event which, with the giving of notice or passage of
time, or both, would constitute a default under any of such leases. There are no
circumstances known to the Selling Shareholders or the Companies which are
likely to give rise to any dispute in relation to any of such real properties
with any governmental or local authority, superior lessor, tenant or licensee or
with the owner or occupier of any adjoining or neighboring property or any other
party. No notice, whether formal or informal, has been served upon any Company
under the Crown Land Resumption Ordinance (Cap. 124) or under the Mass Transit
Railway (Land Resumption and Related Provisions) Ordinance (Cap. 276) or any
notice of a similar nature the implementation of which would affect the
occupation or enjoyment or the redevelopment potential of such real properties
and such real properties are not included in any layout plans (draft or
approved) under the Town Planning Ordinance (Cap. 131). The Companies have
complied in all material respects with all legislation, statutory requirements,
governmental or other orders, rules, directives or
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instruments affecting or pertaining to the use, occupation or enjoyment of such
properties. Neither the Selling Shareholders nor the Companies have received any
notice or are aware of any breach of any covenants, restrictions, stipulations,
conditions and other terms affecting such real properties or are aware of any
circumstances which would entitled or require any person to exercise any powers
of entry and taking possession or which would otherwise terminate or restrict
the continued possession or occupation of such real properties. To the Knowledge
of the Selling Shareholders and the Companies, such real properties:
(a) are not subject to any covenants, obligations,
restrictions or conditions which are of any unusual or onerous nature or which
would affect the use or continued use of the properties by the relevant owners
for the purpose or to the extent or in the manner now used;
(b) do not enjoy any right, easement or privilege, the
withdrawal or cessation of which would adversely affect the use or continued use
of any of such real properties by the relevant owners for the purpose for or to
the extent to or in the manner in which it is now used;
(c) are not affected by any of the following matters: (i)
any closing order, demolition order or clearance order; (ii) any outstanding
notice issued under any Hong Kong Ordinance; (iii) any order or proposal
publicly advertised or of which written notice has been received for the
compulsory acquisition or requisition of the whole or any part thereof or the
discontinuance of any use or the removal of any building; or (iv) any agreement
with any public body or authority regulating the use or development thereof
except as stated in the agreement for leases or crown lease;
and neither the Selling Shareholders nor Valence are aware of any intention on
the part of the relevant authorities to issue any such order or notice or any
matter which give rise to the issue of any such order or notice. As at the date
hereof, to the Knowledge of the Selling Shareholders and the Companies, there is
no agreement to sell or part with the possession of or let or license or grant
any option over or otherwise dispose of any interest in such properties or any
part thereof. All of such real property interests and improvements, the
furniture, fixtures and equipment relating thereto, and the operation of the
businesses of the Companies thereon, conform to any and all applicable health,
fire, safety, zoning and building laws, ordinances and regulations. Except as
set forth on Schedule 3.12, all buildings, structures and fixtures used by the
Companies in the conduct of the businesses of the Companies are located on the
parcels of real property listed in Schedule 3.12 and are in good operating
condition and repair, ordinary wear and tear excepted.
3.13 Personal Property. All assets used in the conduct of the
businesses of the Companies are either owned by the Companies, or leased or
rented by the Companies, (a) in transactions with non-Affiliates of any the
Selling Shareholder, or (b) on terms no
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more or less favorable than would have been obtained in arms length
transactions. Schedule 3.13 sets forth, current as of the Balance Sheet Date, a
true, complete and correct list of each of the assets (other than real property)
having a book value of U.S. $25,000 or more included in the Consolidated Balance
Sheet or otherwise used in the conduct of the businesses of the Companies. The
book value of any assets that are not included on such list does not, in the
aggregate, exceed U.S. $450,000 as of the date hereof. Except as set forth on
Schedule 3.13, the Companies have good title, free and clear of all title
defects and objections, security interests, liens and encumbrances, including,
without limitation, leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retaining
arrangements, to any inventory, furniture, machinery, equipment, and other
personal property reflected on the Consolidated Balance Sheet, except for
acquisitions, sales and dispositions in the normal course of business since the
Balance Sheet Date as contemplated by this Agreement. All material personal
property of the Companies is in good operating condition and repair, ordinary
wear and tear excepted.
3.14 Intangible Property Rights. Schedule 3.14 is a true and
complete list of all licenses, patents, copyrights, trademarks, service marks,
service names, trade names, trade secrets or other proprietary information
(collectively, the "Intellectual Property") owned by the Companies or in which
they have rights. The Companies own or possess irrevocable rights in all
Intellectual Property which is necessary or adequate for the conduct of their
businesses. To the Knowledge of the Selling Shareholders and the Companies, the
Companies are not infringing and have not infringed upon any patent, trademark,
trademark right, service mark, service name, trade name, trade secret or
proprietary information owned or held by any other person or entity. Except as
set forth in Schedule 3.14, there is no claim or action by any other person or
entity pending or threatened alleging that any of the Companies are infringing
upon any patent, trademark, trademark right, service mark, service name, trade
name, trade secret or proprietary information owned or held by any other person
or entity, nor to the Knowledge of the Selling Shareholders and the Companies is
there any reasonable basis for any such claim or action by any person.
3.15 Title to Assets. Except as set forth in Schedule 3.12 or 3.13
and except where the lack of good and marketable title as set forth in this
Section 3.15 would not result in a Material Adverse Effect, the Companies are
the beneficial owners and have good and marketable title to all their assets and
interests in assets, whether real, personal, mixed, tangible or intangible,
which constitute all the assets and interests in assets that are used in the
businesses of the Companies and that are necessary for the conduct and operation
of the businesses of the Companies as presently conducted. Except as set forth
in Schedule 3.12 or 3.13, all these assets are free and clear of mortgages,
liens, pledges, charges, encumbrances, equities, claims, easements, rights of
way, covenants, conditions or restrictions, except for: (i) those reflected on
the Consolidated Balance Sheet; and (ii) liens for current taxes not yet due and
payable. The Companies are in possession of all premises leased to them from
others. Except as set forth on Schedule 3.15, neither any officer,
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director, employee or Affiliate of any of the Companies, nor any spouse or child
of any of these persons, owns, or has any interest, directly or indirectly, in
any of the real or personal property owned by or leased to any of the Companies,
or any of the Intellectual Property owned by or licensed to any of the
Companies.
3.16 Litigation. Schedule 3.16 identifies all claims, suits,
litigation, actions, arbitrations, governmental investigations and legal,
administrative or other proceedings or controversies, at law or in equity or
otherwise, to which any of the Companies, or any of their officers, directors,
employees, stockholders or agents or assets, is a party or which is, to the
Knowledge of the Selling Shareholders and the Companies, threatened against any
such persons or assets which affects or may reasonably be expected to affect the
financial condition, liabilities, Permits or Contracts (as defined in Section
3.17), assets, shareholders' equity, properties (including the value or
usefulness thereof), sales, net income, operations, prospects or businesses of
any of the Companies. The matters set forth in Schedule 3.16, if decided
adversely to any of the Companies, will not, individually or in the aggregate,
reasonably be expected to result in any adverse change in the financial
condition, liabilities, Permits or Contracts, assets, shareholders' equity,
properties, sales, net income, operations, prospects or businesses of any of the
Companies. None of the Companies is subject to any order, judgment, decree or
governmental restriction which adversely affects its financial condition,
liabilities, Permits or Contracts, assets, shareholders' equity, properties,
sales, net income, operations, prospects or businesses or which would prevent
the transactions contemplated by this Agreement. Except as disclosed in Schedule
3.16, the Companies have not been and are not in violation of, and have not
received any formal or informal notice of violation of, any law or order, writ,
injunction or decree of any BVI, Hong Kong, PRC or other foreign, U.S. federal,
state, municipal, or local court or other governmental department, commission,
board, bureau, agency or instrumentality.
3.17 Contracts and Permits. Schedule 3.17 describes all material
(a) currently effective or applied for (as designated in Schedule 3.17)
licenses, franchises, permits, easements, certificates, consents, rights,
privileges, and authorizations necessary or advisable to the conduct of the
businesses of the Companies (collectively, the "Permits"), and (b) currently
effective contracts (other than contracts directly related to the line item
"Cost of Goods" in the Valence Financial Statements), instruments, arrangements
or agreements, oral or written (other than leases disclosed on other schedules
delivered pursuant to this Agreement), to which any of the Companies is a party
or by which their respective properties are bound which: (i) involve the payment
by the Companies of more than U.S. $60,000 per annum; (ii) have a duration of
more than one year; (iii) are not terminable at the option of the Companies by
less than 30 days' notice, without the payment of any penalty; (iv) is with any
officer, director, shareholder, Affiliate or other employee of any of the
Companies; (v) are with a bank or other lender; (vi) grant exclusive sales,
purchase or distribution rights to any person; or (vii) have been entered into
other than in the ordinary course of business (collectively, the "Contracts").
The Selling Shareholders and the
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Companies have provided to Buyer true copies of each Permit and Contract. Unless
so stated on Schedule 3.17, the Companies have not been and are not in material
breach or default of any Permit or Contract and no event exists which, with the
giving of notice or passage of time, or both, would constitute a material breach
or default of any of the Permits or Contracts. All of the Permits and Contracts
are in full force and effect and are not subject to cancellation, termination,
or modification for any reason related to the consummation of the transactions
contemplated in this Agreement or otherwise. The Selling Shareholders and the
Companies do not have any Knowledge that any other party to any Permit or
Contract intends to revoke, alter, or not to perform its obligations under such
Permit or Contract. Except as set forth on Schedule 3.17, neither Valence nor
any of the Valence Subsidiaries is a party to any agreement in which any of the
directors or Affiliates of Valence, any Valence Subsidiaries or North 22 is
interested (directly or indirectly). Except as set forth on Schedule 3.17, there
is in existence no contract which is likely or estimated to give rise to a loss
to Valence or any of the Valence Subsidiaries exceeding in the aggregate U.S.
$60,000. To the Knowledge of the Selling Shareholders and the Companies, except
as set forth on Schedule 3.17, there is in existence no contract involving or
which may involve obligations on Valence or any of the Valence Subsidiaries or
the need for expenditure by Valence or any of the Valence Subsidiaries of a
nature or magnitude which cannot be fulfilled, or performed without undue or
unusual expenditure of money or effort.
3.18 Existing Employment Contracts. Schedule 3.18 sets forth a list
and full description of all employment contracts with termination notification
periods in excess of 30 days and collective bargaining agreements, and all
pension, bonus, retirement, profit-sharing, stock option, or other agreements or
arrangements, oral or written, providing for employee remuneration or benefits
(including, without limitation, all vacation, termination, severance and leave
policies and obligations) to which any of the Companies is a party or by which
any of the Companies is bound (collectively, "Employee Plans"). The warranties
and representations made under Section 3.17 and Section 3.25 with respect to
Contracts and with respect to Employee Benefit Plans shall also apply with
respect to the Employee Plans listed in Schedule 3.18, except that the Employee
Plans have not been qualified under Section 401 of the U.S. Internal Revenue
Code (the "Code"), and Internal Revenue Service ("IRS") determination letters
may not have been issued with respect thereto. Except as disclosed in Schedule
3.18, for each Employee Plan which is not fully funded, the Companies have
established reserves on their books to provide for the benefits earned and other
liabilities accrued under each such Employee Plan through the Closing Date in
amounts sufficient to fully provide for such benefits and liabilities; these
reserves have been determined in the same manner as such reserves have been
determined for the prior year. True and correct copies of all Employee Plans and
records disclosing the costs of providing benefits under, and paying liabilities
of, each Employee Plan for the past three years have been provided to Buyer.
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3.19 Insurance. Schedule 3.19 includes a list of all insurance
policies in force with respect to any of the Companies showing for each such
policy: (a) the owner; (b) the coverage of such policy; (c) the amount of
premium properly allocable to such policy; (d) the name of the insurer; and (e)
the termination date of the policy. All policies listed on Schedule 3.19 are in
full force and effect and are "claims made" policies. All the conditions of such
insurance have been performed and observed and nothing has been done or omitted
to be done which could make any such insurance void or voidable. All premiums in
respect of such insurance which may have become due have been duly paid. There
are no claims outstanding, pending or threatened against Valence or any of the
Valence Subsidiaries which are not covered by insurance. The Selling
Shareholders and the Companies have provided Buyer with complete copies of all
policies listed on Schedule 3.19. To the Selling Shareholders' and the
Companies' Knowledge, such insurance policies provide coverage reasonable for
the business conducted by the Companies and are sufficient for compliance with
all applicable laws or leases or other agreements to which any of the Companies
is a party.
3.20 Compliance with Laws. To the Knowledge of the Selling
Shareholders and the Companies, except as described in Schedule 3.20, none of
the Companies has been or currently is in violation of any applicable BVI, Hong
Kong, PRC or other foreign, U.S. federal, state, or local statutes, laws and
regulations (including, without limitation, any applicable building, zoning, or
other law, ordinance, or regulation) affecting any of its properties or the
conduct or operation of its business.
3.21 Interest in Customers, Suppliers and Competitors. To the
Knowledge of the Selling Shareholders and the Companies, except as disclosed and
described in Schedule 3.21 (and including direct employee compensation disclosed
to Buyer and not in arrears), no Selling Shareholder nor any Company, nor any
officer, director or Affiliate of any Company, nor any spouse or child of any of
them, has any direct or indirect interest in any competitor, contractor,
supplier or customer of any of the Companies, or in any person with whom any of
the Companies is doing business or is leasing or buying property or services.
3.22 Corporate Documents.
(a) The Selling Shareholders and the Companies have
furnished to Buyer for its examination: (i) true and correct copies of the
memorandum and articles of association and any other charter documents,
including any amendments thereto, of each Company and (ii) the statutory books,
minute books and stock transfer registers of each Company which contain all
records concerning all proceedings, consents, actions and meetings of the
shareholders and boards of directors of each Company and issuances of shares,
debentures and other securities thereof.
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(b) The Companies have complied with their respective
memorandum and articles of association and any other charter documents in all
respects, and none of the business, activities, agreements, commitments or
rights of the Companies is ultra vires or unauthorized.
(c) Compliance has been made with all other legal
requirements concerning each of the Companies and all issues of shares,
debentures or other securities thereof and the register of members, register or
directors and all other statutory books of each of the Companies are up to date
and contain true, full and accurate records of all matters required to be dealt
with therein, and none of the Companies has received any notice of any
application or intended application under the Companies Ordinance or any other
applicable laws and regulations for rectification of the Companies' register and
all annual or other returns required to be filed with the Companies Registry
have been filed and all legal requirements relating to the formation and
organization of the Companies and the issue of shares and other securities have
been complied with.
(d) All documents required by the Companies Ordinance or by
any legislation in other relevant jurisdictions to be filed or registered with
the relevant Companies Registry or otherwise in respect of the Companies have
been duly filed or registered, and all duty payable in connection with such
documents has been paid.
3.23 Personnel Identification and Compensation. Buyer has been
provided with a written list of the names of all officers, directors, employees,
and agents of the Companies who receive an annual salary in excess of U.S.
$50,000 per annum, stating the rates of compensation payable to each of them.
Except as listed on such list, no other person, except accountants, auditors and
attorneys, regularly performs compensable services for any of the Companies.
3.24 Powers of Attorney and Suretyships. To the Knowledge of the
Selling Shareholders and the Companies, except as described in Schedule 3.24,
none of the Companies has any presently outstanding powers of attorney or
guarantees, and none of the Companies has any material obligations or
liabilities, whether actual, accrued, accruing or contingent, as guarantor,
surety, co-signor, endorser (other than checks endorsed for presentation in the
ordinary course of business), co-maker, indemnitor or otherwise in respect of
the obligation of any person, corporation, partnership, joint venture,
association, organization or other entity, except among the Companies or by one
Company for an obligation of another Company.
3.25 Employees.
(a) Other than as set forth in Schedule 3.25, none of the
Companies is a party to:
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(i) any agreement, arrangement, scheme or fund
(whether or not legally enforceable) for any payment in connection with
retirement, death or disability to any person who is or has been a director,
officer or employee of the Companies or a relative or dependent or such a person
other than pursuant to any such agreement, arrangement, scheme or fund to which
the Companies are required by law to be a party;
(ii) any agreement, arrangement, scheme or fund
(whether or not legally enforceable) for profit or for the payment to employees
or directors of bonuses or incentive payments or the like or of any non-cash
compensation, including but not limited to grants of options, rights, warrants,
convertible securities and the like;
(iii) any provident fund other than pursuant to any such
agreement, arrangement, scheme or fund to which the Companies are required by
law to be a party; or
(iv) any obligation or ex-gratia arrangement to pay
pensions, gratuities, retirement benefits, periodical sums or any compensation
to any person other than pursuant to any such agreement, arrangement, scheme or
fund to which the Companies are required by law to be a party.
(b) None of the Companies is under any obligation (whether
actual or contingent) to any former employee whether for breach of any contract
of service, for compensation for wrongful dismissal or for unfair dismissal or
for payment of any salaries, wages, pension, gratuities, bonuses or otherwise
howsoever or whatsoever and no tax, levy, contribution or payment in respect to
any former employee whether to any governmental authority, pension fund, scheme
or trust or otherwise howsoever or whatsoever will be outstanding or disputed.
3.26 Credit Cards. Schedule 3.26 contains a true and complete list
of all credit cards issued or caused to be issued by or on behalf of any of the
Companies to any person, firm or entity which any of the Companies is or may be
liable for charges or payments. The Selling Shareholders and the Companies shall
cause to be delivered to Buyer on or before the Closing Date all of such credit
cards as Buyer may designate.
3.27 Bank Accounts. Schedule 3.27 contains a true and complete list
of the name of each bank, savings and loan association or other financial
institution in which each of the Companies has any type of account or safe
deposit box, the account name and number of each such account or safe deposit
box and the names of all persons authorized to draw thereon or have access
thereto.
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3.28 Environmental Matters.
(a) Except as provided in Schedule 3.28, the Companies and
every person for whose default the Companies may be vicariously liable have
complied with all applicable legislation, licences, consents and permissions
relating to environmental matters.
(b) Except as provided in Schedule 3.28, neither the
Companies nor any person for whose default the Companies may be vicariously
liable is the subject of any actions, claims or proceedings relating to
environmental matters and no such action, claim or proceeding is threatened
against or expected by the Companies or any such person.
3.29 Labor Relations. Except as described in Schedule 3.29, there
are no agreements with, or pending petitions for recognition of, any labor union
or association as the bargaining agent or representative for any or all of the
Companies' employees; no such petitions have been pending at any time within
three years of the date of this Agreement and there has been no organizing
effort by any union or other group seeking to represent any employees of any
Company as their bargaining agent or representative at any time within three
years of the date of this Agreement; no claim has been, nor could be, made that
any collective bargaining agreement set forth on Schedule 3.29 should be
applicable to any employees of the Companies not expressly covered by the terms
of such agreements; and there are no labor strikes, work stoppages or other
labor troubles, now pending, or threatened, against any of the Companies, nor
have there been any such labor strikes, work stoppages or other labor troubles,
at any time within the three (3) years preceding the date of this Agreement.
Except as described on Schedule 3.29, there have been no grievances filed, nor
claims of unfair labor practices, made, against any of the Companies at any time
within the past three years.
3.30 Customers and Suppliers. Schedule 3.30(a) lists each customer
of the Companies which accounted for more than 5% of any Company's revenues for
the twelve months ended December 31, 1997. There has not been any material
adverse change in the business relationship between the Companies and any of
their respective customers or suppliers, nor has there been any material
disputes or controversies between the Companies and any of their respective
customers or suppliers, nor, to the Knowledge of the Selling Shareholders and
the Companies, is there any event or circumstance which could reasonably form
the basis for any such material dispute or controversy. Except as noted on
Schedule 3.30(b), so far as the Selling Shareholders are aware, the business
relationships with customers, suppliers, employees and other persons with regard
to Valence or any of the Valence Subsidiaries will not be prejudicially affected
by the execution or completion of this Agreement.
3.31 Unlawful Payment. To the Knowledge of the Selling Shareholders
and the Companies, neither any Company nor any officer, director, shareholder,
employee, agent
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or representative of any Company has made, directly or indirectly, with respect
to the business of any Company, any illegal political or illegal charitable
contributions, payments from corporate funds not recorded on the books and
records of the Companies, payments from corporate funds that were falsely
recorded on the books and records of the Companies, payments from corporate
funds to governmental officials in their individual capacities for the purpose
of affecting their action or the action of the government they represent to
obtain favorable treatment in securing businesses or licenses or to obtain
special concessions, or payments to any officers, employees or agents of a
customer or supplier for the purpose of influencing their action or inaction or
the action or inaction of any other officer, employee or agent of such customer
or supplier.
3.32 Restrictive Covenants. Except as described on Schedule 3.32,
none of the Companies is bound by any agreement, contract or covenant limiting
its freedom to compete in any line of business or with any person or other
entity in any geographic area.
3.33 Hart-Scott-Rodino Act. The Companies (a) do not hold assets
located in the United States having an aggregate book value of U.S. $15 million
or more, and (b) did not make aggregate sales in or into the United States of
U.S. $25 million or more, in the fiscal year ended March 31, 1997.
3.34 Insolvency.
(a) No receiver has been appointed of the whole or any part
of Valence's or any of the Valence Subsidiaries' assets or undertaking and no
order has been made or petition presented or resolution passed for the winding
up of Valence or any of the Valence Subsidiaries.
(b) Neither Valence nor any of the Valence Subsidiaries has
stopped payment nor is it insolvent or unable to pay its debts within the
meaning of the Companies Ordinance.
(c) No unsatisfied judgment is outstanding against Valence
or any of the Valence Subsidiaries.
3.35 Tax Status. Wan Wah Tong Thomas, Wong Yin Bun Kenneth and Yat
Ming Choi Raymond each is not a United States resident as defined under the
United States income tax laws and Valence, Thomrose, Cape and Rayfa each is not
engaged in a United States "trade or business" and each is a "foreign
corporation," both as defined under the United States income tax law.
3.36 Accuracy of Documents and Information. The copies of all
instruments, agreements, other documents and written information delivered to
Buyer by or
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on behalf of any of the Companies or the Selling Shareholders or any of their
respective representatives pursuant to this Agreement, excluding any information
and materials delivered to Buyer by North 22 without the knowledge of the
Selling Shareholders and the Companies, are and will be complete and correct in
all material respects as of the date hereof and as of the Closing Date. The
representations and warranties made by each of the Companies and each of the
Selling Shareholders in this Agreement, or in other written materials furnished
to Buyer hereunder or in connection with the transactions contemplated hereby,
taken as a whole, do not contain any untrue statement of material fact and do
not omit any material fact necessary to make the statements or facts contained
herein or therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
In order to induce the Selling Shareholders and Valence to enter
into this Agreement, Buyer hereby makes the representations and warranties set
forth below, which representations and warranties shall be deemed to continue in
full force and effect until the time of the Closing and thereafter as set forth
herein:
4.1 Corporate Existence and Authority. Buyer is a corporation duly
incorporated, validly existing, and in good standing under the laws of the State
of Delaware. Buyer has full power, authority and legal right to enter into and
perform its obligations under this Agreement, and to consummate the transactions
contemplated hereby.
4.2 No Conflict. The execution and delivery of this Agreement do
not, and the performance of this Agreement and the consummation of the
transactions contemplated hereby in accordance with the terms, conditions and
provisions hereof will not result in a breach or violation of, or in conflict
with, or constitute (with or without the giving of notice or the passage of time
or both) a default under:
(a) any statute, law, ordinance, rule or regulation
applicable to Buyer, or
(b) the terms, conditions or provisions of the Certificate
of Incorporation or Bylaws or other organizational documents of Buyer, or any
lease, license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust, partnership agreement or other agreement,
contract, instrument, or arrangement (whether or not in writing) to which Buyer
is a party or by which Buyer or its properties, is or may be bound, or
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(c) any permit, license, order, judgment or decree of any
court, arbitrator or governmental authority by which Buyer or its properties is
or may be bound.
4.3 Consents. No consent, permit, approval, order, authorization
of, or filing with or notice to, any U.S. federal, state, local or foreign
governmental department, commission, board, bureau, agency, instrumentality or
authority or any person (whether or not governmental in character) has been or
is required to be obtained, made or given by Buyer in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby or the fulfillment of or the compliance with the terms,
conditions and provisions hereof, except as set forth in Schedule 4.3 to this
Agreement.
4.4 Binding Obligations. This Agreement has been duly authorized,
executed and delivered by Buyer and this Agreement constitutes or will
constitute the legal, valid and binding obligation of Buyer, enforceable in
accordance with its terms against Buyer.
4.5 Representations. The representations and warranties made by
Buyer in this Agreement, or in other written materials furnished to the Selling
Shareholders and Valence hereunder or in connection with the transactions
contemplated hereby do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
contained herein or therein not misleading.
4.6 Capital Stock. The authorized capital stock of Buyer consists
of 56,000,000 shares of SRS Common and 2,000,000 shares of preferred stock,
US$.001 par value per share. Except as set forth on Schedule 4.6 hereto, on the
date hereof there are no outstanding warrants, options, "phantom" stock rights,
agreements, convertible or exchangeable securities or other commitments (other
than this Agreement and other agreements related thereto) pursuant to which
Buyer is or may become obligated to issue, sell, purchase or redeem any shares
of capital stock or other securities of Buyer.
4.7 Shares Acquired for Investment. Buyer is acquiring the Valence
Shares as an investment for its own account and not with view to the resale or
other distribution thereof.
4.8 Corporate Documents.
(a) Buyer has furnished to the Selling Shareholders'
Representative on behalf of the Selling Shareholders for their examination: (i)
true and correct copies of the Certificate of Incorporation and Bylaws,
including any amendments thereto, of Buyer, (ii) the minute books of Buyer which
contain all records concerning all proceedings, consents, actions and meetings
of the shareholders and board of directors of
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Buyer and (iii) all information required to be filed with the United States
Securities and Exchange Commission (the "Commission") by Buyer or provided to
the Commission in accordance with the rules and regulations of the Commission
since January 1, 1997 (together with any such filings or information supplied to
the Commission after the date of this Agreement and prior to the Closing, the
"SEC Filings").
(b) Buyer has complied with its Certificate of Incorporation
and Bylaws in all material respects, and none of the business, activities,
agreements, commitments or rights of Buyer is ultra vires or unauthorized.
(c) Compliance has been made with all other legal
requirements concerning Buyer and all issues of shares, debentures or other
securities thereof and the stock transfer records and minute books of Buyer are
up to date and contain true, full and accurate records of all matters required
to be dealt with therein, and all annual or other reports required to be filed
under the Delaware General Corporation Law have been filed and all legal
requirements relating to the formation and organization of Buyer and the issue
of shares and other securities have been complied with, except where
noncompliance would not result in a Material Adverse Effect.
(d) All documents required by the Commission or by any
legislation in other relevant jurisdictions to be filed or registered in respect
of Buyer have been duly filed or registered, and all fees payable in connection
with such documents has been paid.
4.9 Financial Statements. Deloitte & Touche LLP, who has examined
and expressed its opinion on certain financial statements of Buyer filed as part
of the SEC Filings ("Buyer's Financial Statements"), are independent public
accountants within the meaning of the Securities Act; Buyer's Financial
Statements, together with the notes, forming part of the SEC Filings, comply in
all material respects with the requirements of the Securities Act and have been
prepared and fairly present the financial condition, the results of operations
and changes in financial position of Buyer at the respective dates and for the
respective periods indicated, in accordance with U.S. GAAP consistently applied
throughout such periods; and the financial and statistical information and data
set forth in the SEC Filings is fairly presented and prepared on a basis
consistent with such Buyer's Financial Statements and the books and records of
Buyer, as the case may be.
4.10 Absence of Undisclosed Liabilities. As of September 30, 1997
("Buyer's Balance Sheet Date"), Buyer did not have and was not subject to any
material liability, indebtedness, claim, obligation or responsibility, fixed or
contingent, liquidated or unliquidated, secured or unsecured, or otherwise,
which was not either:
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(a) specifically included in the full amount as a liability
or adequately and specifically reserved for or against in the full amount in
Buyer's Financial Statements included in its SEC Filings; or
(b) fully and specifically set forth in Schedule 4.10.
Except as set forth on Schedule 4.10, since Buyer's Balance Sheet
Date, Buyer has not incurred or become subject to any material liability,
indebtedness, claim, obligation or responsibility, fixed or contingent,
liquidated or unliquidated, secured or unsecured, or otherwise, other than those
incurred since Buyer's Balance Sheet Date in the ordinary course of business of
Buyer consistent with past practice.
4.11 Status of Buyer's Shares and Common Stock. All of the
outstanding shares of SRS Common have been issued in compliance with all
applicable state and U.S. federal securities laws and are duly authorized and
validly issued, fully paid and nonassessable and free of preemptive rights,
contractual rights to purchase and similar rights except as set forth in the SEC
Filings; the SRS Shares to be issued and sold by Buyer have been duly authorized
and, upon delivery to the Selling Shareholders in accordance with the terms
hereof, will have been validly issued and fully paid and will be nonassessable
and free of preemptive rights, contractual rights to purchase and similar
rights; and the capital stock of Buyer, including the SRS Common and, except as
set forth on Schedule 4.11, number of shares of SRS Common outstanding, conforms
to the description thereof in the SEC Filings.
4.12 Governmental Proceedings. There is no legal or governmental
proceeding pending or to Buyer's Knowledge threatened or contemplated to which
Buyer is a party or of which the business or property of Buyer is the subject
which is not disclosed in the SEC Filings and which might result in a judgment
or decree having a Material Adverse Effect, and there is no contract or document
of a character required to be described in the SEC Filings or to be filed as an
exhibit to the SEC Filings which is not described or filed as required.
4.13 No Conflict. Buyer is not in violation of its Certificate of
Incorporation or Bylaws or in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any indenture or loan agreement of Buyer, except
defaults which in the aggregate are not, and with the passage of time, the
giving of notice or both, would not become material to Buyer.
4.14 Intellectual Property. Except as described in the SEC Filings,
Buyer owns or possesses adequate rights, or can obtain such rights on terms
which would not be materially adverse to Buyer, which protect Buyer's acts of
producing, distributing and selling its products necessary for the conduct of
its business as described in the SEC Filings. To the
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Knowledge of Buyer, except as described in the SEC Filings, Buyer is not
infringing and has not infringed upon any patent, trademark, trademark right,
service mark, service name, trade name, trade secret or proprietary information
owned or held by any other person or entity. Except as described in the SEC
Filings, there is no claim or action by any other person or entity pending or
threatened alleging that Buyer is infringing upon any patent, trademark,
trademark right, service mark, service name, trade name, trade secret or
proprietary information owned or held by any other person or entity which, if
successful, would have a Material Adverse Effect, nor to the Knowledge of Buyer
is there any reasonable basis for any such claim or action by any person.
4.15 Absence of Certain Changes or Events. Since Buyer's Balance
Sheet Date and except as specifically authorized hereunder or as set forth in
Schedule 4.15:
(a) Buyer has not entered into any transaction other than in
the ordinary course of business, consistent with past practice;
(b) there have been no changes in the financial condition,
results of operations, assets, liabilities, prospects or business of Buyer other
than changes in the ordinary course of business, consistent with past practice
which in the aggregate have not been materially adverse to Buyer, nor any event
or circumstance which could reasonably be expected to result in any such changes
and, without limiting the foregoing, there has not been any material damage,
destruction or loss, whether or not covered by insurance, affecting any of the
assets or properties of Buyer;
(c) Buyer has not (i) created or otherwise become liable
with respect to any indebtedness for money borrowed or purchase money
indebtedness, except in the ordinary course of business consistent with past
practice; (ii) amended Buyer's Certificate of Incorporation or Bylaws; (iii)
issued, purchased or disposed of or contracted to issue, purchase, or dispose of
any of its capital stock or any options, warrants or rights with respect thereto
or interests therein; (iv) entered into, assumed, modified or terminated any
contract, liability or obligation, except in the ordinary course of business,
consistent with past practice or settled, discharged or waived any right or
claim without adequate consideration; (v) sold, leased or otherwise disposed of
or encumbered in any way any assets, except for sales in the ordinary course of
business, consistent with past practice; (vi) directly or indirectly declared or
paid any non-cash dividend or distribution with respect to the capital stock of
Buyer; or (vii) agreed to take any action specified in (i)-(vi) hereof.
4.16 Compliance with Laws. Except as described in Schedule 4.16,
Buyer has not been and currently is not in violation of any applicable foreign,
U.S. federal, state, or local statutes, laws and regulations (including, without
limitation, any applicable building, zoning, or other law, ordinance, or
regulation) affecting any of its properties or the conduct or operation of its
business.
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4.17 Accuracy of Documents and Information. The copies of all
instruments, agreements, other documents and written information delivered to
Selling Shareholders by or on behalf of Buyer or any of its representatives
pursuant to this Agreement are and will be complete and correct in all material
respects as of the date hereof and as of the Closing Date. The representations
and warranties made by Buyer in this Agreement, or in other written materials
furnished to Selling Shareholders hereunder or in connection with the
transactions contemplated hereby, taken as a whole, do not contain any untrue
statement of material fact and do not omit any material fact necessary to make
the statements or facts contained herein or therein not misleading.
ARTICLE 5
COVENANTS OF THE SELLING SHAREHOLDERS AND VALENCE
Each of the Selling Shareholders and Valence, jointly and severally,
covenant that, except as otherwise agreed or authorized in writing by Buyer,
from the date of this Agreement until the Closing:
5.1 Buyer's Access to Premises and Information. Buyer and its
counsel, accountants, directors and officers and representatives of lenders to
Buyer (collectively, "Buyer's Representatives") shall be entitled to have full
reasonable access during normal business hours to all of the properties, books,
accounts, records, contracts, documents and personnel of Valence and each of the
Valence Subsidiaries. The Selling Shareholders and Valence shall furnish, or
cause to be furnished, to Buyer and Buyer's Representatives all data and
information concerning the businesses, finances, operations and properties of
Valence and each of the Valence Subsidiaries that may reasonably be requested.
5.2 Representations and Warranties True at Closing. Each of the
Selling Shareholders and Valence shall use reasonable and diligent efforts to
assure that all of their representations and warranties set forth in this
Agreement and in any written statements delivered to Buyer by the Selling
Shareholders and Valence under this Agreement are true and correct as of the
Closing Date, and that all conditions stated herein to the obligations of Buyer
are satisfied as soon as practicable and on or before the Closing Date.
5.3 Interim Operations.
(a) The businesses of Valence and each of the Valence
Subsidiaries has been and shall be conducted at all times between February 1,
1998 and the Closing Date as follows:
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(i) Except as otherwise provided in this Agreement,
Valence and each of the Valence Subsidiaries shall carry on their
businesses and continue to operate, maintain and repair their properties,
in the normal course of business and in accordance with their past
practices;
(ii) The books and records of Valence and each of the
Valence Subsidiaries shall be maintained on a basis consistent with the
Valence Financial Statements in such manner as to present fairly the
history of the operations and financial condition of Valence and each of
the Valence Subsidiaries;
(iii) Valence and each of the Valence Subsidiaries shall
carry such insurance against fire, storm damage and other hazards,
consistent with the past practices of Valence and each of the Valence
Subsidiaries; and
(iv) Valence and each of the Selling Shareholders shall
use their best efforts and shall cooperate with Buyer in all respects
reasonably requested by Buyer, without making any commitments on behalf of
Buyer, to preserve the business organizations of Valence and each of the
Valence Subsidiaries intact, to keep available to Valence and each of the
Valence Subsidiaries their present employees, to preserve the goodwill of
Valence and each of the Valence Subsidiaries, and to foster and promote
the operations of Valence and each of the Valence Subsidiaries and their
relations with customers, suppliers, contractors, vendors, purchasers,
banks, lenders, employees and others having business relationships with
Valence and each of the Valence Subsidiaries.
(b) Between February 1, 1998 and the Closing Date, without
prior written agreement or authorization of Buyer, and except as otherwise
specifically provided in this Agreement and in the Exhibits and Schedules
attached hereto, Valence and the Selling Shareholders have not and shall not
take any action, or allow any action to be taken with the Knowledge of Valence
or the Selling Shareholders with respect to Valence and each of the Valence
Subsidiaries, which would cause any material change in the businesses of Valence
or any of the Valence Subsidiaries or would result in the material inaccuracy or
breach of any of the representations and warranties of the Selling Shareholders
in Article 2 or Valence and the Selling Shareholders other than Anki in Article
3 if such representations and warranties were remade immediately after such
action, including without limitation:
(i) incurring or becoming subject to, or agreeing to
incur or become subject to, any liability, indebtedness, claim, obligation
or responsibility (fixed, contingent or otherwise) other than those
incurred in the ordinary course of business, consistent with past
practice;
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(ii) discharging or satisfying any lien or encumbrance
or payment of any liability, indebtedness, claim, obligation or
responsibility (fixed, contingent or otherwise) other than current
liabilities reflected on the Consolidated Balance Sheet and current
liabilities incurred since the date of the Consolidated Balance Sheet in
the ordinary course of business of Valence and each of the Valence
Subsidiaries, consistent with past practice;
(iii) mortgaging, pledging or assuming any lien, charge
or any other encumbrances or the agreement so to do, in respect to any of
the assets, tangible or intangible, of Valence and each of the Valence
Subsidiaries;
(iv) selling, leasing, transferring, or agreeing to
sell, lease or transfer, any of the assets of Valence and each of the
Valence Subsidiaries, or canceling or agreeing to cancel any debts or
claims, except in each case in the ordinary course of the business of
Valence and each of the Valence Subsidiaries, consistent with past
practice;
(v) entering into any transaction other than in the
ordinary course of business, consistent with past practice;
(vi) increasing the rate of compensation payable or to
become payable to any of the officers, employees, agents or consultants of
Valence and each of the Valence Subsidiaries over the rate being paid to
them on the date of this Agreement;
(vii) terminating any material contract, agreement,
license or other instrument to which Valence or any of the Valence
Subsidiaries is a party;
(viii) negotiating or otherwise making any commitment,
or incurring any liability or obligation, to any labor organization not
binding and enforceable against Valence and each of the Valence
Subsidiaries on the date of this Agreement;
(ix) making, or agreeing to make, any accrual, or
arrangement for or payment of any bonus or special compensation of any
kind, to any officer, employee, agent or consultant of Valence or any of
the Valence Subsidiaries;
(x) directly or indirectly paying or making a
commitment to pay any severance or termination pay to any officer,
employee, agent or consultant of Valence or any of the Valence
Subsidiaries, or entering into or amending, or negotiating or otherwise
making any commitment to enter into or amend, any bonus, incentive
compensation, deferred compensation, profit sharing, retirement, pension,
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group insurance or other benefit plan, any employment or consulting
agreement, or any policies or past practices with respect to vacation,
termination, severance, and leave pay and benefits;
(xi) introducing any new method of accounting in
respect to the businesses of Valence or any of the Valence Subsidiaries or
any of the assets, properties or rights applicable thereto, unless
required to do so by applicable law or regulation;
(xii) making or agreeing to make any charitable or
political contributions or incurring or agreeing to pay any non-business
expenses in excess of U.S. $20,000 in the aggregate;
(xiii) making, or entering into, any commitments for
capital expenditures, exceeding the aggregate amount of U.S. $25,000,
other than what has already been previously budgeted and set forth on
Schedule 5.3(b)(xiii) attached hereto;
(xiv) declaring or paying any cash or non-cash dividend,
or making any cash or non-cash distribution with respect to the capital
stock or share capital of Valence or any of the Valence Subsidiaries;
directly or indirectly redeeming, purchasing or otherwise acquiring any of
the capital stock or share capital of Valence or any of the Valence
Subsidiaries, issuing or agreeing to issue or in any way disposing or
agreeing to dispose of any shares of the capital stock or share capital of
Valence or any of the Valence Subsidiaries, or repaying any indebtedness
owing to any stockholder or shareholder of Valence or any of the Valence
Subsidiaries except indebtedness shown on the Consolidated Balance Sheet;
(xv) except as contemplated herein, entering into any
agreement with any officer, director or stockholder of Valence or any of
the Valence Subsidiaries, or any affiliate of any such officer, director
or stockholder; or
(xvi) amending, altering or otherwise revising the
memorandum or articles of association or any other charter documents of
Valence or any of the Valence Subsidiaries.
5.4 Notice of Proceedings. Valence and each of the Selling
Shareholders will promptly notify Buyer in writing upon (a) becoming aware of
any order or decree or any complaint praying for an order or decree (or any
threat to seek any of the foregoing) restraining or enjoining the consummation
of this Agreement or the transactions contemplated hereunder, or (b) receiving
any notice from any court or governmental agency of its intention to (i)
commence an investigation into, or commence a suit or proceeding to
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restrain or enjoin, the consummation of this Agreement or such transactions, or
(ii) nullify or render ineffective this Agreement or such transactions if
consummated.
5.5 Proposals to Valence and the Selling Shareholders. Prior to
the earlier of (a) the Closing or (b) the termination of this Agreement pursuant
to Article 11 hereof, Valence and each of the Valence Subsidiaries will not, nor
will the Selling Shareholders permit or cause Valence and each of the Valence
Subsidiaries, to, directly or indirectly, merge with or sell any stock or share
of Valence and each of the Valence Subsidiaries or sell any assets of Valence or
any of the Valence subsidiaries (other than in the ordinary course of business)
to any person other than Buyer, nor will the Selling Shareholders, Valence and
each of the Valence Subsidiaries, or any of their affiliates, directors,
officers, employees, representatives or agents enter into any agreement,
arrangement or understanding with any person with respect to the foregoing, or
engage in any material discussions which might lead to such agreement,
arrangement or understanding; or solicit or accept any offers from any person
with respect to the merger of or the sale of shares of Valence and/or the
Valence Subsidiaries or the sale of any of the assets of Valence or any of the
Valence Subsidiaries (other than in the ordinary course of business), or provide
confidential information regarding Valence and/or the Valence Subsidiaries to
any person, except Buyer and Buyer's affiliates, directors, officers, employees,
representatives, agents and financing parties. In the event the Selling
Shareholders, Valence and/or the Valence Subsidiaries receives any offers or
inquiries regarding any such transaction, such person, as the case may be, will
immediately notify Buyer of such offer or inquiry and shall immediately notify
the offeror or inquirer that none of the Selling Shareholders, Valence and/or
the Valence Subsidiaries is in a position to discuss any such transaction until
further notice and none of the Selling Shareholders, Valence and/or the Valence
Subsidiaries shall engage in any further discussions regarding such offer or
inquiry with such offeror or inquirer.
5.6 Non-Competition. In consideration for the payment by Buyer to
Thomrose, Rayfa and Cape of 68,750, 37,500 and 18,750 shares, respectively, of
SRS Common on the Closing Date, Wan Wah Tong Thomas and Thomrose; Yat Ming Choi
Raymond and Rayfa and Wong Yin Bun Kenneth and Cape will enter into
non-competition agreements with Buyer and Valence (or one of the Valence
Subsidiaries) substantially in the form of Exhibits 8.18A, 8.18B and 8.18C,
respectively, attached hereto.
5.7 Additional Financial Statements. Prior to the Closing Date,
the Selling Shareholders and Valence shall furnish to Buyer as soon as
practicable for each successive monthly period ending after the Balance Sheet
Date unaudited Consolidated financial statements of the Companies, when such
financial statements are available in accordance with normal practices. Such
Consolidated financial statements shall be complete, accurate and correct and
present fairly the financial condition of the Companies as of the end of each
such monthly period and the results of operations for each of the periods then
ended, and shall be prepared consistently with the preparation of the Valence
Financial Statements.
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5.8 Tax Returns.
(a) The Selling Shareholders and Valence shall continue to
file all BVI, Hong Kong, PRC and other foreign, U.S. federal, state and local
income, franchise, sales and use, real estate and personal property tax returns
and reports which are due for all periods ending prior to the Closing and pay
all taxes shown as payable on such returns and reports. All such returns and
reports will be prepared in a manner required by applicable law and regulation
and will be complete and correct in all respects.
(b) Buyer, the Selling Shareholders and Valence agree to
furnish or cause to be furnished to each other, upon request, as promptly as
practicable such information including access to books and records and
assistance relating to Valence and the Valence Subsidiaries as is reasonably
necessary for preparation of and filing of any return, for preparation of any
audit, and for the prosecution or defense of any claim, suit or proceeding
relating to any proposed adjustment. Buyer, the Selling Shareholders and Valence
shall cooperate with each other in the conduct of any audit or other proceedings
involving Valence and the Valence Subsidiaries or any other entity with which
they may be consolidated or combined for tax purposes and Buyer, the Selling
Shareholders and Valence shall each execute and deliver said powers of attorney
and other documents as are necessary to carry out the intent of this Section
5.8; provided, that Buyer shall have the right to control the resolution of such
audit or settlement proceedings for which Buyer is to bear the cost of any
resulting tax, interest or penalties and, provided further that the Selling
Shareholders and Valence shall have the right to control the resolution of such
audit or settlement of proceedings for which the Selling Shareholders and
Valence are to bear the cost of any resulting tax, interest or penalty.
ARTICLE 6
COVENANTS OF BUYER
Buyer covenants that, except as otherwise agreed or authorized in
writing by the Selling Shareholders and Valence, from the date of this Agreement
until the Closing:
6.1 Representations and Warranties True at Closing. Buyer shall
use reasonable and diligent efforts to assure that all representations and
warranties of Buyer set forth in this Agreement and in any written statements
delivered to the Selling Shareholders and Valence by Buyer under this Agreement
are true and correct as of the Closing Date, and that all conditions stated
herein to the obligations of the Selling Shareholders and Valence are satisfied
as soon as practicable and on or before the Closing Date.
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6.2 Notice of Proceedings. Buyer will promptly notify the Selling
Shareholders and Valence in writing upon (a) becoming aware of any order or
decree or any complaint praying for an order or decree (or any threat to seek
any of the foregoing) restraining or enjoining the consummation of this
Agreement or the transactions contemplated hereunder, or (b) receiving any
notice from any court or governmental agency of its intention to (i) commence an
investigation into, or commence a suit or proceeding to restrain or enjoin, the
consummation of this Agreement or such transactions, or (ii) nullify or render
ineffective this Agreement or such transactions if consummated.
6.3 Additional Financial Statements, Press Releases and SEC
Filings. Prior to the Closing Date, Buyer shall furnish to the Selling
Shareholders' Representative on behalf of the Selling Shareholders as soon as
practicable for each successive monthly period ending after Buyer's Balance
Sheet Date unaudited consolidated financial statements of Buyer, when such
financial statements are available in accordance with normal practices. Such
consolidated financial statements shall be complete, accurate and correct and
present fairly the financial condition of Buyer as of the end of each such
monthly period and the results of operations for each of the periods then ended,
and shall be prepared consistently with the preparation of Buyer Financial
Statements included in the SEC Filings. Prior to the Closing Date, Buyer shall
furnish to the Selling Shareholders' Representative on behalf of the Selling
Shareholders as soon as practicable after the date of issuance any press release
or other information regarding Buyer disseminated to the public and copies of
any SEC Filings made after the date of this Agreement.
ARTICLE 7
REMAKING OF REPRESENTATIONS, WARRANTIES, ETC.
AT CLOSING AND SURVIVAL OF TERMS
Except as otherwise expressly stated in this Agreement and subject
to the provisions of Section 10.5 hereof, all representations, warranties,
covenants, and agreements of the parties contained in this Agreement, or in any
instrument, certificate, opinion, or other writing provided for, or delivered by
or on behalf of the parties, pursuant to this Agreement, shall be deemed to have
been remade at the Closing, subject to the changes and activities permitted by
this Agreement, shall survive the Closing and the transactions contemplated
hereby.
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ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF BUYER
Except as otherwise specifically set forth in this Agreement or
waived in writing by Buyer, all obligations of Buyer under this Agreement are
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions:
8.1 Representations and Warranties True at Closing. All
representations and warranties of the Selling Shareholders and Valence contained
in this Agreement, or in any written statement, Exhibit or Schedule delivered to
Buyer by the Selling Shareholders and Valence under this Agreement, shall have
been true and correct, in all material respects, when made and shall be true and
correct, in all material respects, as of the Closing Date.
8.2 Performance of the Selling Shareholders and Valence. Each of
the covenants, agreements and conditions of the Selling Shareholders and Valence
to be performed, satisfied or complied with on or before the Closing Date
pursuant to the terms of this Agreement shall have been duly performed,
satisfied, complied with by the Selling Shareholders and Valence in all material
respects, or otherwise waived or excused by Buyer, on or before the Closing
Date. The Selling Shareholders and Valence each shall have delivered to Buyer a
certificate in form and substance satisfactory to Buyer dated as of the Closing
Date and signed by the Selling Shareholders and Valence, respectively,
certifying in such detail as Buyer shall reasonably request that the conditions
specified in Sections 8.1 and 8.2 have been fulfilled.
8.3 Authority Relating to this Agreement. All actions required to
be taken by, or on the part of, the Selling Shareholders and Valence to
authorize the Selling Shareholders and Valence to execute, deliver and carry out
this Agreement and to consummate the transactions contemplated hereby in
accordance with this Agreement shall have been duly and properly taken.
8.4 Opinion of Counsel for the Selling Shareholders and Valence.
Buyer and Buyer's counsel shall have received from Milbank, Tweed, Hadley &
McCloy, Harney Westwood & Riegels, and Victor Chu & Co, opinions in form and
substance reasonably satisfactory to Buyer and Buyer's counsel dated the Closing
Date, covering the matters referred to in Exhibits 8.4A, 8.4B and 8.4C,
respectively, with such language changes as are reasonably agreed to by Buyer,
and with customary qualifications and assumptions.
8.5 Documents from the Selling Shareholders and Valence. The
Selling Shareholders and Valence shall have delivered to Buyer all of the
documents described in Section 1.4 and such other documents as Buyer has
reasonably requested in form, content and substance satisfactory to Buyer in the
exercise of its reasonable discretion.
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8.6 Absence of Litigation, Etc. There shall not be pending or
threatened any action, suit, proceeding or investigation by the BVI, Hong Kong,
PRC or other foreign government, or U.S. or any state, municipal or local
government, or any department, commission or agency of any of the foregoing, or
any other party for any injunction, writ, preliminary restraining order or for
any order of any court or governmental agency, domestic or foreign, of competent
jurisdiction directly affecting or restraining, or in which it is sought to
obtain damages or other relief that reasonably could be expected to have a
material adverse effect on the business, operations or condition (financial or
otherwise) of Buyer or Valence and the Valence Subsidiaries, taken as a whole,
in connection with, any of the transactions contemplated by this Agreement, and
there shall not have been issued and remain in effect any such injunction, writ,
preliminary restraining order or such other order. No decree or order shall have
been entered by a court having jurisdiction in the premises for relief in
respect of the Selling Shareholders, Valence and/or any of the Valence
Subsidiaries or adjudging the Selling Shareholders, Valence and/or any of the
Valence Subsidiaries, a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, adjustment or composition of or in respect of
the Selling Shareholders, Valence and/or any of the Valence Subsidiaries, under
the U.S. federal bankruptcy law or any other applicable law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of or for the Selling Shareholders, Valence and/or any of the
Valence Subsidiaries or any part of their property, or ordering the winding up
or liquidation of their affairs. There shall not have been commenced by the
Selling Shareholders, Valence and/or any of the Valence Subsidiaries a voluntary
case, or the institution by any of them of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by any of them to the institution of
bankruptcy or insolvency proceedings against it, or the filing by any of them of
a petition or answer or consent seeking reorganization, arrangement or relief
under the U.S. federal bankruptcy law or any other applicable law, or the
consent or acquiescence by any of them to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of any part of its
property, or the making by any of them of an assignment for the benefit of
creditors, or the admission by any of them in writing of its inability to pay
its debts generally as they become due, or the taking of corporate action by the
Selling Shareholders, Valence and/or any of the Valence Subsidiaries in
furtherance of any such action.
8.7 Material Changes in Business. Between January 1, 1998 and the
Closing Date, there shall have been no material adverse changes in the financial
condition, results of operations, assets, liabilities, customer or supplier
relationships, properties or sales of Valence and each of the Valence
Subsidiaries, taken as a whole, other than changes incurred in the ordinary
course of business or as expressly permitted or contemplated by this Agreement.
8.8 Consents. On or before the Closing Date, except as waived or
excused by Buyer, the consent or approval of all third parties, including
without limitation landlords,
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lenders, and governmental agencies, whose consent or approval is necessary to
the valid and effective transfer of the Valence Shares or to the continued
enjoyment of the rights and privileges currently held by Valence and each of the
Valence Subsidiaries, or to the valid and effective performance of the parties'
obligations hereunder, shall have been granted.
8.9 All Conditions Satisfied. Buyer shall have received copies of
all documents and other evidence necessary to confirm that all conditions set
forth in this Article 8 shall have been complied with and that all other actions
and things required by this Agreement to be taken and accomplished shall have
been so taken and accomplished, all in form and substance satisfactory to Buyer
in its reasonable judgment.
8.10 Stock Purchase Agreement. North 22 shall have entered into and
consummated a Stock Purchase Agreement with Buyer to acquire all of the issued
and outstanding shares of the capital stock of Valence not held of record and
beneficially by the Selling Shareholders.
8.11 Option Agreement. The Option Agreement by and between North 22
Nominees Ltd. and Valence dated October 17, 1997 shall have been canceled prior
to exercise.
8.12 Shareholders Agreement. The Shareholders Agreement (the
"Legend-Valence Shareholders Agreement") by and among Legend Holdings (BVI)
Limited, Thomrose Holdings (BVI) Limited, Rayfa (BVI) Limited and Anki (BVI)
Limited, Wan Wah Tong Thomas, Yat Ming Choi Raymond, and Ki Ching Hui, and
Legend-Valence Holdings (BVI) Limited dated May 1, 1995 shall have been
terminated (the parties to the Legend-Valence Shareholders Agreement are
collectively referred to in this Section 8.13 as the "Restricted Stockholders").
In addition, North 22 and each of its Affiliates and Valence and each of the
Restricted Stockholders shall have executed a document stating that the
Legend-Valence Shareholders Agreement and all other written or oral agreements
(or portions of such agreements) related thereto are terminated or amended to
effect termination of such Shareholders Agreement and any other agreements
related thereto.
8.13 Valence Options. All outstanding options to purchase the
capital stock of Valence and/or the Valence Subsidiaries and all other rights,
warrants and other convertible securities to purchase the capital stock of
Valence and/or the Valence Subsidiaries outstanding as of the Closing Date shall
be cancelled.
8.14 Due Diligence. Buyer shall have completed a due diligence
investigation of the business, operations, condition (financial and otherwise)
and prospects of Valence and the Valence Subsidiaries, and the results of such
investigation shall not have disclosed information that was not previously
furnished in writing to Buyer and its representatives by the Selling
Shareholders, Valence or any of Wan Wah Tong Thomas, Yat
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Ming Choi Raymond or Wong Yin Bun Kenneth at least three (3) business days
(California time) prior to the date of this Agreement and such information, in
Buyer's reasonable opinion, could have a material adverse effect upon the
business, financial condition, results of operations, assets, liabilities,
customer or supplier relationships, properties or sales of Valence and each of
the Valence Subsidiaries.
8.15 Currency Fluctuation. There shall not have occurred a (a)
change in the currency exchange rate between the Hong Kong dollar and the U.S.
dollar as announced by the Hong Kong Monetary Authority or (b) devaluation of
the PRC Renminbi against the Hong Kong dollar by 3% or more, as measured by the
average of the official buying and official selling rates between the Hong Kong
dollar and the PRC Renminbi announced by the People's Bank of China, in each
case measured from the date of this Agreement.
8.16 Shares Held by Nominee Shareholder. All of the issued share
capital of each Valence Subsidiary held by a nominee shareholder or any other
person or entity other than Valence or a Valence Subsidiary shall be duly
transferred and assigned to Buyer.
8.17 Employment Agreements. Wan Wah Tong Thomas, Yat Ming Choi
Raymond and Wong Yin Bun Kenneth, respectively, shall have entered into
employment agreements with Buyer in substantially the form of Exhibits 8.17A,
8.17B and 8.17C, respectively, attached hereto.
8.18 Non-Competition Agreement. Wan Wah Tong Thomas, Yat Ming Choi
Raymond and Wong Yin Bun Kenneth shall each have entered into a non-competition
agreement with Buyer and Valence substantially in the form of Exhibits 8.18A,
8.18B and 8.18C, respectively, attached hereto.
ARTICLE 9
CONDITIONS TO THE OBLIGATIONS OF THE SELLING
SHAREHOLDERS AND VALENCE
Except as otherwise specifically set forth in this Agreement or
waived in writing by the Selling Shareholders and Valence, all obligations of
the Selling Shareholders and Valence under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions:
9.1 Representations and Warranties True at Closing. All
representations and warranties of Buyer contained in this Agreement, or in any
written statement, Exhibit or Schedule delivered by Buyer to the Selling
Shareholders and Valence under this
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Agreement, shall have been true and correct, in all material respects, when made
and shall be true and correct, in all material respects, as of the Closing Date.
9.2 Buyer's Performance. Each of the covenants, agreements and
conditions of Buyer to be performed, satisfied or complied with on or before the
Closing Date pursuant to the terms of this Agreement shall have been duly
performed, satisfied, complied with by Buyer in all material respects, or
otherwise waived or excused by the Selling Shareholders and Valence, on or
before the Closing Date. Buyer shall have delivered to the Selling Shareholders
and Valence a certificate in form and substance satisfactory to the Selling
Shareholders and Valence dated as of the Closing Date and signed by Buyer,
certifying in such detail as the Selling Shareholders and Valence shall
reasonably request that the conditions specified in Sections 9.1 and 9.2 have
been fulfilled.
9.3 Authority Relating to this Agreement. All actions required to
be taken by, or on the part of, Buyer to authorize Buyer to execute, deliver and
carry out this Agreement and to consummate the transactions contemplated hereby
shall have been duly and properly taken.
9.4 Opinion of Counsel. The Selling Shareholders and Valence shall
have received from Paul, Hastings, Janofsky & Walker LLP, counsel for Buyer, an
opinion, in form and substance reasonably satisfactory to the Selling
Shareholders and Valence, dated the Closing Date and covering the matters
referred to in Exhibit 9.4 with such language changes as are reasonably agreed
to by the Selling Shareholders and Valence, on the one hand, and Buyer, on the
other hand, and with customary qualifications and assumptions.
9.5 Documents from Buyer. Buyer shall have delivered to the
Selling Shareholders and Valence all of the documents described in Section 1.5
in form, content and substance satisfactory to the Selling Shareholder, in the
exercise of its reasonable discretion.
9.6 Consents. On or before the Closing Date, except as waived or
excused by the Selling Shareholders and Valence, the consent or approval of all
third parties, including without limitation, lenders and governmental agencies,
whose consent or approval is necessary to the valid and effective issuance of
the SRS Shares, or to the valid and effective performance of the parties'
obligations hereunder, shall have been granted.
9.7 All Conditions Satisfied. The Selling Shareholders and Valence
shall have received copies of all documents and other evidence necessary to
confirm that all conditions set forth in this Article 9 shall have been complied
with and that all other actions and things required by this Agreement to be
taken and accomplished shall have been so taken and accomplished, all in form
and substance satisfactory to the Selling Shareholders and Valence in their
reasonable judgment.
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9.8 Absence of Litigation, Etc. There shall not be pending or
threatened any action, suit, proceeding or investigation by the BVI, Hong Kong,
PRC or other foreign government, or U.S. or any state, municipal or local
government, or any department, commission or agency of any of the foregoing, or
any other party for any injunction, writ, preliminary restraining order or for
any order of any court or governmental agency, domestic or foreign, of competent
jurisdiction directly affecting or restraining, or in which it is sought to
obtain damages or other relief in connection with, any of the transactions
contemplated by this Agreement, and there shall not have been issued and remain
in effect any such injunction, writ, preliminary restraining order or such other
order. No decree or order shall have been entered by a court having jurisdiction
in the premises for relief in respect of Buyer or adjudging Buyer, a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
adjustment or composition of or in respect of Buyer, under the U.S. federal
bankruptcy law or any other applicable U.S. federal or state law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of or for Buyer or any part of its property, or ordering the
winding up or liquidation of its affairs. There shall not have been commenced by
Buyer a voluntary case, or the institution by it of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization, arrangement or relief
under the U.S. federal bankruptcy law or any other applicable U.S. federal or
state law, or the consent or acquiescence by it to the filing of any such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other-similar official) of any
part of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as they become due, or the taking of any action by Buyer in
furtherance of any such action.
9.9 Material Changes in Business. Between January 1, 1998 and the
Closing Date, there shall have been no material adverse changes in the financial
condition, results of operations, assets, liabilities, customer or supplier
relationships, properties or sales of Buyer, taken as a whole, other than
changes incurred in the ordinary course of business or as expressly permitted or
contemplated by this Agreement.
9.10 Employment Agreements. Buyer shall have entered into
employment agreements with Wan Wah Tong Thomas, Yat Ming Choi Raymond and Wong
Yin Bun Kenneth, respectively, in substantially the form of Exhibits 8.17A,
8.17B and 8.17C, respectively, attached hereto.
9.11 Due Diligence. The Selling Shareholders shall have completed a
due diligence investigation of the business, operations, condition (financial
and otherwise) and prospects of the Buyer and its subsidiaries, if any, and the
results of such investigation shall not have disclosed information that was not
previously furnished in writing to the Selling Shareholders and their
representatives by the Buyer at least three (3) business days
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(California time) prior to the date of this Agreement and such information, in
the Selling Shareholders reasonable opinion, could have a material adverse
effect upon the business, financial condition, results of operations, assets,
liabilities, customer or supplier relationships, properties or sales of the
Buyer or the market price of SRS Common.
9.12 Currency Fluctuation. There shall not have occurred a (a)
change in the currency exchange rate between the Hong Kong dollar and the U.S.
dollar as announced by the Hong Kong Monetary Authority or (b) devaluation of
the PRC Renminbi against the Hong Kong dollar by 3% or more, as measured by the
average of the official buying and official selling rates between the Hong Kong
dollar and the PRC Renminbi announced by the People's Bank of China, in each
case measured from the date of this Agreement.
9.13 Board of Directors. Wan Wah Tong Thomas shall have been
appointed to serve as a member of Buyer's Board of Directors.
9.14 Additional Cash Payment. If the number of Total SRS Shares to
be issued to the Seller Shareholders under Section 1.2 would exceed the number
of Maximum SRS Shares, Buyer shall have elected to pay the additional cash
amount to the Selling Shareholders (other than Anki) as provided in Section
1.2(b).
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification by Valence and the Selling Shareholders.
Valence and each of the Selling Shareholders shall jointly and severally
indemnify, defend and hold harmless Buyer and its officers, directors,
employees, attorneys, and agents and its successors and assigns against and in
respect of any and all losses, damages, claims, obligations, demands, actions,
suits, proceedings, assessments, liabilities, judgments, recoveries and
deficiencies, costs and expenses (including, without limitation, reasonable
attorneys' fees and costs and expenses incurred in investigating, preparing,
defending against or prosecuting any litigation, claim, proceeding or demand),
all on an after-tax basis, less any amounts actually paid as insurance
reimbursement, of any kind or character (collectively, a "Loss"), which arise
out of, result from, or relate to any breach of, or failure by the Selling
Shareholders or Valence fully to perform, or any inaccuracy in, any of the
representations, warranties, covenants or agreements of the Selling Shareholders
or Valence in this Agreement (whether known or unknown at Closing), or in any
Schedule, Exhibit, certificate, list, or other document furnished or to be
furnished by the Selling Shareholders or Valence under this Agreement.
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10.2 Indemnification by Buyer. Buyer shall indemnify, defend and
hold harmless each of the Selling Shareholders and its officers, directors,
employees, attorneys and agents and its successors and assigns against and in
respect of any and all Losses, which arise out of, result from, or relate to any
breach of, or failure by Buyer fully to perform, or any inaccuracy in, any of
the representations, warranties, covenants or agreements of Buyer in this
Agreement (whether known or unknown at Closing), or in any Schedule, Exhibit,
certified list or other document furnished or to be furnished by Buyer under
this Agreement.
10.3 Notice of Claim. Whenever Buyer or any of the Selling
Shareholders learns of or discovers any matter which may give rise to a claim
for indemnification (the "Claim") against any other party under this Section 10
(the "Indemnity Obligor"), Buyer or such Selling Shareholder(s), as the
indemnified party (the "Indemnified Party"), shall give notice to the Indemnity
Obligor of the Claim. With respect to Claims which are the subject of actions,
suits, or proceedings threatened or asserted in writing by any third party (a
"Third Party Claim"), the Indemnified Party shall, within 15 days following
receipt of such Third Party Claim, promptly notify the Indemnity Obligor in
writing of any Claim for recovery, specifying in reasonable detail the nature of
the Loss and the amount of the liability estimated to arise therefrom. If the
Indemnified Party does not so notify the Indemnity Obligor within 15 days of its
discovery of a Third Party Claim, such Claim shall be barred only to the extent
that the Indemnity Obligor is prejudiced by such failure to notify. The
Indemnified Party shall provide to the Indemnity Obligor as promptly as
practicable thereafter all information and documentation reasonably requested by
the Indemnity Obligor to verify the Claim asserted.
10.4 Defense. If the facts relating to a Loss arise out a Third
Party Claim, or if there is any claim against a third party available by virtue
of the circumstances of the Loss, the Indemnity Obligor may, by giving written
notice to the Indemnified Party within 15 days following its receipt of the
notice of such claim, elect to assume the defense or the prosecution thereof,
including the employment of counsel or accountants, reasonably satisfactory to
the Indemnified Party, at its cost and expense; provided, however, that during
the interim the Indemnified Party shall use its best efforts to take all action
(not including settlement) reasonably necessary to protect against further
damage or loss with respect to the Loss. The Indemnified Party shall have the
right to employ counsel separate from counsel employed by the Indemnity Obligor
in any such action and to participate therein, but the fees and expenses of such
counsel shall be at the Indemnified Party's own expense, unless (a) the
employment thereof has been specifically authorized by the Indemnity Obligor,
(b) such Indemnified Party has been advised by counsel reasonably satisfactory
to the Indemnity Obligor that there may be one or more legal defenses available
to it which are different from or additional to those available to the Indemnity
Obligor and in the reasonable judgment of such counsel it is advisable for such
Indemnified Party to employ separate counsel, or (c) the Indemnity Obligor has
failed to assume the defense of such action and employ counsel reasonably
satisfactory to the Indemnified Party. Whether or not the Indemnity Obligor
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chooses to defend or prosecute such claim, all the parties hereto shall
cooperate in the defense or prosecution thereof and shall furnish such records,
information and testimony and shall attend such conferences, discovery
proceedings and trial as may be reasonably requested in connection therewith.
The Indemnity Obligor shall not be liable for any settlement of any such claim
effected without its prior written consent. In the event of payment by the
Indemnity Obligor to the Indemnified Party in connection with any Loss arising
out of a Third Party Claim, the Indemnity Obligor shall be subrogated to and
shall stand in the place of the Indemnified Party as to any events or
circumstances in respect of which the Indemnified Party may have any right or
claim against such third party relating to such indemnified matter. The
Indemnified Party shall cooperate with the Indemnity Obligor in prosecuting any
subrogated claim. The Indemnity Obligor will take no action in connection with
any claim that would adversely affect the Indemnified Party without the consent
of the Indemnified Party.
10.5 Duration of Parties' Obligations. The Indemnity Obligor's
indemnification obligations under this Agreement shall survive the Closing and
shall terminate as follows: (a) with respect to claims for indemnity arising as
a result of a breach of the representations and warranties contained in Sections
2.1 through and including 2.8, 3.4, 3.5, 3.8, 3.33, 4.1, 4.6 and 5.8, and claims
for indemnity involving any action, suit or proceeding threatened or asserted in
writing by any third party against Buyer or the Selling Shareholders which arise
out of, result from or are attributable to any breach of, or failure by Buyer,
on the one hand, or Valence or the Selling Shareholders, on the other hand, to
materially perform, or any inaccuracy in any of the representations, warranties,
covenants or agreements of Buyer, on the one hand, or Valence or the Selling
Shareholders, on the other hand, in this Agreement or in any schedule, exhibit,
certificate, list or other document furnished by Buyer, on the one hand, or
Valence or the Selling Shareholders, on the other hand, under this Agreement,
they shall continue and not terminate and (b) with respect to all other claims
for indemnity, after one (1) year from the Closing Date.
10.6 Arbitration. Any controversy or claim arising out of or
relating to the provisions of Article 10 of this Agreement (including the
validity of an alleged Claim) shall be resolved by arbitration. Arbitration
proceedings shall be commenced by the delivery by any party to a dispute to the
other(s) of written notice requesting arbitration. The matter shall be submitted
to such disinterested arbitrator as shall be agreed upon by the parties to the
dispute, which arbitrator shall determine the rules to govern the arbitration
proceedings. Each party shall bear its own costs and expenses incurred by it in
connection with the arbitration; all other costs, including arbitrators' fees
and expenses, shall be borne equally by the parties. Notwithstanding the
foregoing, if the arbitrator determines that one party acted unreasonably and
not in good faith, the arbitrator shall have authority to assess the costs and
expenses of the arbitration, including the arbitrator's fee and reasonable
attorneys' fees, against that party. In the event the parties are unable to
agree upon an arbitrator within ten (10) business days of the date a notice
requesting arbitration is delivered, the arbitration
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shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"). If arbitration is conducted pursuant
to the rules of the AAA, then the controversy or claim shall be decided by a
board of three (3) arbitrators. Each of Buyer, on the one hand, and Valence and
the Selling Shareholder, on the other hand, shall select one (1) arbitrator
within ten (10) business days of a demand for arbitration being made or, in the
event of a party's failure to so select, an arbitrator shall be named for that
party by the AAA. Within ten (10) business days of their selection, the two (2)
arbitrators so selected shall select a third arbitrator from the National Panel
of Arbitrators maintained by the AAA or as they otherwise shall agree. All
arbitrators, however selected, shall possess such experience in, and knowledge
of, the subject area of the controversy or claim so as to qualify as an "expert"
with respect to such subject matter. (For example, any claim or controversy
involving financial or accounting issues shall be decided by certified public
accountants.) Any arbitration hearing shall be held in Orange County,
California, unless the parties to the dispute agree otherwise. The governing law
for the purposes of any arbitration arising hereunder shall be as set forth in
Section 14.7 hereof. Any award rendered by arbitration shall be final and
binding on the parties, and judgment thereon may be entered in any court of
competent jurisdiction. Notwithstanding any arbitration rules to the contrary,
the award of the arbitrator must be made no later than three (3) months
following the date on which the arbitrator or arbitrators are appointed, unless
the issue is the subject of litigation brought by a third party and the
arbitrator deems it appropriate to defer his award until the litigation is
resolved.
10.7 Limitations on Amount -- Valence and the Selling Shareholders.
Valence and the Selling Shareholders will have no liability (for indemnification
or otherwise) under Section 10.1 until the total of all amounts that would be
subject to claims for indemnification with respect to such matters exceeds U.S.
$250,000, in which event Valence and the Selling Shareholders shall be liable
for such claims to the full extent thereof. However, this Section will not apply
in the case of fraud or misrepresentation or an intentional breach of or default
under any provision of this Agreement on the part of Valence or any Selling
Shareholder.
10.8 Limitations on Amount -- Buyer. Buyer will have no liability
(for indemnification or otherwise) under Section 10.2 until the total of all
amounts which would be subject to claims for indemnification with respect to
such matters exceeds U.S. $250,000, in which event Buyer shall be liable for
such claims to the full extent thereof. However, this Section will not apply in
the case of fraud or misrepresentation or an intentional breach of or default
under any provision of this Agreement on the part of Buyer.
10.9 Right of Offset. Buyer shall have the right to offset any
amounts owed by any Selling Shareholder pursuant to the provisions of Section
10.1 of this Agreement against (a) the SRS Shares held in the Escrow Deposit and
(b) any amounts due any Selling Shareholder under this Agreement, any employment
agreement entered into
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between Buyer and any of the Selling Shareholders and any other agreement to
which Buyer, Valence or any Valence Subsidiary and any Selling Shareholder are
parties, in satisfaction of the indemnification obligations set forth in Section
10.1 of this Agreement.
ARTICLE 11
TERMINATION
11.1 Mutual Agreement. This Agreement may be terminated at any time
prior or to the Closing Date by the written agreement of the parties hereto.
11.2 Termination by Buyer. This Agreement may be terminated by
Buyer if on the Closing Date the conditions set forth in Article 8 of this
Agreement shall not have been satisfied by the Selling Shareholders or waived by
Buyer, or as otherwise expressly provided herein.
11.3 Termination by the Selling Shareholders and Valence. This
Agreement may be terminated by the Selling Shareholders and Valence if on the
Closing Date the conditions set forth in Article 9 of this Agreement shall not
have been satisfied by Buyer or waived by the Selling Shareholders and Valence,
or as otherwise expressly provided herein.
11.4 Effect of Termination. In the event that this Agreement is
terminated pursuant to Sections 11.1, 11.2, or 11.3, this Agreement shall,
except as otherwise expressly provided herein, become null and void and no party
hereto shall have any further rights, obligations or liabilities hereunder.
Except as otherwise expressly provided herein, any party damaged may bring an
action against any party who failed to act in good faith in completing this
transaction.
ARTICLE 12
COSTS
12.1 Finder's or Broker's Fees. The Selling Shareholders and
Valence each represents to Buyer that it has not made any arrangement or had any
dealings whereby Valence, and/or any of the Valence Subsidiaries or Buyer could
become subject, absolutely or contingently, to a claim for any brokerage
commission or finder's fee. Buyer represents to the Selling Shareholders and
Valence that Buyer has not and will not pay any brokerage commission or finder's
fee in respect of the consideration to be paid under Sections 1.2 and 5.6, and
Buyer has not made any arrangement or had any dealings whereby the Selling
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Shareholders, Valence and/or any of the Valence Subsidiaries could become
subject, absolutely or contingently, to a claim for any brokerage commission or
finder's fee. The Selling Shareholders and Valence on the one hand, and Buyer,
on the other hand, each agree to indemnify and hold harmless the other against
any and all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries, and deficiencies, including interest, penalties, and
reasonable attorneys fees, incurred or suffered by reason of any brokerage
commission or finder's fee alleged to be payable because of any act, omission or
statement of the indemnifying party.
12.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, except with respect to damages due a party as
provided under Section 11.4, each party shall pay its own fees and expenses
incident to the negotiation, preparation, execution, delivery, and performance
hereof, including, without limitation, the fees and expenses of its respective
counsel, accountants and other experts.
12.3 Audit Fees. The Selling Shareholders represent that they shall
pay 45% of the fees and expenses of a reputable independent auditing firm
acceptable to Buyer and the Selling Shareholders to (a) provide to Buyer and
Valence consolidated financial statements of Valence and the Valence
subsidiaries for the fiscal year ended March 31, 1997, pursuant to H.K. GAAP,
and (b) reconcile such consolidated financial statements to U.S. GAAP.
ARTICLE 13
DEFINITIONS AND ACCOUNTING TERMS
13.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Affiliate" (and, with a correlative meaning, "Affiliated")
shall mean, with respect to any Person, any other Person that directly, or
through one or more intermediaries, controls or is controlled by or is under
common control with such first Person, and, if such a Person is an individual,
any member of the immediate family of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "control" (including, with correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), and "immediate family" shall
mean parents, spouse and children.
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"Agreement" means this Stock Purchase Agreement as from time
to time amended and in effect between the parties.
"Buyer" means and shall include SRS Labs, Inc., a Delaware
corporation, and its successors and assigns.
"BVI" means the British Virgin Islands.
"Closing Date" means a date on or before March 3, 1998 (Hong
Kong), as may be mutually agreed upon in writing by Buyer, the Selling
Shareholders and Valence.
"Companies" means all of Valence, VSD, ASP, LEC, VEL, LML,
LEL, VHY and all of the other Valence Subsidiaries collectively, and "Company"
means each of Valence, VSD, ASP, LEC, VEL, LML, LEL, VHY and all of the other
Valence Subsidiaries individually.
"Companies Ordinance" means the Companies Ordinance, Chapter
32, Laws of Hong Kong.
"Consolidated" when used with reference to any term defined
herein shall, except as otherwise specifically provided, mean that term as
applied to the accounts of Valence and the Valence Subsidiaries consolidated in
accordance with H.K. GAAP.
"Consolidated Balance Sheet" means the Consolidated corporate
balance sheet of Valence at March 31, 1997, prepared in accordance with H.K.
GAAP, and which is attached hereto as Exhibit "13.1."
"Exchange Act" means the U.S. Securities Exchange Act of 1934,
or any similar federal statute, and the rules and regulations of the Securities
and Exchange Commission (or of any other U.S. federal Agency then administering
the Exchange Act) thereunder, all as the same shall be in effect at the time.
"Hong Kong" means the Hong Kong Special Administrative Region
of the People's Republic of China.
"H.K. GAAP" means Hong Kong generally accepted accounting
principles after eliminating intercompany items and minority interests.
"Knowledge" means, with respect to the Selling Shareholders
and the Companies, the actual knowledge, after due inquiry, of each of the
Selling Shareholders and of each of the officers and directors of Valence and
each of the Valence Subsidiaries.
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"Material Adverse Effect" means a material adverse effect on
the business, operations or condition (financial or otherwise) of Valence or any
of the Valence Subsidiaries or Buyer, as the context warrants.
"North 22" means North 22 Capital Partners 2, Inc., a British
Virgin Islands company.
"Person" means an individual, corporation, partnership, joint
venture, association, joint stock company, trust, estate of a deceased natural
person, foundation, fund, institution, society, union or club or unincorporated
organization, or a government or any agency or political subdivision thereof.
"PRC" means the People's Republic of China.
"Securities Act" means the U.S. Securities Act of 1933, as
amended, or any similar U.S. federal statute, and the rules and regulations of
the U.S. Securities and Exchange Commission (or of any other Federal agency then
administering the Securities Act) thereunder, all as the same shall be in effect
at the time.
"Selling Shareholders' Representative" means Wan Wah Tong
Thomas.
"SRS Non-Compete Shares" means the shares of SRS Common issued
pursuant to Section 5.6 of this Agreement.
"SRS Common" means the shares of common stock, U.S. $.001 par
value per share of Buyer.
"U.S. GAAP" means U.S. generally accepted accounting
principles after eliminating intercompany items and minority interests.
"Valence Financial Statements" means the financial statements
of Valence as specified in Section 3.6 herein.
"Valence Shares" means the ordinary shares, U.S. $0.13 par
value per share, of Valence Technology, Inc. which are held of record and
beneficially by the Selling Shareholders and which are the subject of purchase
by Buyer pursuant to this Agreement.
"Valence Subsidiary" or "Valence Subsidiaries" means any
corporation, 50% or more of the outstanding voting stock of which shall at the
time be owned by Valence or by one or more of Valence's subsidiaries, or any
other entity or
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enterprise, 50% or more of the equity of which shall at the time be owned by
Valence or by one or more of Valence's subsidiaries.
13.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with U.S. GAAP and all other
financial data submitted pursuant to this Agreement shall be prepared and
calculated in accordance with such principles.
ARTICLE 14
MISCELLANEOUS
14.1 Headings. The subject headings of the Articles and Sections of
this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
14.2 Entire Agreement; Modification; Waiver. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
14.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.4 Parties in Interest. Nothing in this Agreement, whether
express or implied, is intended to:
(a) confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns;
(b) relieve or discharge any obligation or liability of any
third persons to any party to this Agreement; or
(c) confer upon any third person any right of subrogation or
action over or against any party to this Agreement.
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14.5 Assignment. This Agreement shall be binding on and shall inure
to the benefit of the parties to it and their respective heirs, legal
representatives, successors, and assigns. This Agreement may not be assigned by
any party except with the written consent of the other party to this Agreement.
14.6 Notices. All notices, payments (other than at Closing),
requests, demands, and other communications under this Agreement shall be in
writing and shall be deemed to have been given if personally delivered or if
sent by telecopy or facsimile or mailed by overnight, commercial air courier
service or by first class, registered or certified mail, postage prepaid, and
properly addressed as follows:
If to any of the
Selling Shareholders
or Valence: Valence Technology Inc.
Unit 413 4th Floor
Hong Kong Industrial Technology Centre
72 Tat Chee Avenue
Kowloon Tong, Hong Kong
Fax: (852) 2776-7770
With a copy to: Milbank, Tweed, Hadley & McCloy
3007 Alexandra House
16 Chater Road
Hong Kong
Fax: (852) 2840-0792
Attention: Douglas Tanner, Esq.
If to Buyer: SRS Labs, Inc.
2909 Daimler Street
Santa Ana, California 92705
Fax: (714) 852-1099
Attention: John Au Yeung, Director
With a copy to: Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
Seventeenth Floor
Costa Mesa, California 92626-1924
Fax: (714) 979-1921
Attention: John F. Della Grotta, Esq.
Any party may change its address for purposes of this Article by giving the
other parties written notice of the new address in the manner set forth above.
Notice will conclusively be
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deemed to have been given when personally delivered, or if given by mail, on the
second day after being sent by an overnight, commercial air courier service or
on the fifth day after being sent by first class, registered or certified mail,
or if given by telecopy or facsimile machine, when confirmation of transmission
is indicated by the sender's telecopy or facsimile machine.
14.7 Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the conflicts of law principles thereof.
14.8 Venue. The parties hereby irrevocably and unconditionally
consent to submit to the exclusive jurisdiction of the courts of the State of
California, County of Orange, and/or the United States District Court for the
Central District of California (Southern Division) for any actions, suits,
controversies or proceedings arising out of or relating to this agreement and
the transactions contemplated hereby (and the parties agree not to commence any
action, suit or proceeding relating thereto except in such courts), and further
agree that service of any process, summons, notice or document by U.S.
registered mail to the respective addresses set forth above shall be effective
service of process for any action, suit or proceeding brought against the
parties in any such court. The parties hereby irrevocably and unconditionally
waive any objection to the laying of venue of any action, suit, controversies or
proceeding arising out of this agreement or the transactions contemplated
hereby, in the courts of the State of California, County of Orange and/or the
United States District Court for the Central District of California (Southern
Division), and hereby further irrevocably and unconditionally waive and agree
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient or improper forum.
14.9 Prior Agreements. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements (except for the Confidentiality Agreement dated January 28, 1998,
between the parties) concerning the subject matter hereof.
14.10 Further Assurances. The Selling Shareholders and Valence will
from time to time subsequent to the Closing Date, at Buyer's request and without
further consideration, execute and deliver such other instruments of conveyance,
assignment, and transfer, and take such other actions, as Buyer may reasonably
request in order to more effectively convey, assign, transfer to and vest in
Buyer the Valence Shares.
14.11 Gender. All pronouns used herein shall, regardless of gender,
include all genders, as required by the context.
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14.12 Validity; Severability. Each Article, section, subsection and
lesser section of this Agreement constitutes a separate and distinct
undertaking, covenant and/or provision hereof. Whenever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law. In the event that any provision of this Agreement
shall be determined to be unlawful, invalid or unenforceable, such provision
shall be deemed severed from this Agreement, but every other provision of this
Agreement shall remain in full force and effect. In substitution for any
provision of this Agreement held unlawful, invalid or unenforceable, there shall
be substituted a provision of similar import reflecting the original intent of
the parties hereto to the fullest extent permissible under law.
14.13 Press Release. The Selling Shareholders and Valence shall not
release a press release relating to this Agreement or any of the transactions or
documents contemplated hereby without first submitting a copy of such press
release to Buyer and obtaining the prior approval of Buyer to any such press
release, which approval shall not be unreasonably withheld.
14.14 Tax Elections. At Buyer's option, the Selling Shareholders and
Valence agree to cooperate with and assist Buyer (both before and after the
Closing) in structuring the purchase of the Valence Shares to achieve the tax
results desired by Buyer for both U.S. and Hong Kong income tax purposes,
including but not limited to, the filing of any necessary tax elections,
agreeing to any corporate liquidation, merger, distribution or sale of assets or
any other action requested of the Selling Shareholders by Buyer, to the extent
such cooperation or action does not cause an increase in the Selling
Shareholders' aggregate Hong Kong income tax liability on the sale of the
Valence Shares. The Selling Shareholders, Valence and Buyer further agree that
this Agreement is intended to constitute a purchase of stock for U.S. income tax
purposes and is not intended to constitute a reorganization, as such term is
defined in section 368(a)(1) of the Internal Revenue Code of 1986, as amended.
Notwithstanding the provisions of Section 10.5 hereof, Buyer shall indemnify the
Selling Shareholders against any Loss (as defined in Section 10.1 hereof)
arising from this Section 14.14, provided, that the Selling Shareholder's
representation and warranty set forth in Section 2.7(d) is true and correct as
of the date hereof and the Closing Date.
14.15 Statutory Books and Records. After the Closing, the Selling
Shareholders agree to cooperate with and assist Buyer, and to use their best
efforts to cause the current and former officers and employees of each of the
Companies to cooperate with and assist Buyer, to make all necessary or
appropriate corrections, amendments and modifications to the statutory books and
records of each of the Valence Subsidiaries as required by applicable law.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BUYER
SRS LABS, INC., a Delaware corporation
By: /s/ THOMAS C.K. YUEN
------------------------------------------
Thomas C.K. Yuen, Chairman of the
Board and Chief Executive Officer
VALENCE
VALENCE TECHNOLOGY INC., a British
Virgin Islands company
By: /s/ THOMAS WAH TONG WAN
------------------------------------------
Thomas Wah Tong Wan,
Chief Executive Officer
SELLING SHAREHOLDERS
THOMROSE HOLDINGS (BVI) LIMITED
By: /s/ THOMAS WAH TONG WAN
------------------------------------------
Thomas Wah Tong Wan,
Director
CAPE SPENCER INTERNATIONAL LIMITED
By: /s/ WONG YIN BUN
------------------------------------------
Wong Yin Bun,
Director
(signatures continued on following page)
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RAYFA (BVI) LIMITED
By: /s/ CHOI YAT MING
-----------------------------------------
Choi Yat Ming,
Director
ANKI (BVI) LIMITED
By: /s/ HUI KI CHING
-----------------------------------------
Hui Ki Ching,
Director
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EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
SRS LABS, INC.
AND
NORTH 22 CAPITAL PARTNERS 2, INC.
DATED AS OF FEBRUARY 24, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1 PURCHASE, SALE AND EXCHANGE OF SHARES; CLOSING.........................2
1.1 Purchase, Sale and Exchange of Shares..................................2
1.2 Consideration..........................................................2
1.3 Closing................................................................2
1.4 Seller's Deliveries....................................................2
1.5 Buyer's Deliveries.....................................................4
1.6 All Transactions Simultaneous..........................................4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER...............................4
2.1 Authority..............................................................4
2.2 Due Execution..........................................................4
2.3 The Valence Shares.....................................................4
2.4 No Conflict............................................................5
2.5 Consents...............................................................5
2.6 Actions and Proceedings. etc...........................................6
2.7 Organization, Good Standing and Qualification..........................6
2.8 Capital Structure of Valence...........................................6
2.9 Representations to Management..........................................6
2.10 Representation re "U.S. Person"........................................7
2.11 Accuracy of Documents and Information..................................7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER................................7
3.1 Corporate Existence and Authority......................................7
3.2 No Conflict............................................................7
3.3 Consents...............................................................8
3.4 Binding Obligations....................................................8
3.5 Compliance with Law....................................................8
3.6 Representations........................................................8
3.7 Shares Acquired for Investment.........................................8
3.8 Available Funds........................................................8
ARTICLE 4 COVENANTS OF SELLER....................................................9
4.1 Buyer's Access to Premises and Information.............................9
4.2 Representations and Warranties True at Closing.........................9
4.3 Interim Operations.....................................................9
4.4 Notice of Proceedings.................................................12
</TABLE>
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4.5 Proposals to the Seller...............................................12
ARTICLE 5 COVENANTS OF BUYER....................................................13
5.1 General...............................................................13
5.2 Notice of Proceedings.................................................13
5.3 Indebtedness..........................................................13
5.4 Guaranties............................................................14
ARTICLE 6 REMAKING OF REPRESENTATIONS, WARRANTIES,
ETC. AT CLOSING AND SURVIVAL OF TERMS.................................14
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF BUYER................................14
7.1 Representations and Warranties True at Closing........................14
7.2 Performance of Seller.................................................15
7.3 Authority Relating to this Agreement..................................15
7.4 Opinion of Counsel for Seller.........................................15
7.5 Documents from Seller.................................................15
7.6 Absence of Litigation, Etc............................................15
7.7 Material Changes in Business..........................................16
7.8 Consents..............................................................16
7.9 All Conditions Satisfied..............................................16
7.10 Stock Purchase Agreement..............................................16
7.11 Valence Subsidiaries..................................................17
7.12 Option Agreement......................................................17
7.13 Shareholders Agreement................................................17
7.14 Financial Advisory Agreement..........................................17
7.15 Due Diligence.........................................................17
7.16 Currency Fluctuation..................................................17
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF SELLER...............................18
8.1 Representations and Warranties True at Closing........................18
8.2 Buyer's Performance...................................................18
8.3 Authority Relating to this Agreement..................................18
8.4 Documents from Buyer..................................................18
8.5 Consents..............................................................18
8.6 All Conditions Satisfied..............................................19
8.7 Absence of Litigation, Etc............................................19
</TABLE>
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ARTICLE 9 INDEMNIFICATION.......................................................19
9.1 Indemnification by Seller.............................................19
9.2 Indemnification of Seller.............................................20
9.3 Notice of Claim.......................................................20
9.4 Defense...............................................................20
9.5 Duration of Parties' Obligations......................................21
9.6 Arbitration...........................................................21
ARTICLE 10 TERMINATION...........................................................22
10.1 Mutual Agreement......................................................22
10.2 Termination by Buyer..................................................22
10.3 Termination by Seller.................................................22
10.4 Effect of Termination.................................................22
ARTICLE 11 COSTS.................................................................23
11.1 Finder's or Broker's Fees.............................................23
11.2 Expenses..............................................................23
11.3 Audit Fees............................................................23
ARTICLE 12 DEFINITIONS AND ACCOUNTING TERMS ...........................23
12.1 Certain Defined Terms.................................................23
12.2 Accounting Terms......................................................25
ARTICLE 13 MISCELLANEOUS.........................................................26
13.1 Headings..............................................................26
13.2 Entire Agreement; Modification; Waiver................................26
13.3 Counterparts..........................................................26
13.4 Parties in Interest...................................................26
13.5 Assignment............................................................26
13.6 Notices...............................................................26
13.7 Governing Law.........................................................27
13.8 Venue.................................................................28
13.9 Prior Agreements......................................................28
13.10 Further Assurances....................................................28
13.11 Gender................................................................28
13.12 Validity; Severability................................................28
13.13 Press Release.........................................................29
13.14 Tax Elections.........................................................29
</TABLE>
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13.15 Statutory Books and Records...........................................29
SIGNATURES ..........................................................................30
INDEX TO SCHEDULES AND EXHIBITS......................................................31
</TABLE>
SCHEDULES
1.4(b) List of Secretaries, Directors, Officers and Employees
of Valence and the Valence Subsidiaries to Resign (Buyer)
2.4 No Conflict (Seller)
2.5 Consents (Seller)
2.8 Capital Structure (Seller)
2.9 Representations to Management (Seller)
3.3 Consents (Buyer)
3.8 Available Funds (Buyer)
4.3(b)(xiii) Capital Commitments (Seller)
5.4 Guarantees
EXHIBITS
7.4A Opinion of Jones, Day, Reavis & Pogue
7.4B Opinion of Harney, Westwood & Riegels
12.1 Consolidated Valence Balance Sheet as of March 31, 1997
The Schedules and Exhibits referenced above have not been filed herewith.
The Company will furnish supplementally a copy of any omitted schedule to the
U.S. Securities and Exchange Commission upon request.
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<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this Stock Purchase Agreement, including
all exhibits attached hereto are collectively referred to as the "Agreement") is
made and entered into as of the 24th day of February, 1998, by and between SRS
Labs, Inc., a Delaware corporation ("Buyer"), and North 22 Capital Partners 2
Inc., a British Virgin Islands company ("North 22" or "Seller").
W I T N E S S E T H:
WHEREAS, North 22 is the record and beneficial owner of 4,125,000 ordinary
shares, U.S. $0.13 par value per share, of Valence Technology Inc., a British
Virgin Islands company ("Valence"), representing 55% of the issued and
outstanding shares of capital stock of Valence (the "Valence Shares");
WHEREAS, Valence beneficially owns 100% of the issued share capital of the
following companies: Valence Semiconductor Design Limited, ("VSD"), ASP
Microelectronics Limited ("ASP"), LEC Electronic Components Limited ("LEC"), and
VSD Electronics Limited ("VEL"), each of which is a company limited by shares
incorporated in Hong Kong;
WHEREAS, ASP beneficially owns 100% of the issued share capital of LEC
Microelectronics Limited, a company limited by shares incorporated in Hong Kong
("LML"), and LEC owns 100% of the issued share capital of LEC Electronics
Limited, a company limited by shares incorporated in Hong Kong ("LEL"), and the
entire equity interest in VSD Electronics (Hui Yang) Ltd., a wholly
foreign-owned enterprise established under the laws of the PRC ("VHY");
WHEREAS, Buyer desires to acquire the Valence Shares from Seller and
Seller desires to transfer the Valence Shares to Buyer, upon the terms and
subject to the conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations, and warranties contained herein, the parties agree as follows:
(Capitalized terms not defined where used shall have the meanings provided
in Article 12 herein.)
<PAGE> 7
ARTICLE 1
PURCHASE, SALE AND EXCHANGE OF SHARES; CLOSING
1.1 Purchase, Sale and Exchange of Shares. Subject to the terms
and conditions set forth in this Agreement, Seller shall sell, convey, transfer,
assign, exchange and deliver the Valence Shares to Buyer and Buyer shall acquire
the Valence Shares from Seller at the Closing (as defined in Section 1.3).
1.2 Consideration.
The purchase price to be paid by Buyer to Seller for the
Valence Shares shall be U.S. $6,000,000, payable in cash at the Closing.
1.3 Closing. The closing of the transactions provided for in this
Agreement (the "Closing") shall take place on the Closing Date. Unless otherwise
agreed by the parties, the Closing shall occur at the offices of Victor Chu &
Co., located on the 19th Floor, Tower II, The Gateway, Harbour City, Kowloon,
Hong Kong, prior to 3:00 p.m. (Hong Kong time) on the designated Closing Date.
1.4 Seller's Deliveries. At the Closing, Seller shall
(a) deliver to Buyer certificates representing Seller's
Valence Shares duly endorsed in blank or accompanied by stock powers duly
executed in blank, with signatures appropriately guaranteed, and in proper form
for transfer, together with such other documents, including but not limited to
any government approvals, as may be necessary to convey to Buyer good, valid and
marketable title to the Valence Shares, free and clear of all liens,
encumbrances, pledges, equities, rights of first refusal and claims of any
nature whatsoever;
(b) use its best efforts to cause such persons as Buyer may
nominate to be validly appointed as directors or secretaries of Valence and/or
the Valence Subsidiaries, and upon such appointment, forthwith use its best
efforts to cause the directors, officers and the secretaries of Valence and the
Valence Subsidiaries listed on Schedule 1.4(b) to resign from their respective
offices in Valence or the Valence Subsidiaries and as employees, each delivering
to the Buyer their resignation acknowledging that the person so retiring has no
claim outstanding for compensation or otherwise;
(c) deliver to Buyer such other instruments and documents as
are required to be delivered at Closing by Seller pursuant to the provisions of
this
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<PAGE> 8
Agreement or as are reasonably required to evidence compliance with the
representations, warranties and covenants of Seller contained in this Agreement;
(d) use its best efforts to deliver to Buyer the statutory
books and common seals of Valence and the Valence Subsidiaries and the share
certificates for all the issued shares in the Valence Subsidiaries together with
indemnities in a form approved by Buyer in respect of any missing certificates
and duly executed transfers and sold notes in favor of the Buyer's nominees of
any shares in the Valence Subsidiaries beneficially held by Valence presently
registered in any name other than or in addition to that of Valence;
(e) use its best efforts to deliver to Buyer certified
copies of the Certificate of Incumbency and a Certificate of Good Standing for
Valence;
(f) use its best efforts to procure that a board meeting of
Valence be held at which it shall be resolved that the transfer in respect of
the Valence Shares be passed for registration;
(g) use its best efforts to cause Valence to deliver to
Buyer all other books of account and records of Valence and each of the Valence
Subsidiaries whatsoever;
(h) use its best efforts to revoke all existing authorities
in respect of the operation of any bank account (if any) in the name of Valence
or any of the Valence Subsidiaries;
(i) deliver to Buyer a certified copy of the board
resolution of Seller approving and authorizing the execution and closing of this
Agreement;
(j) deliver to Buyer a certified copy of Valence's stock
transfer register;
(k) deliver to Buyer a certified copy of a shareholder
resolution of Seller approving and authorizing the execution and closing of this
Agreement, where such approval and authorization is required under the laws of
the British Virgin Islands; and
(l) execute and do all such other documents, acts and things
as Buyer shall reasonably require in order to perfect the right, title and
interest of Buyer to and in the Valence Shares and the share capital of each of
the Valence Subsidiaries.
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1.5 Buyer's Deliveries. At the Closing, Buyer shall deliver the
following as provided under this Agreement:
(a) U.S. $6,000,000 in immediately available United States
funds by electronic bank fund transfers as directed by Seller; and
(b) such other instruments and documents as are required to
be delivered at Closing by Buyer pursuant to the provisions of this Agreement or
as are reasonably required to evidence compliance with the representations,
warranties and covenants of Buyer contained herein.
1.6 All Transactions Simultaneous. All transactions at the Closing
shall be deemed to take place simultaneously and no party shall have any
obligations to deliver any document or take any action contemplated by this
Agreement to be delivered or taken at the Closing unless at the Closing there
occurs simultaneously each and every other transaction contemplated by this
Agreement to occur at the Closing.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
In order to induce Buyer to enter into this Agreement, Seller hereby
makes the representations and warranties set forth below, which representations
and warranties shall be deemed to continue in full force and effect until the
time of Closing and thereafter as set forth herein.
2.1 Authority. Seller has full corporate power, authority and
legal right to enter into and perform its obligations under this Agreement, and
to consummate the transactions contemplated hereby.
2.2 Due Execution. This Agreement has been duly executed and
delivered by Seller and this Agreement constitutes a valid and binding
obligation of Seller, enforceable against Seller in accordance with its
respective terms, except as such enforceability may be subject to or limited by
(a) bankruptcy, insolvency or other similar laws relating to the rights of
creditors generally and (b) the effect of general principles of equity.
2.3 The Valence Shares. Seller has good and valid title to the
Valence Shares being sold by it hereunder, free and clear of any liens, claims,
encumbrances, security interests, options, charges and restrictions of any kind.
Upon delivery to Buyer at the Closing of certificates representing the Valence
Shares being sold hereunder by Seller duly
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endorsed by Seller for transfer to Buyer, and upon Seller's receipt of the
consideration hereunder, good and valid title to the Valence Shares will pass to
Buyer, free and clear of any liens, claims, encumbrances, security interests,
options, pledges, equities, right of first refusal, charges, claims and
restrictions of any kind. Other than this Agreement and the Legend-Valence
Shareholders Agreement (as defined in Section 7.12), the Valence Shares being
sold by Seller hereunder are not subject to any voting trust agreement or other
contract, agreement, arrangement, commitment or understanding, including any
such agreement, arrangement, commitment or understanding restricting or
otherwise relating to the voting, dividend rights or disposition of the Valence
Shares.
2.4 No Conflict. Except as set forth in Schedule 2.4 to this
Agreement, the execution and delivery of this Agreement does not, and the
performance of this Agreement and the consummation of the transactions
contemplated hereby in accordance with the terms, conditions and provisions
hereof will not (a) accelerate the maturity of, or give any person any rights
under, or the right to rescind, or otherwise modify, any obligation,
indebtedness, license, agreement or instrument to which Valence or any of the
Valence Subsidiaries is a party or by which any of them or any of their
respective properties is bound, or (b) result in the creation of any lien,
encumbrance or charge upon any of the properties or assets of Valence or any of
the Valence Subsidiaries or (c) result in a breach or violation of, or be in
conflict with, or constitute (with or without the giving of notice or the
passage of time or both) a default under (i) any statute, law, ordinance, rule
or regulation (including, without limitation, all laws regulating franchises)
applicable to Seller, Valence or any of the Valence Subsidiaries or any of their
properties; (ii) the terms, conditions or provisions of the memorandum or
articles of association of Seller, Valence or any of the Valence Subsidiaries,
or any lease, license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust, partnership agreement or other agreement,
contract, instrument, or arrangement (whether or not in writing) to which
Seller, Valence or any of the Valence Subsidiaries is a party or by which
Seller, Valence or any of the Valence Subsidiaries, or any of their respective
properties, is or may be bound; or (iii) any permit, license, order, judgment or
decree of any court, arbitrator or governmental authority by which Seller,
Valence, or any of the Valence Subsidiaries or any of their respective
properties, is or may be bound other than conflicts, breaches, terminations,
defaults, liens and encumbrances which individually or in the aggregate would
not reasonably be expected to have a materially adverse effect on the business,
financial condition or properties of Valence and the Valence Subsidiaries taken
as a whole.
2.5 Consents. Except as set forth in Schedule 2.5 to this
Agreement, no consent, permit, approval, order, authorization of, or filing with
or notice to, any BVI, Hong Kong, PRC or other foreign, U.S. federal, state,
local governmental department, commission, board, bureau, agency,
instrumentality or authority or any person (whether or not governmental in
character) has been or is required to be obtained, made or given by Seller,
Valence, or any of the Valence Subsidiaries in connection with the execution and
delivery
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of this Agreement or the consummation of the transactions contemplated hereby or
the fulfillment of or the compliance with the terms, conditions and provisions
hereof except for those the failure to make, file, give or obtain which would
not, individually or in the aggregate, prevent the consummation of the purchase
of the Valence Shares.
2.6 Actions and Proceedings. etc. There are no (a) outstanding
judgments, orders, writs, preliminary or permanent injunctions or other decrees
of any court, administrative agency, governmental authority or instrumentality
or arbitration tribunal against Seller which have or could have a material
adverse effect on the ability of Seller to consummate the transactions
contemplated hereby or (b) actions, suits, claims or legal, administrative or
arbitration proceedings or investigations pending or, to the best knowledge of
Seller, threatened against Seller, which have or could have a material adverse
effect on the ability of Seller to consummate the transactions contemplated
hereby.
2.7 Organization, Good Standing and Qualification. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the British Virgin Islands, and has all necessary power and authority to own
and lease its properties and to conduct its business as now owned and presently
operated by it. Neither the nature of the businesses of Seller, nor the
character or location of properties owned or leased by Seller, has made or makes
licensing or qualification in any jurisdiction other than their respective
jurisdictions of organization necessary.
2.8 Capital Structure of Valence. The authorized capital stock of
Valence consists solely of 20,000,000 ordinary shares, par value U.S. $0.13 per
share, of which 7,500,000 shares are currently issued and outstanding. Seller is
the record and beneficial owner of 4,125,000 of the Valence ordinary shares.
Except as stated in Schedule 2.8, there are no outstanding subscriptions,
options, rights, warrants, convertible securities, or other agreements,
commitments or arrangements pursuant to which Valence or any Valence Subsidiary
is or may become obligated to issue, or to transfer from treasury, any
additional shares of its capital stock or any options or rights relating
thereto. Valence is the beneficial owner of the entire issued share capital of
each of VSD, ASP, LEC and VEL. ASP is the beneficial owner of the entire issued
share capital of LML. LEC is the beneficial owner of the entire issued share
capital of LEL and entire registered capital of VHY and holds the entire equity
interest in VHY. The issued share capital of each of VSD, ASP, LEC and VEL is
fully paid.
2.9 Representations to Management. Except as set forth in Schedule
2.9, Seller has disclosed to Wan Wah Tong Thomas, Yat Ming Choi Raymond, or Wong
Yin Bun Kenneth all transactions relating to Valence and the Valence
Subsidiaries entered into by Seller for or on behalf of Valence, the Valence
Subsidiaries or Seller.
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2.10 Representation re "U.S. Person". Seller certifies under
penalty of perjury that it is neither a citizen nor a resident of the U.S. and
that its address set forth in this Agreement is correct.
2.11 Accuracy of Documents and Information. The copies of all
instruments, agreements, other documents and written information delivered to
Buyer by or on behalf of Seller or its representatives, pursuant to this
Agreement are and will be complete and correct in all material respects as of
the date hereof and as of the Closing Date. The representations and warranties
made by Seller in this Agreement, or in other written materials furnished to
Buyer hereunder or in connection with the transactions contemplated hereby, do
not contain any untrue statement of material fact and do not omit any material
fact necessary to make the statements or facts contained herein or therein not
misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
In order to induce Seller to enter into this Agreement, Buyer hereby
makes the representations and warranties set forth below, which representations
and warranties shall be deemed to continue in full force and effect until the
time of the Closing and thereafter as set forth herein:
3.1 Corporate Existence and Authority. Buyer is a corporation duly
incorporated, validly existing, and in good standing under the laws of the State
of Delaware. The Buyer has full power, authority and legal right to enter into
and perform its obligations under this Agreement, and to consummate the
transaction contemplated hereby.
3.2 No Conflict. The execution and delivery of this Agreement do
not, and the performance of this Agreement and the consummation of the
transactions contemplated hereby in accordance with the terms, conditions and
provisions hereof will not result in a breach or violation of, or in conflict
with, or constitute (with or without the giving of notice or the passage of time
or both) a default under:
(a) any statute, law, ordinance, rule or regulation
applicable to Buyer, or
(b) the terms, conditions or provisions of the Certificate
of Incorporation or Bylaws or other organizational documents of Buyer, or any
lease, license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust, partnership agreement or other agreement,
contract, instrument, or arrangement (whether or
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not in writing) to which Buyer is a party or by which Buyer or its properties,
is or may be bound, or
(c) any permit, license, order, judgment or decree of any
court, arbitrator or governmental authority by which Buyer or its properties is
or may be bound.
3.3 Consents. No consent, permit, approval, order, authorization
of, or filing with or notice to, any BVI, Hong Kong, PRC or other foreign, U.S.
federal, state or local governmental department, commission, board, bureau,
agency, instrumentality or authority or any person (whether or not governmental
in character) has been or is required to be obtained, made or given by Buyer in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby or the fulfillment of or the compliance
with the terms, conditions and provisions hereof, except as set forth in
Schedule 3.3 to this Agreement.
3.4 Binding Obligations. This Agreement has been duly authorized,
executed and delivered by Buyer and this Agreement constitutes or will
constitute the legal, valid and binding obligation of Buyer, enforceable in
accordance with its terms against Buyer.
3.5 Compliance with Law. Buyer is in compliance in all material
respects with all applicable statutes, rules, regulations, orders and
restrictions of governmental authorities having jurisdiction over the conduct of
its business.
3.6 Representations. The representations and warranties made by
Buyer in this Agreement, or in other written materials furnished to Seller
hereunder or in connection with the transactions contemplated hereby do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
3.7 Shares Acquired for Investment. Buyer is acquiring the Valence
Shares as an investment for its own account and not with view to the resale or
other distribution thereof.
3.8 Available Funds. Buyer has, or will have available to it, all
funds necessary to (a) satisfy the obligations of Buyer to purchase the Valence
Shares on the Closing Date and (b) repay the outstanding indebtedness of Valence
listed on Schedule 3.8 within five business days after the Closing Date.
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ARTICLE 4
COVENANTS OF SELLER
Seller covenants that, except as otherwise agreed or authorized in
writing by Buyer, from the date of this Agreement until the Closing:
4.1 Buyer's Access to Premises and Information. Seller shall
direct the management of Valence to provide Buyer and its counsel, accountants,
and other representatives as well as employees, agents and representatives of
lenders to Buyer (collectively, the "Representatives") full reasonable access
during normal business hours to all of the properties, books, accounts, records,
contracts, documents and personnel of Valence and each of the Valence
Subsidiaries. Seller shall furnish, or cause to be furnished, to Buyer and its
representatives all data and information concerning the business, finances,
operations and properties of Valence and each of the Valence Subsidiaries that
may reasonably be requested.
4.2 Representations and Warranties True at Closing. Seller shall
use reasonable and diligent efforts to assure that all representations and
warranties of Seller set forth in this Agreement and in any written statements
delivered to Buyer by Seller under this Agreement are true and correct as of the
Closing Date, and that all conditions stated herein to the obligations of the
Buyer are satisfied as soon as practicable and on or before the Closing Date.
4.3 Interim Operations.
(a) Seller has directed and shall direct the management of
Valence to cause the businesses of Valence and each of the Valence Subsidiaries
to be conducted at all times between February 1, 1998 and the Closing Date as
follows:
(i) Except as otherwise provided in this Agreement,
Valence and each of the Valence Subsidiaries shall carry on their
businesses and continue to operate, maintain and repair their properties,
in the normal course of business in all material respects and in
accordance with their past practices;
(ii) The books and records of Valence and each of the
Valence Subsidiaries shall be maintained on a basis consistent with the
Valence Financial Statements prepared in accordance with H.K. GAAP in such
manner as to present fairly the history of the operations and financial
condition of Valence and each of the Valence Subsidiaries;
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(iii) Valence and each of the Valence Subsidiaries shall
carry such insurance against fire, storm damage and other hazards,
consistent with the past practices of Valence and each of the Valence
Subsidiaries subject to the availability thereof at costs not materially
greater than at present; and
(iv) Seller shall use its best efforts and shall
cooperate with Buyer in all respects reasonably requested by Buyer,
without making any commitments on behalf of Buyer, to preserve the
business organizations of Valence and each of the Valence Subsidiaries
intact, to keep available to Valence and each of the Valence Subsidiaries
their present employees, to preserve the goodwill of Valence and each of
the Valence Subsidiaries, and to foster and promote the operations of
Valence and each of the Valence Subsidiaries and their relations with
customers, suppliers, contractors, vendors, purchasers, banks, lenders,
employees and others having business relationships with Valence and each
of the Valence Subsidiaries.
(b) Between February 1, 1998 and the Closing Date, without
prior written agreement or authorization of Buyer, and except as otherwise
specifically provided in this Agreement and in the Exhibits and Schedules
attached hereto, Seller did not take or shall not take any action, or allow any
action to be taken with respect to Valence and each of the Valence Subsidiaries,
which would cause any material change in the businesses of Valence or any of the
Valence Subsidiaries or would result in the inaccuracy or breach of any of the
representations and warranties of Seller in Article 2 if such representations
and warranties were remade immediately after such action, including without
limitation:
(i) incurring or becoming subject to, or agreeing to
incur or become subject to, any liability, indebtedness, claim, obligation
or responsibility (fixed, contingent or otherwise) other than those
incurred in the ordinary course of business, consistent with past practice
or as required by law or contractual obligations existing on the date
hereof which has been disclosed in writing to Buyer prior to the date
hereof;
(ii) discharging or satisfying any lien or encumbrance
or payment of any liability, indebtedness, claim, obligation or
responsibility (fixed, contingent or otherwise) other than current
liabilities reflected on the Corporate Balance Sheet and current
liabilities incurred since the date of the Corporate Balance Sheet in the
ordinary course of business of Valence and each of the Valence
Subsidiaries, consistent with past practice;
(iii) mortgaging, pledging or assuming any lien, charge
or any other encumbrances or the agreement so to do, in respect to any of
the assets, tangible or intangible, of Valence and each of the Valence
Subsidiaries;
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(iv) selling, leasing, transferring, or agreeing to
sell, lease or transfer, any of the assets of Valence and each of the
Valence Subsidiaries, or canceling or agreeing to cancel any debts or
claims, except in each case in the ordinary course of the business of
Valence and each of the Valence Subsidiaries, consistent with past
practice;
(v) entering into any transaction other than in the
ordinary course of business, consistent with past practice;
(vi) increasing the rate of compensation payable or to
become payable to any of the officers, employees, agents or consultants of
Valence and each of the Valence Subsidiaries over the rate being paid to
them on the date of this Agreement except as required by law or
contractual obligations existing on the date of this Agreement which has
been disclosed in writing to Buyer prior to the date hereof ;
(vii) terminating any material contract, agreement,
license or other instrument to which Valence or any of the Valence
Subsidiaries is a party;
(viii) negotiating or otherwise making any commitment,
or incurring any liability or obligation, to any labor organization not
binding and enforceable against Valence and each of the Valence
Subsidiaries on the date of this Agreement except as required by law;
(ix) making, or agreeing to make, any accrual, or
arrangement for or payment of any bonus or special compensation of any
kind, to any officer, employee, agent or consultant of Valence or any of
the Valence Subsidiaries except as required by law or contractual
obligations existing on the date of this Agreement which has been
disclosed in writing to Buyer prior to the date hereof;
(x) directly or indirectly paying or making a
commitment to pay any severance or termination pay to any officer,
employee, agent or consultant of Valence or any of the Valence
Subsidiaries, or entering into or amending, or negotiating or otherwise
making any commitment to enter into or amend, any bonus, incentive
compensation, deferred compensation, profit sharing, retirement, pension,
group insurance or other benefit plan, any employment or consulting
agreement, or any policies or past practices with respect to vacation,
termination, severance, and leave pay and benefits except as required by
law or contractual obligations existing on the date of this Agreement
which has been disclosed in writing to Buyer prior to the date hereof;
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(xi) introducing any new method of accounting in
respect to the businesses of Valence or any of the Valence Subsidiaries or
any of the assets, properties or rights applicable thereto;
(xii) making or agreeing to make any charitable or
political contributions or incurring or agreeing to pay any non-business
expenses in excess of U.S. $20,000 in the aggregate;
(xiii) making, or entering into, any commitments for
capital expenditures, exceeding the aggregate amount of U.S. $25,000,
other than what has already been previously budgeted and set forth on
Schedule 4.3(b)(xiii) attached hereto;
(xiv) declaring or paying any cash or non-cash dividend,
or making any cash or non-cash distribution with respect to the capital
stock or share capital of Valence or any of the Valence Subsidiaries;
directly or indirectly redeeming, purchasing or otherwise acquiring any of
the capital stock or share capital of Valence or any of the Valence
Subsidiaries, issuing or agreeing to issue or in any way disposing or
agreeing to dispose of any shares of the capital stock or share capital of
Valence or any of the Valence Subsidiaries, or repaying any indebtedness
owing to any shareholder of Valence or any of the Valence Subsidiaries
except indebtedness shown on the Corporate Balance Sheet or in Schedules
3.8 and 5.4;
(xv) entering into any agreement with any officer,
director or shareholder of Valence or any of the Valence Subsidiaries, or
any affiliate of any such officer, director or shareholder; or
(xvi) amending, altering or otherwise revising the
memorandum or articles of association or any other charter documents of
Valence or any of the Valence Subsidiaries.
4.4 Notice of Proceedings. Seller will promptly notify Buyer in
writing upon (a) becoming aware of any order or decree or any complaint praying
for an order or decree (or any threat to seek any of the foregoing) restraining
or enjoining the consummation of this Agreement or the transactions contemplated
hereunder, or (b) receiving any notice from any court or governmental agency of
its intention to (i) commence an investigation into, or commence a suit or
proceeding to restrain or enjoin, the consummation of this Agreement or such
transactions, or (ii) nullify or render ineffective this Agreement or such
transactions if consummated.
4.5 Proposals to the Seller. Prior to the earlier of (a) the
Closing or (b) the termination of this Agreement pursuant to Article 10 hereof,
Seller and any of its affiliates
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will not, nor will such persons take any action to permit or cause Valence and
each of the Valence Subsidiaries, to, directly or indirectly, merge with or sell
any stock, shares or assets of Valence and each of the Valence Subsidiaries
(other than in the ordinary course of business) to any person other than Buyer,
nor will Seller and any of its affiliates enter into, or take any action to
permit, Valence and each of the Valence Subsidiaries, to enter into any
agreement, arrangement or understanding with any person with respect to the
foregoing, or engage in any material discussions which might lead to such
agreement, arrangement or understanding; or solicit or accept any offers from
any person with respect to the sale of shares of Valence and/or the Valence
Subsidiaries or any assets thereof (other than in the ordinary course of
business), or provide confidential information regarding Valence and/or the
Valence Subsidiaries to any person, except Buyer and Buyer's affiliates,
directors, officers, employees, representatives, agents and financing parties.
In the event Seller, Valence and/or the Valence Subsidiaries receives any offers
or inquiries regarding any such transaction, such person, as the case may be,
shall immediately notify the offeror or inquirer that none of Seller, Valence
and/or the Valence Subsidiaries is in a position to discuss any such transaction
until further notice and none of Seller, Valence and/or the Valence Subsidiaries
shall engage in any further discussions regarding such offer or inquiry with
such offeror or inquirer.
ARTICLE 5
COVENANTS OF BUYER
5.1 General. Buyer covenants, except as otherwise agreed or
authorized in writing by Seller from the date of this Agreement until Closing,
that it shall use reasonable and diligent efforts to assure that all
representations and warranties of Buyer set forth in this Agreement and in any
written statements delivered to Seller by Buyer under this Agreement are true
and correct as of the Closing Date, and that all conditions stated herein to the
obligations of Seller are satisfied as soon as practicable and on or before the
Closing Date.
5.2 Notice of Proceedings. Buyer will promptly notify Seller in
writing upon (a) becoming aware of any order or decree or any complaint praying
for an order or decree (or any threat to seek any of the foregoing) restraining
or enjoining the consummation of this Agreement or the transactions contemplated
hereunder, or (b) receiving any notice from any court or governmental agency of
its intention to (i) commence an investigation into, or commence a suit or
proceeding to restrain or enjoin, the consummation of this Agreement or such
transactions, or (ii) nullify or render ineffective this Agreement or such
transactions if consummated.
5.3 Indebtedness. Within five business days after the Closing
Date, all outstanding indebtedness existing as of the Closing Date between
Seller or any of its
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affiliates, on the one hand, and Valence and the Valence Subsidiaries, on the
other hand, as set forth on Schedule 3.8 shall be repaid in full, together with
any interest accrued and unpaid to such date.
5.4 Guaranties. After the Closing Date, Buyer and Seller shall
work together to arrange for Buyer or one or more of its affiliates to be
substituted in all respects for Seller and its affiliates, in respect of those
obligations of Seller and any of its affiliates relating to Valence under each
of the guaranties set forth in Schedule 5.4 (the "Guaranties"). Subsequent to
the Closing Date, with respect to any uncancelled Guaranty for which no
substitution is effected, Buyer shall indemnify Seller or any of its affiliates
listed on Schedule 5.4 against any liability under any such Guaranty.
ARTICLE 6
REMAKING OF REPRESENTATIONS, WARRANTIES, ETC.
AT CLOSING AND SURVIVAL OF TERMS
Except as otherwise expressly stated in this Agreement and subject
to the provisions of Section 9.5 hereof, all representations, warranties,
covenants, and agreements of the parties contained in this Agreement, or in any
instrument, certificate, opinion, or other writing provided for, or delivered by
or on behalf of the parties, pursuant to this Agreement, shall be deemed to have
been remade at the Closing, subject to the changes and activities permitted by
this Agreement, shall survive the Closing and the transactions contemplated
hereby.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF BUYER
Except as otherwise specifically set forth in this Agreement or
waived in writing by Buyer, all obligations of Buyer under this Agreement are
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions:
7.1 Representations and Warranties True at Closing. All
representations and warranties of Seller contained in this Agreement, or in any
written statement, Exhibit or Schedule delivered to Buyer by Seller under this
Agreement, shall have been true and correct, in all material respects, when made
and shall be true and correct, in all material respects, as of the Closing Date.
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7.2 Performance of Seller. Each of the covenants, agreements and
conditions of Seller to be performed, satisfied or complied with on or before
the Closing Date pursuant to the terms of this Agreement shall have been duly
performed, satisfied and complied with by Seller in all material respects on or
before the Closing Date. Seller shall have delivered to Buyer a certificate in
form and substance satisfactory to Buyer dated as of the Closing Date and signed
by Seller, certifying in such detail as Buyer shall reasonably request that the
conditions specified in Sections 7.1 and 7.2 have been fulfilled.
7.3 Authority Relating to this Agreement. All actions required to
be taken by, or on the part of, Seller to authorize Seller to execute, deliver
and carry out this Agreement and to consummate the transactions contemplated
hereby in accordance with this Agreement shall have been duly and properly
taken.
7.4 Opinion of Counsel for Seller. Buyer and Buyer's counsel shall
have received from Jones, Day, Reavis & Pogue, and a law firm licensed to
practice in the British Virgin Islands, each counsel for Seller, opinions in
form and substance reasonably satisfactory to Buyer and Buyer's counsel dated
the Closing Date, collectively covering the matters referred to in Exhibits 7.4A
and 7.4B with such language changes as are reasonably agreed to by Buyer and
Seller and with customary qualifications and assumptions.
7.5 Documents from Seller. Seller shall have delivered to Buyer
all of the documents described in Section 1.4 and such other documents as Buyer
has reasonably requested in form, content and substance satisfactory to Buyer in
the exercise of its reasonable discretion.
7.6 Absence of Litigation, Etc. There shall not be pending or
threatened any action, suit, proceeding or investigation by the BVI, Hong Kong,
PRC or other foreign government, or the United States or any state, municipal or
local government, or any department, commission or agency of any of the
foregoing, or any other party for any injunction, writ, preliminary restraining
order or for any order of any court or governmental agency, domestic or foreign,
of competent jurisdiction directly affecting or restraining, or in which it is
sought to obtain damages or other relief in connection with, any of the
transactions contemplated by this Agreement, and there shall not have been
issued and remain in effect any such injunction, writ, preliminary restraining
order or such other order. No decree or order shall have been entered by a court
having jurisdiction in the premises for relief in respect of Seller, Valence
and/or any of the Valence Subsidiaries or adjudging Seller, Valence and/or any
of the Valence Subsidiaries, a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, adjustment or composition of or in
respect of Seller, Valence and/or any of the Valence Subsidiaries, under the
federal bankruptcy law or any other applicable law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of or for Seller, Valence and/or any of the Valence Subsidiaries or
any part of their property, or ordering the winding up or liquidation of their
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affairs. There shall not have been commenced by Seller, Valence and/or any of
the Valence Subsidiaries a voluntary case, or the institution by any of them of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by any of
them to the institution of bankruptcy or insolvency proceedings against it, or
the filing by any of them of a petition or answer or consent seeking
reorganization, arrangement or relief under the federal bankruptcy law or any
other applicable law, or the consent or acquiescence by any of them to the
filing of any such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of any part of its property, or the making by any of them of
an assignment for the benefit of creditors, or the admission by any of them in
writing of its inability to pay its debts generally as they become due, or the
taking of corporate action by Seller, Valence and/or any of the Valence
Subsidiaries in furtherance of any such action.
7.7 Material Changes in Business. Between January 1, 1998 and the
Closing Date, there shall have been no material adverse changes in the financial
condition, results of operations, assets, liabilities, customer or supplier
relationships, properties or sales of Valence and each of the Valence
Subsidiaries, other than changes incurred in the ordinary course of business or
as expressly permitted or contemplated by this Agreement.
7.8 Consents. On or before the Closing Date, the consent or
approval of all third parties, including without limitation landlords, lenders,
and governmental agencies, whose consent or approval is necessary to the valid
and effective transfer of the Valence Shares or to the valid and effective
performance of the parties' obligations hereunder, shall have been granted
except for such consents the failure to obtain which, individually or in the
aggregate, would not preclude consummation of the transactions contemplated by
this Agreement or would not have a material adverse effect on the business,
assets, financial condition or prospects of Valence and the Valence Subsidiaries
taken as a whole.
7.9 All Conditions Satisfied. Buyer shall have received copies of
all documents and other evidence necessary to confirm that all conditions set
forth in this Article 7 shall have been complied with and that all other actions
and things required by this Agreement to be taken and accomplished shall have
been so taken and accomplished, all in form and substance satisfactory to Buyer
in its reasonable judgment.
7.10 Stock Purchase Agreement. Valence, Wan Wah Tong Thomas, Yat
Ming Choi Raymond, Wong Yin Bun Kenneth and Ki Ching Hui and/or companies
controlled by each of them respectively which as the record holder of the
ordinary shares of Valence shall have entered into and consummated a Stock
Purchase Agreement with Buyer to acquire all of the issued and outstanding
shares of the capital stock of Valence not held of record and beneficially by
Seller.
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7.11 Valence Subsidiaries. All of the outstanding capital shares of
the Valence Subsidiaries shall be held beneficially by Valence or a nominee of
Buyer.
7.12 Option Agreement. The Option Agreement by and between North 22
Nominees Ltd. and Valence dated October 17, 1997 shall have been canceled prior
to exercise.
7.13 Shareholders Agreement. The Shareholders Agreement (the
"Legend- Valence Shareholders Agreement") by and among Legend Holdings (BVI)
Limited, Thomrose Holdings (BVI) Limited, Rayfa (BVI) Limited and AnKi (BVI)
Limited, Wan Wah Tong Thomas, Yat Ming Choi Raymond, and Ki Ching Hui, and
Legend-Valence Holdings (BVI) Limited dated May 1, 1995 shall have been
terminated (the parties to the Legend-Valence Shareholders Agreement are
collectively referred to in this Section 7.13 as the "Restricted Stockholders").
In addition, Seller and each of its Affiliates, Valence, and each of the
Restricted Stockholders shall have executed a document stating that the Legend-
Valence Shareholders Agreement and all other written or oral agreements (or
portions of such agreements) related thereto are terminated or amended to effect
termination of such Shareholders Agreement and any other agreements related
thereto.
7.14 Financial Advisory Agreement. The Financial Advisory Letter
Agreement dated 14 July, 1997 by and between Legend-Valence Holdings (BVI)
Limited, currently Valence, and North 22 International Inc. shall have been
cancelled (the "North 22 International Agreement").
7.15 Due Diligence. Buyer shall have completed a due diligence
investigation of the business, operations, condition (financial and otherwise)
and prospects of Valence and the Valence Subsidiaries, and the results of such
investigation shall not have disclosed information that was not previously
furnished in writing to Buyer and its Representatives by Seller, Valence or any
of Wan Wah Tong Thomas, Yat Ming Choi Raymond or Wong Yin Bun Kenneth at least
three business days (California time) prior to the date of this Agreement, and
such information in Buyer's reasonable opinion, could have a material adverse
effect upon the business, financial condition, results of operations, assets,
liabilities, customer or supplier relationships, properties or sales of Valence
or any of the Valence Subsidiaries.
7.16 Currency Fluctuation. There shall not have occurred a (a)
change in the currency exchange rate between the Hong Kong dollar and the U.S.
dollar as announced by the Hong Kong Monetary Authority or (b) devaluation of
the PRC Renminbi against the Hong Kong dollar by 3% or more, as measured by the
average of the official buying and official selling rates between the Hong Kong
dollar and the PRC Renminbi announced by the People's Bank of China, in each
case measured from the date of this Agreement.
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ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF SELLER
Except as otherwise specifically set forth in this Agreement or
waived in writing by Seller, all obligations of Seller under this Agreement are
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions:
8.1 Representations and Warranties True at Closing. All
representations and warranties of Buyer contained in this Agreement, or in any
written statement delivered by Buyer to Seller under this Agreement, shall have
been true and correct, in all material respects, when made and shall be true and
correct, in all material respects, as of the Closing Date.
8.2 Buyer's Performance. Except as otherwise provided in sections
5.3 and 5.4 in this Agreement, each of the covenants, agreements and conditions
of Buyer to be performed, satisfied or complied with on or before the Closing
Date pursuant to the terms of this Agreement shall have been duly performed,
satisfied and complied with by Buyer in all material respects on or before the
Closing Date. Buyer shall have delivered to Seller a certificate in form and
substance satisfactory to Seller dated as of the Closing Date and signed by
Buyer, certifying in such detail as Seller shall reasonably request that the
conditions specified in Sections 8.1 and 8.2 have been fulfilled.
8.3 Authority Relating to this Agreement. All corporate action
required to be taken by, or on the part of, Buyer to authorize Buyer to execute,
deliver and carry out this Agreement and to consummate the transactions
contemplated hereby shall have been duly and properly taken.
8.4 Documents from Buyer. Buyer shall have delivered to Seller all
of the documents described in Section 1.5 in form, content and substance
satisfactory to Seller, in the exercise of its reasonable discretion.
8.5 Consents. On or before the Closing Date, the consent or
approval of all third parties, including without limitation, lenders and
governmental agencies, whose consent or approval is necessary to the valid and
effective performance of the Buyer's obligations hereunder, shall have been
granted except for such consents the failure to obtain which, individually or in
the aggregate, would not preclude consummation of the transactions contemplated
by this Agreement or would not have a material adverse effect on the business,
assets, financial condition or prospects of Valence and the Valence Subsidiaries
taken as a whole.
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8.6 All Conditions Satisfied. Seller shall have received copies of
all documents and other evidence necessary to confirm that all conditions set
forth in this Article 8 shall have been complied with and that all other actions
and things required by this Agreement to be taken and accomplished shall have
been so taken and accomplished, all in form and substance satisfactory to Seller
in its reasonable judgment.
8.7 Absence of Litigation, Etc. There shall not be pending or
threatened any action, suit, proceeding or investigation by the BVI, Hong Kong,
PRC or other foreign government, or the United States or state, municipal or
local government, or any department, commission or agency of any of the
foregoing, or any other party for any injunction, writ, preliminary restraining
order or for any order of any court or governmental agency, domestic or foreign,
of competent jurisdiction directly affecting or restraining, or in which it is
sought to obtain damages or other relief in connection with, any of the
transactions contemplated by this Agreement, and there shall not have been
issued and remain in effect any such injunction, writ, preliminary restraining
order or such other order. No decree or order shall have been entered by a court
having jurisdiction in the premises for relief in respect of Buyer or adjudging
Buyer, a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, adjustment or composition of or in respect of Buyer,
under the federal bankruptcy law or any other applicable federal or state law,
or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of or for Buyer or any part of its property, or
ordering the winding up or liquidation of its affairs. There shall not have been
commenced by Buyer a voluntary case, or the institution by it of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization, arrangement or relief
under the federal bankruptcy law or any other applicable federal or state law,
or the consent or acquiescence by it to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other-similar official) of any part of its
property, or the making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of any action by Buyer in furtherance of any such
action.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by Seller. Seller shall indemnify, defend and
hold harmless Buyer and its officers, directors, employees, attorneys, and
agents and its successors and assigns against and in respect of any and all
losses, damages, claims, obligations, demands, actions, suits, proceedings,
assessments, liabilities, judgments, recoveries and deficiencies, costs and
expenses (including, without limitation, reasonable attorneys' fees and costs
and expenses incurred in investigating, preparing, defending against
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or prosecuting any litigation, claim, proceeding or demand), all on an after-tax
basis, less any amounts actually paid as insurance reimbursement, of any kind or
character (collectively, a "Loss"), which arise out of, result from, or relate
to any breach of, or failure by Seller fully to perform, or any inaccuracy in,
any of the representations, warranties, covenants or agreements of Seller in
this Agreement (whether known or unknown at Closing), or in any Schedule,
Exhibit, certificate, list, or other document furnished or to be furnished by
Seller under this Agreement.
9.2 Indemnification of Seller. Buyer shall indemnify, defend and
hold harmless Seller and its officers, directors, employees, attorneys and
agents and its successors and assigns against and in respect of any and all
Losses, which arise out of, result from, or relate to any breach of, or failure
by Buyer fully to perform, or any inaccuracy in, any of the representations,
warranties, covenants or agreements of Buyer in this Agreement (whether known or
unknown at Closing), or in any Schedule, Exhibit, certified list or other
document furnished or to be furnished by Buyer under this Agreement.
9.3 Notice of Claim. Whenever Buyer or Seller learns of or
discovers any matter which may give rise to a claim for indemnification (the
"Claim") against any other party under this Section 9 (the "Indemnity Obligor"),
Buyer or Seller, as the indemnified party (the "Indemnified Party"), shall give
notice to the Indemnity Obligor of the Claim. With respect to Claims which are
the subject of actions, suits, or proceedings threatened or asserted in writing
by any third party (a "Third Party Claim"), the Indemnified Party shall, within
15 days following receipt of such Third Party Claim, promptly notify the
Indemnity Obligor in writing of any Claim for recovery, specifying in reasonable
detail the nature of the Loss and the amount of the liability estimated to arise
therefrom. If the Indemnified Party does not so notify the Indemnity Obligor
within 15 days of its discovery of a Third Party Claim, such Claim shall be
barred only to the extent that the Indemnity Obligor is prejudiced by such
failure to notify. The Indemnified Party shall provide to the Indemnity Obligor
as promptly as practicable thereafter all information and documentation
reasonably requested by the Indemnity Obligor to verify the Claim asserted.
9.4 Defense. If the facts relating to a Loss arise out a Third
Party Claim, or if there is any claim against a third party available by virtue
of the circumstances of the Loss, the Indemnity Obligor may, by giving written
notice to the Indemnified Party within 15 days following its receipt of the
notice of such claim, elect to assume the defense or the prosecution thereof,
including the employment of counsel or accountants, reasonably satisfactory to
the Indemnified Party, at its cost and expense; provided, however, that during
the interim the Indemnified Party shall use its best efforts to take all action
(not including settlement) reasonably necessary to protect against further
damage or loss with respect to the Loss. The Indemnified Party shall have the
right to employ counsel separate from counsel employed by the Indemnity Obligor
in any such action and to participate therein, but the fees and expenses of such
counsel shall be at the Indemnified Party's own expense, unless (a) the
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employment thereof has been specifically authorized by the Indemnity Obligor,
(b) such Indemnified Party has been advised by counsel reasonably satisfactory
to the Indemnity Obligor that there may be one or more legal defenses available
to it which are different from or additional to those available to the Indemnity
Obligor and in the reasonable judgment of such counsel it is advisable for such
Indemnified Party to employ separate counsel, or (c) the Indemnity Obligor has
failed to assume the defense of such action and employ counsel reasonably
satisfactory to the Indemnified Party. Whether or not the Indemnity Obligor
chooses to defend or prosecute such claim, all the parties hereto shall
cooperate in the defense or prosecution thereof and shall furnish such records,
information and testimony and shall attend such conferences, discovery
proceedings and trial as may be reasonably requested in connection therewith.
The Indemnity Obligor shall not be liable for any settlement of any such claim
effected without its prior written consent. In the event of payment by the
Indemnity Obligor to the Indemnified Party in connection with any Loss arising
out of a Third Party Claim, the Indemnity Obligor shall be subrogated to and
shall stand in the place of the Indemnified Party as to any events or
circumstances in respect of which the Indemnified Party may have any right or
claim against such third party relating to such indemnified matter. The
Indemnified Party shall cooperate with the Indemnity Obligor in prosecuting any
subrogated claim. The Indemnity Obligor will take no action in connection with
any claim that would adversely affect the Indemnified Party without the consent
of the Indemnified Party.
9.5 Duration of Parties' Obligations. The Indemnity Obligor's
indemnification obligations under this Agreement shall survive the Closing and
shall terminate as follows: (a) with respect to claims for indemnity arising as
a result of a breach of the representations and warranties contained in Sections
2.1 through and including 2.7 and 2.9, and Section 5.4 they shall continue and
not terminate and (b) with respect to all other claims for indemnity, after one
year from the Closing Date.
9.6 Arbitration. Any controversy or claim arising out of or
relating to the provisions of Article 9 of this Agreement (including the
validity of an alleged Claim) shall be resolved by arbitration. Arbitration
proceedings shall be commenced by the delivery by any party to a dispute to the
other(s) of written notice requesting arbitration. The matter shall be submitted
to such disinterested arbitrator as shall be agreed upon by the parties to the
dispute, which arbitrator shall determine the rules to govern the arbitration
proceedings. Each party shall bear its own costs and expenses incurred by it in
connection with the arbitration; all other costs, including arbitrators' fees
and expenses, shall be borne equally by the parties. Notwithstanding the
foregoing, if the arbitrator determines that one party acted unreasonably and
not in good faith, the arbitrator shall have authority to assess the costs and
expenses of the arbitration, including the arbitrator's fee and reasonable
attorneys' fees, against that party. In the event the parties are unable to
agree upon an arbitrator within ten business days of the date a notice
requesting arbitration is delivered, the arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American
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Arbitration Association ("AAA"). If arbitration is conducted pursuant to the
rules of the AAA, then the controversy or claim shall be decided by a board of
three arbitrators. Each of Buyer and Seller shall select one arbitrator within
ten business days of a demand for arbitration being made or, in the event of a
party's failure to so select, an arbitrator shall be named for that party by the
AAA. Within ten business days of their selection, the two arbitrators so
selected shall select a third arbitrator from the National Panel of Arbitrators
maintained by the AAA or as they otherwise shall agree. All arbitrators, however
selected, shall possess such experience in, and knowledge of, the subject area
of the controversy or claim so as to qualify as an "expert" with respect to such
subject matter. (For example, any claim or controversy involving financial or
accounting issues shall be decided by certified public accountants.) Any
arbitration hearing shall be held in Orange County, California, unless the
parties to the dispute agree otherwise. Any award rendered by arbitration shall
be final and binding on the parties, and judgment thereon may be entered in any
court of competent jurisdiction. Notwithstanding any arbitration rules to the
contrary, the award of the arbitrator must be made no later than three (3)
months following the date on which the arbitrator or arbitrators are appointed,
unless the issue is the subject of litigation brought by a third party and the
arbitrator deems it appropriate to defer his award until the litigation is
resolved.
ARTICLE 10
TERMINATION
10.1 Mutual Agreement. This Agreement may be terminated at any time
prior or to the Closing Date by the written agreement of the parties hereto.
10.2 Termination by Buyer. This Agreement may be terminated by
Buyer if on the Closing Date the conditions set forth in Article 7 of this
Agreement shall not have been satisfied by Seller or waived by Buyer, or as
otherwise expressly provided herein.
10.3 Termination by Seller. This Agreement may be terminated by
Seller if on the Closing Date the conditions set forth in Article 8 of this
Agreement shall not have been satisfied by Buyer or waived by Seller, or as
otherwise expressly provided herein.
10.4 Effect of Termination. In the event that this Agreement is
terminated pursuant to Sections 10.1, 10.2, or 10.3, this Agreement shall,
except as otherwise expressly provided herein, become null and void and no party
hereto shall have any further rights, obligations or liabilities hereunder.
Except as otherwise expressly provided herein, any party damaged may bring an
action against any party who failed to act in good faith in completing this
transaction, and except further that the parties shall, for a period of three
years from the date hereof, continue to hold confidential the information which
is of a confidential or
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proprietary nature, furnished to them by other parties hereto in connection with
this transaction.
ARTICLE 11
COSTS
11.1 Finder's or Broker's Fees. Seller represents to Buyer that it
or any of its Affiliates has not made any arrangement or had any dealings
whereby Valence, and/or any of the Valence Subsidiaries or Buyer could become
subject, absolutely or contingently, to a claim for any brokerage commission or
finder's fee. Buyer represents to Seller that it has not made any arrangement or
had any dealings whereby Seller, Valence and/or any of the Valence Subsidiaries
could become subject, absolutely or contingently, to a claim for any brokerage
commission or finder's fee. Seller on the one hand, and Buyer on the other hand,
each agree to indemnify and hold harmless the other against any and all claims,
demands, losses, costs, expenses, obligations, liabilities, damages, recoveries,
and deficiencies, including interest, penalties, and reasonable attorneys fees,
incurred or suffered by reason of any brokerage commission or finder's fee
alleged to be payable because of any act, omission or statement of the
indemnifying party.
11.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, except with respect to damages due a party as
provided under Section 10.4, each party shall pay its own fees and expenses
incident to the negotiation, preparation, execution, delivery, and performance
hereof, including, without limitation, the fees and expenses of its respective
counsel, accountants, and other experts.
11.3 Audit Fees. Seller represents that it shall pay 55% of the
fees and expenses of a reputable independent auditing firm acceptable to Buyer
and Seller to (a) provide to Buyer and Valence consolidated financial statements
of Valence and the Valence subsidiaries for the fiscal year ended March 31,
1997, pursuant to H.K. GAAP, and (b) reconcile such consolidated financial
statements to U.S. GAAP.
ARTICLE 12
DEFINITIONS AND ACCOUNTING TERMS
12.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
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"Affiliate" (and, with a correlative meaning, "Affiliated")
shall mean, with respect to any Person, any other Person that directly, or
through one or more intermediaries, controls or is controlled by or is under
common control with such first Person, and, if such a Person is an individual,
any member of the immediate family of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "control" (including, with correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), and "immediate family" shall
mean parents, spouse and children.
"Agreement" means this Stock Purchase Agreement as from time
to time amended and in effect between the parties.
"Buyer" means and shall include SRS Labs, Inc., a Delaware
corporation, and its successors and assigns.
"BVI" means the British Virgin Islands.
"Closing Date" means a date on or before March 3, 1998 (Hong
Kong), as may be mutually agreed upon in writing by Buyer and Seller.
"Consolidated" when used with reference to any term defined
herein shall, except as otherwise specifically provided, mean that term as
applied to the accounts of Valence and the Valence Subsidiaries consolidated in
accordance with U.S. GAAP.
"Corporate Balance Sheet" means the unaudited Consolidated
corporate balance sheet of Valence at March 31, 1997, prepared in accordance
with H.K. GAAP and which is attached hereto as Exhibit "12.1."
"Exchange Act" means the U.S. Securities Exchange Act of 1934,
or any similar federal statute, and the rules and regulations of the Securities
and Exchange Commission (or of any other U.S. federal Agency then administering
the Exchange Act) thereunder, all as the same shall be in effect at the time.
"Hong Kong" means the Hong Kong Special Administrative Region
of the People's Republic of China.
"H.K. GAAP" means Hong Kong generally accepted accounting
principles after eliminating intercompany items and minority interests.
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"Person" means an individual, corporation, partnership, joint
venture, association, joint stock company, trust, estate of a deceased natural
person, foundation, fund, institution, society, union or club or unincorporated
organization, or a government or any agency or political subdivision thereof.
"PRC" means the People's Republic of China.
"Securities Act" means the U.S. Securities Act of 1933, as
amended, or any similar U.S. federal statute, and the rules and regulations of
the U.S. Securities and Exchange Commission (or of any other Federal agency then
administering the Securities Act) thereunder, all as the same shall be in effect
at the time.
"U.S. GAAP" means U.S. generally accepted accounting
principles after eliminating intercompany items and minority interests.
"Valence Financial Statements" means (i) the audited financial
statements of each of Valence and the Valence Subsidiaries for the year ended
March 31, 1997, prepared in accordance with H.K. GAAP, together with the report
thereon by Coopers & Lybrand, (ii) the pro forma Consolidated financial
statements of Valence and the Valence Subsidiaries for the year ended March 31,
1997, prepared in accordance with H.K. GAAP, together with the report thereon by
a reputable independent auditing firm acceptable to Buyer and Seller and (iii)
unaudited pro forma Consolidated financial statements of Valence and the Valence
Subsidiaries for the nine-month period ended December 31, 1997, prepared by
Deloitte and Touche LLP.
"Valence Shares" means the ordinary shares of U.S. $0.13 par
value per share, of Valence Technology, Inc. which are held of record and
beneficially by Seller and which are the subject of purchase by Buyer pursuant
to this Agreement.
"Valence Subsidiary" or "Valence Subsidiaries" means any
corporation, 50% or more of the outstanding voting stock of which shall at the
time be owned by Valence or by one or more of Valence's subsidiaries, or any
other entity or enterprise, 50% or more of the equity of which shall at the time
be owned by Valence or by one or more of Valence's subsidiaries.
12.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with U.S. GAAP, and all other
financial data submitted pursuant to this Agreement shall be prepared and
calculated in accordance with such principles.
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ARTICLE 13
MISCELLANEOUS
13.1 Headings. The subject headings of the Articles and Sections of
this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
13.2 Entire Agreement; Modification; Waiver. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
13.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.4 Parties in Interest. Nothing in this Agreement, whether
express or implied, is intended to:
(a) confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns;
(b) relieve or discharge any obligation or liability of any
third persons to any party to this Agreement; or
(c) confer upon any third person any right of subrogation or
action over or against any party to this Agreement.
13.5 Assignment. This Agreement shall be binding on and shall inure
to the benefit of the parties to it and their respective heirs, legal
representatives, successors, and assigns. This Agreement may not be assigned by
any party except with the written consent of the other party to this Agreement.
13.6 Notices. All notices, payments (other than at Closing),
requests, demands, and other communications under this Agreement shall be in
writing and shall be deemed to have been given if personally delivered or if
sent by telegraph or facsimile or
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mailed by first class, registered or certified mail, postage prepaid, and
properly addressed as follows:
If to Seller: North 22 Capital Partners 2, Inc.
c/o North 22 International Inc.
23/F Citicorp Centre
18 Whitfield Road
Causeway Bay, Hong Kong
Fax: (852) 2508-0868
Attention: Michael Ng
With a copy to: Jones, Day, Reavis & Pogue
29th Floor, Entertainment Building
30 Queen's Road Central, Hong Kong
Fax: (852) 2868-5871
Attention: Benedict Tai, Esq.
If to Buyer: SRS Labs, Inc.
2909 Daimler Street
Santa Ana, California 92705
Fax: (714) 852-1099
Attention: John AuYeung, Director
With a copy to: Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
Seventeenth Floor
Costa Mesa, California 92626-1924
Fax: (714) 979-1921
Attention: John F. Della Grotta, Esq.
Any party may change its address for purposes of this Article by giving the
other parties written notice of the new address in the manner set forth above.
Notice will conclusively be deemed to have been given when personally delivered,
or if given by mail, on the second day after being sent by an overnight,
commercial air courier service or on the fifth day after being sent by first
class, registered or certified mail, or if given by telecopy or facsimile
machine, when confirmation of transmission is indicated by the sender's telecopy
or facsimile machine.
13.7 Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the conflicts of law principles thereof.
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13.8 Venue. The parties hereby irrevocably and unconditionally
consent to submit to the exclusive jurisdiction of the courts of the State of
California, County of Orange, and/or the United States District Court for the
Central District of California (Southern Division) for any actions, suits,
controversies or proceedings arising out of or relating to this agreement and
the transactions contemplated hereby (and the parties agree not to commence any
action, suit or proceeding relating thereto except in such courts), and further
agree that service of any process, summons, notice or document by U.S.
registered mail to the respective addresses set forth above shall be effective
service of process for any action, suit or proceeding brought against the
parties in any such court. The parties hereby irrevocably and unconditionally
waive any objection to the laying of venue of any action, suit, controversies or
proceeding arising out of this agreement or the transactions contemplated
hereby, in the courts of the State of California, County of Orange and/or the
United States District Court for the Central District of California (Southern
Division), and hereby further irrevocably and unconditionally waive and agree
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient or improper forum.
13.9 Prior Agreements. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
13.10 Further Assurances. Seller will from time to time subsequent
to the Closing Date, at Buyer's request and without further consideration,
execute and deliver such other instruments of conveyance, assignment, and
transfer, and take such other actions, as Buyer may reasonably request in order
to more effectively convey, assign, transfer to and vest in Buyer the Valence
Shares.
13.11 Gender. All pronouns used herein shall, regardless of gender,
include all genders, as required by the context.
13.12 Validity; Severability. Each Article, section, subsection and
lesser section of this Agreement constitutes a separate and distinct
undertaking, covenant and/or provision hereof. Whenever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law. In the event that any provision of this Agreement
shall be determined to be unlawful, invalid or unenforceable, such provision
shall be deemed severed from this Agreement, but every other provision of this
Agreement shall remain in full force and effect. In substitution for any
provision of this Agreement held unlawful, invalid or unenforceable, there shall
be substituted a provision of similar import reflecting the original intent of
the parties hereto to the fullest extent permissible under law.
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13.13 Press Release. Seller shall not release a press release
relating to this Agreement or any of the transactions or documents contemplated
hereby without first submitting a copy of such press release to Buyer and
obtaining the prior approval of Buyer to any such press release, which approval
shall not be unreasonably withheld.
13.14 Tax Elections. At Buyer's option, Seller agrees to cooperate
with and assist Buyer (both before and after the Closing) in structuring the
purchase of the Valence Shares to achieve the tax results desired by Buyer for
both United States and Hong Kong income tax purposes, including but not limited
to, the filing of any necessary tax elections, agreeing to any corporate
liquidation, merger, distribution or sale of assets or any other action
requested of Seller by Buyer, to the extent such cooperation or action does not
cause an increase in Seller's aggregate Hong Kong income tax liability on the
sale of the Valence Shares. Seller and Buyer further agree that this Agreement
is intended to constitute a purchase of stock for United States income tax
purposes and is not intended to constitute a reorganization, as such term is
defined in section 368(a)(1) of the Internal Revenue Code of 1986, as amended.
Buyer shall indemnify Seller against any Loss (as defined in Section 9.1 herein)
arising from this Section 13.14.
13.15 Statutory Books and Records. After the Closing, Seller agrees
to cooperate, or use its best efforts to cause its Affiliates and others to
cooperate, with and assist Buyer to make all necessary or appropriate
corrections, amendments and modifications to the statutory books and records of
each of the Valence Subsidiaries as required by applicable law.
(signature page follows)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BUYER
SRS LABS, INC., a Delaware company
By: /s/ THOMAS C.K. YUEN
-------------------------------------
Thomas C.K. Yuen, Chairman of the
Board and Chief Executive Officer
SELLER
NORTH 22 CAPITAL PARTNERS 2, INC., a
British Virgin Islands company
By: ASIAN TECHNOLOGY HOLDING
LIMITED, a Britain Virgin Islands company
By: /s/ NG WAI SANG
--------------------------------------
Ng Wai Sang
Director
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EXHIBIT 2.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is entered
into as of March 2, 1998 by and among SRS LABS, INC., a Delaware corporation
(the "Company"), THOMROSE HOLDINGS (BVI) LIMITED, a British Virgin Islands
company ("Thomrose"), CAPE SPENCER INTERNATIONAL LIMITED, British Virgin Islands
company ("Cape"), and RAYFA (BVI) LIMITED, a British Virgin Islands company
("Rayfa").
R E C I T A L S
A. Pursuant to that certain Stock Purchase Agreement dated
February 24, 1998 (the "Stock Purchase Agreement") by and among the Company,
Valence Technology Inc., a British Virgin Islands company, Thomrose, Cape, Rayfa
and Anki (BVI) Limited, a British Virgin Islands company, the Company shall
issue 1,805,611 shares of common stock, U.S. $.001 par value per share ("Common
Stock"), of the Company to Thomrose, Cape and Rayfa.
B. As an inducement to purchase the shares of Common Stock being
sold pursuant to the terms of the Stock Purchase Agreement (the "Shares"), the
Company desires to grant to the Purchasers the rights set forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the Stock
Purchase Agreement and in this Agreement, the Company and the Purchasers agree
as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Holder" shall mean each Purchaser and any transferee of Registrable
Shares who, pursuant to Section 3.3 below, is entitled to registration rights
hereunder.
<PAGE> 2
"Registrable Shares" shall mean the Shares and any shares of Common
Stock issued upon any stock split, stock dividend, recapitalization or similar
event with respect to such Shares, which are not subject to that certain Escrow
Agreement dated March 2, 1998 by and among the Company and the Purchasers;
provided, however, that Registrable Shares shall cease to be Registrable Shares
(a) after they have been resold in a transaction which does not meet the
requirements for the assignment of registration rights as set forth in Section
3.3 hereof or (b) three (3) years from the date of this Agreement, whichever is
earlier.
"Rule 144" shall mean Rule 144 under the Securities Act, as such
rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
ARTICLE II
REGISTRATION RIGHTS
2.1 Demand Registration Rights.
(a) Upon notice to the Company by any Holder or group of
Holders (the "Initiating Holders") holding at least a majority of the
Registrable Shares outstanding as of the date of this Agreement (as adjusted for
stock splits, stock dividends, recapitalizations or similar events after the
date hereof), given during the period beginning on the date hereof and ending
three (3) years from the date hereof (the "Registration Period"), requesting
registration for sale of a specified number of Registrable Shares, the Company
shall, as promptly as practicable, prepare and file with the SEC under the
Securities Act, a registration statement on Form S-3 (to the extent that the
Company is eligible to use such form) with respect to the Registrable Shares to
which such notice relates, and shall use its best efforts to cause such
registration statement to be declared effective at the earliest practicable
date. Thomrose, Cape, Rayfa and Anki shall each have no more than one (1)
request for registration pursuant to this Section 2.1(a).
(b) The Company may delay, for a period of up to ninety (90)
days, the filing of a registration statement requested pursuant to Section
2.1(a) if, in its judgment, (i) the filing of such registration statement at
such time would adversely affect a proposed financing, reorganization or
recapitalization, or pending negotiations relating to a merger, consolidation,
acquisition or similar transaction involving the Company or its affiliates, or
otherwise adversely affect the Company or its affiliates, or (ii) financial
statements meeting the requirements of Regulation S-X are not available at such
time because of any such pending proposal or negotiations.
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<PAGE> 3
(c) The Company shall not be required to file a registration
statement requested pursuant to Section 2.1(a) if such request is made within
six (6) months after the effective date of a registration statement filed
pursuant to a previous request by any holder of shares of Common Stock
possessing a demand registration right.
(d) The Company shall not be required to file a registration
statement requested pursuant to Section 2.1(a) unless the notice requesting such
registration is accompanied by an opinion of counsel for the Initiating Holders
to the effect that there is at least a substantial question as to the legality
of making an offer to the public of all of the Registrable Shares so requested
to be registered without any limitations on volume, timing or manner of sale
without the registration thereof under the Securities Act.
(e) Notwithstanding anything to the contrary herein, the
Company shall not be required to file a registration statement requested
pursuant to Section 2.1(a) unless the Registrable Shares so requested to be
registered have a fair market value (determined by the average closing
quotations of Common Stock on the Nasdaq Stock Market, Inc. on the date the
notice requesting such registration is received by the Company) of at least
$1,000,000.
2.2 Piggyback Registration Rights.
(a) Whenever at any time during the Registration Period, the
Company proposes to register any of its securities under the Securities Act
(other than on Forms S-4 or S-8 or a registration statement on Form S-1 covering
an employee benefit plan), it shall each time give prompt written notice to each
Holder of its intention to do so and, upon the written request of each such
Holder given within thirty (30) days after the giving of any such notice (which
request shall state the proposed method of distribution of such shares of Common
Stock), the Company shall include in the proposed registration (the "Proposed
Registration") all Registrable Shares with respect to which the Company has
received a written request from each such Holder for inclusion therein within
thirty (30) days after receipt of the Company's notice. Except as may otherwise
be provided in this Agreement, Registrable Shares with respect to which such
request for registration has been received will be registered by the Company and
offered to the public pursuant to this Section 2.2 on the same terms and subject
to the same conditions as are applicable to the Proposed Registration.
(b) If the managing underwriter or underwriters advise the
Company that in its or their opinion or, in the case of a Proposed Registration
not being underwritten, the Company shall reasonably determine after
consultation with a reputable investment banking firm that, the number of shares
proposed to be sold in a registration statement exceeds the number which can be
reasonably sold in such offering, the Company will include in such registration
the number of shares of Common Stock which, in the opinion of such underwriter
or underwriters, or the Company, as the case may be, can be sold, as follows:
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<PAGE> 4
(i) if the registration is pursuant to a demand
registration right, pursuant to Section 2.1 of this Agreement, shares shall be
included in such registration in the following order: (x) first, the number of
shares of Common Stock subject to registration rights proposed to be sold by the
requesting stockholders and (y) second, on a pro rata basis, the number of
shares of Common Stock subject to registration rights requested by other persons
to be included in such registration;
(ii) if the registration is pursuant to a demand
registration right other than pursuant to Section 2.1 of this Agreement, shares
shall be included in such registration in the following order: (x) first, the
number of shares of Common Stock subject to registration rights proposed to be
sold by the requesting stockholders; (y) second, the number of shares of Common
Stock the Company proposes to sell; and (z) third, on a pro rata basis, the
number of shares of Common Stock subject to registration rights requested by
other persons to be included in such registration; or
(iii) if the Company proposes to register securities
other than in connection with a demand registration right, shares shall be
included in such registration in the following order: (x) first, the number of
shares of Common Stock the Company proposes to sell and (y) second, on a pro
rata basis, the number of shares of Common Stock subject to registration rights
requested by other persons to be included in such registration.
(c) If, after complying with the procedures specified in
Section 2.2(b), not all the number of shares of Common Stock subject to
registration rights requested by the stockholders are included in such
registration, the Company will use its best efforts to effect a separate
registration of such shares of Common Stock, and the Company shall use its best
efforts to cause such separate registration to become effective not later than
one hundred twenty (120) days after the effective date of the Proposed
Registration. Notwithstanding anything herein to the contrary, the Company may,
to the extent then permitted by applicable law, at any time prior to the
effective date of the Proposed Registration, determine in its sole discretion
not to effect such registration, in which event the Company shall have no
further obligation under this Section 2.2 to register shares of Common Stock
under such Proposed Registration, except that the Company shall reimburse the
stockholders for any out-of-pocket fees and expenses incurred by them in
connection with such Proposed Registration.
2.3 Registration Procedures.
(a) Whenever the Company is required by the provisions of
this Article II to include Registrable Shares in a Proposed Registration, the
Company shall (unless it shall have determined to withdraw or abandon the
Proposed Registration), as expeditiously as possible:
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<PAGE> 5
(i) Cooperate with the Holders and any underwriter
responsible for the sale of Registrable Shares in their review of the Company in
connection with such registration;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
one hundred eighty (180) days from the day of its effectiveness and any
additional period as is necessary to correct any of the conditions referred to
in Section 2.3(a)(v)(A) or (B) below (the "Period of Availability") and to
comply with the provisions of the Securities Act and the Exchange Act, with
respect to the disposition of all securities covered by such registration
statement for such periods. At the expiration of the Period of Availability, the
Company may file a post-effective amendment to such registration statement to
deregister any unsold Registrable Shares;
(iii) Furnish to each Holder selling Registrable Shares
pursuant to the registration statement (a "Public Selling Stockholder"), without
charge, such number of copies of the prospectus forming a part of such
registration statement (including each preliminary prospectus) as conforms with
the requirements of the Securities Act, and such other documents as such Public
Selling Stockholder may reasonably request in order to facilitate the
disposition of such securities;
(iv) Use its best efforts to register or qualify the
securities covered by such registration statement under the securities or blue
sky laws of such jurisdictions as counsel for the Public Selling Stockholders
shall reasonably request, and do any and all other acts and things which may be
necessary or advisable to enable the Public Selling Stockholders, or any
underwriter offering such securities for the Public Selling Stockholders, to
consummate the disposition thereof in such jurisdiction; provided, however, that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits other than those arising out of the
offer or sale of the securities covered by such registration statement in any
jurisdiction where it is not now so subject;
(v) (A) Notify the Public Selling Stockholders, any
time a prospectus relating the Registrable Shares is required to be delivered
under the Securities Act, of the happening of any event as a result of which the
prospectus forming a part of such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and (B) at the
request of the Public Selling Stockholders, prepare and furnish the Public
Selling Stockholders, without charge, with a reasonable number of copies of any
supplement to or any amendment of such prospectus that may be necessary so that,
as thereafter delivered to the purchasers of such securities, such prospectus
shall not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
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<PAGE> 6
make the statements therein not misleading in the light of the circumstances
then existing; and
(vi) If appropriate under the circumstances, enter into
an underwriting agreement, in the form then customarily used by the underwriters
managing the public offering and consistent with the provisions of this Article
II, with the underwriters of the securities covered by such registration
statement.
(b) Each Public Selling Stockholder shall notify the
Company, any time a prospectus relating to the Registrable Shares is required to
be delivered under the Securities Act, of the happening of any event relating to
such Public Selling Stockholder, the Registrable Shares or the extended method
of disposition of such securities, as a result of which such prospectus includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing. Each Public Selling
Stockholder shall furnish the Company with such information regarding the
Registrable Shares and the intended method of disposition of such securities as
the Company shall reasonably request and as shall be required in connection with
the action to be taken by the Company.
2.4 Allocation of Expenses. Whenever the Company is required by
the provisions of this Article II to use its best efforts to effect the
registration of any shares of Common Stock under the Securities Act, the Company
shall pay all Registration Expenses in connection with any such registration.
"Registration Expenses" means all expenses incurred by the Company in complying
with this Article II, including, without limitation, all registration and filing
fees, printing expenses, expenses of complying with state securities or blue sky
laws, fees and disbursements of separate counsel for the Company and
accountants' fees and expenses incident to or required by any such registration.
All fees and disbursements of separate counsel for the Holders and counsel for
the underwriters and all other expenses of the Holders (including travel
expenses) shall be borne by the Holders. The underwriting commissions or
discounts shall be borne pro rata by the sellers of Common Stock pursuant to
such registration statement, based on the number of shares of Common Stock
offered by each such seller (unless otherwise agreed by such sellers).
Notwithstanding the foregoing, the fees and disbursements of counsel for the
underwriters in a public offering pursuant to Section 2.2 in which the Company
is selling securities shall be borne by the Company. In the event that any
Holder requests any special or interim audit of the financial statements of the
Company, any of its subsidiaries or affiliates or any other entity or person be
conducted in order that the financial statements to be contained in the
registration statement contemplated by Section 2.1 meet the requirements of
Regulation S-X, such Holder shall reimburse the Company for the cost of any such
special or interim audit; provided, however, that if the Company shall then have
a class of securities registered under the Exchange Act, the Company shall pay
the costs of meeting the requirements of Regulation S-X in connection with its
regular year-end and quarterly financial statements.
2.5 Indemnification. In connection with any registration of
Registrable Shares pursuant to this Article II:
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<PAGE> 7
(a) The Company agrees to indemnify and hold harmless each
Holder and each underwriter (within the meaning of the Securities Act) with
respect to such Holders' Registrable Shares, and each person, if any,
controlling (within the meaning of the Securities Act) such Holder or any such
underwriter and each director or officer of each of the foregoing, from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such Holder, underwriter, controlling person, director or officer or any
of them may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in such registration statement, or in any
post-effective amendment thereto, or in any preliminary prospectus or prospectus
thereunder, or in any supplement to any such prospectus, or arise out of or are
based upon the omission or alleged omission to state in any of the foregoing
documents a material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such indemnified
party for any legal or any other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or proceeding; provided, however, that (i) the Company shall not be
liable to any such Holder or any such underwriter, controlling person, director
or officer in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any of the foregoing documents
in reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such Holder or any underwriter with respect to the
Registrable Shares, any person controlling such Holder or any such underwriter,
as the case may be, specifically for use in the preparation of any such
documents, and (ii) the Company shall not be liable to any such underwriter,
controlling person, director or officer, or in the case of a registration
pursuant to Section 2.1 hereof, such Holder, to the extent that such statement
or omission was contained in a preliminary prospectus and corrected in final or
amended or supplemented prospectus and such Holder or any such underwriter
failed to deliver a copy of such final or amended or supplemented prospectus to
the person suing on the basis of such statement or omission within the time
required by the Securities Act; and provided, further, that the Company shall
not be required to indemnify any such underwriter unless such underwriter shall
have delivered to the Company its written agreement (i) to indemnify the
Company, each of its directors, each officer of the Company who shall have
signed such registration statement or any amendment thereto, each person named
in such registration statement or any amendment thereto as about to become a
director of the Company, and each person controlling the Company in a like
manner as that provided with respect to the Public Selling Stockholders in
Section 2.5(b) (insofar as any actual or alleged untrue statement or omission is
made in any of the foregoing documents in reliance upon and in conformity with
any information furnished in writing to the Company by or on behalf of such
underwriter expressly for use in the preparation of any such documents), and
(ii) to be bound by the provisions of Section 2.5(c).
(b) Each Public Selling Stockholder hereby agrees to
indemnify and hold harmless the Company, each of its directors, each officer of
the Company who shall sign any registration statement under which Registrable
Shares held by the Company are
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<PAGE> 8
registered or any amendment thereto, each person named in any such registration
statement or amendment as about to become a director of the Company, and each
person controlling (within the meaning of the Securities Act) the Company from
and against any and all losses, claims, damages or liabilities, joint or
several, to which the Company or any of them may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, or any post-effective amendment thereto or in any
preliminary prospectus or prospectus thereunder, or in any supplement to any
such prospectus, or arise out of or are based upon the omission or alleged
omission to state in any of the foregoing documents a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
each case to the extent but only to the extent that such statement or omission
was made in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of such Public Selling Stockholder
expressly for use in the preparation of any of such documents, and agrees to
reimburse each such indemnified party for any legal or any other expenses
reasonably incurred by it in connection with the investigation or defending any
such loss, claim, damage, liability or proceeding; provided, however, that (a)
such Public Selling Stockholder shall have no liability for any untrue
statements or omissions as to which such Public Selling Stockholder shall have
timely notified the Company in writing and the Company shall have thereafter
failed to correct in the final prospectus or a supplement to the prospectus, and
(b) the liability of each Public Selling Stockholder under these indemnification
provisions shall be limited to an amount equal to the public offering price of
the shares sold by such Public Selling Stockholder, unless such liability arises
out of or is based on willful misconduct by such Public Selling Stockholder.
(c) Promptly after receipt by an indemnified party under
Section 2.5(a) or 2.5(b) of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under either such subsection, notify the indemnifying party
in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
which it may have to any indemnified party except to the extent the indemnifying
party has been actually prejudiced by such omission. In case any such action
shall be brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein, and, to the extent that it shall wish, jointly
with any other indemnifying party, similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 2.5 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
(d) If, for any reason, the indemnification provided for in
Section 2.5(a) and in Section 2.5(b) is not available to the indemnified
parties, then the
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indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect not only the relative benefits received
by the indemnified party and the indemnifying party, but also the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations.
ARTICLE III
GENERAL PROVISIONS
3.1 Attorneys' Fees. In any action, litigation or proceeding
between the parties arising out of or in relation to this Agreement, the
prevailing party in such action shall be awarded, in addition to any damages,
injunctions or other relief and without regard to whether or not such matter be
prosecuted to final judgment, such party's costs and expenses, including
reasonable attorneys' fees. Such award shall include post-judgment attorneys'
fees and costs and the same shall not be deemed as merged into the final
judgment.
3.2 Termination. This Agreement shall terminate in its entirety
upon the earlier of (a) the occurrence of a sale of the Company (including by
way of merger or a sale of substantially all of its assets) or (b) three (3)
years from the date hereof. Notwithstanding the foregoing, the provisions of
Section 2.5 shall survive the termination of this Agreement.
3.3 Assignment of Registration Rights. The right to cause the
Company to register Registrable Shares pursuant to Article II may be assigned to
a transferee or assignee who acquires more than one-half of the shares of
Registrable Shares originally held by Thomrose, Cape, Rayfa or Anki,
respectively (as adjusted for stock splits, stock dividends, recapitalizations
or similar events after the date hereof), provided that the Company is given
written notice of such assignment prior to such assignment.
3.4 Further Assurances. Each of the parties hereto shall, during
the term hereof, take all actions necessary to effectuate the purposes and
intent hereof.
3.5 No Third Party Beneficiaries. Except as otherwise specifically
provided herein (e.g., Article II), the parties hereto together with any persons
or entities entitled to indemnification hereunder shall have the sole right to
enforce the performance of the provisions of this Agreement, and no other person
shall be entitled to, or shall have any claim, right, title or interest to or in
any such matters by virtue of this Agreement.
3.6 Amendments; Waiver. No amendment of or modification to this
Agreement shall be effective unless it shall be in writing and signed by the
Company and by Holders holding at least a majority of the issued and outstanding
shares of Common Stock held in the aggregate by such Holders. No waiver of any
provision of this Agreement shall be effective unless contained in a writing
referred specifically to such provision and signed by the party against whom the
waiver is alleged.
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3.7 Notices. All notices or other communication required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent by telex, cable, facsimile or telecopy, or sent postage prepaid, by
first class, registered or certified mail, or sent by reputable overnight
courier service, and shall be deemed given when so delivered by hand, upon
confirmation of transmission if sent by telex, cable, facsimile or telecopy, or
if mailed, five (5) days after being sent by first class, registered or
certified mail, or if sent by reputable overnight courier service, on the second
day after being sent, as follows, or to such other address as may be hereafter
designated by the respective parties hereto in accordance with these notice
provisions:
(i) if to the Company:
SRS Labs, Inc.
2909 Daimler Street
Santa Ana, California 92705
Fax: (714) 852-1099
Attention: John AuYeung, Director
with a copy by the same means to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
Seventeenth Floor
Costa Mesa, California 92626
Fax: (714) 979-1921
Attention: John F. Della Grotta, Esq.
(ii) If to any Purchaser,
c/o Valence Technology Inc.
Unit 413 4th Floor
Hong Kong Industrial Technology Center
72 Tat Chee Avenue
Kowloon Tong, Hong Kong
Fax: (852) 2776-7770
with a copy by the same means to:
Milbank, Tweed, Hadley & McCloy
3007 Alexandra House
16 Chater Road
Hong Kong
Fax: (852) 2840-0792
Attention: Douglas Tanner, Esq.
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3.8 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
3.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
3.10 Entire Agreement. This Agreement, together with the Stock
Purchase Agreement, contain the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings relating to such subject matter.
3.11 Severability. If any provision of this Agreement or the
application of any such provision to any person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
3.12 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without regard
to its conflicts of law principles.
3.13 Venue. As part of the consideration for the Company's grant of
the registration rights provided for herein, the parties hereby irrevocably and
unconditionally consent to submit to the exclusive jurisdiction of the courts of
the State of California, County of Orange, and/or the United States District
Court for the Central District of California (Southern Division) for any
actions, suits, controversies or proceedings arising out of or relating to this
agreement and the transactions contemplated hereby (and the parties agree not to
commence any action, suit or proceeding relating thereto except in such courts),
and further agree that service of any process, summons, notice or document by
U.S. registered mail to the respective addresses set forth above shall be
effective service of process for any action, suit or proceeding brought against
the parties in any such court. The parties hereby irrevocably and
unconditionally waive any objection to the laying of venue of any action, suit,
controversies or proceeding arising out of this agreement or the transactions
contemplated hereby, in the courts of the State of California, County of Orange
and/or the United States District Court for the Central District of California
(Southern Division), and hereby further irrevocably and unconditionally waive
and agree not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient or
improper forum.
(Signature Page Follows)
-11-
<PAGE> 12
[SIGNATURE PAGE -- REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
"COMPANY" SRS LABS, INC., a Delaware corporation
By: /s/ THOMAS C.K. YUEN
---------------------------
Thomas C.K. Yuen,
Chairman of the Board and Chief
Executive Officer
"PURCHASERS" THOMROSE HOLDINGS (BVI)
LIMITED, a British Virgin Islands
company
By: /s/ THOMAS WAH TONG WAN
-----------------------------
Thomas Wah Tong Wan
Director
CAPE SPENCER INTERNATIONAL
LIMITED, a British Virgin Islands
company
By: /s/ WONG YIN BUN
-----------------------------
Wong Yin Bun
Director
(Signatures Continued on Following Page)
-12-
<PAGE> 13
RAYFA (BVI) LIMITED, a British
Virgin Islands company
By: /s/ CHOI YAT MING
--------------------------
Choi Yat Ming
Director
-13-
<PAGE> 1
EXHIBIT 2.4
ESCROW AGREEMENT
This Escrow Agreement (this or the "Agreement") is made and entered
into as of March 2, 1998 by and among SRS Labs, Inc., a Delaware corporation
("SRS"), Thomrose Holdings (BVI) Limited ("Thomrose"), Cape Spencer
International Limited ("Cape") and Rayfa (BVI) Limited ("Rayfa"), the former
shareholders of Valence Technology Inc., a British Virgin Islands company
("Valence"), Thomas Wah Tong Wan, as the Shareholders' Representative, and
Harris Trust Company of California (the "Escrow Holder"). For purposes of this
Agreement, unless otherwise specified, Thomrose, Cape and Rayfa shall be
referred to as the "Shareholders."
RECITAL
Pursuant to a certain Stock Purchase Agreement (the "Stock Purchase
Agreement") dated February 24, 1998 by and among SRS, Valence, the Shareholders
and Anki (BVI) Limited, SRS is acquiring all of the capital stock of Valence
held by the Shareholders in exchange for U.S. $13,500,000, payable U.S.
$1,394,222.40 cash and the remainder in shares of the voting common stock, $.001
par value, of SRS (the "SRS Stock"). This Agreement is being entered into
pursuant to Section 1.2(c) of the Stock Purchase Agreement for the purpose of
securing for SRS certain obligations of the Shareholders under the Stock
Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which is acknowledged by
each party, it is agreed as follows:
1. ESCROW DEPOSIT
1.1 Simultaneously with the execution and delivery of this Agreement,
each of the Shareholders is delivering to the Escrow Holder a stock certificate,
or certificates, registered in the name of the Shareholder representing its
beneficial ownership of the number of shares of SRS Stock set forth after the
name of such Shareholder on Schedule A attached hereto and incorporated herein,
together with a stock power duly executed in blank. The Escrow Holder hereby
acknowledges receipt of such certificates and stock powers.
<PAGE> 2
1.2 As used herein, the term "Escrow Deposit" means (a) the aggregate
shares being delivered to the Escrow Holder as described in Section 1.1 hereof
and (b) all distributions received by the Escrow Holder pursuant to Section 1.3
hereof.
1.3 The Shareholders hereby authorize delivery directly to the Escrow
Holder (and agree that they will deliver to the Escrow Holder if they shall
first receive the same) to be held as part of the Escrow Deposit hereunder, all
dividends in the form of cash, stock or other securities and other distributions
on or with respect to the SRS Stock held in the Escrow Deposit. All cash
distributions shall be held by the Escrow Holder in an interest bearing account.
1.4 While the Escrow Deposit is held in escrow hereunder, the
Shareholders will have all rights, including voting rights, with respect thereto
except (a) the right to receive dividends and cash distributions, if any, as set
forth in Section 1.3, and (b) the right of possession.
1.5 All transfers by the Escrow Holder of any portion of the Escrow
Deposit to SRS in accordance with the provisions of this Agreement shall be
drawn (a) from the respective interests of the Shareholders in the Escrow
Deposit set forth on Schedule A for Claims relating to a breach of a
representation and warranty under Article 2 of the Stock Purchase Agreements
(several not joint liability) and (b) from the respective interests of the
Shareholders in the Escrow Deposit as set forth in Schedule A hereto in the
manner specified by SRS (joint and several liability) for Claims relating to all
other actions brought against SRS arising out of or related to the Stock
Purchase Agreement. The Escrow Holder shall have no duty or obligation to
calculate or verify any instruction made by SRS pursuant to this Section 1.5
2. DELIVERY OF ESCROW DEPOSIT BY THE ESCROW HOLDER
The Escrow Holder shall hold the Escrow Deposit in escrow until authorized
hereunder to deliver the same or any portion thereof, as follows:
2.1 Promptly after the expiration of a period of one year from the date
hereof, the Escrow Holder shall deliver to the Shareholders, free and clear of
any interest of SRS therein, all of the Escrow Deposit then held by the Escrow
Holder, other than any portion of the Escrow Deposit asserted by SRS as then
being held in respect of any claim or claims against the Shareholders arising
out of or related to the Stock Purchase Agreement ("Claim(s)"), pursuant to
Section 2.2 hereof or then deliverable to SRS pursuant to Section 2.3 hereof.
2.2 At any time during the one year period commencing from the date
hereof, SRS may give written notice to the Escrow Holder that SRS is asserting a
Claim against
-2-
<PAGE> 3
the Shareholders, and such notice shall constitute the assertion of such Claim
by SRS against the Escrow Deposit held in escrow hereunder. Notice of a Claim
given to the Escrow Holder pursuant to this Section 2.2 shall briefly set forth
the basis of the Claim and, if then determinable by SRS, a reasonable estimate
of the amount thereof and the number of shares of SRS Stock, valued in
accordance with Section 3.2, to be retained in the Escrow Deposit to secure such
Claim. If the estimated amount of a Claim is not set forth in the notice of the
Claim given to the Escrow Holder, SRS will give a further notice to the Escrow
Holder setting forth SRS' estimate of the amount of such Claim promptly after it
is reasonably able to make such estimate. Promptly after receipt thereof, the
Escrow Holder shall send to the Shareholders' Representative (referred to in
Section 6.8 below) in the same manner as is provided for notices by Section 6.3
hereof, a copy of any notice received by the Escrow Holder pursuant to this
Section 2.2. Upon receipt by the Escrow Holder of any such notice of a Claim,
the Escrow Holder shall hold in escrow hereunder that portion of the Escrow
Deposit which, as set forth in SRS' notice, will be sufficient to pay such Claim
and all other pending Claims hereunder (or shall hold in escrow hereunder the
entire Escrow Deposit then in its possession if (a) notice from SRS of the
estimated amount of any Claim has not been received by the Escrow Holder or (b)
such notice has been so received for all pending Claims but in SRS' opinion the
Escrow Deposit then in the Escrow Holder's possession will not be sufficient to
pay the full amount, as estimated by SRS, of all of such Claims) until there has
been a determination of all pending Claims in accordance with the provisions of
Section 3.1 hereof (a "Determination of a Claim"). If SRS does not give the
Escrow Holder notice of the estimated amount of a Claim within 60 days following
giving notice of a Claim, then the Escrow Holder shall not thereafter reserve
any Escrow Deposit for such Claim and may distribute any Escrow Deposit that
would otherwise be held for such claim upon the expiration of one year from the
date hereof if no longer required to secure a Claim as to which it shall have
received notice of the estimated amount.
2.3 Promptly after the delivery to the Escrow Holder of notice of a
Determination of a Claim in accordance with the provisions of Section 3.1(a) or
4.1 hereof (which notice shall be accompanied by a copy of any agreement, final
arbitration award, or final court order, judgment, or decree evidencing such
Determination), the Escrow Holder shall deliver to SRS, free and clear of any
interest of the Shareholders therein, that portion of the Escrow Deposit having
a value (determined in accordance with Section 3.2 hereof) equal to the amount,
if any, of such Claim payable to SRS pursuant to such Determination together
with any dividends received in cash or property with respect to such Escrow
Deposit and any interest received thereon. If the value of the Escrow Deposit
then held by the Escrow Holder is less than the amount, if any, of such Claim so
payable, the Escrow Holder shall deliver to SRS all of the Escrow Deposit then
held by it, free and clear of any interest of the Shareholders therein.
-3-
<PAGE> 4
2.4 If any Claim is asserted hereunder pursuant to Section 2.2 hereof
that does not result in a Determination of a Claim during the one year period
commencing from the date hereof, promptly after the Determination of such Claim
and the delivery to SRS of the Escrow Deposit in respect thereof in accordance
with Section 2.3 hereof, the Escrow Holder shall deliver to the Shareholders all
of the Escrow Deposit remaining in escrow hereunder, free and clear of any
interest of SRS therein.
3. DETERMINATION OF CLAIMS; VALUATION OF ESCROW DEPOSIT
3.1 The Determination of a Claim asserted hereunder pursuant to Section
2.2 hereof shall be made as follows:
(a) The Claim shall be deemed to have resulted in a Determination
in favor of SRS, and to have resulted in a liability of the Shareholders
to SRS in an amount equal to the amount of such Claim estimated by SRS
pursuant to Section 2.2 hereof, on the 60th calendar day after the Escrow
Holder receives from SRS notice of the estimated amount of such Claim
pursuant to Section 2.2 hereof, unless prior thereto the Escrow Holder has
received written notice from the Shareholders' Representative that the
Shareholders dispute the Claim. Such notice shall list all of the parties
to the dispute. Promptly after receipt of any written notice from the
Shareholders' Representative disputing any Claim, the Escrow Holder shall
send SRS a copy of such notice.
(b) If a Claim asserted hereunder is disputed by the Shareholders
in the manner provided in Section 3.1(a) hereof, the Determination of such
Claim shall be made in accordance with the provisions for the settlement
of disputes contained in Section 4.1 hereof and shall be evidenced by the
documentation referred to in such Section.
3.2 To the extent that the Escrow Deposit consists of SRS Stock, the per
share value of such shares for purposes of this Agreement shall be as follows:
(i) if such shares are then publicly traded on a national securities exchange or
the Nasdaq National Market, the average of the high and low sales prices of such
shares for each of the ten trading days prior to the date of delivery of all or
a portion of the Escrow Deposit to SRS hereunder (the "Determination Date");
(ii) if such shares are then publicly traded in the over-the-counter market, the
average of the mean between the bid and asked prices for such shares for the ten
trading days prior to the determination, or (iii) if there is no public market
for such shares, the value shall be deemed to be $7.2032 per share, unless
otherwise agreed between the parties hereto. Any determination as to the value
of the SRS Stock in the Escrow Deposit shall be calculated by SRS consistent
with this Section 3.2 and acknowledged by the Shareholders' Representative and
provided to the Escrow Holder in
-4-
<PAGE> 5
writing. The Escrow Holder shall have no duty or obligation to calculate or
verify any such valuation provided to it.
4. SETTLEMENT OF DISPUTES
4.1 Any dispute that may arise under this Agreement solely between SRS
and the Shareholders, and to which the Escrow Holder is not a party, with
respect to (a) any Claim asserted by SRS pursuant to Section 2.2 hereof; (b) the
delivery, ownership, or right to possession of the Escrow Deposit or any portion
thereof; (c) the duties of the Escrow Holder hereunder; and (d) any other
questions arising under this Agreement shall be settled by mutual agreement of
the parties to such dispute (evidenced by appropriate instructions in writing to
the Escrow Holder signed by all of the parties to such dispute) or by a binding
and final arbitration award or by a final judgment, order, or decree of a court
of competent jurisdiction in the United States of America (the time for appeal
therefrom having expired and no appeal having been perfected). The Escrow Holder
shall be under no duty to institute or defend any such proceedings and none of
the costs and expenses of any such proceedings shall be borne by the Escrow
Holder. Prior to the Determination of any dispute as provided in this Section
4.1, the Escrow Holder is authorized and directed to retain in its possession,
without liability to anyone, the portion of the Escrow Deposit that is the
subject of or involved in the dispute. Any final arbitration award or final
judgment referred to above shall be accompanied by a legal opinion of counsel
for the presenting party satisfactory to the Escrow Holder to the effect that
said arbitration award or judgment is final and enforceable and is not subject
to further appeal. The Escrow Holder shall act on such award or judgment and
opinion without further question.
4.2 Any arbitration proceedings hereunder shall be commenced by the
delivery by any party to a dispute to the other(s) of written notice requesting
arbitration. The matter shall be submitted to such disinterested arbitrator as
shall be agreed upon by the parties to the dispute, which arbitrator shall
determine the rules to govern the arbitration proceedings. Each party shall bear
its own costs and expenses incurred by it in connection with the arbitration;
all other costs, including arbitrators' fees and expenses, shall be borne
equally by the parties. Notwithstanding the foregoing, if the arbitrator
determines that one party acted unreasonably and not in good faith, the
arbitrator shall have authority to assess the costs and expenses of the
arbitration, including the arbitrator's fee and reasonable attorneys' fees,
against that party. In the event the parties are unable to agree upon an
arbitrator within ten (10) business days of the date a notice requesting
arbitration is delivered, the arbitration shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). If arbitration is conducted pursuant to the rules of the AAA, then the
controversy or claim shall be decided by a board of three (3) arbitrators. Each
of SRS and the Shareholders
-5-
<PAGE> 6
shall select one (1) arbitrator within ten (10) business days of a demand for
arbitration being made or, in the event of a party's failure to so select, an
arbitrator shall be named for that party by the AAA. Within ten (10) business
days of their selection, the two (2) arbitrators so selected shall select a
third arbitrator from the National Panel of Arbitrators maintained by the AAA or
as they otherwise shall agree. All arbitrators, however selected, shall possess
such experience in, and knowledge of, the subject area of the controversy or
claim so as to qualify as an "expert" with respect to such subject matter. (For
example, any claim or controversy involving financial or accounting issues shall
be decided by certified public accountants.) Any arbitration hearing shall be
held in Orange County, California, unless the parties to the dispute agree
otherwise. The governing law for the purposes of any arbitration arising
hereunder shall be as set forth in Section 7.4 hereof. Any award rendered by
arbitration shall be final and binding on the parties, and judgment thereon may
be entered in any court of competent jurisdiction. Notwithstanding any
arbitration rules to the contrary, the award of the arbitrator must be made no
later than three (3) months following the date on which the arbitrator or
arbitrators are appointed, unless the issue is the subject of litigation brought
by a third party and the arbitrator deems it appropriate to defer his award
until the litigation is resolved.
4.3 The parties hereby irrevocably and unconditionally consent to submit
to the exclusive jurisdiction of the courts of the State of California, County
of Orange, and/or the United States District Court for the Central District of
California (Southern Division) for any actions, suits, controversies or
proceedings arising out of or relating to this Agreement and the transactions
contemplated hereby (and the parties agree not to commence any action, suit or
proceeding relating thereto except in such courts), and further agree that
service of any process, summons, notice or document by U.S. registered mail to
the respective addresses set forth above shall be effective service of process
for any action, suit or proceeding brought against the parties in any such
court. The parties hereby irrevocably and unconditionally waive any objection to
the laying of venue of any action, suit, controversies or proceeding arising out
of this agreement or the transactions contemplated hereby, in the courts of the
State of California, County of Orange and/or the United States District Court
for the Central District of California (Southern Division), and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient or improper forum.
4.4 It is the intent of the parties to this Agreement that all disputes
referenced in Section 4.1 hereof shall be resolved, to the extent possible, in
connection with a single arbitration or judicial proceeding.
-6-
<PAGE> 7
5. CONCERNING THE ESCROW HOLDER
5.1 SRS shall pay the Escrow Holder its fees for its services hereunder
and all out-of-pocket costs and expenses of the escrow, including postage,
telephone, courier charges, share certificate transfer fees, wire transfer fees,
and all similar expenses relating to all aspects of the escrow.
5.2 The Escrow Holder may resign and be discharged from its duties
hereunder at any time by giving notice of such resignation to SRS and the
Shareholders specifying a date (not less than 30 days after the giving of such
notice) when such resignation shall take effect. Promptly after such notice, a
successor escrow agent shall be appointed by mutual agreement of SRS and the
Shareholders, such successor escrow agent to become the Escrow Holder hereunder
upon the resignation date specified in such notice. If SRS and the Shareholders
are unable to agree upon a successor escrow agent within 30 days after such
notice, the Escrow Holder may, at the expense of SRS and the Shareholders,
petition a court of competent jurisdiction for the appointment of a successor.
The Escrow Holder shall continue to serve until its successor accepts the escrow
and receives the Escrow Deposit or until the Escrow Deposit is deposited with a
court. SRS and the Shareholders may agree at any time to substitute a new escrow
agent by giving notice thereof to the Escrow Holder then acting.
5.3 The Escrow Holder undertakes to perform only such duties as are
specifically set forth herein. The Escrow Holder shall have no responsibility to
read, understand or comply with the Stock Purchase Agreement. The Escrow Holder,
acting or refraining from acting in good faith, shall not be liable for any
mistake of fact or error of judgment by it or for any acts or omissions by it of
any kind, unless caused by willful misconduct or gross negligence, and shall be
entitled to rely, and shall be protected in doing so, upon (a) any written
notice, instrument, or signature believed by it to be genuine and to have been
signed or presented by the proper party or parties duly authorized to do so, and
(b) the advice of counsel (which may be of the Escrow Holder's own choosing).
The Escrow Holder shall have no responsibility for the contents of any writing
submitted to it hereunder and shall be entitled in good faith to rely without
any liability upon the contents thereof.
5.4 SRS and the Shareholders and their respective heirs, assignees and
representatives hereby agree to indemnify and hold harmless the Escrow Holder
from any and all claims, demands, debts, duties, obligations, acts, costs,
expenses, sums of money, suits, dues, actions and/or causes of action of any
kind or nature whatsoever which shall for any reason whatsoever be made by any
person, entity or organization, as a result of or in any way connected with the
Escrow Holder's performance under the terms of this Agreement. This right of
indemnification shall survive the termination of this Agreement, and the
resignation or removal of the Escrow Holder. The costs and
-7-
<PAGE> 8
expenses of enforcing this right of indemnification shall also be paid by SRS
and the Shareholders.
5.5 If the Escrow Holder is named in any lawsuit or arbitration for any
reason in connection with this Agreement or the Escrow Deposit, then the Escrow
Holder is hereby authorized to deposit with the clerk of the court or
arbitration tribunal in which such proceeding is pending any or all of the
Escrow Deposit held by the Escrow Holder pursuant hereto, or to interplead all
interested parties in any court of competent jurisdiction and to deposit with
the clerk of such court or arbitration tribunal any or all of the Escrow Deposit
that is the subject of such proceeding. Upon its depositing such Escrow Deposit
as aforesaid, the Escrow Holder shall be fully released and discharged of any
duties or liabilities with respect to such Escrow Deposit so deposited.
6. APPOINTMENT AND POWERS OF SHAREHOLDERS' REPRESENTATIVE
6.1 Each of the undersigned Shareholders hereby irrevocably constitutes
and appoints Thomas Wah Tong Wan (the "Shareholders' Representative") as his
agent and attorney-in-fact, with full power of substitution, with respect to all
matters arising in connection with this Agreement, including, but not limited
to, the power and authority on behalf of the undersigned to do or cause to be
done any of the following things:
(i) instruct the Escrow Holder on all matters pertaining to the
Escrow Deposit and the SRS Stock;
(ii) otherwise take all actions and do all things necessary or
proper, required, contemplated or deemed advisable or desirable by the
Shareholders' Representative in his discretion, including the execution and
delivery of any documents, and generally act for and in the name of the
undersigned with respect to this Agreement and the Escrow Deposit as fully as
could the undersigned Shareholders if then personally present and acting.
6.2 The Shareholders' Representative is hereby empowered to determine,
in his sole and absolute discretion, the time or times when, the purposes for
which, and the manner in which, any power herein conferred upon the
Shareholders' Representative shall be exercised.
6.3 The Escrow Holder, SRS, any other party to this Agreement and all
other persons dealing with the Shareholders' Representative as such may rely and
act upon any writing believed in good faith to be signed by the Shareholders'
Representative.
6.4 The Shareholders' Representative shall not receive any compensation
for his services rendered hereunder, except that he shall be entitled to cause
the Escrow
-8-
<PAGE> 9
Holder to pay, from the proceeds payable to the undersigned Shareholders, the
undersigned Shareholder's proportionate share of any out-of-pocket expenses
incurred under this Agreement.
6.5 The Shareholders' Representative assumes no responsibility or
liability to the undersigned Shareholders or to any other person, other than to
deal with the Escrow Deposit or the SRS Stock and any other shares of SRS Stock
or other property deposited with the Escrow Holder pursuant to the terms of this
Agreement in accordance with the provisions hereof. Each of the undersigned
Shareholders hereby agrees to indemnify and hold harmless the Shareholders'
Representative and his respective agents, successors, assigns and
representatives with respect to any act or omission of or by any of them in
connection with any and all matters contemplated by this Agreement except for
acts or omissions by reason of willful misfeasance or gross negligence.
7. MISCELLANEOUS
7.1 This Agreement will be binding upon, inure to the benefit of, and be
enforceable by the respective heirs, beneficiaries, representatives, successors,
and assigns of the parties hereto.
7.2 This Agreement contains the entire understanding of the parties with
respect to its subject matter and may be amended only by a written instrument
duly exe cuted by all the parties hereto.
7.3 All notices, claims, requests, demands, and other communications
hereunder ("notices") shall be in writing and shall be deemed to have been given
if personally delivered or if sent by telecopy or facsimile or mailed by
overnight, commercial air courier service or by first class, registered or
certified mail, postage prepaid, and properly addressed as follows:
If to SRS:
SRS Labs, Inc.
2909 Daimler Street
Santa Ana, California 92705
Attention: John AuYeung, Director
Tel.: (714) 442-1070
Fax: (714) 852-1099
-9-
<PAGE> 10
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626
Attention: John F. Della Grotta, Esq.
Tel.: (714) 668-6210
Fax: (714) 979-1921
If to the Shareholders:
Thomas Wah Tong Wan, as Shareholders' Representative
c/o Valence Technology Inc.
Unit 413 4th Floor
Hong Kong Industrial Technology Centre
72 Tat Chee Avenue
Kowloon Tong, Hong Kong
Tel.: (852) 2784-2022
Fax: (852) 2776-7770
with a copy to:
Milbank, Tweed, Hadley & McCloy
3007 Alexandra House
16 Chater Road
Hong Kong
Tel.: (852) 2971-4803
Fax: (852) 2840-0792
Attention: Douglas Tanner, Esq.
If to The Escrow Holder:
Harris Trust Company of California
601 S. Figueroa Street, Suite 4900
Los Angeles, California 90017
Tel.: (213) 239-0675
Fax: (213) 239-0631
Attention: Escrow Division
Any party may change its address for purposes of this Article by
giving the other parties written notice of the new address in the manner set
forth above. Notice will conclusively be deemed to have been given when
personally delivered, or if given by
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<PAGE> 11
mail, on the second day after being sent by an overnight, commercial air courier
service or on the fifth day after being sent by first class, registered or
certified mail, or if given by telecopy or facsimile machine, when confirmation
of transmission is indicated by the sender's telecopy or facsimile machine.
7.4 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware without regard to its
conflict of laws principles.
7.5 This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 This Agreement shall remain in full force and effect until the
Escrow Holder has delivered all the Escrow Deposit in its possession in
accordance with the terms hereof.
7.7 Article headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of SRS and the Escrow Holder, and by
the Shareholders, as of the date first above written.
"SRS"
SRS LABS, INC.
By: /s/ THOMAS C.K. YUEN
------------------------------------
Thomas C.K. Yuen
Chairman of the Board and Chief
Executive Officer
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<PAGE> 12
"SHAREHOLDERS"
THOMROSE HOLDINGS (BVI) LIMITED
By: /s/ THOMAS WAH TONG WAN
------------------------------------
Thomas Wah Tong Wan
Director
CAPE SPENCER INTERNATIONAL
LIMITED
By: /s/ WONG YIN BUN
------------------------------------
Wong Yin Bun
Director
RAYFA (BVI) LIMITED
By: /s/ CHOI YAT MING
------------------------------------
Choi Yat Ming
Director
"ESCROW HOLDER"
HARRIS TRUST COMPANY OF
CALIFORNIA
By: /s/ JOHN CASTELLANOS
------------------------------------
Title: ASSISTANT VICE PRESIDENT
---------------------------------
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<PAGE> 13
"SHAREHOLDERS' REPRESENTATIVE"
/s/ THOMAS WAH TONG WAN
---------------------------------------
Thomas Wah Tong Wan
-13-
<PAGE> 14
<TABLE>
<CAPTION>
No. of Shares
of SRS Stock
Name of Shareholder Being Deposited
- ------------------- ---------------
<S> <C>
Thomrose Holdings (BVI) Limited 496,600
Case Spencer International Limited 209,245
Rayfa (BVI) Limited 470,582
</TABLE>
SCHEDULE A
<PAGE> 1
EXHIBIT 2.5
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made and
entered into as of this 2nd day of March, 1998, by and among Thomas Wah Tong Wan
(the "Executive"), Thomrose Holdings (BVI) Limited, a British Virgin Islands
company ("Thomrose"), SRS Labs, Inc., a Delaware corporation (the "Company") and
Valence Technology Inc., a British Virgin Islands company ("Valence").
RECITALS
WHEREAS, the Executive, prior to the date hereof, has been
an executive officer and a director of Valence;
WHEREAS, the Executive is the sole record and beneficial
holder of the issued and outstanding share capital of Thomrose;
WHEREAS, Thomrose is the record and beneficial holder of
18.93% of the issued and outstanding share capital of Valence;
WHEREAS, the Company is entering into two separate stock
purchase agreements to acquire 100% of the issued and outstanding share capital
of Valence (the "Valence Shares");
WHEREAS, Thomrose is a party to one of the two stock purchase
agreements, namely that certain Stock Purchase Agreement dated February 24, 1998
by and among the Company, Valence, Thomrose, Cape Spencer International Limited,
Rayfa (BVI) Limited and Anki (BVI) Limited (the "Valence Stock Purchase
Agreement"), and pursuant thereto has agreed to sell all of the Valence Shares
that it owns to the Company;
WHEREAS, as a condition to the closing of the Valence Stock
Purchase Agreement, the Executive shall enter an Employment Agreement with the
Company and Valence (the "Employment Agreement");
WHEREAS, the parties hereto agree that it would be detrimental
to the Company if either the Executive or Thomrose, directly or indirectly, were
to engage in the business of Valence or any Affiliate of Valence once the
Executive ceases to be employed by the Company or Valence, particularly while
the Executive is in possession of confidential, secret or proprietary
information about the business of Valence or any of its Affiliates;
WHEREAS, to protect the value of the Valence Shares being
acquired by the Company, and in consideration for the issuance by the Company to
Thomrose of 68,750 shares of the Company's common stock, the parties hereto have
agreed to enter into this Agreement. The agreements contained herein are
valuable, bargained-for consideration, and the purchase of the Valence Shares by
the Company as contemplated by the Stock Purchase Agreement described above is
based in substantial part on the Company's reliance on the agreements set forth
herein.
<PAGE> 2
AGREEMENT
In consideration of the above recitals and of the terms,
conditions and covenants set forth below, the parties agree as follows:
1. Noncompetition.
(a) Except as otherwise explicitly permitted by this
Agreement, from the Closing Date (as defined in the Stock Purchase Agreement)
and continuing throughout the duration of Executive's employment with the
Company or any of its Affiliates and thereafter for the remainder of the then
current term of the Employment Agreement plus twelve (12) months, (the
"Noncompete Term"), Executive and Thomrose will not, either directly or
indirectly, and will not permit any Covered Entity to, either directly or
indirectly, engage or participate in any business or enterprise competing with
Valence, any Affiliate of Valence or any Managed Entity (as now or hereafter
conducted) in the Territory.
(b) A "Covered Entity" means every Affiliate of Executive and
Thomrose and every business, association, trust, entity, corporation,
partnership or proprietorship in which Executive, Thomrose or any Affiliate of
Executive or Thomrose has an ownership interest or profit sharing percentage of
five percent (5%) or more, or a firm from which Executive, Thomrose or any
Affiliate of Executive or Thomrose receives or is entitled to receive income or
compensation, or in which Executive, Thomrose or any Affiliate of Executive or
Thomrose has an interest as a lender. The agreements of Executive and Thomrose
contained herein specifically apply to each entity which is presently a Covered
Entity or which becomes a Covered Entity subsequent to the date of this
Agreement.
(c) Executive, Thomrose and any Covered Entity will be deemed
to be engaging or participating in competition prohibited by this Agreement if
Executive, Thomrose or a Covered Entity contracts with, consults with, advises
or assists (financially or otherwise) any other party to engage in activities
which may not, consistent with this Agreement, be undertaken directly by
Executive, Thomrose or a Covered Entity, whether or not such contract,
consultation, advice or assistance is for explicitly stated compensation.
(d) "Affiliate" means, with respect to any party, any
corporation, company, partnership, joint venture and/or firm which controls, is
controlled by or is under common control with such party; provided, however,
that the Company shall not be deemed to be an Affiliate of Valence. "Control"
means (i) in the case of corporate entities, direct or indirect ownership of at
least twenty five percent (25%) of the stock or participating shares entitled to
vote for the election of directors; and (ii) in the case of non-corporate
entities (such as limited liability companies, partnerships or limited
partnerships), either (A) direct or indirect ownership of at least twenty five
percent (25%) of the equity interest, or (B) the power to direct the management
and policies of the noncorporate entity.
(e) A "Managed Entity" means any corporation, company,
partnership, joint venture and/or firm in which the Company, Valence or any
Affiliate of the
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<PAGE> 3
Company or Valence has a direct or indirect equity interest or interest as a
lender and in which Executive has at any time held a management position.
(f) "Territory" means the entirety of each of Hong Kong, the
People's Republic of China and Taiwan. Executive and Thomrose acknowledge that
Valence and its Affiliates are and have been conducting business throughout the
entire Territory. Executive and Thomrose agree and acknowledge that Valence and
the Company have a valid and legitimate business interest in protecting their
business in the Territory from any activity prohibited by this Agreement.
2. Non-Solicitation of Employees.
During the Noncompete Term, Executive and Thomrose will not,
either directly or indirectly, and will not permit any Covered Entity to, either
directly or indirectly, hire, solicit, take away, or attempt to hire, solicit or
take away (either on behalf of Executive or Thomrose or on behalf of any other
person or entity) any person (a) who is then an employee of Valence, any
Affiliate of Valence or any Managed Entity, or (b) who has terminated his or her
employment by Valence, any Affiliate of Valence or any Managed Entity without
the consent of such employer, within 180 days of such termination.
3. Non-Solicitation of Customers and Suppliers.
During the Noncompete Term, Executive and Thomrose will not,
directly or indirectly, and will not permit any Covered Entity to, either
directly or indirectly, with respect to each and every individual, corporation,
partnership, company or other association that during Executive's term of
employment by the Company, Valence or any of its Affiliates (a) has obtained or
contracted to obtain intellectual property, technology, goods or services from
Valence, any Affiliate of Valence or any Managed Entity (a "Customer") and with
which the Executive or Thomrose had contact during his term of employment by the
Company, Valence or any of its Affiliates, or (b) became known to the Executive
or Thomrose as a Customer or potential Customer of Valence, any Affiliate of
Valence or any Managed Entity in any manner and whose name and/or address would
constitute proprietary or confidential information, or (c) has a contractual
relationship with Valence, any Affiliate of Valence or any Managed Entity to
provide intellectual property, technology, goods or services to be utilized in
the business of Valence, any Affiliate of Valence or any Managed Entity (a
"Supplier"), solicit, call upon, divert or take away such Customer or potential
Customer or Supplier as a client, customer or supplier on his behalf or on
behalf of any other individual, corporation, company, partnership or other
association conducting a business substantially similar to the business of
Valence, any Affiliate of Valence or any Managed Entity or cause or attempt to
cause such Customer or potential Customer or Supplier to redirect, terminate,
limit, modify or fail to enter into any actual or potential relationship with
Valence, any Affiliate of Valence or any Managed Entity involving the business
of Valence, any Affiliate of Valence or any Managed Entity, notwithstanding that
any such Customer, potential Customer or Supplier may have been induced to give
his or its patronage to Valence, any Affiliate of Valence or any Managed Entity
by the solicitation by the Executive or Thomrose or by someone on the
Executive's or Thomrose's behalf.
-3-
<PAGE> 4
4. Enforcement.
(a) Executive and Thomrose acknowledges that a breach of this
Agreement by Executive, Thomrose or any Covered Entity will cause serious and
potentially irreparable harm to Valence, the Company, each of their Affiliates
and each Managed Entity. Executive and Thomrose therefore acknowledge that a
breach of this Agreement by either of them or any Covered Entity cannot be
adequately compensated in an action for damages at law, and equitable relief
would be necessary to protect Valence, the Company, each of their Affiliates and
each Managed Entity from a violation of this Agreement and from the harm which
this Agreement is intended to prevent. By reason thereof, Executive and Thomrose
acknowledge on behalf of themselves and each Covered Entity that Valence, the
Company, each of their Affiliates and each Managed Entity are entitled, in
addition to any other remedies they may have under this Agreement or otherwise,
to preliminary and permanent injunctive and other equitable relief to prevent or
curtail any breach of this Agreement. Executive and Thomrose acknowledge,
however, that no specification in this Agreement of a specific legal or
equitable remedy may be construed as a waiver of or prohibition against pursuing
other legal or equitable remedies in the event of a breach of this Agreement by
Executive, Thomrose or any Covered Entity.
(b) Notwithstanding anything to the contrary, this Agreement
shall be of no force and effect if Executive obtains (i) a final judgment (after
exhaustion of all appeals and termination or waiver all rights to appeal)
stating that the Company or Valence has committed a material monetary breach of
the Employment Agreement which the Company or Valence did not cure within a
reasonable period of time or (ii) a final, binding arbitration award in his
favor pursuant to Section 27 of the Employment Agreement.
5. Survival.
All recitals, covenants, commitments and agreements of any of
the parties made in this Agreement survive the execution and delivery of this
Agreement and the closing of the transactions contemplated by the Stock Purchase
Agreement.
6. Binding Effect; Successors and Assigns.
This Agreement may be assigned by the Company or Valence if
such assignment is accompanied by the sale of the stock of the Company or
Valence, as applicable, or of substantially all of the assets of the Company or
Valence, as applicable. The terms and provisions set forth in this Agreement
inure to the benefit of and are enforceable by the Company and its successors,
assigns, and successors-in-interest, including without limitation any
corporation with which the Company may be merged or by which it may be acquired,
or which may be the acquiring corporation in an asset sale transaction or other
form of corporate reorganization. This Agreement may not be assigned by
Executive or Thomrose.
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<PAGE> 5
7. Severability.
In the event that any provision or term of this Agreement, or
any word, phrase, clause, sentence or other portion thereof (including, without
limitation, the geographic and temporal restrictions and provisions contained in
this Agreement) is held to be unenforceable or invalid for any reason, such
provision or portion thereof will be modified or deleted in such a manner as to
make this Agreement, as modified, legal and enforceable to the fullest extent
permitted under applicable laws.
8. Governing Law.
This Agreement will be governed by and construed in accordance
with the laws of Hong Kong without regard to the conflicts of law principles
thereof.
9. Venue.
The parties hereby irrevocably and unconditionally consent to
submit to the exclusive jurisdiction of the courts of the State of California,
County of Orange, and/or the United States District Court for the Central
District of California (Southern Division) for any actions, suits, controversies
or proceedings arising out of or relating to this agreement and the transactions
contemplated hereby (and the parties agree not to commence any action, suit or
proceeding relating thereto except in such courts), and further agree that
service of any process, summons, notice or document by U.S. registered mail to
the respective addresses set forth above shall be effective service of process
for any action, suit or proceeding brought against the parties in any such
court. The parties hereby irrevocably and unconditionally waive any objection to
the laying of venue of any action, suit, controversies or proceeding arising out
of this agreement or the transactions contemplated hereby, in the courts of the
State of California, County of Orange and/or the United States District Court
for the Central District of California (Southern Division), and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient or improper forum.
10. Notices.
All notices, claims, requests, demands, and other
communications hereunder ("notices") shall be in writing and shall be deemed to
have been given if personally delivered or if sent by telecopy or facsimile or
mailed by overnight, commercial air courier service or by first class,
registered or certified mail, postage prepaid, and properly addressed as
follows:
-5-
<PAGE> 6
To Executive Valence Technology Inc.
or Thomrose: Unit 413 4th Floor
Hong Kong Industrial Technology Centre
72 Tat Chee Avenue
Kowloon Tong, Hong Kong
Attention: Thomas Wah Tong Wan
Fax: (852) 2776-7770
with a copy to: Milbank, Tweed, Hadley & McCloy
3007 Alexandra House
16 Chater Road
Hong Kong
Attention: Douglas Tanner, Esq.
Fax: (852) 2840-0792
To Company SRS Labs, Inc.
or Valence: 2909 Daimler Street
Santa Ana, California 92705
Attention: John Au Yeung, Director
Fax: (714) 852-1099
with a copy to: Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626
Attention: John F. Della Grotta, Esq.
Fax: (714) 979-1921
Any party may change its address for the purpose of this Article by giving the
other parties written notice of the new address in the manner set forth above.
Notice will conclusively be deemed to have been given when personally delivered,
or if given by mail, on the second day after being sent by an overnight,
commercial air courier service or on the fifth day after being sent by first
class, registered or certified mail, or if given by telecopy or facsimile
machine, when confirmation of transmission is indicated by the sender's telecopy
or facsimile machine.
11. Miscellaneous Terms.
(a) The headings contained in this Agreement are for reference
purposes only, are not necessarily descriptive of the paragraphs to which they
relate and shall not affect the meaning or interpretation of this Agreement.
(b) No change, modification, addition or amendment to this
Agreement will be valid unless in writing and signed by the party against which
enforcement of such change, modification, addition or amendment is sought.
(c) The parties agree to cooperate in good faith to accomplish
the objectives of this Agreement and, to that end, agree to execute and/or
deliver from time to
-6-
<PAGE> 7
time such other and further instructions and documents and to take such other
actions as may be necessary or convenient to fulfillment of these purposes.
(d) No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, will
be deemed to be, or may be construed as, a further or continuing waiver of any
such term, provision or condition.
(e) In the event of any dispute concerning the interpretation
of this Agreement or its enforcement, or any proceeding arising out of or in
connection with an alleged or actual breach of this Agreement, the prevailing
party will be entitled to recover, in addition to any other relief obtained or
awarded, any reasonable attorneys' fees and expenses incurred in relation to
such dispute, enforcement or proceeding.
(signature page follows)
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first above written.
SRS LABS, INC.
By: /s/ THOMAS C.K. YUEN
--------------------------------------
Thomas C.K. Yuen
Chairman of the Board
and Chief Financial Officer
VALENCE TECHNOLOGY INC., a
British Virgin Islands company
By: /s/ THOMAS WAH TONG WAN
--------------------------------------
Thomas Wah Tong Wan
President and Chief Executive Officer
/s/ Thomas Wah Tong Wan
-----------------------------------------
Thomas Wah Tong Wan
THOMROSE HOLDINGS (BVI) LIMITED,
a British Virgin Islands Company
By: /s/ Thomas Wah Tong Wan
--------------------------------------
Thomas Wah Tong Wan
Director
-8-
<PAGE> 1
EXHIBIT 2.6
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made and
entered into as of this 2nd day of March, 1998, by and among Wong Yin Bun
("Executive"), Cape Spencer International Limited, a British Virgin Islands
company ("Cape"), SRS Labs, Inc., a Delaware corporation (the "Company"), and
Valence Technology Inc., a British Virgin Islands company ("Valence").
RECITALS
WHEREAS, the Executive, prior to the date hereof, has been an
executive officer of LEC Electronic Components Limited, a Hong Kong company and
a wholly-owned subsidiary of Valence;
WHEREAS, the Executive is the sole record and beneficial
holder of the issued and outstanding share capital of Cape;
WHEREAS, Cape is the record and beneficial holder of 7.97%
of the issued and outstanding share capital of Valence;
WHEREAS, the Company is entering into two separate stock
purchase agreements to acquire 100% of the issued and outstanding share capital
of Valence (the "Valence Shares");
WHEREAS, Cape is a party to one of the two stock purchase
agreements, namely that certain Stock Purchase Agreement dated February 24, 1998
by and among the Company, Valence, Cape, Thomrose Holdings (BVI) Limited, Rayfa
(BVI) Limited and Anki (BVI) Limited (the "Valence Stock Purchase Agreement"),
and pursuant thereto has agreed to sell all of the Valence Shares that it owns
to the Company;
WHEREAS, as a condition to the closing of the Valence Stock
Purchase Agreement, the Executive shall enter an Employment Agreement with the
Company (the "Employment Agreement");
WHEREAS, the parties hereto agree that it would be detrimental
to the Company if either the Executive or Cape, directly or indirectly, were to
engage in the business of Valence or any Affiliate of Valence once the Executive
ceases to be employed by the Company or Valence, particularly while the
Executive is in possession of confidential, secret or proprietary information
about the business of Valence or any of its Affiliates;
WHEREAS, to protect the value of the Valence Shares being
acquired by the Company, and in consideration for the issuance by the Company to
Cape of 18,750 shares of the Company's common stock, the parties hereto have
agreed to enter into this Agreement. The agreements contained herein are
valuable, bargained-for consideration, and the purchase of the Valence Shares by
the Company as contemplated by the Stock Purchase Agreement described above is
based in substantial part on the Company's reliance on the agreements set forth
herein.
<PAGE> 2
AGREEMENT
In consideration of the above recitals and of the terms,
conditions and covenants set forth below, the parties agree as follows:
1. Noncompetition.
(a) Except as otherwise explicitly permitted by this
Agreement, from the Closing Date (as defined in the Stock Purchase Agreement)
and continuing throughout the duration of Executive's employment with the
Company or any of its Affiliates and thereafter for the remainder of the then
current term of the Employment Agreement plus twelve (12) months (the
"Noncompete Term"), Executive and Cape will not, either directly or indirectly,
and will not permit any Covered Entity to, either directly or indirectly, engage
or participate in any business or enterprise competing with Valence, any
Affiliate of Valence or any Managed Entity (as now or hereafter conducted) in
the Territory.
(b) A "Covered Entity" means every Affiliate of Executive and
Cape and every business, association, trust, entity, corporation, partnership or
proprietorship in which Executive, Cape or any Affiliate of Executive or Cape
has an ownership interest or profit sharing percentage of five percent (5%) or
more, or a firm from which Executive, Cape or any Affiliate of Executive or Cape
receives or is entitled to receive income or compensation, or in which
Executive, Cape or any Affiliate of Executive or Cape has an interest as a
lender. The agreements of Executive and Cape contained herein specifically apply
to each entity which is presently a Covered Entity or which becomes a Covered
Entity subsequent to the date of this Agreement.
(c) Executive, Cape and any Covered Entity will be deemed to
be engaging or participating in competition prohibited by this Agreement if
Executive, Cape or a Covered Entity contracts with, consults with, advises or
assists (financially or otherwise) any other party to engage in activities which
may not, consistent with this Agreement, be undertaken directly by Executive,
Cape or a Covered Entity, whether or not such contract, consultation, advice or
assistance is for explicitly stated compensation.
(d) "Affiliate" means, with respect to any party, any
corporation, company, partnership, joint venture and/or firm which controls, is
controlled by or is under common control with such party; provided, however,
that the Company shall not be deemed to be an Affiliate of Valence. "Control"
means (i) in the case of corporate entities, direct or indirect ownership of at
least twenty-five percent (25%) of the stock or participating shares entitled to
vote for the election of directors; and (ii) in the case of non-corporate
entities (such as limited liability companies, partnerships or limited
partnerships), either (A) direct or indirect ownership of at least twenty-five
percent (25%) of the equity interest, or (B) the power to direct the management
and policies of the noncorporate entity.
(e) A "Managed Entity" means any corporation, company,
partnership, joint venture and/or firm in which the Company, Valence or any
Affiliate of the Company or Valence has a direct or indirect equity interest or
interest as a lender and in which Executive has at any time held a management
position.
-2-
<PAGE> 3
(f) "Territory" means the entirety of each of Hong Kong, the
People's Republic of China and Taiwan. Executive and Cape acknowledge that
Valence and its Affiliates are and have been conducting business throughout the
entire Territory. Executive and Cape agree and acknowledge that Valence and the
Company have a valid and legitimate business interest in protecting their
business in the Territory from any activity prohibited by this Agreement.
2. Non-Solicitation of Employees.
During the Noncompete Term, Executive and Cape will not,
either directly or indirectly, and will not permit any Covered Entity to, either
directly or indirectly, hire, solicit, take away, or attempt to hire, solicit or
take away (either on behalf of Executive or Cape or on behalf of any other
person or entity) any person (a) who is then an employee of Valence, any
Affiliate of Valence or any Managed Entity, or (b) who has terminated his or her
employment by Valence, any Affiliate of Valence or any Managed Entity without
the consent of such employer, within 180 days of such termination.
3. Non-Solicitation of Customers and Suppliers.
During the Noncompete Term, Executive and Cape will not,
directly or indirectly, and will not permit any Covered Entity to, either
directly or indirectly, with respect to each and every individual, corporation,
partnership, company or other association that during Executive's term of
employment by the Company, Valence or any of its Affiliates (a) has obtained or
contracted to obtain intellectual property, technology, goods or services from
Valence, any Affiliate of Valence or any Managed Entity (a "Customer") and with
which the Executive or Cape had contact during his term of employment by the
Company, Valence or any of its Affiliates, or (b) became known to the Executive
or Cape as a Customer or potential Customer of Valence, any Affiliate of Valence
or any Managed Entity in any manner and whose name and/or address would
constitute proprietary or confidential information, or (c) has a contractual
relationship with Valence, any Affiliate of Valence or any Managed Entity to
provide intellectual property, technology, goods or services to be utilized in
the business of Valence, any Affiliate of Valence or any Managed Entity (a
"Supplier"), solicit, call upon, divert or take away such Customer or potential
Customer or Supplier as a client, customer or supplier on his behalf or on
behalf of any other individual, corporation, company, partnership or other
association conducting a business substantially similar to the business of
Valence, any Affiliate of Valence or any Managed Entity or cause or attempt to
cause such Customer or potential Customer or Supplier to redirect, terminate,
limit, modify or fail to enter into any actual or potential relationship with
Valence, any Affiliate of Valence or any Managed Entity involving the business
of Valence, any Affiliate of Valence or any Managed Entity, notwithstanding that
any such Customer, potential Customer or Supplier may have been induced to give
his or its patronage to Valence, any Affiliate of Valence or any Managed Entity
by the solicitation by the Executive or Cape or by someone on the Executive's or
Cape's behalf
-3-
<PAGE> 4
4. Enforcement.
(a) Executive and Cape acknowledges that a breach of this
Agreement by Executive, Cape or any Covered Entity will cause serious and
potentially irreparable harm to Valence, the Company, each of their Affiliates
and each Managed Entity. Executive and Cape therefore acknowledge that a breach
of this Agreement by either of them or any Covered Entity cannot be adequately
compensated in an action for damages at law, and equitable relief would be
necessary to protect Valence, the Company, each of their Affiliates and each
Managed Entity from a violation of this Agreement and from the harm which this
Agreement is intended to prevent. By reason thereof, Executive and Cape
acknowledge on behalf of themselves and each Covered Entity that Valence, the
Company, each of their Affiliates and each Managed Entity are entitled, in
addition to any other remedies they may have under this Agreement or otherwise,
to preliminary and permanent injunctive and other equitable relief to prevent or
curtail any breach of this Agreement. Executive and Cape acknowledge, however,
that no specification in this Agreement of a specific legal or equitable remedy
may be construed as a waiver of or prohibition against pursuing other legal or
equitable remedies in the event of a breach of this Agreement by Executive, Cape
or any Covered Entity.
(b) Notwithstanding anything to the contrary, this Agreement
shall be of no force and effect if Executive obtains (i) a final judgment (after
exhaustion of all appeals and termination or waiver all rights to appeal)
stating that the Company or Valence has committed a material monetary breach of
the Employment Agreement which the Company or Valence did not cure within a
reasonable period of time or (ii) a final, binding arbitration award in favor of
Executive pursuant to Section 27 of the Employment Agreement.
5. Survival.
All recitals, covenants, commitments and agreements of any of
the parties made in this Agreement survive the execution and delivery of this
Agreement and the closing of the transactions contemplated by the Stock Purchase
Agreement.
6. Binding Effect; Successors and Assigns.
This Agreement may be assigned by the Company or Valence if
such assignment is accompanied by the sale of the stock of the Company or
Valence, as applicable, or of substantially all of the assets of the Company or
Valence, as applicable. The terms and provisions set forth in this Agreement
inure to the benefit of and are enforceable by the Company and its successors,
assigns, and successors-in-interest, including without limitation any
corporation with which the Company may be merged or by which it may be acquired,
or which may be the acquiring corporation in an asset sale transaction or other
form of corporate reorganization. This Agreement may not be assigned by
Executive or Cape.
7. Severability.
In the event that any provision or term of this Agreement, or
any word, phrase, clause, sentence or other portion thereof (including, without
limitation, the
-4-
<PAGE> 5
geographic and temporal restrictions and provisions contained in this Agreement)
is held to be unenforceable or invalid for any reason, such provision or portion
thereof will be modified or deleted in such a manner as to make this Agreement,
as modified, legal and enforceable to the fullest extent permitted under
applicable laws.
8. Governing Law.
This Agreement will be governed by and construed in accordance
with the laws of Hong Kong without regard to the conflicts of law principles
thereof.
9. Venue.
The parties hereby irrevocably and unconditionally consent to
submit to the exclusive jurisdiction of the courts of the State of California,
County of Orange, and/or the United States District Court for the Central
District of California (Southern Division) for any actions, suits, controversies
or proceedings arising out of or relating to this agreement and the transactions
contemplated hereby (and the parties agree not to commence any action, suit or
proceeding relating thereto except in such courts), and further agree that
service of any process, summons, notice or document by U.S. registered mail to
the respective addresses set forth above shall be effective service of process
for any action, suit or proceeding brought against the parties in any such
court. The parties hereby irrevocably and unconditionally waive any objection to
the laying of venue of any action, suit, controversies or proceeding arising out
of this agreement or the transactions contemplated hereby, in the courts of the
State of California, County of Orange and/or the United States District Court
for the Central District of California (Southern Division), and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient or improper forum.
10. Notices.
All notices, claims, requests, demands and other
communications hereunder ("notices") shall be in writing and shall be deemed to
have been given if personally delivered or if sent by telecopy or facsimile or
mailed by overnight, commercial air courier service or by first class,
registered or certified mail, postage prepaid, and properly addressed as
follows:
To Executive Valence Technology Inc.
or Cape: Unit 413 4th Floor
Hong Kong Industrial Technology Centre
72 Tat Chee Avenue
Kowloon Tong, Hong Kong
Attention: Wong Yin Bun
Fax: (852) 2776-7770
-5-
<PAGE> 6
with a copy to: Milbank, Tweed, Hadley & McCloy
3007 Alexandra House
16 Chater Road
Hong Kong
Attention: Douglas Tanner, Esq.
Fax: (852) 2840-0792
To Company SRS Labs, Inc.
or Valence: 2909 Daimler Street
Santa Ana, California 92705
Attention: John Au Yeung, Director
Fax: (714) 852-1099
with a copy to: Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626
Attention: John F. Della Grotta, Esq.
Fax: (714) 979-1921
Any party may change its address for the purpose of this Article by giving the
other parties written notice of the new address in the manner set forth above.
Notice will conclusively be deemed to have been given when personally delivered,
or if given by mail, on the second day after being sent by an overnight,
commercial air courier service or on the fifth day after being sent by first
class, registered or certified mail, or if given by telecopy or facsimile
machine, when confirmation of transmission is indicated by the sender's telecopy
or facsimile machine.
11. Miscellaneous Terms.
(a) The headings contained in this Agreement are for reference
purposes only, are not necessarily descriptive of the paragraphs to which they
relate and shall not affect the meaning or interpretation of this Agreement.
(b) No change, modification, addition or amendment to this
Agreement will be valid unless in writing and signed by the party against which
enforcement of such change, modification, addition or amendment is sought.
(c) The parties agree to cooperate in good faith to accomplish
the objectives of this Agreement and, to that end, agree to execute and/or
deliver from time to time such other and further instructions and documents and
to take such other actions as may be necessary or convenient to fulfillment of
these purposes.
(d) No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, will
be deemed to be, or may be construed as, a further or continuing waiver of any
such term, provision or condition.
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<PAGE> 7
(e) In the event of any dispute concerning the interpretation
of this Agreement or its enforcement, or any proceeding arising out of or in
connection with an alleged or actual breach of this Agreement, the prevailing
party will be entitled to recover, in addition to any other relief obtained or
awarded, any reasonable attorneys' fees and expenses incurred in relation to
such dispute, enforcement or proceeding.
(signature page follows)
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first above written.
SRS LABS, INC.
By:/s/ THOMAS C.K. YUEN
-----------------------------------
Thomas C.K. Yuen
Chairman of the Board
and Chief Executive Officer
VALENCE TECHNOLOGY, INC.
By: /s/ THOMAS WAH TONG WAN
-----------------------------------
Thomas Wah Tong Wan
President and Chief Executive Officer
/s/ WONG YIN BUN
--------------------------------------
Wong Yin Bun
CAPE SPENCER INTERNATIONAL LIMITED
a British Virgin Islands Company
By: /s/ WONG YIN BUN
-----------------------------------
Wong Yin Bun
Director
-8-
<PAGE> 1
EXHIBIT 2.7
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made and
entered into as of this 2nd day of March, 1998, by and among Choi Yat Ming
("Executive"), Rayfa (BVI) Limited, a British Virgin Islands company ("Rayfa"),
SRS Labs, Inc., a Delaware corporation (the "Company"), and Valence Technology
Inc., a British Virgin Islands company ("Valence").
RECITALS
WHEREAS, the Executive, prior to the date hereof, has been an
executive officer of Valence Semiconductor Design Limited, a Hong Kong company
and a wholly-owned subsidiary of Valence ("VSD").
WHEREAS, the Executive is the sole record and beneficial
holder of the issued and outstanding share capital of Rayfa;
WHEREAS, Rayfa is the record and beneficial holder of 17.93%
of the issued and outstanding share capital of Valence;
WHEREAS, the Company is entering into two separate stock
purchase agreements to acquire 100% of the issued and outstanding share capital
of Valence (the "Valence Shares");
WHEREAS, Rayfa is a party to one of the two stock purchase
agreements, namely that certain Stock Purchase Agreement dated February 24, 1998
by and among the Company, Valence, Rayfa, Thomrose Holdings (BVI) Limited, Cape
Spencer International Limited and Anki (BVI) Limited (the "Valence Stock
Purchase Agreement"), and pursuant thereto has agreed to sell all of the Valence
Shares that it owns to the Company;
WHEREAS, as a condition to the closing of the Valence Stock
Purchase Agreement, the Executive shall enter an Employment Agreement with the
Company and VSD (the "Employment Agreement");
WHEREAS, the parties hereto agree that it would be detrimental
to the Company if either the Executive or Rayfa, directly or indirectly, were to
engage in the business of Valence or any Affiliate of Valence once the Executive
ceases to be employed by the Company or Valence, particularly while the
Executive is in possession of confidential, secret or proprietary information
about the business of Valence or any of its Affiliates;
WHEREAS, to protect the value of the Valence Shares being
acquired by the Company, and in consideration for the issuance by the Company to
Rayfa of 37,500 shares of the Company's common stock, the parties hereto have
agreed to enter into this Agreement. The agreements contained herein are
valuable, bargained-for consideration, and the purchase of the Valence Shares by
the Company as contemplated by the Stock
<PAGE> 2
Purchase Agreement described above is based in substantial part on the Company's
reliance on the agreements set forth herein.
AGREEMENT
In consideration of the above recitals and of the terms,
conditions and covenants set forth below, the parties agree as follows:
1. Noncompetition.
(a) Except as otherwise explicitly permitted by this
Agreement, from the Closing Date (as defined in the Stock Purchase Agreement)
and continuing throughout the duration of Executive's employment with the
Company or any of its Affiliates and thereafter for the remainder of the then
current term of the Employment Agreement plus twelve (12) months, (the
"Noncompete Term"), Executive and Rayfa will not, either directly or indirectly,
and will not permit any Covered Entity to, either directly or indirectly, engage
or participate in any business or enterprise competing with Valence, any
Affiliate of Valence or any Managed Entity (as now or hereafter conducted) in
the Territory.
(b) A "Covered Entity" means every Affiliate of Executive and
Rayfa and every business, association, trust, entity, corporation, partnership
or proprietorship in which Executive, Rayfa or any Affiliate of Executive or
Rayfa has an ownership interest or profit sharing percentage of five percent
(5%) or more, or a firm from which Executive, Rayfa or any Affiliate of
Executive or Rayfa receives or is entitled to receive income or compensation, or
in which Executive, Rayfa or any Affiliate of Executive or Rayfa has an interest
as a lender. The agreements of Executive and Rayfa contained herein specifically
apply to each entity which is presently a Covered Entity or which becomes a
Covered Entity subsequent to the date of this Agreement.
(c) Executive, Rayfa and any Covered Entity will be deemed to
be engaging or participating in competition prohibited by this Agreement if
Executive, Rayfa or a Covered Entity contracts with, consults with, advises or
assists (financially or otherwise) any other party to engage in activities which
may not, consistent with this Agreement, be undertaken directly by Executive,
Rayfa or a Covered Entity, whether or not such contract, consultation, advice or
assistance is for explicitly stated compensation.
(d) "Affiliate" means, with respect to any party, any
corporation, company, partnership, joint venture and/or firm which controls, is
controlled by or is under common control with such party; provided, however,
that the Company shall not be deemed to be an Affiliate of Valence. "Control"
means (i) in the case of corporate entities, direct or indirect ownership of at
least twenty-five percent (25%) of the stock or participating shares entitled to
vote for the election of directors; and (ii) in the case of non-corporate
entities (such as limited liability companies, partnerships or limited
partnerships), either (A) direct or indirect ownership of at least twenty-five
percent (25%) of the equity interest, or (B) the power to direct the management
and policies of the noncorporate entity.
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<PAGE> 3
(e) A "Managed Entity" means any corporation, company,
partnership, joint venture and/or firm in which the Company, Valence or any
Affiliate of the Company or Valence has a direct or indirect equity interest or
interest as a lender and in which Executive has at any time held a management
position.
(f) "Territory" means the entirety of each of Hong Kong, the
People's Republic of China and Taiwan. Executive and Rayfa acknowledge that
Valence and its Affiliates are and have been conducting business throughout the
entire Territory. Executive and Rayfa agree and acknowledge that Valence and the
Company have a valid and legitimate business interest in protecting their
business in the Territory from any activity prohibited by this Agreement.
2. Non-Solicitation of Employees.
During the Noncompete Term, Executive and Rayfa will not,
either directly or indirectly, and will not permit any Covered Entity to, either
directly or indirectly, hire, solicit, take away, or attempt to hire, solicit or
take away (either on behalf of Executive or Rayfa or on behalf of any other
person or entity) any person (a) who is then an employee of Valence, any
Affiliate of Valence or any Managed Entity, or (b) who has terminated his or her
employment by Valence, any Affiliate of Valence or any Managed Entity without
the consent of such employer, within 180 days of such termination.
3. Non-Solicitation of Customers and Suppliers.
During the Noncompete Term, Executive and Rayfa will not,
directly or indirectly, and will not permit any Covered Entity to, either
directly or indirectly, with respect to each and every individual, corporation,
partnership, company or other association that during Executive's term of
employment by the Company, Valence or any of its Affiliates (a) has obtained or
contracted to obtain intellectual property, technology, goods or services from
Valence, any Affiliate of Valence or any Managed Entity (a "Customer") and with
which the Executive or Rayfa had contact during his term of employment by the
Company, Valence or any of its Affiliates, or (b) became known to the Executive
or Rayfa as a Customer or potential Customer of Valence, any Affiliate of
Valence or any Managed Entity in any manner and whose name and/or address would
constitute proprietary or confidential information, or (c) has a contractual
relationship with Valence, any Affiliate of Valence or any Managed Entity to
provide intellectual property, technology, goods or services to be utilized in
the business of Valence, any Affiliate of Valence or any Managed Entity (a
"Supplier"), solicit, call upon, divert or take away such Customer or potential
Customer or Supplier as a client, customer or supplier on his behalf or on
behalf of any other individual, corporation, company, partnership or other
association conducting a business substantially similar to the business of
Valence, any Affiliate of Valence or any Managed Entity or cause or attempt to
cause such Customer or potential Customer or Supplier to redirect, terminate,
limit, modify or fail to enter into any actual or potential relationship with
Valence, any Affiliate of Valence or any Managed Entity involving the business
of Valence, any Affiliate of Valence or any Managed Entity, notwithstanding that
any such Customer, potential Customer or Supplier may have been induced to give
his or its patronage to Valence, any
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<PAGE> 4
Affiliate of Valence or any Managed Entity by the solicitation by the Executive
or Rayfa or by someone on the Executive's or Rayfa's behalf.
4. Enforcement.
(a) Executive and Rayfa acknowledges that a breach of this
Agreement by Executive, Rayfa or any Covered Entity will cause serious and
potentially irreparable harm to Valence, the Company, each of their Affiliates
and each Managed Entity. Executive and Rayfa therefore acknowledge that a breach
of this Agreement by either of them or any Covered Entity cannot be adequately
compensated in an action for damages at law, and equitable relief would be
necessary to protect Valence, the Company, each of their Affiliates and each
Managed Entity from a violation of this Agreement and from the harm which this
Agreement is intended to prevent. By reason thereof, Executive and Rayfa
acknowledge on behalf of themselves and each Covered Entity that Valence, the
Company, each of their Affiliates and each Managed Entity are entitled, in
addition to any other remedies they may have under this Agreement or otherwise,
to preliminary and permanent injunctive and other equitable relief to prevent or
curtail any breach of this Agreement. Executive and Rayfa acknowledge, however,
that no specification in this Agreement of a specific legal or equitable remedy
may be construed as a waiver of or prohibition against pursuing other legal or
equitable remedies in the event of a breach of this Agreement by Executive,
Rayfa or any Covered Entity.
(b) Notwithstanding anything to the contrary, this Agreement
shall be of no force and effect if Executive obtains (i) a final judgment (after
exhaustion of all appeals and termination or waiver all rights to appeal)
stating that the Company or Valence has committed a material monetary breach of
the Employment Agreement which the Company or Valence did not cure within a
reasonable period of time or (ii) a final, binding arbitration award in favor of
Executive pursuant to Section 27 of the Employment Agreement.
5. Survival.
All recitals, covenants, commitments and agreements of any of
the parties made in this Agreement survive the execution and delivery of this
Agreement and the closing of the transactions contemplated by the Stock Purchase
Agreement.
6. Binding Effect; Successors and Assigns.
This Agreement may be assigned by the Company or Valence if
such assignment is accompanied by the sale of the stock of the Company or
Valence, as applicable, or of substantially all of the assets of the Company or
Valence, as applicable. The terms and provisions set forth in this Agreement
inure to the benefit of and are enforceable by the Company and its successors,
assigns, and successors-in-interest, including without limitation any
corporation with which the Company may be merged or by which it may be acquired,
or which may be the acquiring corporation in an asset sale transaction or other
form of corporate reorganization. This Agreement may not be assigned by
Executive or Rayfa.
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<PAGE> 5
7. Severability.
In the event that any provision or term of this Agreement, or
any word, phrase, clause, sentence or other portion thereof (including, without
limitation, the geographic and temporal restrictions and provisions contained in
this Agreement) is held to be unenforceable or invalid for any reason, such
provision or portion thereof will be modified or deleted in such a manner as to
make this Agreement, as modified, legal and enforceable to the fullest extent
permitted under applicable laws.
8. Governing Law.
This Agreement will be governed by and construed in accordance
with the laws of Hong Kong without regard to the conflicts of law principles
thereof.
9. Venue.
The parties hereby irrevocably and unconditionally consent to
submit to the exclusive jurisdiction of the courts of the State of California,
County of Orange, and/or the United States District Court for the Central
District of California (Southern Division) for any actions, suits, controversies
or proceedings arising out of or relating to this agreement and the transactions
contemplated hereby (and the parties agree not to commence any action, suit or
proceeding relating thereto except in such courts), and further agree that
service of any process, summons, notice or document by U.S. registered mail to
the respective addresses set forth above shall be effective service of process
for any action, suit or proceeding brought against the parties in any such
court. The parties hereby irrevocably and unconditionally waive any objection to
the laying of venue of any action, suit, controversies or proceeding arising out
of this agreement or the transactions contemplated hereby, in the courts of the
State of California, County of Orange and/or the United States District Court
for the Central District of California (Southern Division), and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient or improper forum.
10. Notices.
All notices, claims, requests, demands and other
communications hereunder ("notices") shall be in writing and shall be deemed to
have been given if personally delivered or if sent by telecopy or facsimile or
mailed by overnight, commercial air courier service or by first class,
registered or certified mail, postage prepaid, and properly addressed as
follows:
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<PAGE> 6
To Executive Valence Technology Inc.
or Rayfa: Unit 413 4th Floor
Hong Kong Industrial Technology Centre
72 Tat Chee Avenue
Kowloon Tong, Hong Kong
Attention: Choi Yat Ming
Fax: (852) 2776-7770
with a copy to: Milbank, Tweed, Hadley & McCloy
3007 Alexandra House
16 Chater Road
Hong Kong
Attention: Douglas Tanner, Esq.
Fax: (852) 2840-0792
To Company SRS Labs, Inc.
or Valence: 2909 Daimler Street
Santa Ana, California 92705
Attention: John Au Yeung, Director
Fax: (714) 852-1099
with a copy to: Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626
Attention: John F. Della Grotta, Esq.
Fax: (714) 979-1921
Any party may change its address for the purpose of this Article by giving the
other parties written notice of the new address in the manner set forth above.
Notice will conclusively be deemed to have been given when personally delivered,
or if given by mail, on the second day after being sent by an overnight,
commercial air courier service or on the fifth day after being sent by first
class, registered or certified mail, or if given by telecopy or facsimile
machine, when confirmation of transmission is indicated by the sender's telecopy
or facsimile machine.
11. Miscellaneous Terms.
(a) The headings contained in this Agreement are for reference
purposes only, are not necessarily descriptive of the paragraphs to which they
relate and shall not affect the meaning or interpretation of this Agreement.
(b) No change, modification, addition or amendment to this
Agreement will be valid unless in writing and signed by the party against which
enforcement of such change, modification, addition or amendment is sought.
(c) The parties agree to cooperate in good faith to accomplish
the objectives of this Agreement and, to that end, agree to execute and/or
deliver from time to
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<PAGE> 7
time such other and further instructions and documents and to take such other
actions as may be necessary or convenient to fulfillment of these purposes.
(d) No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, will
be deemed to be, or may be construed as, a further or continuing waiver of any
such term, provision or condition.
(e) In the event of any dispute concerning the interpretation
of this Agreement or its enforcement, or any proceeding arising out of or in
connection with an alleged or actual breach of this Agreement, the prevailing
party will be entitled to recover, in addition to any other relief obtained or
awarded, any reasonable attorneys' fees and expenses incurred in relation to
such dispute, enforcement or proceeding.
(signature page follows)
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first above written.
SRS LABS, INC.
By: /s/ THOMAS C.K. YUEN
-----------------------------------------
Thomas C.K. Yuen
Chairman of the Board
and Chief Executive Officer
VALENCE TECHNOLOGY INC.,
a British Virgin Islands Company
By: /s/ THOMAS WAH TONG WAN
-----------------------------------------
Thomas Wah Tong Wan,
President and Chief Executive Officer
RAYFA (BVI) LIMITED.
a British Virgin Islands Company
By: /s/ CHOI YAT MING
-----------------------------------------
Choi Yat Ming
Director
/s/ CHOI YAT MING
-----------------------------------------
Choi Yat Ming
