<PAGE>
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
December 11, 1998
--------------------
Date of Report (Date of earliest event reported)
VALENCE TECHNOLOGY, INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-20028 77-0214673
---------------- ---------------- ---------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation File Number) Identification No.)
301 CONESTOGA WAY
HENDERSON, NV 89015
--------------------
(Address of principal executive offices)
(702) 558-1000
--------------------
(Registrant's telephone number, including area code)
1.
<PAGE>
ITEM 5 OTHER EVENTS
On July 27, 1998, as reported in the Current Report on Form 8-K filed with
the Securities and Exchange Commission on August 4, 1998 by Valence Technology,
Inc. (the "Company"), the Company entered into an agreement with an
institutional investor for the private placement of up to $15.0 million of its
Series A Convertible Preferred Stock. The Company completed the issuance of
$7.5 million of its Series A Convertible Preferred Stock on July 27, 1998. The
investor made a commitment to purchase up to $7.5 million in additional shares
of Series A Convertible Preferred Stock, subject to the achievement by the
Company of certain specified milestones.
On December 11, 1998, the Company entered into an agreement with the same
institutional investor revising the terms of the commitment to purchase up to
$7.5 million in additional shares of Series A Convertible Preferred Stock,
replacing such commitment with the commitment to purchase $7.5 million of its
Series B Convertible Preferred Stock. The private placement of the Series B
Convertible Preferred Stock closed on December 18, 1998.
In connection with the Series A Convertible Preferred Stock private
placement, the Company also issued warrants to purchase up to 447,761 shares of
its common stock to the investor and an additional warrant to purchase up to
87,500 shares of its common stock to an advisor involved in the transaction.
In connection with the Series B Convertible Preferred Stock private
placement, the Company also issued warrants to purchase up to 447,761 shares of
its common stock to the investor and an additional warrant to purchase up to
87,500 shares of its common stock the advisor involved in the transaction. In
addition, the Company also replaced the warrant issued to the investor in the
Series A financing with a new warrant, for the same number of shares, in like
tenor as the warrant issued in the Series B financing.
In connection with the revised private placement, the investor agreed to
certain limitations on its ability to sell the Company's common stock into the
public market, and agreed to waive the application of the variable pricing
feature of the Series A Convertible Preferred Stock.
The press release announcing such financing is filed herewith as Exhibit
99.1 and incorporated herein by reference.
2.
<PAGE>
ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
4.1 Amended and Restated Securities Purchase Agreement, dated December 11,
1998.
4.2 Amended and Restated Registration Rights Agreement, dated December 11,
1998.
4.3 Certificate of Designation of Series B Convertible Preferred Stock, as
filed with the Delaware Secretary of State on December 17, 1998.
4.4 Form of Warrant to Investor
4.5 Form of Warrant to Placement Agent
99.1 Press Release, dated December 14, 1998
</TABLE>
3.
<PAGE>
SIGNATURE
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.
VALENCE TECHNOLOGY, INC.
Date: December 18, 1998
By: /s/ Lev Dawson
-------------------------------
Lev Dawson
Chief Executive Officer and President
4.
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
4.1 Amended and Restated Securities Purchase Agreement, dated December 11,
1998.
4.2 Amended and Restated Registration Rights Agreement, dated December 11,
1998.
4.3 Certificate of Designation of Series B Convertible Preferred Stock, as
filed with the Delaware Secretary of State on December 17, 1998.
4.4 Form of Warrant to Investor
4.5 Form of Warrant to Placement Agent
99.1 Press Release, dated December 14, 1998
</TABLE>
5.
<PAGE>
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
VALENCE TECHNOLOGY, INC.
AND
CC INVESTMENTS, LDC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . 2
1.1 Purchase of Preferred Stock and Warrants. . . . . . . . . . . . 2
1.2 Form of Payment . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Second Closing Date . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II PURCHASER'S REPRESENTATIONS AND WARRANTIES. . . . . . . . . 3
2.1 Investment Purpose. . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Accredited Investor Status. . . . . . . . . . . . . . . . . . . 3
2.3 Reliance On Exemptions. . . . . . . . . . . . . . . . . . . . . 3
2.4 Information . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Governmental Review . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Transfer or Resale. . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Authorization; Enforcement. . . . . . . . . . . . . . . . . . . 5
2.9 Residency . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Transactions in Common Stock of the Company . . . . . . . . . . 5
2.11 Acknowledgments Regarding Placement Agent . . . . . . . . . . . 5
2.12 Securities Purchase Agreement Representations and Warranties. . 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . 6
3.1 Organization and Qualification. . . . . . . . . . . . . . . . . 6
3.2 Authorization; Enforcement. . . . . . . . . . . . . . . . . . . 6
3.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Issuance of Shares. . . . . . . . . . . . . . . . . . . . . . . 7
3.5 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 Registration and SEC Documents. . . . . . . . . . . . . . . . . 9
3.7 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . 9
3.8 Absence of Litigation . . . . . . . . . . . . . . . . . . . . .10
3.9 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.10 Acknowledgment Regarding Purchaser's Purchase of the
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.11 Current Public Information. . . . . . . . . . . . . . . . . . .10
3.12 No General Solicitation . . . . . . . . . . . . . . . . . . . .10
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.13 No Integrated Offering. . . . . . . . . . . . . . . . . . . . .10
3.14 No Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . .11
3.15 Acknowledgment of Dilution. . . . . . . . . . . . . . . . . . .11
3.16 Intellectual Property . . . . . . . . . . . . . . . . . . . . .11
3.17 Foreign Corrupt Practices . . . . . . . . . . . . . . . . . . .11
3.18 Key Employees . . . . . . . . . . . . . . . . . . . . . . . . .12
3.19 Securities Purchase Agreement Representations and Warranties. .12
3.20 Revised Copies of Transaction Documents . . . . . . . . . . . .12
ARTICLE IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . .12
4.1 Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . .12
4.2 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . .12
4.3 Reporting Status. . . . . . . . . . . . . . . . . . . . . . . .13
4.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . .13
4.5 Restriction On Issuance of Securities . . . . . . . . . . . . .13
4.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
4.7 Information . . . . . . . . . . . . . . . . . . . . . . . . . .14
4.8 Waiver of Right to Variable Pricing.. . . . . . . . . . . . . .14
4.9 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
4.10 Prospectus Delivery Requirement . . . . . . . . . . . . . . . .14
4.11 Intentional Acts or Omissions . . . . . . . . . . . . . . . . .15
4.12 Corporate Existence . . . . . . . . . . . . . . . . . . . . . .15
4.13 Share Authorization . . . . . . . . . . . . . . . . . . . . . .15
4.14 No Manipulation . . . . . . . . . . . . . . . . . . . . . . . .15
4.15 Volume Limitations. . . . . . . . . . . . . . . . . . . . . . .15
4.16 Matters Relating to the Series A Certificate of Designation . .15
ARTICLE V LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES . . . . . . . .16
5.1 Removal of Legend . . . . . . . . . . . . . . . . . . . . . . .16
5.2 Transfer Agent Instructions . . . . . . . . . . . . . . . . . .16
5.3 Transfers of Preferred Stock. . . . . . . . . . . . . . . . . .17
5.4 Maintenance of Baccarat Agreement . . . . . . . . . . . . . . .17
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
5.5 Filing of Second Registration Statement . . . . . . . . . . . .17
ARTICLE VI CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. . . . . . .18
6.1 Conditions to the Company's Obligation to Sell. . . . . . . . .18
ARTICLE VII CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE. . . . . .18
7.1 Conditions to the Second Closing. . . . . . . . . . . . . . . .18
ARTICLE VIII GOVERNING LAW; MISCELLANEOUS. . . . . . . . . . . . . . . .20
8.1 Governing Law; Jurisdiction.. . . . . . . . . . . . . . . . . .20
8.2 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . .20
8.3 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
8.4 Severability. . . . . . . . . . . . . . . . . . . . . . . . . .20
8.5 Scope of Agreement; Amendments. . . . . . . . . . . . . . . . .21
8.6 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
8.7 Successors and Assigns. . . . . . . . . . . . . . . . . . . . .22
8.8 Third Party Beneficiaries.. . . . . . . . . . . . . . . . . . .22
8.9 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
8.10 Public Filings; Publicity.. . . . . . . . . . . . . . . . . . .23
8.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . .23
8.12 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . .23
8.13 Termination.. . . . . . . . . . . . . . . . . . . . . . . . . .23
8.14 Full Agreement. . . . . . . . . . . . . . . . . . . . . . . . .23
</TABLE>
iii.
<PAGE>
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT
THIS AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT ("AGREEMENT") is
entered into as of December 11, 1998, by and between VALENCE TECHNOLOGY, INC., a
Delaware corporation (the "COMPANY"), with headquarters located at 301 Conestoga
Way, Henderson, NV 89015, and CC INVESTMENTS, LDC ("PURCHASER") with regard to
the following:
RECITALS
A. The Company and Purchaser previously executed and delivered a
Securities Purchase Agreement, dated as of July 27, 1998 (the "SECURITIES
PURCHASE AGREEMENT"), and closed the First Closing (as defined therein), and now
desire to amend and restate the Securities Purchase Agreement in its entirety by
executing and delivering this Agreement.
B. The Company and Purchaser are executing and delivering this Agreement,
and executed and delivered the Securities Purchase Agreement, in reliance upon
the exemption from securities registration afforded by the provisions of
Regulation D ("Regulation D"), as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "SECURITIES ACT").
C. Purchaser purchased, upon the terms and conditions stated in the
Securities Purchase Agreement, (i) Series A Convertible Participating Preferred
Stock of the Company having the rights set forth in the Certificate of
Designations, Preferences and Rights (the "SERIES A CERTIFICATE OF DESIGNATION")
attached thereto as EXHIBIT A (the "SERIES A PREFERRED STOCK"), which is
convertible into shares of the Company's Common Stock, par value $.001 per share
(the "COMMON STOCK") and (ii) a Warrant in the form of EXHIBIT B thereto (the
"INITIAL WARRANT") entitling the holder thereof to purchase 447,761 shares of
Common Stock.
D. Purchaser desires to purchase, upon the terms and conditions stated in
this Agreement, (i) Series B Convertible Participating Preferred Stock of the
Company having the rights set forth in the Certificate of Designations,
Preferences and Rights (the "SERIES B CERTIFICATE OF DESIGNATION") attached
hereto as EXHIBIT A (the "SERIES B PREFERRED STOCK"), which shall be convertible
into shares of the Company's Common Stock, and (ii) a Warrant in the form of
EXHIBIT B hereto (the "SECOND WARRANT") entitling the holder thereof to purchase
447,761 shares of Common Stock. Purchaser also desires to exchange, upon the
terms and conditions stated in this Agreement, the Initial Warrant for a Warrant
of like tenor of the Second Warrant (such Warrant, when taken together with the
Second Warrant, the "WARRANTS"). The Series A Preferred Stock and the Series B
Preferred Stock are collectively referred to herein as the "PREFERRED STOCK" or
the "CONVERTIBLE SECURITIES." The shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Preferred Stock are referred to
herein as the "CONVERSION SHARES." The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "WARRANT SHARES." The
Preferred Stock, the Warrants and the Conversion Shares are collectively
referred to herein as the "SECURITIES."
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering an Amended and Restated
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to
which the Company has agreed to
1.
<PAGE>
provide certain registration rights under the Securities Act, the rules and
regulations promulgated thereunder and applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Purchaser hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 PURCHASE OF PREFERRED STOCK AND WARRANTS. The Company consummated the
sale of Series A Preferred Stock and the Initial Warrant on July 27, 1998 (the
"FIRST CLOSING"). Subject to the terms and the satisfaction or waiver of the
conditions set forth in this Agreement, the issuance, sale and purchase of the
Series B Preferred Stock and Second Warrant shall be consummated in a closing
hereinafter referred to as the "SECOND CLOSING." (each of the First Closing and
Second Closing sometimes referred to herein as a "CLOSING"). The purchase price
(the "PURCHASE PRICE") per share of Series A Preferred Stock was, and Series B
Preferred Stock shall be, equal to $1,000.
(a) On the date of the First Closing, the Company issued and sold to
Purchaser, and Purchaser purchased from the Company (i) 7,500 shares of Series A
Preferred Stock and (ii) the Initial Warrant. The aggregate purchase price for
the Series A Preferred Stock and Initial Warrant purchased at the First Closing
was seven million five hundred thousand dollars ($7,500,000).
(b) On the date of the Second Closing, subject to the satisfaction of
the conditions set forth in Articles VI and VII, the Company shall issue and
sell to Purchaser and Purchaser shall purchase from the Company (i) 7,500 shares
of Series B Preferred Stock and (ii) the Second Warrant. The aggregate purchase
price for such Securities to be purchased at the Second Closing shall be seven
million five hundred thousand dollars ($7,500,000).
(c) On the date of the Second Closing, subject to the satisfaction of
the conditions set forth in Articles VI and VII, the Company shall exchange with
Purchaser a Warrant to purchase 447,761 shares of Common Stock in the form
attached hereto as EXHIBIT B against delivery by Purchaser of the Initial
Warrant.
1.2 FORM OF PAYMENT. At the Second Closing, Purchaser shall (i) pay the
aggregate Purchase Price for the Series B Preferred Stock and Second Warrant
being purchased by Purchaser at the Second Closing by wire transfer to the
Company, in accordance with the Company's written wiring instructions, against
delivery of duly executed stock certificates for the same, and the Company shall
deliver such Series B Preferred Stock and certificate representing the Second
Warrant against delivery of such aggregate Purchase Price, and (ii) deliver the
Initial Warrant to the Company against issuance by the Company of a Warrant to
purchase 447,761 shares of Common Stock in the form attached hereto as EXHIBIT
B.
2.
<PAGE>
1.3 SECOND CLOSING DATE. Subject to the satisfaction of the conditions
set forth in Articles VI and VII below, the date and time of the issuance, sale
and purchase of the Series B Preferred Stock and Second Warrant, and exchange of
the Initial Warrant, pursuant to this Agreement shall be December 18, 1998, or
such other date as the Company and Purchaser shall agree. The Second Closing
shall occur at 12:00 p.m. Chicago time, at the offices of Cooley Godward LLP,
Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306.
ARTICLE II
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants to the Company as set forth in this
Article II. Purchaser does not make any other representations or warranties,
express or implied, to the Company in connection with the transactions
contemplated hereby and any and all prior representations and warranties, if
any, which may have been made by Purchaser to the Company in connection with the
transactions contemplated hereby shall be deemed to have been merged in this
Agreement and any such prior representations and warranties, if any, shall not
survive the execution and delivery of this Agreement.
2.1 INVESTMENT PURPOSE. Purchaser purchased the Series A Preferred Stock
and Initial Warrant, and is purchasing the Series B Preferred Stock, Second
Warrant and the Warrant to be issued in exchange for the Initial Warrant, for
Purchaser's own account for investment only and not with a view toward or in
connection with the public sale or distribution thereof. Purchaser will not
resell the Securities or any securities which may be issued upon conversion
thereof except pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales registered under the Securities
Act. Purchaser understands that Purchaser must bear the economic risk of this
investment indefinitely, unless the Securities are registered pursuant to the
Securities Act and any applicable state securities laws or an exemption from
such registration is available, and that the Company has no present intention of
registering any such Securities other than as contemplated by the Registration
Rights Agreement. By making the representations in this Section 2.1, Purchaser
does not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption from registration under
the Securities Act.
2.2 ACCREDITED INVESTOR STATUS. Purchaser is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D.
2.3 RELIANCE ON EXEMPTIONS. Purchaser understands that the Convertible
Securities and Warrants have been and are being offered and sold to Purchaser in
reliance upon specific exemptions from the registration requirements of the
United States federal and state securities laws and that the Company has relied
and is relying upon the truth and accuracy of, and Purchaser's compliance with,
the representations, warranties, agreements, acknowledgments and understandings
of Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of Purchaser to acquire the Convertible
Securities and Warrants.
3.
<PAGE>
2.4 INFORMATION. Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Convertible Securities and
Warrants which have been specifically requested by Purchaser. Purchaser has
been afforded the opportunity to ask questions of the Company and has received
what Purchaser believes to be complete and satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by Purchaser or any of its representations shall modify, amend or
affect Purchaser's right to rely on the Company's representations and warranties
contained in Article III. Purchaser understands that Purchaser's investment in
the Securities involves a high degree of risk.
2.5 GOVERNMENTAL REVIEW. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.
2.6 TRANSFER OR RESALE. Purchaser understands that (i) except as provided
in the Registration Rights Agreement, the Securities have not been and will not
be registered under the Securities Act or any state securities laws, and may not
be transferred unless subsequently registered thereunder or an exemption from
such registration is available (which exemption the Company expressly agrees may
be established as contemplated in clauses (b) and (c) of Section 5.1 hereof);
(ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("RULE 144") may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities without registration under the Securities Act under
circumstances in which the seller may be deemed to be an underwriter (as that
term is defined in the Securities Act) may require compliance with some other
exemption under the Securities Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to this Agreement or the
Registration Rights Agreement).
2.7 LEGENDS. Purchaser understands that, subject to Article V hereof, the
certificates for the Convertible Securities and Warrants, and until such time as
the Conversion Shares and Warrant Shares, as the case may be, have been
registered under the Securities Act as contemplated by the Registration Rights
Agreement or otherwise may be sold by Purchaser pursuant to Rule 144, the
certificates for the Conversion Shares and Warrant Shares, as the case may be,
will bear a restrictive legend (the "LEGEND") in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO
4.
<PAGE>
AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
Purchaser further understands that, subject to Article V hereof, the
certificates for the Convertible Securities will bear a restrictive legend (the
"SECOND LEGEND") in the following form:
THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED SECURITIES
PURCHASE AGREEMENT DATED DECEMBER 11, 1998 BETWEEN THE COMPANY
AND THE INITIAL PURCHASER OF THE SECURITIES, AS MAY BE AMENDED.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO
THE SECRETARY OF THE COMPANY.
2.8 AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms.
2.9 RESIDENCY. Purchaser is a resident of the Cayman Islands.
2.10 TRANSACTIONS IN COMMON STOCK OF THE COMPANY. As of July 27, 1998,
Purchaser owned no shares of the Common Stock of the Company. In addition,
Purchaser represents that it had not, within the 90 days prior July 27, 1998,
engaged in any purchases or sales of the Common Stock of the Company or, without
limitation, any puts, calls, futures contracts, short sales or hedging or
arbitrage transactions with respect thereto.
2.11 ACKNOWLEDGMENTS REGARDING PLACEMENT AGENT. Purchaser acknowledges
that Gemini Capital, L.L.C. is acting as placement agent (the "PLACEMENT AGENT")
for the Securities being offered hereby and will be compensated by the Company
for acting in such capacity. Purchaser further acknowledges that the Placement
Agent has acted solely as placement agent in connection with the offering of the
Securities by the Company, that the information and data provided to Purchaser
in connection with the transactions contemplated hereby have not been subjected
to independent verification by the Placement Agent, and that the Placement Agent
makes no representation or warranty with respect to the accuracy or completeness
of such information, data or other related disclosure material. Purchaser
further acknowledges that in making its decision to enter into this Agreement
and purchase the Securities it has relied on its own examination of the Company
and the terms of, and consequences, of holding the Securities. Purchaser
further acknowledges that the provisions of this Section 2.11 are for the
benefit of, and may be enforced by, the Placement Agent.
5.
<PAGE>
2.12 SECURITIES PURCHASE AGREEMENT REPRESENTATIONS AND WARRANTIES. Each of
the representations and warranties of Purchaser made by Purchaser in the
Securities Purchase Agreement were true and correct as of July 27, 1998.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that as of the date hereof
and as of the Second Closing, and except as specifically set forth in the
Schedule of Exceptions attached hereto:
3.1 ORGANIZATION AND QUALIFICATION. The Company and each of its
subsidiaries is a corporation duly organized, validity existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction where the failure to so qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on either (i) the business, operations, properties, financial condition,
operating results or prospects of the Company and its subsidiaries, taken as a
whole on a consolidated basis or (ii) the transactions contemplated hereby.
3.2 AUTHORIZATION; ENFORCEMENT.
(a) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Warrants and the Registration Rights
Agreement, and to issue and sell, perform its obligations with respect to, the
Convertible Securities and the Warrants in accordance with the terms hereof and
to issue the Conversion Shares in accordance with the terms and conditions of
the Series A Certificate of Designation and Series B Certificate of Designation
and the Warrant Shares in accordance with the terms and conditions of the
Warrants;
(b) the execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation the
issuance of the Convertible Securities and the Warrants and the reservation for
issuance and issuance of the Conversion Shares and the Warrant Shares) have been
duly authorized by all necessary corporate action and, except as set forth on
SCHEDULE 3.2 hereof, no further consent or authorization of the Company, its
board of directors, or its stockholders or any other person, body or agency is
required with respect to any of the transactions contemplated hereby or thereby
(whether under rules of the Nasdaq SmallCap Market or the Nasdaq National Market
System ("NASDAQ"), the National Association of Securities Dealers ("NASD") or
otherwise);
(c) this Agreement, the Registration Rights Agreement, the
Convertible Securities and the Warrants (except with respect to the Series B
Preferred Stock and the
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Warrants, which representation is given only as of the date of the Second
Closing) have been duly executed and delivered by the Company; and
(d) this Agreement, the Registration Rights Agreement, the
Convertible Securities and the Warrants (except with respect to the Series B
Preferred Stock and the Warrants, which representation is given only as of the
date of the Second Closing) constitute legal, valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to limitations
on availability of equitable relief, including specific performance.
3.3 CAPITALIZATION. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Convertible Securities and the Warrants)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares to be initially reserved for issuance upon
conversion of the Convertible Securities and the exercise of the Warrants is set
forth on SCHEDULE 3.3. All of such outstanding shares of capital stock have
been, or upon issuance will be, validly issued, fully paid and non-assessable.
No shares of capital stock of the Company (including the Preferred Stock, the
Conversion Shares, the Warrants and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except as disclosed in SCHEDULE 3.3, as of the
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
and (ii) there are no agreements or arrangements under which the Company or any
of its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement).
The Company has furnished to Purchaser true and correct copies of the Company's
Certificate of Incorporation as currently in effect ("CERTIFICATE OF
INCORPORATION"), and the Company's By-laws as currently in effect (the
"BY-LAWS"). The Company has set forth on SCHEDULE 3.3 all instruments and
agreements (other than the Certificate of Incorporation and By-laws) governing
securities convertible into or exercisable or exchangeable for Common Stock of
the Company (and the Company shall provide to Purchaser copies thereof upon the
request of Purchaser). The Company shall provide Purchaser with a written
update of this representation signed by the Company's Chief Executive Officer or
Chief Financial Officer on behalf of the Company as of the date of the Second
Closing and as of the first anniversary of each of the First Closing and Second
Closing.
3.4 ISSUANCE OF SHARES. The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance, and, upon conversion of the Convertible
Securities in accordance with the terms thereof, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
and will not be subject to preemptive rights or other similar rights of
stockholders of the Company. The Convertible Securities and Warrants
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are duly authorized and reserved for issuance, and are validly issued, fully
paid and non-assessable, and free from all taxes, liens claims and encumbrances
and are not and will not be subject to preemptive rights or other similar rights
of stockholders of the Company. The Board of Directors of the Company has
unanimously approved the issuance of shares of Common Stock upon conversion of
shares of Preferred Stock and upon the exercise of the Warrants pursuant to the
terms hereof in the aggregate in excess of twenty percent (20%) of the
outstanding shares of Common Stock (the "RULE 4460(i) AUTHORIZATION") and has
resolved to unanimously recommend, and will recommend unanimously, to the
stockholders of the Company the approval of the Rule 4460(i) Authorization in
accordance with Section 4.13. Accordingly, no further corporate authorization
or approval (other than the Stockholder Approval (as defined in Section 4.13))
is required under the rules of the Nasdaq with respect to the transaction
contemplated by this Agreement, including, without limitation, the issuance of
the Conversion Shares and the Warrant Shares and the inclusion thereof on the
Nasdaq.
3.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and reservation for issuance, as
applicable, of the Convertible Securities, Conversion Shares, Warrants and
Warrant Shares) will not (a) result in a violation of the Certificate of
Incorporation or By-laws, (b) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party (except for such conflicts, defaults,
terminations, amendments, accelerations, and cancellations as would not,
individually or in the aggregate, have a Material Adverse Effect), or (c) result
in a violation of any law, rule, regulation, order, judgment or decree
(including, without limitation, U.S. federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries, or by which
any property or asset of the Company or any of its subsidiaries, is bound or
affected. Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation, By-laws or other organizational documents, and
neither the Company nor any of its subsidiaries is in default (and no event has
occurred which, with notice or lapse of time or both, would put the Company or
any of its subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for possible defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted, and shall not be conducted so long as
Purchaser owns any of the Securities, in violation of any law, ordinance, rule,
regulation, order, judgment or decree of any governmental entity, court or
arbitration tribunal except for possible violations the sanctions for which
either singly or in the aggregate would not have a Material Adverse Effect.
Except as set forth on SCHEDULE 3.5, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or the Registration Rights Agreement or to perform its obligations in
accordance with the terms hereof or thereof. The Company is not in violation of
the listing requirements of Nasdaq and does not reasonably anticipate that the
Common Stock will be de-listed by Nasdaq for the foreseeable future.
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3.6 REGISTRATION AND SEC DOCUMENTS. The Common Stock is registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") and has been so registered since May 7, 1992. Except as disclosed in
SCHEDULE 3.6, since December 31, 1993, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed after December 31, 1993 and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being referred to herein as the "SEC DOCUMENTS"). The
Company has delivered to Purchaser true and complete copies of the SEC
Documents, except for exhibits, schedules and incorporated documents (the SEC
documents filed prior to the date hereof, the "FILED SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is currently required to be updated or
amended under applicable law except as a result of the transactions contemplated
hereby. The financial statements of the Company included in the SEC Documents
have been prepared in accordance with U.S. generally accepted accounting
principles, consistently applied, and the rules and regulations of the SEC
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they do not include footnotes or are condensed
or summary statements) and present accurately and completely the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal, immaterial year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the Filed SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred subsequent to the date of such financial statements in the ordinary
course of business consistent with past practice and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, in each case of clause (i) and (ii) next above which,
individually or in the aggregate, are not material to the financial condition,
business, operations, properties, operating results or prospects of the Company
and its subsidiaries taken on a whole. The Filed SEC Documents contain a
complete and accurate list of all material undischarged written or oral
contracts, agreements, leases or other instruments to which the Company or any
subsidiary is a party or by which the Company or any subsidiary is bound or to
which any of the properties or assets of the Company or any subsidiary is
subject (each a "CONTRACT"). None of the Company, its subsidiaries or, to the
best knowledge of the Company, any of the other parties thereto, is in breach or
violation of any Contract, which breach or violation would have a Material
Adverse Effect. No event, occurrence or condition exists which, with the lapse
of time, the giving of notice, or both, or the happening of any further event or
condition, would become a breach or default by the Company or its subsidiaries
under any Contract which breach or default would have a Material Adverse Effect.
3.7 ABSENCE OF CERTAIN CHANGES. Since March 31, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations,
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financial condition, results of operations or prospects of the Company or, to
the knowledge of the Company, any development which could reasonably be expected
to have such a material adverse change or development within the next eight
months, except as disclosed in SCHEDULE 3.7.
3.8 ABSENCE OF LITIGATION. Except as disclosed in SCHEDULE 3.8, there is
no action, suit, proceeding, inquiry or investigation before or by any court,
public board, governmental agency or authority, or self-regulatory organization
or body pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect or
would adversely affect the transactions contemplated by this Agreement or any of
the documents contemplated hereby or which would adversely affect the validity
or enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents. There are no
facts which, if known by a potential claimant or governmental agency or
authority, could give rise to a claim or proceeding which, if asserted or
conducted with results unfavorable to the Company or any of its subsidiaries,
could have a Material Adverse Effect.
3.9 DISCLOSURE. No information relating to or concerning the Company set
forth in this Agreement or provided to Purchaser in connection with the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were made, not
misleading. Except for the execution and performance of this Agreement, no
material fact (within the meaning of the federal securities laws of the United
States) exists with respect to the Company or any of its subsidiaries which has
not been publicly disclosed.
3.10 ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF THE SECURITIES. The
Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between Purchaser and
the Company, are "arms-length", and that any statement made by Purchaser, or any
of its representatives or agents, in connection with this Agreement or the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Purchaser's purchase of the Securities and has not been relied
upon in any way by the Company, its officers, directors or other
representatives. The Company further represents to Purchaser that the Company's
decision to enter into this Agreement and the transactions contemplated hereby
has been based solely on an independent evaluation by the Company and its
representatives.
3.11 CURRENT PUBLIC INFORMATION. The Company is currently eligible to
register the resale of the Conversion Shares on a registration statement on Form
S-3 under the Securities Act.
3.12 NO GENERAL SOLICITATION. Neither the Company nor any person acting on
behalf of the Company has conducted any "general solicitation," as described in
Rule 502(c) under Regulation D, with respect to any of the Securities being
offered hereby.
3.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any
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security or solicited any offers to buy any security under circumstances that
would prevent the parties hereto from consummating the transactions contemplated
hereby pursuant to an exemption from registration under the Securities Act
pursuant to the provisions of Regulation D. The transactions contemplated hereby
are exempt from the registration requirements of the Securities Act, assuming
the accuracy of the representations and warranties herein contained of Purchaser
to the extent relevant for such determination.
3.14 NO BROKERS. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Gemini Capital, L.L.C. (the fees
of which shall be paid in full by the Company). The Company will indemnify
Purchaser from and against any fees and expenses sought or other claims made by
Gemini Capital, L.L.C.
3.15 ACKNOWLEDGMENT OF DILUTION. The number of Conversion Shares issuable
upon conversion of the Convertible Securities may increase substantially in
certain circumstances, including the circumstance wherein the trading price of
the Common Stock declines. The Company's executive officers and directors have
studied and fully understand the nature of the securities being sold hereunder
and recognize that they have a potential dilutive effect. The board of
directors of the Company has concluded in its good faith business judgment that
such issuance is in the best interests of the Company. The Company acknowledges
that its obligation to issue Conversion Shares upon conversion of the
Convertible Securities and the Warrant Shares upon exercise of the Warrants is
binding upon it and enforceable regardless of the dilution that such issuance
may have on the ownership interests of other stockholders.
3.16 INTELLECTUAL PROPERTY. Each of the Company and its subsidiaries owns
or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") used or necessary for the conduct of its
business as now being conducted and as previously described in the Company's
Annual Report on Form 10-K for its most recently ended fiscal year. To the
knowledge of the Company and its subsidiaries, neither the Company nor any
subsidiary of the Company infringes on or is in conflict with any right of any
other person with respect to any Intangibles nor is there any claim of
infringement made by a third party against or involving the Company or any of
its subsidiaries, which infringement, conflict or claim, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect.
3.17 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or
11.
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domestic government official or employee. Without limiting the generality of
the foregoing, the Company and its subsidiaries have not directly or indirectly
made or agreed to make (whether or not said payment is lawful) any payment to
obtain, or with respect to, sales other than usual and regular compensation to
its or their employees and sales representatives with respect to such sales.
3.18 KEY EMPLOYEES. Each Key Employee (as defined below) is currently
serving the Company in the capacity disclosed in SCHEDULE 3.18. No Key
Employee, to the best of the knowledge of the Company and its subsidiaries, is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best of the knowledge of the
Company and its subsidiaries, any intention to terminate or limit his employment
with, or services to, the Company or any of its subsidiaries, nor is any such
Key Employee subject to any constraints (e.g., litigation) which would cause
such employee to be unable to devote his full time and attention to such
employment or services. "Key Employee" means each of Lev M. Dawson, Jerry
Barker and Joe Horning.
3.19 SECURITIES PURCHASE AGREEMENT REPRESENTATIONS AND WARRANTIES. Each of
the representations and warranties of the Company made by the Company in the
Securities Purchase Agreement were true and correct as of July 27, 1998. Each
of the covenants of the Company set forth in the Securities Purchase Agreement,
Registration Rights Agreement dated July 27, 1998 between the Company and
Purchaser, and Initial Warrant have been complied with, other than as have been
specifically waived by Purchaser in writing.
3.20 REVISED COPIES OF TRANSACTION DOCUMENTS. The Company or its legal
counsel has delivered to Castle Creek Partners copies of each of this Agreement,
the Registration Rights Agreement, the Series B Certificate of Designation, the
Second Warrant and the Schedule of Exceptions, in each case accurately marked to
show changes against the Securities Purchase Agreement, the Registration Rights
Agreement dated July 27, 1998, the Series A Certificate of Designation, the
Initial Warrant and the Schedule of Exceptions delivered with the Securities
Purchase Agreement, respectively.
ARTICLE IV
COVENANTS
4.1 BEST EFFORTS. The Company shall use its best efforts timely to satisfy
each of the conditions described in Articles VI and VII of this Agreement.
4.2 SECURITIES LAWS. The Company agrees to file a Form D with respect to
the Securities with the SEC as required under Regulation D. The Company agrees
to file a Form 8-K disclosing this Agreement and the transactions contemplated
hereby with the SEC within five (5) days following the date of the Second
Closing. The Company took, on or prior to the date of the First Closing, and
shall take, on or prior to the date of the Second Closing, such action as is
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necessary to sell the Securities to Purchaser in accordance with applicable
securities laws of the states of the United States, and has or shall provide
evidence of any such action so taken to Purchaser on or prior to the date of
each Closing. Without limiting any of the Company's obligations under this
Agreement, the Registration Rights Agreement, Series A Certificate of
Designation or the Series B Certificate of Designation, from and after the date
of the First Closing, neither the Company nor any person acting on its behalf
has taken or shall take any action which would adversely affect any exemptions
from registration under the Securities Act with respect to the transactions
contemplated hereby.
4.3 REPORTING STATUS. So long as Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination.
4.4 USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Preferred Stock only for working capital, the purchase of capital equipment
and to pay costs incident to the transactions contemplated by this Agreement.
4.5 RESTRICTION ON ISSUANCE OF SECURITIES. Until July 27, 1999, the
Company shall not issue or agree to issue, (except (i) to Purchasers pursuant to
this Agreement, (ii) pursuant to a merger entered into by the Company undertaken
at the reasonable discretion of the Board of Directors of the Company, the
primary purpose of which is not to raise equity capital, (iii) in private
placements of such securities to Strategic Investors (as defined below), (iv) a
public offering of the Company's securities, or (v) to one or more vendors in an
asset based financing if the primary purpose of such issuance is not to raise
equity capital) any equity securities at a fixed price less than the greater of
(A) $6.03 and (B) 80% of the fair market value thereof on such date or (b) any
variably priced equity securities or equity like securities of the Company (or
any security convertible into or exercisable or exchangeable, directly or
indirectly, for equity or equity like securities of the Company) (each of the
foregoing in (a) and (b) above being a "RESTRICTED SECURITY"); provided,
however, that the foregoing restriction shall apply only for so long as
Purchaser continues to hold thirty percent (30%) of the Preferred Stock (or
equity securities into which such Preferred Stock was converted) on the date of
such issuance. Without implication that the contrary would otherwise be true,
the Company shall not indirectly accomplish any action which the immediately
preceding sentence would have otherwise prohibited from being effected directly
(e.g., by an asset drop-down to a subsidiary followed by the offering of
securities of such subsidiary). The term "STRATEGIC INVESTORS" shall mean
purchasers of such securities who are prohibited, by contract or otherwise, from
converting such securities into Common Stock (in the case of convertible
securities) or from otherwise transferring such securities for a period of at
least two years from the date of the private placement in question.
4.6 EXPENSES. The Company shall pay to Purchaser, or at its direction, at
the Second Closing, reimbursement for the expenses reasonably incurred by it and
its affiliates and advisors in connection with the negotiation, preparation,
execution, and delivery of this Agreement and the other agreements to be
executed in connection herewith, including, without limitation, Purchaser's and
its affiliates' and advisors' due diligence and attorneys' fees and expenses
(the
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"EXPENSES"); provided, however, that such reimbursement of Expenses, together
with the Expenses reimbursed at the First Closing and subsequent thereto
pursuant to Section 4.6 of the Securities Purchase Agreement, shall not exceed
$50,000. In addition, from time to time thereafter, upon Purchaser's written
request, subject to such $50,000 limit, the Company shall pay to Purchaser such
Expenses, if any, not so paid at the Second Closing and/or covered by such
payment, in each case to the extent reasonably incurred by Purchaser.
4.7 INFORMATION. The Company agrees to send the following reports to
Purchaser until Purchaser transfers, assigns or sells all of its Securities: (a)
within five (5) business days after the filing with the SEC, a copy of its
Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy
statements and any Current Reports on Form 8-K; and (b) within three (3)
business days after release, copies of all press releases issued by the Company
or any of its subsidiaries. The Company further agrees to promptly provide to
any Holder any information with respect to the Company, its properties, or its
business or Holder's investment as such Holder may reasonably request; provided,
however, that the Company shall not be required to give any Holder any material
non-public information. Without limitation of the foregoing, if any information
requested by a Holder from the Company contains material non-public information,
the Company shall inform the Holder in writing that the information requested
contains material non-public information and shall in no event provide such
information to Holder without the express prior written consent of such Holder
after being so informed.
4.8 WAIVER OF RIGHT TO VARIABLE PRICING. Purchaser covenants and agrees
not to convert any shares of Series A Preferred Stock on any date in which the
Variable Conversion Price is less than the Fixed Conversion Price (as such terms
are defined in the Series A Certificate of Designation) unless Purchaser shall
deliver to the Company, as a contribution to the capital of the Company, that
number of shares of Common Stock received upon such conversion as shall exceed
the number of shares of Common Stock that would have been issued upon such
conversion if the applicable Conversion Price on such date would have been the
Fixed Conversion Price (as defined in the Series A Certificate of Designation).
Purchaser hereby irrevocably authorizes the Company to reject any conversion
notices for shares of Series A Preferred Stock that result in a conversion at a
Variable Conversion Price below the Fixed Conversion Price unless concurrently
with such conversion the Company receives from Purchaser the capital
contribution specified in the foregoing sentence.
4.9 LISTING. For so long as Purchaser owns any of the Securities, the
Company shall continue the listing and trading of its Common Stock on the Nasdaq
SmallCap Market, the Nasdaq National Market System, the New York Stock Exchange
or the American Stock Exchange, secure and maintain listing and trading of the
Conversion Shares and Warrant Shares on such exchange, and comply in all
respects with the Company's reporting, filing and other obligations under the
by-laws or rules of such exchange.
4.10 PROSPECTUS DELIVERY REQUIREMENT. Purchaser understands that the
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by Purchaser of the Common Stock being
sold, and Purchaser shall use its reasonable efforts to comply with the
applicable prospectus delivery requirements of the Securities Act in connection
with any such sale.
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4.11 INTENTIONAL ACTS OR OMISSIONS. The Company shall not intentionally
perform any act which if performed, or intentionally omit to perform any act
which, if omitted to be performed, would prevent or excuse the performance of
this Agreement or any of the transactions contemplated hereby or the benefits
intended to be secured thereby by Purchaser (including, without limitation,
pursuant to any agreements or documents obtained by the Company as a condition
to any Closing hereunder).
4.12 CORPORATE EXISTENCE. So long as Purchaser beneficially owns any
Preferred Stock or Warrants, the Company shall use all commercially reasonable
efforts to maintain its corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the Company's assets, as
long as the surviving or successor entity in such transaction (i) assumes the
Company's obligations hereunder and under the agreements and instruments entered
into in connection herewith regardless of whether or not the Company would have
had a sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the conversion of all Preferred Stock outstanding as
of the date of such transaction and (ii) is a publicly traded corporation whose
Common Stock is listed for trading on the Nasdaq SmallCap Market, the Nasdaq
National Market System, the New York Stock Exchange or the American Stock
Exchange.
4.13 SHARE AUTHORIZATION. The Company covenants and agrees that it shall
(i) solicit by proxy the authorization and approval (the "SHAREHOLDER APPROVAL")
of the Rule 4460(i) Authorization by the stockholders of the Company in its
Proxy Statement for the next annual meeting of stockholders of the Company, and
in any event, not later than February 8, 1999, and (ii) use its best efforts to
obtain the Shareholder Approval at the next annual meeting of stockholders of
the Company, and in any event, not later than February 8, 1999.
4.14 NO MANIPULATION. Neither Purchaser nor any of its affiliates shall
engage in any conduct with the purpose of manipulating the market price of the
Common Stock.
4.15 VOLUME LIMITATIONS. Purchaser covenants and agrees that for so long as
it or any of its affiliates shall own any shares of Series B Preferred Stock,
Purchaser and its affiliates shall not, on any trading day, sell on a public
trading market, at a price less than $12.00 per share (adjusted for any stock
splits, stock dividends or stock combinations), such number of shares of Common
Stock as when aggregated together shall exceed the greatest of (i) 30,000 shares
(as adjusted for any stock splits, stock dividends or stock combinations), (ii)
15% of the total number of shares of Common Stock sold on the Nasdaq National
Market during such trading day, and (iii) 15% of the average daily trading
volume on the Nasdaq National Market for the five consecutive trading days
immediately preceding such sale. In the event that Purchaser shall sell,
transfer or convey any shares of Series B Preferred Stock to a party not an
affiliate, then the above-referenced amounts shall be prorated amongst Purchaser
and the transferee in proportion to the number of shares of Series B Preferred
Stock retained and sold, respectively.
4.16 MATTERS RELATING TO THE SERIES A CERTIFICATE OF DESIGNATION. Purchaser
irrevocably waives any right it has to invoke the option referred to in Section
XI.E. of the Series A Certificate of Designation with respect to the issuance of
any of the securities contemplated by this Agreement. Pursuant to Article XIII
of the Series A Certificate of Designations, Purchaser
15.
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expressly consents to and approves the creation and issuance of the Series B
Preferred Stock and the other transactions contemplated by this Agreement.
ARTICLE V
LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES
5.1 REMOVAL OF LEGEND. The Legend shall be removed and the Company shall
issue a certificate without any legend to the holder of any Security upon which
such Legend is stamped, and a certificate for a security shall be originally
issued without any legend, if, unless otherwise required by applicable state
securities laws, (a) the sale of such Security is registered under the
Securities Act, (b) such holder provides the Company with an opinion of counsel,
in form, substance and scope customary for opinions of counsel in comparable
transactions (the reasonable cost of which shall be borne by the Company), to
the effect that a public sale or transfer of such Security may be made without
registration under the Securities Act or (c) such Security can be sold pursuant
to Rule 144. Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the Legend has been removed, or which
were originally issued without the Legend, pursuant to an effective registration
statement and to deliver a prospectus in connection with such sale or in
compliance with an exemption from the registration requirements of the
Securities Act. In the event the Legend is removed from any Security or any
Security is issued without the Legend and thereafter the effectiveness of a
registration statement covering the resale of such Security is suspended or the
Company determines that a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to Purchaser
holding such Security, the Company may require that the Legend be placed on any
such Security that cannot then be sold pursuant to an effective registration
statement or Rule 144 or with respect to which the opinion referred to in clause
(b) next above has not been rendered, which Legend shall be removed when such
Security may be sold pursuant to an effective registration statement or Rule 144
or such holder provides the opinion with respect thereto described in clause (b)
next above. The Second Legend shall remain on any certifiates representing
shares of Preferred Stock.
5.2 TRANSFER AGENT INSTRUCTIONS. The Company shall instruct its transfer
agent to issue certificates, registered in the name of Purchaser or its nominee,
for the Conversion Shares in such amounts as specified from time to time by
Purchaser to the Company upon, and in accordance with, the conversion of the
Preferred Stock. Such certificates shall bear a legend only in the form of the
Legend and only to the extent permitted by Section 5.1 above. The Company
warrants that no instruction other than such instructions referred to in this
Article V, and no stop transfer instructions other than stop transfer
instructions to give effect to Section 2.6 hereof in the case of the Conversion
Shares prior to registration of the Conversion Shares under the Securities Act,
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company.
Nothing in this Section shall affect in any way Purchaser's obligations and
agreement set forth in Section 5.1 hereof to resell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. Without limiting the foregoing, if
(a) Purchaser provides the Company with an opinion of counsel, which opinion of
counsel shall be in form, substance and scope customary for opinions of counsel
in comparable transactions (the
16.
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reasonable cost of which shall be borne by the Company), to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) Purchaser transfers Securities to an
affiliate or pursuant to Rule 144, the Company shall permit the transfer, and,
in the case of the Conversion Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denomination as
specified by Purchaser in order to effect such a transfer or sale. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to Purchaser by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Article V will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Article V, that Purchaser shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
5.3 TRANSFERS OF PREFERRED STOCK. Purchaser further covenants and agrees
that it will not sell, assign, transfer or otherwise convey (i) any shares of
Series A Preferred Stock unless the transferee shall also agree in writing
addressed to the Company to be bound by the terms of Section 4.8 and the first
sentence of Section 4.16 to the same extent as Purchaser, and (ii) any shares of
Preferred Stock unless the transferee shall also agree in writing addressed to
the Company to be bound by the terms of Section 4.14, Section 4.15 (allocated in
accordance therewith) and this Section 5.3 to the same extent as Purchaser and
consents to the placement of the Second Legend on such stock certificate.
Purchaser shall, on or within five days of the Second Closing, deliver to the
Company all stock certificates evidencing the Series A Preferred Stock so that
the Company may place the Second Legend on such stock certificates.
5.4 MAINTENANCE OF BACCARAT AGREEMENT. Until the earlier of such time as
(x) Purchaser shall no longer hold Preferred Stock, and (y) the second
anniversary of the Second Closing, the Company shall not terminate the agreement
between Baccarat Electronics, Inc. ("BACCARAT") and the Company to lend the
Company amounts totaling $7,500,000, as described in Section 7.1(x) of the
Securities Purchase Agreement, and shall use its commercially reasonable efforts
to cause (i) such agreement to remain in full force and effect, without any
amendment thereto adversely affecting the rights of the Company, and (ii) all
such amounts to be available for immediate borrowing thereunder, except to the
extent such amounts have been previously borrowed by the Company thereunder and
not repaid as of such date; PROVIDED, HOWEVER, that (i) if $8,000,000 is
immediately available under a working capital line of credit and/or IDB funding,
secured (if secured) by the inventory, accounts receivable and/or fixed assets
of the Company, and the Company shall have no reason to expect that the
availability of such funding shall terminate prior to the second anniversary of
the Second Closing, Baccarat's agreement need not be in full force and effect,
and (ii) if an amount less than $8,000,000 is immediately available under such a
working capital line of credit and/or IDB funding, and the Company shall have no
reason to expect that the availability of such funding shall terminate prior to
the second anniversary of the Second Closing, Baccarat's agreement need only be
in full force and effect as to the amount by which $8,000,000 exceeds the amount
so available under such funding.
5.5 FILING OF SECOND REGISTRATION STATEMENT. Purchaser covenants and
agrees that, immediately upon consummation of the Second Closing, the Company
shall file with the
17.
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Securities and Exchange Commission the Second Registration Statement (as defined
in Section 2.1 of the Registration Rights Agreement).
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Series B Preferred Stock and Second
Warrant to Purchaser at the Second Closing is subject to the satisfaction, as of
the date of the Second Closing, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
(a) Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to the
Company.
(b) Purchaser shall deliver the applicable Purchase Price for the
Series B Preferred Stock and Second Warrant purchased at the Second Closing, and
shall have delivered the Initial Warrant to be exchanged at the Second Closing.
(c) The representations and warranties of Purchaser shall be true and
correct in all material respects as of the date when made and as of the Second
Closing as though made at that time, and Purchaser shall have performed,
satisfied and complied in all material respects with the covenants and
agreements required by this Agreement to be performed or complied with by
Purchaser at or prior to the Second Closing.
(d) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of any of the transactions contemplated
by this Agreement.
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE
7.1 CONDITIONS TO THE SECOND CLOSING. The obligation of Purchaser
hereunder to purchase the Series B Preferred Stock and Second Warrant to be
purchased by it on the date of the Second Closing is subject to the satisfaction
of each of the following conditions, provided that these conditions are for
Purchaser's sole benefit and may be waived by Purchaser (with respect to it) at
any time in Purchaser's sole discretion:
(a) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
Purchaser.
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(b) The Company shall have delivered (i) duly executed certificates
for the Series B Preferred Stock (in such denominations as Purchaser shall
request) being so purchased by Purchaser at the Second Closing, (ii) the Second
Warrant, and (iii) the Warrant to be issued in exchange for the Initial Warrant
pursuant to Section 1.1(c).
(c) The Common Stock shall be listed on the Nasdaq SmallCap Market,
the Nasdaq National Market System, the New York Stock Exchange or the American
Stock Exchange and trading in the Common Stock shall not have been suspended by
the Nasdaq SmallCap Market, the Nasdaq National Market System, the New York
Stock Exchange or the American Stock Exchange, the SEC or other regulatory
authority and no de-listing or suspension shall be reasonably likely for the
foreseeable future.
(d) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Second Closing as though made at that time and the Company shall have performed,
satisfied and complied with the covenants and agreements required by this
Agreement to be performed or complied with by the Company at or prior to the
Second Closing. Purchaser's counsel shall have received a certificate, executed
by the Chief Executive Officer or Chief Financial Officer of the Company, dated
as of the Second Closing to the foregoing effect and as to such other matters as
may be reasonably requested by Purchaser.
(e) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(f) Purchaser's counsel shall have received the officer's certificate
described in Section 3.3, dated as of the Second Closing.
(g) Purchaser's counsel shall have received opinions of the Company's
outside legal counsel, dated as of the Second Closing from firms and in form and
substance reasonably acceptable to Purchaser.
(h) The Company's transfer agent has agreed to act in accordance with
irrevocable instructions in the form attached as EXHIBIT D to the Securities
Purchase Agreement, which instructions shall apply to both the Series A
Preferred Stock and Series B Preferred Stock.
(i) There shall be no breach by the Company of this Agreement or of
any other agreement entered into in connection herewith, no Redemption Event (as
defined in the Series A Certificate of Designation) shall have occurred and
there shall be no state of facts which, if continued, would become a Redemption
Event with the lapse of time.
(j) No Bankruptcy Event (as defined in the Series A Certificate of
Designation) shall have occurred.
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(k) The Series B Certificate of Designation shall have been accepted
for filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of Delaware shall have been
delivered to Purchaser.
(l) The Company shall have prepared for filing with the Securities
and Exchange Commission, and taken all actions necessary for the filing of
(other than instructing the Company's filing agent to so file), the Second
Registration Statement (as defined in Section 2.1 of the Registration Rights
Agreement), including payment of the registration fee, EDGARization of the
Second Registration Statement, and obtaining all necessary consents and
signatures thereto.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The parties hereto
irrevocably consent to the jurisdiction of the United States federal courts
located in the State of Delaware and the state courts located in the County of
New Castle in the State of Delaware in any suit or proceeding based on or
arising under this Agreement or the transactions contemplated hereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company mailed by the first
class mail shall be deemed in every respect effective service of process upon
the Company in any suit or proceeding arising hereunder. Nothing herein shall
affect Purchaser's right to serve process in any other manner permitted by law.
The parties hereto agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
8.2 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be delivered to the other parties.
8.3 HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4 SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
20.
<PAGE>
8.5 SCOPE OF AGREEMENT; AMENDMENTS. Except as specifically set forth
herein, Purchaser makes no representation, warranty, covenant or undertaking
with respect to the transactions contemplated hereby. No provision of this
Agreement may be waived other than by an instrument in writing signed by the
party to be charged with enforcement and no provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and
Purchaser.
8.6 NOTICE. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by
facsimile-machine confirmed telecopy, and shall be deemed delivered at the time
and date of receipt (which shall include telephone line facsimile transmission).
The addresses for such communications shall be:
If to the Company:
Valence Technology, Inc.
301 Conestoga Way Henderson
NV 89015
Telecopy: (702) 558-1310
Attention: Lev Dawson
with a copy to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Telecopy: (650) 857-0663
Attention: Andrei Manoliu, Esq.
If to Purchaser:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
333 West Wacker Drive
Suite 1410
Chicago, IL 60606
Telecopy: (312) 435-2636
Attention: Portfolio Manager
21.
<PAGE>
and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, IL 60606
Telecopy: (312) 715-4800
Attention: Peter H. Lieberman, Esq.
Each party shall provide notice to the other parties of any change in address.
8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Neither the
Company nor Purchaser shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other. Notwithstanding the
foregoing, Purchaser may assign its rights and obligations hereunder to any of
its "affiliates," as that term is defined under the Exchange Act, without the
consent of the Company so long as such affiliate is an accredited investor.
This provision shall not limit Purchaser's right to transfer the Securities
pursuant to the terms of this Agreement. In addition, and notwithstanding
anything to the contrary contained in this Agreement, the Series A Certificate
of Designation, the Series B Certificate of Designation, the Warrants or the
Registration Rights Agreement (collectively, the "TRANSACTION DOCUMENTS"), the
Securities may be pledged, and all rights of Purchaser under this Agreement or
any other agreement or document related to the transaction contemplated hereby
may be assigned, without further consent of the Company, to a bona fide pledgee
in connection with Purchaser's margin or brokerage accounts.
8.8 THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
8.9 SURVIVAL. The representations and warranties of Purchaser and the
Company and the agreements and covenants set forth in Articles III, IV, V and
VIII shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of Purchaser. The Company agrees to
indemnify and hold harmless Purchaser and each of Purchaser's officers,
directors, employees, partners, agents and affiliates for loss or damage or
expenses (including reasonable attorneys fees) arising as a result of or related
to (a) any breach or alleged breach by the Company of any of its representations
or covenants set forth herein, including advancement of expenses as they are
incurred, (b) any cause of action, suit or claim brought or made against
Purchaser and arising out of or resulting from the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (d) the
status of Purchaser or holder of the Securities as an investor in the Company.
To the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities which is permissible
under applicable law.
22.
<PAGE>
8.10 PUBLIC FILINGS; PUBLICITY. Immediately following the Second Closing,
the Company shall issue a press release with respect to the transactions
contemplated hereby. Prior to the expiration of two business (2) days following
the date of the Second Closing, the Company shall file a Form 8-K regarding the
transaction contemplated by this Agreement; such Form 8-K shall have as exhibits
thereto the material documents executed in connection with this transaction
contemplated hereby. The Company and Purchaser's counsel shall have the right
to approve before issuance any press releases (including the foregoing press
release), SEC or other filings, or any other public statements, with respect to
the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of Purchaser, to make any press release
or SEC, Nasdaq, NASD or exchange filings with respect to such transactions as is
required by applicable law and regulations (although Purchaser shall (to the
extent time permits) be consulted by the Company in connection with any such
press release prior to its release and shall be provided with a copy thereof).
8.11 FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.12 REMEDIES. No provision of this Agreement providing for any remedy to
Purchaser shall limit any remedy which would otherwise be available to Purchaser
at law or in equity. Nothing in this Agreement shall limit any rights Purchaser
may have with any applicable federal or state securities laws with respect to
the investment contemplated hereby.
8.13 TERMINATION. In the event that the Second Closing shall not have
occurred within forty-eight (48) hours of the execution of this Agreement,
unless the parties agree otherwise, this Agreement shall terminate.
8.14 FULL AGREEMENT. Except as specifically referenced herein, this
Agreement, the Preferred Stock, Warrants and the Registration Rights Agreement
(including all schedules and exhibits thereto and all certificates and opinions
required thereby) constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the Preferred Stock, the Warrants and the
Registration Rights Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof,
including the Securities Purchase Agreement and the agreement amended and
restated by the Registration Rights Agreement.
* * *
23.
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IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
PURCHASER: COMPANY:
CC INVESTMENTS, LDC VALENCE TECHNOLOGY, INC.
By: /s/ John Ziegelman By:/s/ Lev M. Dawson
---------------------- --------------------------
John Ziegelman Lev M. Dawson
- ------------------------- -----------------------------
Its: Director Its: President, Chairman and
Chief Executive Officer
24.
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Exhibit A
Series B Certificate of Designation
[see Exhibit 4.3]
<PAGE>
Exhibit B
Form of Warrant
[see Exhibit 4.4]
<PAGE>
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"),
is made as of December 11, 1998, by and among VALENCE TECHNOLOGY, INC., a
Delaware corporation (the "COMPANY"), with headquarters located at 301 Conestoga
Way, Henderson, NV 89015 and the undersigned (the "INITIAL PURCHASER").
RECITALS
A. In connection with the Securities Purchase Agreement dated July 27,
1998 by and between the Company and the Initial Purchaser (the "SECURITIES
PURCHASE AGREEMENT"), the Company sold to the Initial Purchaser (i) 7,500 shares
of Series A Convertible Participating Preferred Stock of the Company (the
"SERIES A PREFERRED STOCK") that is convertible into shares (the "SERIES A
CONVERSION SHARES") of the Company's common stock, par value $.001 per share
(the "COMMON STOCK"), upon the terms and subject to the limitations and
conditions set forth in the Certificate of Designations, Preferences and Rights
with respect to such Series A Preferred Stock (the "SERIES A CERTIFICATE OF
DESIGNATION") in the form attached as Exhibit A to the Securities Purchase
Agreement, and (ii) a Warrant (the "INITIAL WARRANT") entitling the holder
thereof to purchase 447,761 shares of Common Stock.
B. In connection with the Amended and Restated Securities Purchase
Agreement dated of even date herewith by and between the Company and the Initial
Purchaser (the "AMENDED SECURITIES PURCHASE AGREEMENT"), the Company has agreed,
upon the terms and subject to the conditions contained therein, to issue and
sell to the Initial Purchaser (i) 7,500 shares of Series B Convertible
Participating Preferred Stock of the Company (the "SERIES B PREFERRED STOCK")
that is convertible into shares (the "SERIES B CONVERSION SHARES") of Common
Stock, upon the terms and subject to the limitations and conditions set forth in
the Certificate of Designations, Preferences and Rights with respect to such
Series B Preferred Stock (the "SERIES B CERTIFICATE OF DESIGNATION") in the form
attached as Exhibit A to the Amended Securities Purchase Agreement, (ii) a
Warrant (the "SECOND WARRANT") entitling the holder thereof to purchase 447,761
shares of Common Stock (the "SECOND WARRANT SHARES"), and (iii) has agreed, upon
the terms and subject to the conditions contained therein, to exchange the
Initial Warrant with a Warrant of like tenor as the Second Warrant (all
references to the Initial Warrant herein shall refer to the Initial Warrant, as
so replaced, and all references to the "INITIAL WARRANT SHARES" shall refer to
the shares of Common Stock issuable upon exercise of the Initial Warrant as so
replaced).
C. In connection with entering into the Securities Purchase Agreement,
the Company and the Initial Purchaser entered into the Registration Rights
Agreement, dated as of July 27, 1998, between the Company and the Initial
Purchaser (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company
agreed to provide certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "SECURITIES ACT"), and applicable state securities
laws.
D. The Company and the Initial Purchaser, desiring to induce each other
to enter into the Amended Securities Purchase Agreement, have agreed to amend
and restate the Registration
1.
<PAGE>
Rights Agreement by this Agreement, to supercede the Registration Rights
Agreement in its entirety.
AGREEMENTS
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, and the Initial
Purchaser hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "CONVERSION SHARES" means the Series B Conversion Shares and
the Series A Conversion Shares.
(b) "PREFERRED STOCK" means the Series A Preferred Stock and the
Series B Preferred Stock.
(c) "PURCHASERS" means the Initial Purchaser and any transferees
or assignees who agree to become bound by the provisions of this Agreement in
accordance with Article IX hereof.
(d) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(e) "REGISTRABLE SECURITIES" means the Series A Registrable
Securities and the Series B Registrable Securities.
(f) "REGISTRATION STATEMENT" means a registration statement of
the Company under the Securities Act.
(g) "SERIES A REGISTRABLE SECURITIES" means the Series A
Conversion Shares (including any Series A Conversion Shares issuable with
respect to conversion default payments under the Series A Certificate of
Designation) issued or issuable with respect to the Series A Preferred Stock and
the Initial Warrant Shares issued or issuable with respect to the Initial
Warrant (without regard to any limitations on conversion or exercise) and any
shares of capital stock issued or issuable, from time to time (with any
adjustments), on or in exchange for or otherwise with respect to the Common
Stock or any other Series A Registrable Securities.
2.
<PAGE>
(h) "SERIES B REGISTRABLE SECURITIES" means the Series B
Conversion Shares (including any Series B Conversion Shares issuable with
respect to conversion default payments under the Series B Certificate of
Designation) issued or issuable with respect to the Series B Preferred Stock and
the Second Warrant Shares issued or issuable with respect to the Second Warrant
(without regard to any limitations on conversion or exercise) and any shares of
capital stock issued or issuable, from time to time (with any adjustments), on
or in exchange for or otherwise with respect to the Common Stock or any other
Series B Registrable Securities.
(i) "WARRANTS" means the Initial Warrant and the Second Warrant.
(j) "WARRANT SHARES" means the Initial Warrant Shares and the
Second Warrant Shares.
1.2 CAPITALIZED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Amended
Securities Purchase Agreement.
ARTICLE II
REGISTRATION
2.1 MANDATORY REGISTRATION. The Company has prepared and filed with the
SEC a Registration Statement on Form S-3 (the "FIRST REGISTRATION STATEMENT")
covering the resale of in excess of 5,000,000 shares of Common Stock issuable
upon conversion of the Series A Preferred Stock and the exercise of the Initial
Warrant which was declared effective by the SEC on December 4, 1998. The
Company shall prepare, and, on or prior to twenty (20) days after the date of
the closing of the sale of Series B Preferred Stock (the "Filing Date"), file
with the SEC a Registration Statement (the "SECOND REGISTRATION STATEMENT") on
Form S-3 (or, if Form S-3 is not then available, on such form of Registration
Statement as is then available to effect a registration of all of the Series B
Registrable Securities, subject to the consent of the Initial Purchasers (as
determined pursuant to Section 11.10 hereof)) covering the resale of 4,000,000
shares of Common Stock, which Registration Statement, to the extent allowable
under the Securities Act and the Rules promulgated thereunder (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Stock and the exercise of the Warrants to
prevent dilution resulting from stock splits, stock dividends or similar
transactions. The Registrable Securities included in the Registration Statements
referenced above shall be allocated among the Purchasers as set forth in Section
11.11 hereof. The Registration Statements (and each amendment or supplement
thereto, and each request for acceleration of effectiveness thereof) shall be
provided to (and subject to the approval of (which approval shall not be
unreasonably withheld or denied)) the Initial Purchasers and their counsel prior
to its filing or other submission.
2.2 UNDERWRITTEN OFFERING. If any offering pursuant to a Registration
Statement pursuant to Section 2.1 hereof involves an underwritten offering, the
Purchasers who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, with the
3.
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consent of the Initial Purchasers, shall have the right to select a total of one
legal counsel to represent the Purchasers and an investment banker or bankers
and manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the Company.
2.3 PAYMENTS BY THE COMPANY. The Company shall cause the Second
Registration Statement to become effective as soon as practicable, but in no
event later than the sixtieth (60th) day following the date of the closing of
the sale of Series B Preferred Stock (or, if the SEC comments on the Second
Registration Statement, the ninetieth (90th) day following the date of such
closing) (the "REGISTRATION DEADLINE"). If (i) sales of all the Series A
Registrable Securities (including any Series A Registrable Securities required
to be registered pursuant to Section 3.2 hereof) cannot be made pursuant to the
First Registration Statement (by reason of a stop order or the Company's failure
to update the Registration Statement or any other reason outside the control of
the Purchasers), (ii) the Second Registration Statement is not declared
effective by the SEC on or before the Registration Deadline, or (iii) after the
Second Registration Statement has been declared effective by the SEC, sales of
all the Registrable Securities (including any Registrable Securities required to
be registered pursuant to Section 3.2 hereof) cannot be made pursuant to the
applicable Registration Statements (by reason of a stop order or the Company's
failure to update such Registration Statements or any other reason outside the
control of the Purchasers), then the Company will make payments to the
Purchasers in such amounts and at such times as shall be determined pursuant to
this Section 2.3 as partial relief for the damages to the Purchasers by reason
of any such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies available
at law or in equity). In such event, the Company shall pay to each Purchaser an
amount equal to (x) (A) .03 times (B) the aggregate purchase price of the
Preferred Stock held by such Purchaser (including, without limitation, shares of
Preferred Stock that have been converted into Conversion Shares) times (y) the
number of months (prorated per day for partial months) prior to the termination
of the Registration Period (as hereinafter defined) that sales cannot be made
pursuant to the applicable Registration Statements. Such amounts shall be paid
in cash or, at each Purchaser's option, may be convertible into Common Stock at
the "CONVERSION PRICE" (as defined in the Series B Certificate of Designation),
subject, however, to the limitations set forth in Section IVG(ii) of the Series
A Certificate of Designation and Series B Certificate of Designation or Section
8(f) of the Initial Warrant and Second Warrant. Any shares of Common Stock
issued upon conversion of such amounts shall be Registrable Securities. If the
Purchaser desires to convert or exercise the amounts due hereunder into
Registrable Securities it shall so notify the Company in writing within two (2)
days prior to the date on which such amounts are first payable in cash and such
amounts shall be so convertible (pursuant to the terms of the Series B
Certificate of Designation), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period that 3 gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, payments shall be made for
each such thirty (30) day period within five (5) days after the end of such
thirty (30) day period.
2.4 PIGGY-BACK REGISTRATIONS. If at any time prior to the expiration of
the Registration Period (as hereinafter defined) the Company shall file with the
SEC a Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of
4.
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any of its equity securities (other than on Form S-4 or Form S-8 or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), then the Company
shall send to each Purchaser who has a right to have Registrable Securities
covered by a Registration Statement pursuant to this Agreement written notice of
such determination and, if within fifteen (15) days after the date of such
notice, such Purchaser shall so request in writing, the Company shall include in
such Registration Statement all or any part of the Registrable Securities such
Purchaser requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Purchaser has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Purchasers seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Purchasers; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement. No right to registration of Registrable Securities under
this Section 2.4 shall be construed to limit any registration required under
Section 2.1 or 3.2 hereof.
If an offering in connection with which a Purchaser is entitled to
registration under this Section 2.4 is an underwritten offering, then each
Purchaser whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering.
2.5 ELIGIBILITY FOR FORM S-3. The Company represents and warrants that it
meets the requirements for the use of Form S-3 for registration of the sale by
the Initial Purchasers and any other Purchaser of the Registrable Securities and
the Company shall file all reports required to be filed by the Company with the
SEC in a timely manner so as to maintain such eligibility for the use of Form
S-3.
ARTICLE III
OBLIGATIONS OF THE COMPANY
In connection with the registration of the Registrable Securities and the
filing of any Registration Statements hereunder, the Company shall have the
following obligations:
5.
<PAGE>
3.1 The Company shall prepare promptly and file with the SEC the Second
Registration Statement, and cause such Registration Statement relating to Series
B Registrable Securities to become effective as soon as practicable after such
filing, and keep each of the First Registration Statement and Second
Registration Statement effective pursuant to Rule 415 at all times until such
date as is the earlier of (i) the date on which all of the applicable
Registrable Securities have been sold (and no further applicable Registrable
Securities may be issued in the future) and (ii) the date on which all of the
Registrable Securities (in the reasonable opinion of counsel to the Initial
Purchasers) may be immediately sold to the public without registration and
without restriction as to the number of Registrable Securities to be sold,
whether pursuant to Rule 144 or otherwise (the "REGISTRATION PERIOD"). The
Registration Statements (including any amendments or supplements thereto and
prospectuses contained therein and all documents incorporated by reference
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein not misleading.
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until the termination of the Registration Period or, if earlier, such time as
all of such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statements. In the event the number of shares available under a
Registration Statement filed pursuant to this Agreement is, for any three (3)
consecutive trading days (the last of such three (3) trading days being the
"REGISTRATION TRIGGER DATE"), insufficient to cover one hundred seventy-five
percent (175%) of the applicable Registrable Securities held by any Purchaser
(without regard to any limitations on conversion or exercise), the Company shall
amend, if permissible, the applicable Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover two hundred percent (200%) of the applicable Registrable
Securities issued or issuable to such Purchaser (without regard to any
limitations on conversion or exercise), in each case, as soon as practicable,
but in any event within five (5) days in the case of an amendment and ten (10)
days in the case of a Registration Statement after the Registration Trigger Date
(based on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof.
3.3 The Company shall furnish to each Purchaser whose Registrable
Securities are included in the Registration Statement and its legal counsel (a)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statements referred
to in Section 2.1, each letter written by or on behalf of the Company to the SEC
or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion, if any, thereof which contains information for which the
Company has sought confidential treatment), and (b)
6.
<PAGE>
such number of copies of a prospectus, including a preliminary prospectus, and
all amendments and supplements thereto and such other documents as such
Purchaser may reasonably request in order to facilitate the disposition of the
Registrable Securities owned (or to be owned) by such Purchaser.
3.4 The Company shall use commercially reasonable efforts to (a) register
and qualify the Registrable Securities covered by the Registration Statement
under securities laws of such jurisdictions in the United States as each
Purchaser who holds (or has the right to hold) Registrable Securities being
offered reasonably requests, (b) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (c) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (d) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (i) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3.4, (ii) subject itself to general taxation in any such
jurisdiction, (iii) file a general consent to service of process in any such
jurisdiction, (iv) provide any undertakings that cause the Company material
expense or burden, or (v) make any change in its charter or by-laws, which in
each case the board of directors of the Company determines to be contrary to the
best interests of the Company and its stockholders.
3.5 In the event the Purchasers who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
select underwriters for the offering, the Company shall enter into and perform
its obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
3.6 As soon as practicable after becoming aware of such event, the Company
shall notify (by telephone and also by facsimile and reputable overnight
courier) each Purchaser of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and use its best efforts promptly
(but in any event within five (5) days) to prepare a supplement or amendment to
the Registration Statement to correct such untrue statement or omission, and
deliver such number of copies of such supplement or amendment to each Purchaser
as such Purchaser may reasonably request.
3.7 The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable time and to notify (by telephone and also by facsimile and
reputable overnight carrier) each Purchaser who holds Registrable Securities
being sold (or, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution thereof.
Notwithstanding anything to the contrary, the Company shall cause the Transfer
Agent to deliver unlegended shares of Common Stock to a transferee of Purchaser
in accordance with the terms of the applicable Certificate of Designation
7.
<PAGE>
in connection with any sale of Registrable Securities with respect to which such
Purchaser has entered into a contract for sale prior to receipt of notice of
such suspension and for which such Purchaser has not yet settled.
3.8 The Company shall permit a single firm of counsel designated by the
Initial Purchasers to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects.
3.9 The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
3.10 The Company shall make available for inspection by (i) any
Purchaser, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
retained by the Purchasers, and (iv) one firm of attorneys retained by all such
underwriters (collectively, the "INSPECTORS") all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the "RECORDS"), as shall be reasonably deemed necessary by each
Inspector to enable each Inspector to exercise its due diligence responsibility,
if any, and cause the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes of such due
diligence; provided, however, that each Inspector shall hold in confidence and
shall not make any disclosure (except to a Purchaser) of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified in writing, unless (a) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement, (b) the release of such Records is
ordered pursuant to a subpoena or other order from a court or government body of
competent jurisdiction, or is otherwise required by applicable law or legal
process or (c) the information in such Records has been made generally available
to the public other than by disclosure in violation of this or any other
agreement (to the knowledge of the relevant Purchaser). The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have 7 entered into
confidentiality agreements (in form and reasonable substance satisfactory to the
Company) with the Company with respect thereto, substantially in the form of
this Section 3.10. Each Purchaser agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit a Purchaser's ability to
sell Registrable Securities in a manner which is consistent with applicable laws
and regulations.
3.11 The Company shall hold in confidence and not make any disclosure of
information concerning a Purchaser provided to the Company unless (a) disclosure
of such information is necessary to comply with federal or state securities
laws, (b) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration
8.
<PAGE>
Statement, (c) the release of such information is ordered pursuant to a subpoena
or other order from a court or governmental body of competent jurisdiction or is
otherwise required by applicable law or legal process, (d) such information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement (to the knowledge of the Company), or
(e) such Purchaser consents to the form and content of any such disclosure. The
Company agrees that it shall, upon learning that disclosure of such information
concerning a Purchaser is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to such
Purchaser prior to making such disclosure, and allow the Purchaser, at its
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
3.12 The Company shall cause the listing and the continuation of listing
of all the Registrable Securities covered by the Registration Statements on the
Nasdaq National Market System, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange, and cause the Registrable Securities to
be quoted or listed on each additional national securities exchange or quotation
system upon which the Common Stock is then listed or quoted.
3.13 The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable Securities.
3.14 The Company shall cooperate with the Purchasers who hold Registrable
Securities being offered and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or the Purchasers may reasonably request and registered
in such names as the managing underwriter or underwriters, if any, or the
Purchasers may request, and, if requested by the Initial Purchaser, within one
(1) business day after such request, the Company shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Purchasers whose Registrable Securities are
included in such Registration Statement) an opinion of such counsel in the form
attached hereto as EXHIBIT 1.
3.15 At the request of any Purchaser, the Company shall promptly prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
3.16 The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the
Commission).
9.
<PAGE>
3.17 The Company shall take all such other actions as any Purchaser or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities.
3.18 From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company to
include any of their securities in any Registration Statement or any amendment
or supplement thereto under Section 2.1 or 3.2 hereof without the consent of the
holders of a majority of the Registrable Securities.
ARTICLE IV
OBLIGATIONS OF THE PURCHASERS
In connection with the registration of the Registrable Securities, the
Purchasers shall have the following obligations:
4.1 It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Purchaser that such Purchaser shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least ten (10)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Purchaser of the information the
Company requires from each such Purchaser.
4.2 Each Purchaser, by such Purchaser's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from the Registration Statement.
4.3 Each Purchaser whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement, and each such Purchaser shall use its reasonable
efforts to comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale.
4.4 [INTENTIONALLY DELETED].
4.5 Each Purchaser agrees that, upon receipt of written notice from the
Company of the happening of any event of the kind described in Section 3.6, such
Purchaser will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.6 and, if so directed by the Company, such
Purchaser shall deliver to the Company (at the expense of the Company) or
destroy (and deliver
10.
<PAGE>
to the Company a certificate of destruction) all copies in such Purchaser's
possession (other than a limited number of permanent file copies), of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice. Notwithstanding anything to the contrary, the Company shall
cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of a Purchaser in accordance with the terms of the Warrants or the
Preferred Stock in connection with any sale of Registrable Securities with
respect to which such Purchaser has entered into a contract for sale prior to
receipt of such notice and for which such Purchaser has not yet settled.
4.6 Without limiting a Purchaser's rights under Section 2.1 or 3.2
hereof, no Purchaser may participate in any underwritten distribution hereunder
unless such Purchaser (a) agrees to sell such Purchaser's Registrable Securities
on the basis provided in any underwriting arrangements in usual and customary
form entered into by the Company, (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (c)
agrees to pay its pro rata share of all underwriting discounts and commissions
and any expenses in excess of those payable by the Company pursuant to
Article V.
ARTICLE V
EXPENSES OF REGISTRATION
All expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Articles
II and III, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Purchasers pursuant to Section 2.2, hereof shall be
borne by the Company.
ARTICLE VI
INDEMNIFICATION
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify, hold
harmless and defend (a) each Purchaser who holds such Registrable Securities,
(b) each underwriter of Registrable Securities and (c) the directors, officers,
partners, members, employees, agents and persons who control any Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), if any, (each,
an "INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary
11.
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to make the statements therein not misleading, (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus if used prior to the effective date of such Registration Statement,
or contained in the final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the SEC) or the omission
or alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
6.3 with respect to the number of legal counsel, the Company shall reimburse the
Purchasers, each such underwriter and controlling person, and each such other
Indemnified Person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6.1: (x) shall not apply to an Indemnified
Person with respect to a Claim arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (y) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (z) with respect to any preliminary prospectus, shall
not inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented, if such
corrected prospectus was timely made available by the Company pursuant to
Section 3.3 hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, 11 notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Purchasers pursuant to Article IX.
6.2 In connection with any Registration Statement in which a Purchaser
is participating, each such Purchaser agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6.1, the
Company, each of its directors, each of its officers who signs the Registration
Statement, its employees, agents and persons, if any, who control the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, and any other stockholder selling securities pursuant to the
Registration Statement, together with its directors, officers and members, and
any person who controls such stockholder or underwriter within the meaning of
the Securities Act or the Exchange Act (such an "INDEMNIFIED PARTY"), against
any Claim to which any of them may become subject, under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim arises out of or is based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Purchaser expressly for use in connection with
such Registration Statement; and subject to Section 6.3 such Purchaser will
reimburse any legal or other expenses (promptly as such expenses are incurred
and are due and payable) reasonably incurred by them in connection with
12.
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investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6.2 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Purchaser, which consent shall not be unreasonably withheld;
provided, further, however, that a Purchaser shall be liable under this
Agreement (including this Section 6.2 and Article VII) for only that amount as
does not exceed the net proceeds actually received by such Purchaser as a result
of the sale of Registrable Securities pursuant to such Registration Statement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Purchasers pursuant to Article
IX. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6.2 with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
6.3 Promptly after receipt by an Indemnified Person or Indemnified Party
under this Article VI of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to made against any indemnifying party under this
Article VI, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall diligently pursue such defense and
that such indemnifying party shall not be entitled to assume such defense and an
Indemnified Person or Indemnified Party shall have 12 the right to retain its
own counsel with the fees and expenses to be paid by the indemnifying party, if
the representation by such counsel of the Indemnified Person or Indemnified
Party and the indemnifying party would be inappropriate due to actual or
potential conflicts of interest between such Indemnified Person or Indemnified
Party and any other party represented by such counsel in such proceeding or the
actual or potential defendants in, or targets of, any such action include both
the Indemnified Person or the Indemnified Party and any such Indemnified Person
or Indemnified Party reasonably determines that there may be legal defenses
available to such Indemnified Person or Indemnified Party which are different
from or in addition to those available to such indemnifying party. The
indemnifying party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Purchasers holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates (with the approval of the Initial Purchaser if they hold Registrable
Securities included in such Registration Statement), if the Purchasers are
entitled to indemnification hereunder, or by the Company, if the Company is
entitled to indemnification hereunder, as applicable. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Article VI,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this Article VI
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
13.
<PAGE>
ARTICLE VII
CONTRIBUTION
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Article
VI to the fullest extent permitted by law; provided, however, that (i) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person of
Registrable Securities who was not guilty of such fraudulent misrepresentation,
and (ii) contribution (together with any indemnification or other obligations
under this Agreement) by any seller of Registrable Securities shall be limited
in amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
With a view to making available to the Purchasers the benefits of Rule 144
promulgated under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Purchasers to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
8.1 File with the SEC in a timely manner and make and keep available all
reports and other documents required of the Company under the Securities Act and
the Exchange Act so long as the Company remains subject to such requirements (it
being understood that nothing herein shall limit the Company's obligations under
Section 4.3 of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
8.2 Furnish to each Purchaser so long as such Purchaser holds Preferred
Stock, Warrants or Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit the Purchasers to sell such securities pursuant
to Rule 144 without registration.
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
The rights of the Purchasers hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assigned by each Purchaser to any transferee of all or any portion
of the Preferred Stock or the Registrable Securities if: (a) the Purchaser
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after
14.
<PAGE>
such assignment, (b) the Company is, within ten (10) business days after such
transfer or assignment, furnished with written notice of (i) the name and
address of such transferee or assignee, and (ii) the securities with respect to
which such registration rights are being transferred or assigned, (c) following
such transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act or applicable
state securities laws, (d) at or before the time the Company receives the
written notice contemplated by clause (ii) of this sentence, the transferee or
assignee agrees in writing for the benefit of the Company to be bound by all of
the provisions contained herein, and (e) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, the Initial
Purchaser (but not if the Initial Purchaser no longer owns any Preferred Stock
or Registrable Securities and is not affected by such amendment or waiver) and
Purchasers who hold a majority interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Article X shall be binding
upon each Purchaser and the Company. Notwithstanding the foregoing, no amendment
or waiver shall retroactively affect any Purchaser without its comment or
prospectively adversely affect any Purchaser who no longer owns 14 any Preferred
Stock, Warrants or Registrable Securities without its consent.
Neither Article VI nor Article VII hereof may be amended or waived in a
manner adverse to a Purchaser without its consent.
ARTICLE XI
MISCELLANEOUS
11.1 A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
11.2 Any notices herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
15.
<PAGE>
If to the Company:
Valence Technology, Inc.
301 Conestoga Way
Henderson, NV 89015
Attn: Lev Dawson
Telecopy: (702) 558-1310
with a copy to:
Cooley Godward LLP
3000 El Camino Real
Palo Alto, CA 94306
Attn: Andrei Manoliu, Esq.
Telecopy: (650) 857-0663
If to CC Investments, LDC:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
440 South LaSalle Street
Suite 700
Chicago, Illinois 60605
Telecopy: (312) 362-4500
Attention: John D. Ziegelman
and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 715-4800
Attention: Peter H. Lieberman, Esq.
and if to any other Purchaser, at such address as such Purchaser, shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11.2.
11.3 Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
16.
<PAGE>
11.4 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware applicable to contracts made and to be
performed in the State of Delaware. The Company irrevocably consents to the
jurisdiction of the federal courts located in the State of Delaware and the
state courts of the State of Delaware located in the County of New Castle in the
State of Delaware in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The parties hereto further agree that service of process upon the parties hereto
mailed by first class mail shall be deemed in every respect effective service of
process upon each such party in any such suit or proceeding. Nothing herein
shall affect either party's right to serve process in any other manner permitted
by law. The parties hereto agree that a final non-appealable judgment in any
such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
11.5 This Agreement, the Preferred Stock, Warrants and the Amended
Securities Purchase Agreement (including all schedules and exhibits thereto and
all certificates and opinions required thereby) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the Preferred
Stock, the Warrants and the Amended Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof, including the Securities Purchase Agreement
and the Registration Rights Agreement.
11.6 Subject to the requirements of Article IX hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto. Notwithstanding anything to the contrary contained
herein, including, without limitation, Article IX, the rights of a Holder
hereunder shall be assignable to and exercisable by a bona fide pledgee of the
Registrable Securities in connection with a Holder's margin or brokerage
accounts.
11.7 The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.8 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto, by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
11.9 Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
17.
<PAGE>
11.10 All consents and other determinations to be made by the Purchasers
pursuant to this Agreement shall be made by the Purchasers holding a majority of
the Registrable Securities (determined as if all Preferred Stock then
outstanding had been converted into Registrable Securities) held by all
Purchasers.
11.11 The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Purchasers based on the
number of Registrable Securities held by each Purchaser at the time of such
establishment or increase, as the case may be. In the event a Purchaser shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Purchasers, pro rata based on the number of shares of
Registrable Securities then held by such Purchasers. Without implication that
the contrary would otherwise be true, for purposes of this paragraph, all
Preferred Stock then outstanding shall be assumed converted into Registrable
Securities.
11.12 If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement.
18.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
VALENCE TECHNOLOGY, INC.
By: /s/ Lev M. Dawson
-------------------------------
Lev M. Dawson
President, Chairman and Chief Executive Officer
Initial Purchaser:
CC INVESTMENTS, LDC
By: Castle Creek Partners, LLC
By: /s/ John Ziegelman
--------------------------
John Ziegelman
Director
19.
<PAGE>
EXHIBIT 1
To Amended and Restated
Registration Rights Agreement
[Date]
[Name and address of transfer agent]
RE: VALENCE TECHNOLOGY, INC.
Ladies and Gentlemen:
We are counsel to Valence Technology, Inc., a Delaware corporation (the
"COMPANY"), and we understand that [Name of Purchaser] (the "HOLDER") has
purchased from the Company Series [A][B] Convertible Participating Preferred
Stock of the Company (the "PREFERRED STOCK"), convertible into shares of the
Company's common stock, par value $.001 per share (the "COMMON STOCK"). The
Preferred Stock was purchased by the Holder pursuant to a [Amended and Restated]
Securities Purchase Agreement, dated as of [ ], 1998, by and among the
Company and the signatories thereto (the "AGREEMENT"). Pursuant to an Amended
and Restated Registration Rights Agreement, dated as of December 11, 1998, by
and among the Company and the signatories thereto (the "REGISTRATION RIGHTS
AGREEMENT"), the Company agreed with the Holder, among other things, to register
the Registrable Securities (as that term is defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
upon the terms provided in the Registration Rights Agreement. In connection with
the Company's obligations under the Registration Rights Agreement, on _____ __,
1998, the Company filed a Registration Statement on Form S-_____ (File No. 333-
__________) (the "REGISTRATION STATEMENT") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable Securities, which names the
Holder as a selling stockholder thereunder.
[Other customary introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable Securities
have been registered under the Securities Act.
[Other appropriate customary language to be included.]
Very truly yours,
cc: [Name of Purchaser]
20.
<PAGE>
DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
VALENCE TECHNOLOGY, INC.
I. DESIGNATION AND AMOUNT
The designation (this "CERTIFICATE OF DESIGNATION") of this series, which
consists of seven thousand five hundred (7,500) shares of Preferred Stock of
VALENCE TECHNOLOGY, INC., a Delaware corporation (the "COMPANY"), is the Series
B Convertible Participating Preferred Stock (the "PREFERRED STOCK") and the
stated value shall be One Thousand Dollars ($1,000.00) per share (the "FACE
AMOUNT").
II. DIVIDENDS
The Preferred Stock will bear no dividends.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms shall
have the following meanings:
A. "BANKRUPTCY EVENT" shall mean any one or more of the following: (i)
the commencement of any voluntary proceeding by the Company seeking entry of an
order for relief under Title 11 of the United States Code or seeking any similar
or equivalent relief under any other applicable federal or state law concerning
bankruptcy, insolvency, creditors' rights or any similar law; (ii) the making by
the Company of a general assignment for the benefit of its creditors; (iii) the
commencement of any involuntary proceeding respecting the Company seeking entry
of an order for relief against the Company in a case under Title 11 of the
United States Code or seeking any similar or equivalent relief under any other
applicable federal or state law concerning bankruptcy, insolvency, creditors'
rights or any similar law; (iv) entry of a decree or order respecting the
Company by a court having competent jurisdiction, which decree or order (x)
results in the appointment of a receiver, liquidator, assignee, examiner,
custodian, trustee, sequestrator (or other similar official) for the Company or
for any substantial part of its property or (y) orders the winding up,
liquidation, dissolution, reorganization, arrangement, adjustment, or
composition of the Company or any of its debts; (v) the appointment, whether or
not voluntarily by the Company, of a receiver, liquidator, assignee, examiner,
custodian, trustee, sequestrator (or other similar official) for the Company or
for any substantial part of its property; (vi) the failure by the Company to
pay, or its admission in writing of its inability to pay, its debts generally as
they become due; (vii) the exercise by any creditor of any right in connection
with an interest of such creditor in any substantial part of the Company's
property, including, without limitation, foreclosure upon all or any such part
of the Company's property, replevin, or the exercise of any rights or remedies
provided under the Uniform Commercial Code with regard thereto; (viii) the
making of, or the sending of a notice of, a bulk transfer by the Company; (ix)
the calling by the Company of a general meeting of its creditors or any portion
of them; (x) the failure by the Company to file an answer or other pleading
denying the material allegations of any proceeding
1.
<PAGE>
described herein that is filed against it; and (xi) the consent by the Company
to any of the actions, appointments, or proceedings described herein or the
failure of the Company to contest in good faith any such actions, appointments,
or proceedings.
B. "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to holders of the Preferred
Stock (each, a "HOLDER") then holding a majority of the then outstanding shares
of Preferred Stock ("MAJORITY HOLDERS") if Bloomberg Financial Markets is not
then reporting closing bid prices of such security (collectively, "BLOOMBERG"),
or if the foregoing does not apply, the last reported sale price of such
security in the over-the-counter market on the electronic bulletin board of such
security as reported by Bloomberg, or, if no sale price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Majority Holders, with the costs of such appraisal to be borne by the Company.
C. "CONVERSION DATE" means, for any Optional Conversion, the date
specified in the notice of conversion (the "NOTICE OF CONVERSION"), so long as
the copy of the Notice of Conversion is faxed (or delivered by other means) to
the Company before 11:59 p.m., Eastern time, on the Conversion Date indicated in
the Notice of Conversion. If the Notice of Conversion is not so faxed or
otherwise delivered before such time, then the Conversion Date shall be the
business day following the date on which the Notice of Conversion is faxed (or
delivered by other means). The Conversion Date for the Required Conversion at
Maturity shall be the Maturity Date (as such terms are defined herein).
D. "CONVERSION PRICE" means, (x) with respect to any Conversion Date
which is prior to July 27, 1999, the Fixed Conversion Price, and (y) with
respect to any Conversion Date which is on or after July 27, 1999, the lower of
the Fixed Conversion Price and the Variable Conversion Price, each as in effect
as of such date and subject to adjustment as provided herein.
E. "FIXED CONVERSION PRICE" means $6.03 (subject to equitable adjustment
for any stock splits, stock dividends, reclassifications or similar events
during such period).
F. "PREMIUM" means 1000 x (N/365) x (.06).
N = the number of days from the first issuance of
shares of the Preferred Stock (the "CLOSING DATE")
to, and including, the Conversion Date.
G. "VARIABLE CONVERSION PRICE" means, as of any Conversion Date, 101% of
the average of the six (6) lowest of the Closing Bid Prices of the Common Stock
for the ten (10) consecutive trading days ending on the trading day immediately
preceding the Conversion Date
2.
<PAGE>
(subject to equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during the such period), subject to
adjustment as provided herein.
IV. CONVERSION
A. CONVERSION AT THE OPTION OF THE HOLDER. Subject to the limitations on
conversions contained in Section IV.G, each Holder may, at any time and from
time to time, convert (an "OPTIONAL CONVERSION") any or all of its shares of
Preferred Stock into a number of fully paid and non-assessable shares of Common
Stock determined, for each share of Preferred Stock so to be converted, in
accordance with the following formula:
(Premium + 1000)
----------------
Conversion Price
B. MECHANICS OF CONVERSION. In order to effect an Optional Conversion, a
Holder shall fax (or otherwise deliver) a copy of the fully executed Notice of
Conversion to the Company and to the Company's transfer agent with respect to
the Common Stock. Upon receipt by the Company of the fax copy of a Notice of
Conversion from a Holder, the Company shall immediately send, via fax, a
confirmation to such Holder stating that the Notice of Conversion has been
received, the date upon which the Company expects to deliver the Common Stock
issuable upon such conversion and the name and telephone number of a contact
person at the Company regarding the conversion. No later than two (2) business
days after receipt of such confirmation of receipt to Notice of Conversion the
Holder shall surrender or cause to be surrendered to a reputable overnight
courier for next business day delivery (two (2) business day delivery if from
outside the United States) to the Company, the certificates representing the
Preferred Stock being converted (the "PREFERRED STOCK CERTIFICATES") accompanied
by duly executed stock powers and a copy of the Notice of Conversion (or, in
lieu thereof, materials contemplated by Section XIV.B., if applicable).
C. DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the delivery of a
Notice of Conversion, the Company shall, no later than the later of (a) the
third (3rd) business day following the Conversion Date and (b) the day that is
the first business day following the date of delivery of the Preferred Stock
Certificates (or satisfaction of the provisions of Section XIV.B, if applicable)
(the "DELIVERY PERIOD"), deliver to the Holder (or at its direction) (x) that
number of shares of Common Stock issuable upon conversion of such shares of
Preferred Stock being converted and (y) a certificate representing the number of
shares of Preferred Stock not being converted, if any. The person or persons
entitled to receive shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder of such shares at the close of
business on the Conversion Date and such shares shall be issued and outstanding
as of such date.
D. TAXES. The Company shall pay any and all taxes (other than transfer
taxes or income taxes, if any, payable by the Purchaser) which may be imposed
with respect to the issuance and delivery of the shares of Common Stock pursuant
to conversion of the Preferred Stock.
3.
<PAGE>
E. NO FRACTIONAL SHARES. No fractional shares of Common Stock are to be
issued upon the conversion of Preferred Stock, but the Company shall instead
round up to the next whole number the number of shares of Common Stock to be
issued upon such conversion.
F. CONVERSION DISPUTES. In the case of any dispute with respect to a
conversion, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with Sections IV.A and IV.C hereof. If
such dispute involves the calculation of the Conversion Price, the Company shall
submit the disputed calculations to an independent accounting firm of national
standing, acceptable to Holder, via facsimile within two (2) business days of
receipt of the Notice of Conversion. The accounting firm shall audit the
calculations and notify the Company and the Holder of the results no later than
two (2) business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest error.
The Company shall then issue the appropriate number of shares of Common Stock in
accordance with Sections IV.A and IV.C hereof.
G. LIMITATION ON CONVERSIONS. The conversion of shares of Preferred
Stock shall be subject to the following limitations (each of which limitations
shall be applied independently):
(i) CAP AMOUNT. Prior to Stockholder Approval (as herein
defined), in no event shall the total number of shares of Common Stock issued
upon conversion of the Preferred Stock exceed the maximum number of shares of
Common Stock that the Company can without stockholder approval so issue pursuant
to Nasdaq Rule 4460(i) (or any successor rule) to the extent such rule remains
applicable to Company (the "CAP AMOUNT") upon the conversion (or any such higher
number as the rules permit) of the Preferred Stock and Series A Convertible
Participating Preferred Stock (the "SERIES A PREFERRED STOCK"), and exercise of
the Warrants (as defined in the Amended and Restated Securities Purchase
Agreement, dated as of December 11, 1998, by and among the Company and the other
signatories thereto (the "SECURITIES PURCHASE AGREEMENT")), which as of July 27,
1998 shall be 5,071,913 shares (or any such higher number as the rules permit).
The Cap Amount shall be allocated pro-rata to the Holders as provided in Article
XIV.C. In the event the Company is prohibited from issuing shares of Common
Stock as a result of the operation of this subparagraph (i), the Company shall
comply with Article VIII. The foregoing restriction shall not apply to the
extent waived, modified or otherwise permitted by the Nasdaq National Market
System or the Nasdaq SmallCap Market. To the extent the foregoing limitation
applies, the determination of whether Preferred Stock shall be convertible
(vis-a-vis other securities owned by such Holder) and of which Preferred Stock
shall be convertible (as among shares of Preferred Stock) shall, subject to such
aggregate percentage limitation, be on a first submission basis.
(ii) FIVE PERCENT HOLDINGS. Notwithstanding anything to the
contrary contained herein, the Preferred Stock shall not be convertible by a
Holder to the extent (but only to the extent) that, if convertible by such
Holder, such Holder, or any of its affiliates (as defined under Rule 12b-2 of
the Securities Exchange Act of 1934, as amended), would beneficially own in
excess of 4.9% of the shares of Common Stock. To the extent the foregoing
limitation applies, the determination of whether Preferred Stock shall be
convertible (vis-a-vis other securities owned by such Holder) and of which
Preferred Stock shall be convertible (as among shares of Preferred Stock) shall,
subject to such aggregate percentage limitation, be on a first submission basis.
No prior inability to convert Preferred Stock pursuant to this Section shall
have any effect
4.
<PAGE>
on the applicability of the provisions of this Section with respect to any
subsequent determination of convertibility. For the purposes of this Section,
beneficial ownership and all determinations and calculations, including without
limitation, with respect to calculations of percentage ownership, shall be made
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and G thereunder. The provisions of this Section
shall be implemented in a manner otherwise than in strict conformity with the
terms of this Section: (i) to correct this subsection (or any portion thereof)
which may be defective or inconsistent with the intended 4.9% beneficial
ownership limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such 4.9% limitation; and (ii)
with respect to any other matter, with the consent of the holders of majority of
the then outstanding shares of Common Stock. The limitations contained in this
Section shall apply to a successor Holder of Preferred Stock.
H. REQUIRED CONVERSION AT MATURITY. Subject to the limitations set forth
in Section IV.G. and provided all shares of Common Stock issuable upon
conversion of all outstanding shares of Preferred Stock and exercise of all
outstanding Warrants (in each case, without giving effect to any limitation on
conversion or exercise) are then (i) authorized and reserved for issuance, (ii)
registered under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (collectively the "SECURITIES ACT"), for resale by all
holders of such shares of Preferred Stock and Warrants, (iii) eligible to be
traded on either, the Nasdaq National Market System, the Nasdaq SmallCap Market,
the New York Stock Exchange or the American Stock Exchange, each share of
Preferred Stock outstanding on July 27, 2001 (the "MATURITY DATE") (and any
accrued and unpaid Conversion Default Payments), automatically shall be
converted into shares of Common Stock on such date in accordance with the
conversion formula set forth in Section IV.A (the "REQUIRED CONVERSION AT
MATURITY"), except as to any Holder who elects otherwise in the event that (x) a
Bankruptcy Event, (y) the occurrence of a material adverse change or development
in the business, properties, operations, financial condition, results of
operations or prospects of the Company, or (z) a Redemption Event, has occurred
and is continuing. If a Required Conversion at Maturity occurs, the Company and
the Holders shall follow the applicable conversion procedures set forth in this
Article IV; provided, however, that a Notice of Conversion shall be deemed to be
delivered to the Company on the Maturity Date.
I. ELECTRONIC TRANSMISSION. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, upon request of a
Holder, the Company shall use its reasonable best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon conversion to
the Holder by crediting the account of Holder's prime broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system or other electronic
delivery system selected by Holder.
V. RESERVATION OF AUTHORIZED
SHARES OF COMMON STOCK
A. RESERVED AMOUNT. The Company shall have authorized and reserved and
keep available for issuance not less than 4,000,000 shares of Common Stock (such
number to be subject to equitable adjustment for any stock splits, stock
dividends, reclassification or similar events) (the "RESERVED AMOUNT") solely
for the purpose of effecting the conversion of the Preferred Stock and the
Warrants. The Company shall at all times reserve and keep available out
5.
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of its authorized but unissued shares of Common Stock a sufficient number of
shares of Common Stock to provide for the full conversion of all outstanding
Preferred Stock and exercise of the Warrants and issuance of the shares of
Common Stock in connection therewith. The Reserved Amount shall be allocated
among the Holders as provided in Section XIV.C.
B. INCREASES TO RESERVED AMOUNT. Without limiting any other provision of
this Article V, if the Reserved Amount for any three (3) consecutive trading
days (the last of such three (3) trading days being the "AUTHORIZATION TRIGGER
DATE") is less than two hundred percent (200%) of the number of shares of Common
Stock issuable on such trading days upon conversion of the outstanding Preferred
Stock (without giving effect to any limitation on conversion or exercise
thereof) then the Company shall immediately notify the Holders of such
occurrence and shall immediately take all necessary action (including
stockholder approval to authorize the issuance of additional shares of Common
Stock) to increase the Reserved Amount to two hundred percent (200%) of the
number of shares of Common Stock issuable upon conversion of the outstanding
Preferred Stock, without giving effect to any limitation on conversion or
exercise thereof.
VI. COMPLIANCE WITH CAP
AMOUNT RESTRICTIONS
A. SHARE AUTHORIZATION. The Company shall, in the Proxy Statement
circulated by the Company in connection with the Company's next annual meeting
of stockholders, but in any event not later than February 8, 1999, solicit by
proxy the authorization (the "STOCKHOLDER APPROVAL") by the stockholders of the
Company of the issuance of shares of Common Stock upon conversion of shares of
Preferred Stock pursuant to the terms hereof in the aggregate in excess of
twenty (20) percent of the outstanding shares of Common Stock and to eliminate
any prohibitions under the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or any of its securities on the Company's ability
to issue shares of Common Stock in excess of the Cap Amount and use its best
efforts to obtain the Stockholder Approval no later than February 8, 1999.
B. OBLIGATION TO NOTIFY. If at any time after July 27, 1999 the then
unissued portion of any Holder's Cap Amount is less than two hundred percent
(200%) of the number of shares of Common Stock then issuable upon conversion of
such Holder's shares of Preferred Stock (without giving effect to any limitation
on conversion or exercise thereof) (a "TRADING MARKET TRIGGER EVENT"), the
Company shall immediately notify the Holders of such occurrence.
VII. FAILURE TO SATISFY CONVERSIONS
A. CONVERSION DEFAULT PAYMENTS. If, at any time, (x) a Holder submits a
Notice of Conversion (or is deemed to submit such notice pursuant to Section
IV.H) and the Company fails for any reason (other than because such issuance
would exceed such Holder's allocated portion of the Cap Amount, for which
failure the Holders shall have the remedies set forth elsewhere herein) to
deliver, on or prior to the expiration of the Delivery Period for such
conversion, such number of shares of Common Stock to which such Holder is
entitled upon such conversion, or (y) the Company provides notice (including by
way of public announcement) to any Holder at any time of its intention not to
issue shares of Common Stock upon exercise by any Holder of its
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conversion rights in accordance with the terms of this Certificate of
Designation (other than because such issuance would exceed such Holder's
allocated portion of the Cap Amount) (each of (x) and (y) being a "CONVERSION
DEFAULT"), then the Company shall pay to the affected Holder, in the case of a
Conversion Default described in clause (x) above, and to all Holders, in the
case of a Conversion Default described in clause (y) above, an amount equal to
five hundred dollars ($500) for each day such Conversion Default exists until
the fifth (5th) business day following the receipt by facsimile by the Company
of the Notice of Conversion; PROVIDED, HOWEVER, that if the Company is obligated
to pay any such Holder a similar amount under the certificate of designations
governing the Series A Preferred Stock, and pays such amount in accordance
therewith, then no such payment shall be made hereunder. If, following the fifth
(5th) business day following receipt by facsimile by the Company of the Notice
of Conversion, the Company continues to fail for any reason to deliver such
shares of Common Stock to which such Holder is entitled upon such conversion,
then the Company shall pay to the affected Holder, in the case of a Conversion
Default described in clause (x) above, and to all Holders, in the case of a
Conversion Default described in clause (y) above, an amount equal to (i) one
percent (1%) of the Face Amount of the Preferred Stock with respect to which the
Conversion Default exists (which amount shall be deemed to be the aggregate Face
Amount of all outstanding Preferred Stock in the case of a Conversion Default
described in clause (y) above) for each day such Conversion Default exists (ii)
plus any Premium with respect thereto.
The payments to which a Holder shall be entitled pursuant to this Section
VII.A are referred to herein as "CONVERSION DEFAULT PAYMENTS." Conversion
Default Payments shall be made the fifth (5th) business day following written
demand by a Holder for payment therefor and otherwise in accordance with and
subject to the provisions of Section XIV.E. "CURE DATE" means (i) with respect
to a Conversion Default described in clause (x) of its definition, the date the
Company effects the conversion of the portion of the Preferred Stock submitted
for conversion and (ii) with respect to a Conversion Default described in clause
(y) of its definition, the date the Company undertakes in writing to issue
Common Stock in satisfaction of all conversions of Preferred Stock in accordance
with the terms of this Certificate of Designation (provided the Company in fact
thereafter so satisfies such conversions).
B. BUY-IN CURE. If (i) the Company fails for any reason to deliver
during the Delivery Period shares of Common Stock to a Holder upon a conversion
of shares of Preferred Stock in accordance with the terms of Article IV and (ii)
after the applicable Delivery Period with respect to such conversion, such
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to make delivery in satisfaction of a sale by such Holder of shares of
Common Stock (the "SOLD SHARES") as to which delivery such Holder anticipated
using shares of Common Stock to be received upon such conversion (a "BUY-IN"),
the Company shall pay such Holder (in addition to any other remedies available
to the Holder) the amount by which (x) such Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the net proceeds received by such Holder from the sale of
the Sold Shares. For example, if a Holder purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for $10,000, the Company will be required to pay
the Holder $1,000. A Holder shall provide the Company written notification
indicating any amounts payable to such Holder pursuant to this Section VII.B.
The Company shall make any payments required pursuant to this Section VII.B in
accordance with and subject to the provisions of Section XIV.E.
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C. ADJUSTMENT. If a Holder has not received certificates for all shares
of Common Stock prior to the tenth (10th) day after the expiration of the
Delivery Period with respect to a conversion of Preferred Stock for any reason
(other than because such issuance would exceed such Holder's allocated portion
of the Cap Amount, for which failure the Holders shall have the remedies set
forth elsewhere herein), then the Fixed Conversion Price in respect of any
shares of Preferred Stock held by the affected Holder, in the case of a
Conversion Default of the type described in clause (x) of Section VII.A, or by
all Holders, in the case of a Conversion Default of the type described in clause
(y) of Section VII.A, shall thereafter be the lesser of (i) the Fixed Conversion
Price on the Conversion Date specified in the Conversion Notice which resulted
in a Conversion Default and (ii) the lowest Conversion Price in effect during
the period beginning on, and including, such Conversion Date through and
including the day such shares of Common Stock are delivered to the Holder.
VIII. REDEMPTION DUE TO
CERTAIN EVENTS
A. REDEMPTION EVENTS. A "REDEMPTION EVENT" means any one of the
following:
(i) the Common Stock (or any portion thereof) is suspended from
trading on any of, or is not listed (and authorized) for trading on any of, the
Nasdaq National Market System, the Nasdaq SmallCap Market, the American Stock
Exchange, or the New York Stock Exchange for an aggregate of five (5) trading
days in any nine (9) month period, or the Company undertakes any voluntary
action to terminate the quotation or listing of the Common Stock on any of the
foregoing, unless such action is taken in connection with the continued listing
or quotation of the Common Stock on another of the foregoing; provided, however,
that if the Company's listing on any such exchange is simultaneously replaced by
another such exchange, such initial suspension shall not be a Redemption Event.
(ii) the Company fails, and any such failure continues uncured for
ten (10) days after the Company has been notified thereof in writing by the
Holder, to remove any restrictive legend on any certificate or any shares of
Common Stock issued to the Holders of Preferred Stock or Warrants upon
conversion of the Preferred Stock or Warrants (as the case may be) as and when
required by this Certificate of Designation, the Securities Purchase Agreement,
or the Amended and Restated Registration Rights Agreement, dated as of December
11, 1998, by and among the Company and the other signatories thereto (the
"REGISTRATION RIGHTS AGREEMENT");
(iii) the Company's failure to deliver shares of Common Stock within
10 business days of the expiration of the Delivery Period (other than because
such issuance would exceed the Cap Amount, for which failure the Holders shall
have the remedies set forth elsewhere herein);
(iv) the Company breaches any material covenant or other material
term of this Certificate of Designation, the Securities Purchase Agreement, the
Warrants or the Registration Rights Agreement and such breach continues for a
period of ten (10) business days after written notice thereof to the Company;
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(v) any representation or warranty of the Company made in any
agreement, statement or certificate given in writing in connection with the
issuance of the Preferred Stock (including, without limitation, the Warrants,
the Securities Purchase Agreement or the Registration Rights Agreement), shall
be false or misleading in any material respect when made and the breach of which
has had or could reasonably be expected to have a material adverse effect on the
Company or on the Holder with respect to its investment in shares of Preferred
Stock or Warrants or shares of Common Stock issuable upon conversion of the
Preferred Stock or upon exercise of the Warrants;
(vi) the Registration Statement required to be filed by the Company
with respect to the Preferred Stock pursuant to the Registration Rights
Agreement, has not been filed within five (5) days of the Closing Date or has
not been declared effective by the ninetieth (90th) day following the Closing
Date or such Registration Statement, after being declared effective, cannot be
utilized by the Holders of Preferred Stock and the applicable Warrants for the
resale of all of their applicable Registrable Securities (as defined in the
Registration Rights Agreement) for a period of five (5) consecutive business
days or for an aggregate of more than twenty (20) days in any twelve month
period;
(vii) the Company fails to increase pursuant to Section V.B the
Reserved Amount (A) within ten (10) days following an Authorization Trigger Date
if such increase requires solely approval of the Company's Board of Directors or
(B) otherwise within sixty (60) days thereafter;
(viii) the Company fails to eliminate the Cap Amount prohibitions or
other prohibitions described in Section VI.B on or prior to February 8, 1999 and
thereafter a Trading Market Trigger Event occurs;
(ix) the Company fails to obtain the effectiveness of any amendment
to an existing registration statement within ten (10) business days or of any
new registration statement within twenty (20) business days following a
Registration Trigger Date (as defined in the Registration Rights Agreement) as
required by Section 2.3 of the Registration Rights Agreement; or
(x) Lev Dawson shall cease to be chief executive officer of the
Company for any reason prior to July 27, 1999.
B. REDEMPTION BY HOLDER. Upon the occurrence of a Redemption Event, each
Holder shall have the right to elect at any time and from time to time by
delivery of a Redemption Notice (as defined herein) to the Company to require
the Company to purchase for cash for an amount per share equal to the Redemption
Amount (as defined herein), (i) in the case of a Redemption Event described in
clause (i) through (vi) or (x), any or all of the then outstanding shares of
Preferred Stock held by such Holder, (ii) in the case of a Redemption Event
described in clause (vii), a portion of the Holder's Preferred Stock such that,
after giving effect to such purchase, the Holder's allocated portion of the
Reserved Amount exceeds two hundred percent (200%) of the total number of Common
Stock issuable to such Holder upon conversion of its Preferred Stock (without
giving effect to any limitation on conversion or exercise with respect thereto),
(iii) in the case of a Redemption Event described in clause (viii), a
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portion of the Holder's Preferred Stock such that, after giving effect to such
purchase, the Holder's allocated portion of the Cap Amount exceeds two hundred
percent (200%) of the total number of Common Stock issuable to such Holder upon
conversion of its Preferred Stock and exercise of its Warrant (in each case
without giving effect to any limitation on conversion or exercise with respect
thereto) and (iv) in the case of a Redemption Event described in clause (ix), a
portion of the Holder's Preferred Stock such that, after giving effect to such
purchase, the Holder's allocated portion of the Registrable Securities (as
defined in the Registration Rights Agreement) exceeds two hundred percent (200%)
of the total number of Common Stock issuable to such Holder upon conversion of
its Preferred Stock and exercise of its Warrants (in each case without giving
effect to any limitation on conversion or exercise with respect thereto).
C. DEFINITION OF REDEMPTION AMOUNT. The "REDEMPTION AMOUNT" with respect
to a share of Preferred Stock means an amount equal to the greater of (i) 1.25
times the aggregate Face Amount of the Preferred Stock for which a demand is
being made and (ii) an amount determined by the following formula:
FACE AMOUNT + PREMIUM + PENALTY
-------------------------------
CP X M
where:
"CP" means the Conversion Price in effect on the date of the Redemption Notice;
and
"M" means the closing bid price of the Company's Common Stock on the date of
the Redemption Notice, as reported on the principal securities exchange or
trading market on which the Common Stock is traded.
"PENALTY" means the Conversion Default penalty referred to in Section VII.A.
D. REDEMPTION DEFAULTS. The Company shall pay a Holder the Redemption
Amount, in cash, with respect to each share of Preferred Stock which is subject
to a written notice electing such redemption (a "REDEMPTION NOTICE") within five
(5) business days of the Company's receipt of such Redemption Notice. In the
event the Company is not able to purchase all of the shares of Preferred Stock
subject to Redemption Notices, the Company shall redeem shares of Preferred
Stock from each Holder pro rata, based on the total number of shares of
Preferred Stock included by such Holder in the Redemption Notice relative to the
total number of shares of Preferred Stock in all of the Redemption Notices;
provided the foregoing shall not be deemed to limit the Company's obligation to
purchase shares of Preferred Stock hereunder.
E. ADDITIONAL CAP AMOUNT REMEDIES. Upon a Redemption Event described in
clause (viii), any Holder who is so prohibited from converting its Preferred
Stock may, notwithstanding the Cap Amount or restrictions with respect thereto,
elect to require, with the consent of the Majority Holders (including any shares
of Preferred Stock held by the requesting Holder), the Company to terminate the
listing and/or quotation of its Common Stock on exchanges and other markets on
which it is currently listed and to list the Common Stock on the
over-the-counter electronic bulletin board.
10.
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F. CAPITAL IMPAIRMENT. In the event that Section 160 of the Delaware
General Corporation Law ("GCL"), would be violated by the redemption of any
shares of Preferred Stock that are otherwise subject to redemption pursuant to
this Article VIII, the Company: (i) will redeem the greatest number of shares of
Preferred Stock possible without violation of said Section; (ii) the Company
thereafter shall use its best efforts to take all necessary steps permitted
pursuant to this Certificate of Designation and the agreements entered into in
connection with the issuance of Preferred Stock pursuant thereto in order to
remedy its capital structure in order to allow further redemptions without
violation of said remaining Section (and not take any action inconsistent with
so remedying such capital structure); and (iii) from time to time thereafter as
promptly as possible the Company shall redeem remaining shares of Preferred
Stock at the request of the Holders to the greatest extent possible without
causing a violation of Section 160 of the GCL (such redemption to be at the
greater of the Redemption Price in effect at the time of the original Redemption
Event giving rise to such violation and the redemption price which would be
applicable for a Redemption Event at the time of such later election under this
clause (iii)). In the event the Company is not able to redeem all the shares
of the stock subject to Redemption Notices, the Company shall redeem shares of
Preferred Stock from each Holder pro rata, based on the total number of shares
of Preferred Stock included by such Holder in the Redemption Notice relative to
the total number of Preferred Stock in all Redemption Notices. In addition, and
notwithstanding anything to the contrary contained in this Section VIII.F, so
long as the Company is prevented from redeeming shares of Preferred Stock
pursuant to this Section VIII.F, the Company shall be (and shall be deemed to
be) in breach of the redemption obligations set forth in this Section VIII and
each Holder shall have all rights and remedies under this Certificate of
Designations or otherwise at law for damages, with respect to such breach. In
addition, during any such period, without the prior written consent of the
Holders, the Company shall not enter into any agreement, consummate any
transaction or otherwise operate its business in any way outside of the ordinary
course of the Company's business.
IX. RANK; PARTICIPATION
A. RANK. All shares of the Preferred Stock shall rank (i) prior to the
Common Stock; (ii) prior to any other class of Capital Stock of the Company now
outstanding and prior to any class or series of capital stock of the Company
hereafter created (unless, with the consent of the Holders obtained in
accordance with Article XIII hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or PARI PASSU with the Preferred
Stock) (collectively, with the Common Stock, "JUNIOR SECURITIES"); (iii) Pari
Passu with any class or series of capital stock of the Company hereafter created
(with the consent of the Holders obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, on parity with the Preferred Stock
(the "PARI PASSU SECURITIES"); and (iv) junior to any class or series of capital
stock of the Company hereafter created (with the consent of the Holders obtained
in accordance with Article XIII hereof) specifically ranking, by its terms,
senior to the Preferred Stock (the "SENIOR SECURITIES"), in each case as to
distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary. The Preferred Stock shall rank PARI
PASSU with the Series A Preferred Stock.
B. PARTICIPATION. Subject to the rights of the holders (if any) of Pari
Passu Securities and Senior Securities, the Holders shall, as Holders of
Preferred Stock, be entitled to such dividends paid and distributions made to
the holders of Common Stock to the same extent
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as if such Holders had converted such Preferred Stock into Common Stock (without
regard to any limitations on conversion herein or elsewhere contained) and had
such Common Stock been issued on the day before the record date for said
dividend or distribution. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.
X. LIQUIDATION PREFERENCE
A. LIQUIDATION OF THE COMPANY. If a Bankruptcy Event shall occur and, on
account of any such event, the Company shall liquidate, dissolve or wind up, or
if the Company shall otherwise liquidate, dissolve or wind up (a "LIQUIDATION
EVENT"), no distribution shall be made to the Holders of any shares of capital
stock of the Company (other than Senior Securities) upon liquidation,
dissolution or winding up unless prior thereto the Holders shall have received
the Liquidation Preference (as herein defined) with respect to each share. If,
upon the occurrence of a Liquidation Event, the assets and funds available for
distribution among the Holders and holders of Pari Passu Securities shall be
insufficient to permit the payment to such Holders of the preferential amounts
payable thereon, then the entire assets and funds of the Company legally
available for distribution to the Preferred Stock and the Pari Passu Securities
shall be distributed ratably among such shares in proportion to the ratio that
the Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
B. CERTAIN ACTS NOT A LIQUIDATION. The purchase or redemption by the
Company of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or winding up of
the Company. Neither the consolidation or merger of the Company with or into
any other entity nor the sale or transfer by the Company of less than
substantially all of its assets shall, for the purposes hereof, be deemed to be
a liquidation, dissolution or winding up of the Company.
C. DEFINITION OF LIQUIDATION PREFERENCE. The "LIQUIDATION PREFERENCE"
with respect to a share of Preferred Stock means an amount equal to the Face
Amount thereof plus the Premium with respect thereto plus any other amounts that
may be due from the Company with respect thereto through the date of final
distribution. The Liquidation Preference with respect to any Pari Passu
Securities shall be as set forth in the charter of the Company.
XI. ADJUSTMENTS TO THE
CONVERSION PRICE; CERTAIN PROTECTIONS
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. STOCK SPLITS, STOCK DIVIDENDS, ETC. If at any time on or after the
Closing Date, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Conversion Price shall be proportionately increased.
B. CERTAIN PUBLIC ANNOUNCEMENTS. In the event that (i) the Company makes
a public announcement that it intends to consolidate or merge with any other
entity (other than a
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merger in which the Company is the surviving or continuing entity and its
capital stock is unchanged and there is no distribution thereof)) or to sell or
transfer all or substantially all of the assets of the Company or (ii) any
person, group or entity (including the Company) publicly announces a tender
offer in connection with which such person, group or entity seeks to purchase
50% or more of the Common Stock (the date of the announcement referred to in
clause (i) or (ii) of this paragraph is hereinafter referred to as the
"ANNOUNCEMENT DATE"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the consummation of the proposed tender
offer or transaction or the Abandonment Date (as defined below), be equal to the
lesser of (x) the Conversion Price calculated as provided in Article IV the (y)
the Conversion Price which would have been applicable for Conversion occurring
on the Announcement Date. From and after the Abandonment Date, as the case may
be, the Conversion Price shall be determined as set forth in Article IV. The
"ABANDONMENT DATE" means with respect to any proposed transaction or tender
offer for which a public announcement as contemplated by this paragraph has been
made, the date which is seven (7) trading days after the date upon which the
Company (in the case of clause (i) above) or the person, group or entity (in the
case of clause (ii) above) publicly announces the termination or abandonment of
the proposed transaction or tender offer which causes this paragraph to become
operative.
C. MAJOR TRANSACTIONS. If the Company shall consolidate with or merge
into any corporation or reclassify its outstanding shares of Common Stock (other
than by way of subdivision or reduction of such shares) (each a "MAJOR
TRANSACTION"), then each Holder shall thereafter be entitled to receive
consideration, in exchange for each share of Preferred Stock held by it, equal
to the greater of, as determined in the sole discretion of such Holder: (i) the
number of shares of stock or securities or property of the Company, or of the
entity resulting from such Major Transaction (the "MAJOR TRANSACTION
CONSIDERATION"), to which a Holder of the number of shares of Common Stock
delivered upon conversion of such shares of Preferred Stock would have been
entitled upon such Major Transaction had the Holder exercised its right of
conversion (without regard to any limitations on conversion herein or elsewhere
contained) on the trading date immediately preceding the public announcement of
the transaction resulting in such Major Transaction and had such Common Stock
been issued and outstanding and had such Holder been the holder of record of
such Common Stock at the time of the consummation of such Major Transaction, and
(ii) 125% of the Face Amount of such shares of Preferred Stock in cash; and the
Company shall make lawful provision therefor as a part of such Major
Transaction. No sooner than ten (10) business days nor later than five (5)
business days prior to the consummation of the Major Transaction, but not prior
to the public announcement of such Major Transaction, the Company shall deliver
written notice ("NOTICE OF MAJOR TRANSACTION") to each Holder, which Notice of
Major Transaction shall be deemed to have been delivered one (1) business day
after the Company's sending such notice by telecopy (provided that the Company
sends a confirming copy of such notice on the same day by overnight courier) of
such Notice of Major Transaction. Such Notice of Major Transaction shall
indicate the amount and type of the Major Transaction Consideration which such
Holder would receive under clause (i) of this Section XI.B. If the Major
Transaction Consideration does not consist entirely of United States currency,
such Holder may elect to receive United States currency in an amount equal to
the value of the Major Transaction Consideration in lieu of the Major
Transaction Consideration by delivering notice of such election to the Company
within five (5) business days of the Holder's receipt of the Notice of Major
Transaction.
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D. [INTENTIONALLY DELETED].
E. ISSUANCE OF OTHER SECURITIES. If, at any time after the Closing Date,
the Company shall issue any securities which are convertible into or
exchangeable for Common Stock ("CONVERTIBLE SECURITIES") either (i) at a
conversion or exchange rate based on a discount from the market price of the
Common Stock at the time of conversion or exercise or (ii) with a fixed
conversion or exercise price less than the Fixed Conversion Price, then, at the
Holder's option: (x) in the case of clause (i), the Variable Conversion Price in
respect of any conversion of Preferred Stock after such issuance shall be
calculated utilizing the greatest discount applicable to any such Convertible
Securities; and (y) in the case of clause (ii), the Fixed Conversion Price shall
be reduced to such lesser conversion or exercise price.
F. PURCHASE RIGHTS. If at any time after the Closing Date, the Company
issues any Convertible Securities or rights to purchase stock, warrants,
securities or other property (the "DISTRIBUTED ITEMS") pro rata to the record
holders of any class of Common Stock, then the Holders will be entitled to
acquire, upon the terms applicable to such Distributed Items, the aggregate
Distributed Items which such Holder could have acquired if such Holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Preferred Stock (without regard to any limitations on conversion or exercise
herein or elsewhere contained) immediately before the date on which a record is
taken for the grant, issuance or sale of such Distributed Items, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Distributed Items.
G. SPECIAL ADJUSTMENT. If the Company takes any actions (including under
or by virtue of this Article XI) which would have a dilutive effect on the
Holder or which would materially and adversely affect the Holder with respect to
its investment in the Preferred Stock, and if the provisions of this Article XI
are not strictly applicable to such actions or, if applicable to such actions,
would not operate to equitably protect the Holder against such actions, then the
Company shall promptly upon notice from a Holder appoint its independent
certified public accountants to determine as promptly as practicable an
appropriate adjustment to the terms hereof or another appropriate action to so
equitably protect such Holder and prevent any such dilution and any such
material adverse effect, as the case may be. Following such determination, the
Company shall forthwith make the adjustments or take the other actions described
therein.
H. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment pursuant to this Article XI, the Company, at its expense, shall
promptly compute such adjustment or readjustment and prepare and furnish to each
Holder a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request at any time of any Holder, furnish to
such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Preferred Stock.
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XII. VOTING RIGHTS
The holders of Preferred Stock shall have no voting power whatsoever,
except as otherwise provided by applicable law.
Notwithstanding the above, the Company shall provide each Holder with prior
notification of any meeting of the stockholders (and copies of proxy materials
and all other information sent to stockholders). If the Company takes a record
of its stockholders for the purpose of determining stockholders entitled to (a)
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the Company, or
any proposed merger, consolidation, liquidation, dissolution or winding up of
the Company, the Company shall mail a notice to each Holder, at least twenty
(20) days prior to the record date specified therein (or thirty (30) days prior
to the consummation of the transaction or event, whichever is earlier, but in no
event earlier than public announcement of such proposed transaction), of the
date on which any such record is to be taken for the purpose of such vote,
dividend, distribution, right or other event, and a brief statement regarding
the amount and character of such vote, dividend, distribution, right or other
event to the extent known at such time.
To the extent that under applicable law the vote of the holders of the
Preferred Stock, voting separately as a class or series, as applicable, is
required to authorize a given action of the Company, the affirmative vote or
consent of the Holders of at least a majority of the shares of the Preferred
Stock represented at a duly held meeting at which a quorum is present or by
written consent of the Majority Holders (except as otherwise may be required by
applicable law shall constitute the approval of such action by the class. To the
extent that under applicable law Holders are entitled to vote on a matter with
holders of Common Stock, voting together as one class, each share of Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible (without giving effect to any
limitation on conversion with respect thereto) using the record date for the
taking of such vote of stockholders as the date as of which the Conversion Price
is calculated.
XIII. PROTECTION PROVISIONS
The Company shall not, without first obtaining the approval of the Majority
Holders and, to the extent their interests may be adversely affected, each
initial Holder of Preferred Stock: (a) alter or change the rights, preferences
or privileges of the Preferred Stock; (b) alter or change the rights,
preferences or privileges of any capital stock of the Company so as to affect
adversely the Preferred Stock; (c) create any Senior Securities; (d) create any
Pari Passu Securities; (e) increase the authorized number of shares of Preferred
Stock; (f) redeem, or declare or pay any cash dividend or distribution on, any
Junior Securities; or (g) do any act or thing not authorized or contemplated by
this Certificate of Designations which would result in any taxation with respect
to the Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended, or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended (or otherwise suffer to exist any such
taxation as a result thereof).
15.
<PAGE>
If the Majority Holders agree to allow the Company to alter or change the
rights, preferences or privileges of the shares of Preferred Stock pursuant to
subsection (a) above, then the Company shall deliver notice of such approved
change to the Holders that did not agree to such alteration or change (the
"DISSENTING HOLDERS") and the Dissenting Holders shall have the right, for a
period of thirty (30) days, to convert pursuant to the terms of this Certificate
of Designation as they existed prior to such alteration or change or to continue
to hold their shares of Preferred Stock.
XIV. MISCELLANEOUS
A. CANCELLATION OF PREFERRED STOCK. If any shares of Preferred Stock are
converted pursuant to Article IV, the shares so converted shall be canceled,
shall return to the status of authorized but unissued preferred stock of no
designated series, and shall not be issuable by the Company as Preferred Stock.
B. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Company, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Company shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
Holder contemporaneously requests the Company to convert such Preferred Stock.
C. ALLOCATION OF CAP AMOUNT AND RESERVED AMOUNT. The initial Cap Amount
and Reserved Amount shall be allocated to the Holders in the same proportion as
the number of shares of Preferred Stock held by such Holder bears to the
aggregate number of outstanding shares of Preferred Stock. Each increase to the
Cap Amount or Reserved Amount shall be allocated pro rata among the Holders
based on the number of shares of Preferred Stock held by each Holder at the time
of the increase in the Cap Amount or Reserved Amount, as the case may be. In the
event a Holder shall sell or otherwise transfer any of such Holder's shares of
Preferred Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Preferred Stock shall be allocated to the remaining Holders, pro rata
based on the number of shares of Preferred Stock then held by such Holders.
D. STATEMENTS OF AVAILABLE SHARES. Upon request, the Company shall
deliver to each Holder a written report notifying the Holders of any occurrence
which prohibits the Company from issuing Common Stock upon any such conversion.
The report shall also specify (i) the total number of shares of Preferred Stock
outstanding as of the date of the request, (ii) the total number of shares of
Common Stock issued upon all conversions of Preferred Stock through the date of
the request, (iii) the total number of shares of Common Stock which are reserved
for issuance upon conversion of the Preferred Stock as of the date of the
request, and (iv) the total number of shares of Common Stock which may
thereafter be issued by the Company upon conversion of the Preferred Stock
before the Company would exceed the Cap Amount and Reserved Amount. The Company
shall, within five (5) days after delivery to the Company of a
16.
<PAGE>
written request by any Holder, provide all of the information enumerated in
clauses (i) - (v) of this Section XIV.D and, at the request of a Holder, make
public disclosure thereof.
E. PAYMENT OF CASH; DEFAULTS. Whenever the Company is required to make
any cash payment to a Holder under this Certificate of Designation (as a
Conversion Default Payment, Redemption Amount or otherwise), such cash payment
shall be made to the Holder by the method (by certified or cashier's check or
wire transfer of immediately available funds) elected by such Holder. If such
payment is not delivered when due (any such amount not paid when due being a
"DEFAULT AMOUNT") such Holder shall thereafter be entitled to interest on the
unpaid amount at a per annum rate equal to the lower of twenty-four percent
(24%) or the highest interest rate permitted by applicable law until such amount
is paid in full to the Holder.
F. STATUS AS STOCKHOLDER. Upon submission of a Notice of Conversion by a
Holder of Preferred Stock, the shares covered thereby shall be deemed converted
into shares of Common Stock and the Holder's rights as a Holder of such
converted shares of Preferred Stock shall cease and terminate, excepting only
the right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
Holder because of a failure by the Company to comply with the terms of this
Certificate of Designation.
G. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designation
shall be cumulative and in addition to all other remedies available under this
Certificate of Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a Holder's right to actual damages for any failure by
the Company to comply with the terms of this Certificate of Designation
(including, without limitation, damages incurred to effect "cover" of shares of
Common Stock anticipated to be received upon a conversion hereunder but not
received in accordance with the terms hereof). The Company covenants to each
Holder that there shall be no characterization concerning this instrument other
than as expressly provided herein. Amounts set forth or provided for herein
with respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the Holder hereof and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the holders of
Preferred Stock and that the remedy at law for any such breach may he
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the Holders shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
H. SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision
contained in this Certificate of Designation shall limit or modify any more
general provision contained herein. This Certificate of Designation shall be
deemed to be jointly drafted by the Company and all Purchasers and shall not be
construed against any person as the drafter hereof.
I. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
a Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, not
17.
<PAGE>
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.
18.
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert (the "CONVERSION")
$__________ Face Amount of the Series B Convertible Participating Preferred
Stock (the "PREFERRED STOCK") (i.e., $_________) (each defined term used but not
defined in this notice shall have the meaning assigned to it in the Designation,
Preferences and Rights of Series B Convertible Participating Preferred Stock of
Valence Technology, Inc. (the "CERTIFICATE OF DESIGNATION")), into shares of
common stock ("COMMON STOCK") of Valence Technology, Inc. (the "COMPANY")
according to the conditions of the Certificate of Designation, as of the date
written below. If securities are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto. No fee will be charged to the Holder for any conversion except
as provided herein.
The undersigned covenants that all offers and sales by the undersigned of
the securities issuable to the undersigned upon conversion of this Preferred
Stock shall be made pursuant to registration of the Common Stock under the
Securities Act, or pursuant to an exemption from registration under the
Securities Act.
In the event of partial exercise, please reissue an appropriate certificate
for the principal balance which shall not have been converted.
<TABLE>
<CAPTION>
NUMBER OF SHARES
DATE OF APPLICABLE OF COMMON STOCK
CONVERSION CONVERSION PRICE TO BE ISSUED
------------ ------------------ ------------------
<S> <C> <C>
</TABLE>
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Signature
Name:
---------------------------------------------
Address:
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---------------------------------------------
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cc: [TRANSFER AGENT]
ACKNOWLEDGED AND AGREED:
VALENCE TECHNOLOGY, INC.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Date:
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1.
<PAGE>
VOID AFTER 5:00 P.M. HENDERSON, NEVADA
TIME ON JULY 27, 2003
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
RIGHT TO PURCHASE 447,761 SHARES OF
COMMON STOCK, PAR VALUE $.001 PER SHARE
Date: December [ ], 1998
VALENCE TECHNOLOGY, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, CC Investments, LDC or its
registered assigns, is entitled to purchase from VALENCE TECHNOLOGY, INC., a
Delaware corporation (the "COMPANY"), at any time or from time to time during
the period specified in Section 2 hereof, 447,761 fully paid and nonassessable
shares of the Company's common stock, par value $.001 per share (the "COMMON
STOCK"), at an exercise price of $6.7838 per share (the "EXERCISE PRICE"). This
Warrant is being issued pursuant to that certain Amended and Restated Securities
Purchase Agreement dated December 11, 1998 between the Company and the
signatories thereto (the "SECURITIES PURCHASE AGREEMENT"). The number of shares
of Common Stock purchasable hereunder (the "WARRANT SHARES") and the Exercise
Price are subject to adjustment as provided in Section 4 hereof. The term
"WARRANTS" means this Warrant and the other warrants of the Company issued
pursuant to the terms of the Securities Purchase Agreement.
The term "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"HOLDER") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "BLOOMBERG"), or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an
1.
<PAGE>
investment banking firm selected by the Company and reasonably acceptable to the
Holder with the costs of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. MECHANICS OF EXERCISE. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 7(f) hereof, this
Warrant may be exercised as follows:
(a) MANNER OF EXERCISE. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 12(e)
hereof), together with a completed exercise agreement in the Form of Exercise
Agreement attached hereto as Exhibit 1 (the "EXERCISE AGREEMENT"), to the
Company at the Company's principal executive offices (or such other office or
agency of the Company as it may designate by notice to the Holder), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the Holder elects to
effect a Cashless Exercise (as defined in Section 12(c) below), delivery to the
Company of a written notice of an election to effect a Cashless Exercise for the
Warrant Shares specified in the Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the Holder or Holder's designees, as
the record owner of such shares, as of the date on which this Warrant shall have
been surrendered, the completed Exercise Agreement shall have been delivered,
and payment (or notice of an election to effect a Cashless Exercise) shall have
been made for such shares as set forth above.
(b) ISSUANCE OF CERTIFICATES. Subject to Section 1(c), certificates
for the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "DELIVERY PERIOD"). The certificates so delivered
shall be in such denominations as may be requested by the Holder and shall be
registered in the name of Holder or such other name as shall be designated by
such Holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the Holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
(c) EXERCISE DISPUTES. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the
Exercise Agreement. The accounting firm shall audit the calculations and notify
the Company and the converting Holder of the results no later than two (2)
business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest error.
The Company shall then issue the appropriate number of shares of Common Stock in
accordance with this Section.
2.
<PAGE>
(d) FRACTIONAL SHARES. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(e) BUY-IN. If (i) the Company fails for any reason to deliver
during the Delivery Period shares of Common Stock to Holder upon an exercise of
this Warrant and (ii) after the applicable Delivery Period with respect to such
an exercise, Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to make delivery upon a sale by Holder of the shares of
Common Stock (the "SOLD SHARES") which Holder was entitled to receive upon such
exercise (a "BUY-IN"), the Company shall pay Holder (in addition to any other
remedies available to Holder) the amount by which (x) Holder's total purchase
price (including brokerage commission, if any) for the shares of Common Stock so
purchased exceeds (y) the lesser of (A) the Exercise Price or (B) the net
proceeds received by Holder from the sale of the Sold Shares. Holder shall
provide the Company written notification indicating any amounts payable to
Holder pursuant to this subsection.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time on or after July 27, 1999 and before 5:00 p.m., Henderson, Nevada
time on July 27, 2003 (the "EXERCISE PERIOD").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
non-assessable and free from all taxes, liens, claims and encumbrances.
(b) RESERVATION OF SHARES. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant, without limitation of the Company's
obligation to have authorized and reserved shares of Common Stock to provide for
conversion of shares of Series A Convertible Participating Preferred Stock of
the Company ("SERIES A STOCK") and Series B Convertible Participating Preferred
Stock of the Company ("SERIES B STOCK" and together with the Series A Stock, the
"PREFERRED STOCK").
(c) LISTING. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon the Nasdaq
National Market System, the Nasdaq SmallCap Market, the New York Stock Exchange
or the American Stock Exchange as required by Section 4.9 of the Securities
Purchase Agreement and upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed or
become listed and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
3.
<PAGE>
issuable upon the exercise of this Warrant; and the Company shall so list on
each national securities exchange or automated quotation system, as the case may
be, and shall maintain such listing of any other shares of capital stock of the
Company issuable upon the exercise of this Warrant so long as any shares of the
same class shall be listed on such national securities exchange or automated
quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such actions as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without limiting
the generality of the foregoing, the Company (i) will not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE
OF COMMON STOCK. Except as otherwise provided in Section 4(c) and 4(e) hereof,
if and whenever after the initial issuance of this Warrant, the Company issues
or sells, or in accordance with Section 4(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration or for a consideration per
share less than the Market Price (as herein defined) on the date of issuance (a
"DILUTIVE ISSUANCE"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in
Section 4(b) hereof, received by the Company upon such
Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as herein defined) immediately after the
Dilutive Issuance.
4.
<PAGE>
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("CONVERTIBLE SECURITIES"), but not to include the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
or Director benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "OPTIONS"), and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance ("BELOW MARKET OPTIONS"),
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as of the date of the
issuance or grant of such Below Market Options, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the price per share for which Common Stock
is issuable upon the exercise of such Below Market Options is determined by
dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of such Below Market Options, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(1) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(2) if applicable) is less than the
Market Price on the date of issuance, then the maximum total number of shares of
Common Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of the preceding sentence,
the price per share for which Common Stock is issuable upon such exercise,
conversion or exchange is
5.
<PAGE>
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuances of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(2) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "VARIABLE RATE CONVERTIBLE SECURITY"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(1)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of issuance of such Convertible Security was 80% of the Market
Price on such date (the "ASSUMED VARIABLE MARKET PRICE").
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. Except for the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee or Director benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (other than under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect at the time of such change will be readjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock
issuable upon exercise of any Options or upon exercise, conversion or exchange
of any Convertible Securities is not, in fact, issued and the rights to exercise
such option or to exercise, convert or exchange such Convertible Securities
shall have expired or terminated, the Exercise Price then in effect will be
readjusted to the Exercise Price which would have been in effect at the time of
such expiration or termination had such Options or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination
(other than in respect of the actual number of shares of Common Stock issued
upon exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received
6.
<PAGE>
therefor for purposes of this Warrant will be the amount received by the Company
therefor, before deduction of reasonable commissions, underwriting discounts or
allowances or other reasonable expenses paid or incurred by the Company in
connection with such issuance, grant or sale. In case any Common Stock, Options
or Convertible Securities are issued or sold for a consideration part or all of
which shall be other than cash, the amount of the consideration other than cash
received by the Company will be the fair market value of such consideration
except where such consideration consists of freely-tradeable securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any merger or
consolidation in which the Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair market value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair market value of any consideration other than cash or
securities will be determined in the good faith reasonable business judgment of
the Board of Directors.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Conversion Shares (as defined in the Securities Purchase Agreement), Series
B Stock or Warrants in accordance with terms of the Securities Purchase
Agreement; (iv) upon the exercise of the Warrants; (v) upon the issuance of
securities of the Company in an underwritten public offering; (vi) upon the
issuance of warrants to Gemini Capital, L.L.C. (or its successors or assigns) in
connection with the transactions contemplated by the Securities Purchase
Agreement; or (vii) upon the issuance of warrants to Baccarat Electronics, Inc.
in connection with the loan agreement referred to in Section 5.4 of the
Securities Purchase Agreement.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company, at
any time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced.
If the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of
7.
<PAGE>
Common Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
(e) MAJOR TRANSACTIONS. If the Company shall consolidate with or
merge into any corporation or reclassify its outstanding shares of Common Stock
(other than by way of subdivision or reduction of such shares) (each a "MAJOR
TRANSACTION"), then each holder of a Warrant shall thereafter be entitled to
receive consideration, in exchange for such Warrant, equal to the greater of, as
determined in the sole discretion of such holder: (i) a warrant to purchase (at
the same aggregate exercise price and on the same terms and conditions as the
Warrant surrendered) the number of shares of stock or securities or property of
the Company, or of the entity resulting from such consolidation or merger (the
"MAJOR TRANSACTION CONSIDERATION"), to which a holder of the number of shares of
Common Stock delivered upon exercise of such Warrant would have been entitled
upon such Major Transaction had the holder of such Warrant exercised (without
regard to any limitations on exercise herein contained) the Warrant on the
trading date immediately preceding the public announcement of the transaction
resulting in such Major Transaction and had such Common Stock been issued and
outstanding and had such holder been the holder of record of such Common Stock
at the time of such Major Transaction, and the Company shall make lawful
provision therefor as a part of such consolidation, merger or reclassification;
and (ii) cash paid by the Company in immediately available funds, in an amount
equal to the Black-Scholes Amount (as defined herein) times the number of shares
of Common Stock for which this Warrant was exercisable (without regard to any
limitations on exercise herein contained) on the date immediately preceding the
date of such Major Transaction. No sooner than ten (10) days nor later than five
(5) days prior to the consummation of the Major Transaction, but not prior to
the public announcement of such Major Transaction, the Company shall deliver
written notice ("NOTICE OF MAJOR TRANSACTION") to each holder of Warrants, which
Notice of Major Transaction shall be deemed to have been delivered one (1)
business day following the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Major Transaction. Such Notice of Major
Transaction shall indicate the amount and type of the Major Transaction
Consideration which such holder would receive under clause (i) of this
paragraph (e). If the Major Transaction Consideration does not consist entirely
of United States currency, such holder may elect to receive United States
currency in an amount equal to the value of the Major Transaction Consideration
in lieu of the Major Transaction Consideration by delivering notice of such
election to the Company within five (5) days of the holder's receipt of the
Notice of Major Transaction.
The "BLACK-SCHOLES AMOUNT" shall be an amount determined by calculating the
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole
8.
<PAGE>
discretion using the closest available alternative mechanism and variable values
to those available utilizing the Bloomberg online page for such calculation
function.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of capital
or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "DISTRIBUTION"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) NOTICES OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the Holder, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease in
the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock; provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution to
the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
9.
<PAGE>
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then, in each such case, the Company
shall give to the Holder (a) notice of the date on which the books of the
Company shall close or a record shall be taken for determining the holders of
Common Stock entitled to receive any such dividend, distribution, or
subscription rights or for determining the holders of Common Stock entitled to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take place.
Such notice shall also specify the date on which the holders of Common Stock
shall be entitled to receive such dividend, distribution, or subscription rights
or to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least 30 days prior to the record date or the date on which
the Company's books are closed in respect thereto, but in no event earlier than
public announcement of such proposed transaction or event. Failure to give any
such notice or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.
(k) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the number
of shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in case of any adjustment
required by Section 4(a) resulting from the issuance of any Options, the maximum
total number of shares of Common Stock issuable upon the exercise of the Options
for which the adjustment is required (including any Common Stock issuable upon
the conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) "MARKET PRICE," as of any date, (i) means the average of
the Closing Bid Prices for the shares of Common Stock as reported to Nasdaq
National Market System for the trading day immediately preceding such date, or
(ii) if the Nasdaq National Market System is not the principal trading market
for the Common Stock, the average of the last reported bid prices on the
principal trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the average fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holders of a majority in interest of the Warrants,
with the costs of the appraisal to be borne by the Company. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
10.
<PAGE>
(iii) "COMMON STOCK," for purposes of this Section 4, includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Stock in
respect of which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. CAP AMOUNT. Prior to Stockholder Approval (as herein defined), unless
otherwise permitted by the Nasdaq National Market System or the Nasdaq SmallCap
Market or unless the rules thereof do not apply to the Warrants, in no event
shall the total number of shares of Common Stock issued upon exercise of the
Warrants exceed the maximum number of shares of Common Stock that the Company
can without stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or
any successor rule) (the "CAP AMOUNT") upon exercise of the Warrants and
conversion of the Series A Stock and Series B Stock, which, as of the date of
initial issuance of the shares of Series A Stock and Warrants, shall be
5,071,913 shares (or such higher number as such rules permit). The Cap Amount
shall be allocated pro-rata to the Holders. A Holder's allocable portion of the
Cap Amount shall be applicable to both series of Preferred Stock and Warrants
held by it and shall be applied to such Preferred Stock and Warrants on the
basis of the time of conversion or exercise, as the case may be, thereof.
6. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. TRANSFER, EXCHANGE, REDEMPTION AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights granted to
the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of Assignment
attached hereto as Exhibit 2, at the office or agency of the Company referred to
in Section 7(e) below, provided, however, that any transfer or assignment shall
be subject to the provisions of Section 5.1 and 5.2 of the Securities Purchase
Agreement. Until due presentment for registration of transfer on the books of
the Company, the Company may treat the registered holder hereof as the owner and
holder hereof for all purposes, and the Company shall not be affected by any
notice to the contrary. Notwithstanding anything to the contrary contained
herein, the registration rights described in Section 9 hereof are assignable
only in accordance with the provisions of that Amended and
11.
<PAGE>
Restated Registration Rights Agreement, dated as of December 11, 1998, by and
among the Company and the other signatories thereto (the "REGISTRATION RIGHTS
AGREEMENT").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
is exchangeable, upon the surrender hereof by the Holder at the office or agency
of the Company referred to in Section 7(e) below, for new Warrants, in the form
hereof, of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the Holder of at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrants, in the form hereof, in such
denominations as Holder may request.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all issuance taxes (other than securities transfer taxes) and
charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 7.
(e) WARRANT REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) ADDITIONAL RESTRICTION ON EXERCISE OR TRANSFER. Notwithstanding
anything to the contrary contained herein, the Warrants shall not be exercisable
by the Holder to the extent (but only to the extent) that, if exercisable by
Holder, Holder or any of its affiliates would beneficially own in excess of 4.9%
(the "APPLICABLE PERCENTAGE") of the shares of Common Stock. To the extent the
above limitation applies, the determination of whether the Warrants shall be
exercisable (vis-a-vis other securities owned by Holder) and of which Warrants
shall be exercisable (as among Warrants) shall, subject to such aggregate
percentage limitation, be on a first submission basis. No prior inability to
exercise Warrants pursuant to this paragraph shall have any effect on the
applicability of the provisions of this paragraph with respect to any subsequent
determination of exercisability. For the purposes of this paragraph, beneficial
ownership and all determinations and calculations, including without limitation,
with respect to calculations of percentage ownership, shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and G thereunder. The provisions of this paragraph
shall be implemented in a manner otherwise than in strict conformity with the
terms this Section (f): (i) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Applicable Percentage
12.
<PAGE>
beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such Applicable
Percentage limitation; and (ii) with respect to any other matter, with the
consent of the holders of a majority of the then outstanding shares of Common
Stock. The limitations contained in this paragraph shall apply to a successor
holder of Warrants.
9. REGISTRATION RIGHTS. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. NOTICES. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
Valence Technology, Inc.
301 Conestoga Way
Henderson, NV 89015
Telecopy: (702) 558-1310
Attention: Lev Dawson
with a copy to:
Cooley Godward LLP
3000 El Camino Real
Palo Alto, CA 94306
Telecopy: (650) 857-0663
Attention: Andrei Manoliu, Esq.
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 9.
11. GOVERNING LAW; JURISDICTION. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the County of New Castle in the State of Delaware in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company agrees that a final
nonappealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
13.
<PAGE>
12. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "CASHLESS EXERCISE").
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the Holder shall surrender this Warrant for the number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the amount
by which the then current Market Price per share of the Common Stock exceeds the
Exercise Price, and the denominator of which shall be such then current Market
Price per share of Common Stock.
(d) ASSIGNABILITY. This Warrant shall be binding upon the Company
and its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the assignment
of this Warrant.
* * *
14.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
VALENCE TECHNOLOGY, INC.
By:
------------------------------------------
Lev Dawson
Chief Executive Officer and President
15.
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of Valence Technology, Inc., a
Delaware corporation (the "COMPANY"), evidenced by the attached Warrant, and
[herewith makes payment of the Exercise Price with respect to such shares in
full/ elects to effect a Cashless Exercise pursuant to the terms of the
Warrant], all in accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant,
except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the Warrant in the name of the Holder (or such
other person or persons indicated below) and delivered to the
undersigned (or designee(s) at the address (or addresses) set forth
below:
Date:
----------------------
----------------------------------------
Signature of Holder
----------------------------------------
Name of Holder (Print)
Address:
--------------------------------
----------------------------------------
----------------------------------------
1.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth herein below, to:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF ASSIGNEE ADDRESS SHARES
- --------------------------- -------------------------------- -------------
<S> <C> <C>
</TABLE>
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date: , ,
------------ -------
In the presence of:
---------------------------------------------
Name
---------------------------------------------
Signature
---------------------------------------------
Title of Signing Officer or Agent (IF ANY)
Address:
-------------------------------------
---------------------------------------------
---------------------------------------------
NOTE: The above signature should correspond exactly with the name on the face
of the within Warrant.
1.
<PAGE>
VOID AFTER 5:00 P.M. HENDERSON, NEVADA
TIME ON JULY 27, 2003
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
RIGHT TO PURCHASE 87,500 SHARES OF
COMMON STOCK, PAR VALUE $.001 PER SHARE
Date: December [ ], 1998
VALENCE TECHNOLOGY, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Gemini Capital, L.L.C. or its
registered assigns, is entitled to purchase from VALENCE TECHNOLOGY, INC., a
Delaware corporation (the "COMPANY"), at any time or from time to time during
the period specified in Section 2 hereof, 87,500 fully paid and nonassessable
shares of the Company's common stock, par value $.001 per share (the "COMMON
STOCK"), at an exercise price of $4.9375 per share (the "EXERCISE PRICE"). The
number of shares of Common Stock purchasable hereunder (the "WARRANT SHARES")
and the Exercise Price are subject to adjustment as provided in Section 4
hereof. The term "WARRANTS" means this Warrant and the other warrants of the
Company issued pursuant to the terms of the Securities Purchase Agreement.
The term "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"HOLDER") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "BLOOMBERG"), or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
1.
<PAGE>
This Warrant is subject to the following terms, provisions, and conditions:
1. MECHANICS OF EXERCISE. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 7(f) hereof, this
Warrant may be exercised as follows:
(a) MANNER OF EXERCISE. This Warrant may be exercised by the Holder,
in whole or in part, by the surrender of this Warrant (or evidence of loss,
theft, destruction or mutilation thereof in accordance with Section 12(e)
hereof), together with a completed exercise agreement in the Form of Exercise
Agreement attached hereto as Exhibit 1 (the "EXERCISE AGREEMENT"), to the
Company at the Company's principal executive offices (or such other office or
agency of the Company as it may designate by notice to the Holder), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the Holder elects to
effect a Cashless Exercise (as defined in Section 12(c) below), delivery to the
Company of a written notice of an election to effect a Cashless Exercise for the
Warrant Shares specified in the Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the Holder or Holder's designees, as
the record owner of such shares, as of the date on which this Warrant shall have
been surrendered, the completed Exercise Agreement shall have been delivered,
and payment (or notice of an election to effect a Cashless Exercise) shall have
been made for such shares as set forth above.
(b) ISSUANCE OF CERTIFICATES. Subject to Section 1(c), certificates
for the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "DELIVERY PERIOD"). The certificates so delivered
shall be in such denominations as may be requested by the Holder and shall be
registered in the name of Holder or such other name as shall be designated by
such Holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the Holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
(c) EXERCISE DISPUTES. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the
Exercise Agreement. The accounting firm shall audit the calculations and notify
the Company and the converting Holder of the results no later than two (2)
business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest error.
The Company shall then issue the appropriate number of shares of Common Stock in
accordance with this Section.
(d) FRACTIONAL SHARES. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same
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fraction of the Exercise Price of a share of Common Stock (as determined for
exercise of this Warrant into whole shares of Common Stock); provided that in
the event that sufficient funds are not legally available for the payment of
such cash adjustment any fractional shares of Common Stock shall be rounded up
to the next whole number.
(e) BUY-IN. If (i) the Company fails for any reason to deliver
during the Delivery Period shares of Common Stock to Holder upon an exercise of
this Warrant and (ii) after the applicable Delivery Period with respect to such
an exercise, Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to make delivery upon a sale by Holder of the shares of
Common Stock (the "SOLD SHARES") which Holder was entitled to receive upon such
exercise (a "BUY-IN"), the Company shall pay Holder (in addition to any other
remedies available to Holder) the amount by which (x) Holder's total purchase
price (including brokerage commission, if any) for the shares of Common Stock so
purchased exceeds (y) the lesser of (A) the Exercise Price or (B) the net
proceeds received by Holder from the sale of the Sold Shares. Holder shall
provide the Company written notification indicating any amounts payable to
Holder pursuant to this subsection.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time on or after July 27, 1999 and before 5:00 p.m., Henderson, Nevada
time on July 27, 2003 (the "EXERCISE PERIOD").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
non-assessable and free from all taxes, liens, claims and encumbrances.
(b) RESERVATION OF SHARES. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant, without limitation of the Company's
obligation to have authorized and reserved shares of Common Stock to provide for
conversion of shares of Series A Convertible Participating Preferred Stock of
the Company ("SERIES A STOCK") and Series B Convertible Participating Preferred
Stock of the Company ("SERIES B STOCK" and together with the Series A Stock, the
"PREFERRED STOCK").
(c) LISTING. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon the Nasdaq
National Market System, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange as required by Section 4.9 of the
Securities Purchase Agreement and upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are
then listed or become listed and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of any
other shares of capital stock of the Company issuable upon the exercise of
this
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Warrant so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such actions as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without limiting
the generality of the foregoing, the Company (i) will not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE
OF COMMON STOCK. Except as otherwise provided in Section 4(c) and 4(e) hereof,
if and whenever after the initial issuance of this Warrant, the Company issues
or sells, or in accordance with Section 4(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration or for a consideration per
share less than the Market Price (as herein defined) on the date of issuance (a
"DILUTIVE ISSUANCE"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in
Section 4(b) hereof, received by the Company upon such
Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as herein defined) immediately after the
Dilutive Issuance.
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(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("CONVERTIBLE SECURITIES"), but not to include the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
or Director benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "OPTIONS"), and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance ("BELOW MARKET OPTIONS"),
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as of the date of the
issuance or grant of such Below Market Options, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the price per share for which Common Stock
is issuable upon the exercise of such Below Market Options is determined by
dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of such Below Market Options, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(1) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(2) if applicable) is less than the
Market Price on the date of issuance, then the maximum total number of shares of
Common Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of the preceding sentence,
the price per share for which Common Stock is issuable upon such exercise,
conversion or exchange is
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determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuances of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(2) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "VARIABLE RATE CONVERTIBLE SECURITY"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(1)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of issuance of such Convertible Security was 80% of the Market
Price on such date (the "ASSUMED VARIABLE MARKET PRICE").
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. Except for the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee or Director benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (other than under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect at the time of such change will be readjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock
issuable upon exercise of any Options or upon exercise, conversion or exchange
of any Convertible Securities is not, in fact, issued and the rights to exercise
such option or to exercise, convert or exchange such Convertible Securities
shall have expired or terminated, the Exercise Price then in effect will be
readjusted to the Exercise Price which would have been in effect at the time of
such expiration or termination had such Options or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination
(other than in respect of the actual number of shares of Common Stock issued
upon exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received
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therefor for purposes of this Warrant will be the amount received by the Company
therefor, before deduction of reasonable commissions, underwriting discounts or
allowances or other reasonable expenses paid or incurred by the Company in
connection with such issuance, grant or sale. In case any Common Stock, Options
or Convertible Securities are issued or sold for a consideration part or all of
which shall be other than cash, the amount of the consideration other than cash
received by the Company will be the fair market value of such consideration
except where such consideration consists of freely-tradeable securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any merger or
consolidation in which the Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair market value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair market value of any consideration other than cash or
securities will be determined in the good faith reasonable business judgment of
the Board of Directors.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Conversion Shares (as defined in that certain Amended and Restated
Securities Purchase Agreement dated December 11, 1998 between the Company and
the signatories thereto (the "Securities Purchase Agreement")), Series B Stock
or Warrants in accordance with terms of the Securities Purchase Agreement; (iv)
upon the exercise of the Warrants; (v) upon the issuance of securities of the
Company in an underwritten public offering; (vi) upon the issuance of warrants
to Gemini Capital, L.L.C. (or its successors or assigns) in connection with the
transactions contemplated by the Securities Purchase Agreement; or (vii) upon
the issuance of warrants to Baccarat Electronics, Inc. in connection with the
loan agreement referred to in Section 5.4 of the Securities Purchase Agreement.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company, at
any time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced.
If the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to
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the Exercise Price in effect immediately prior to such adjustment by the number
of shares of Common Stock issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
(e) MAJOR TRANSACTIONS. If the Company shall consolidate with or
merge into any corporation or reclassify its outstanding shares of Common Stock
(other than by way of subdivision or reduction of such shares) (each a "MAJOR
TRANSACTION"), then each holder of a Warrant shall thereafter be entitled to
receive consideration, in exchange for such Warrant, equal to the greater of, as
determined in the sole discretion of such holder: (i) a warrant to purchase (at
the same aggregate exercise price and on the same terms and conditions as the
Warrant surrendered) the number of shares of stock or securities or property of
the Company, or of the entity resulting from such consolidation or merger (the
"MAJOR TRANSACTION CONSIDERATION"), to which a holder of the number of shares of
Common Stock delivered upon exercise of such Warrant would have been entitled
upon such Major Transaction had the holder of such Warrant exercised (without
regard to any limitations on exercise herein contained) the Warrant on the
trading date immediately preceding the public announcement of the transaction
resulting in such Major Transaction and had such Common Stock been issued and
outstanding and had such holder been the holder of record of such Common Stock
at the time of such Major Transaction, and the Company shall make lawful
provision therefor as a part of such consolidation, merger or reclassification;
and (ii) cash paid by the Company in immediately available funds, in an amount
equal to the Black-Scholes Amount (as defined herein) times the number of shares
of Common Stock for which this Warrant was exercisable (without regard to any
limitations on exercise herein contained) on the date immediately preceding the
date of such Major Transaction. No sooner than ten (10) days nor later than five
(5) days prior to the consummation of the Major Transaction, but not prior to
the public announcement of such Major Transaction, the Company shall deliver
written notice ("NOTICE OF MAJOR TRANSACTION") to each holder of Warrants, which
Notice of Major Transaction shall be deemed to have been delivered one (1)
business day following the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Major Transaction. Such Notice of Major
Transaction shall indicate the amount and type of the Major Transaction
Consideration which such holder would receive under clause (i) of this
paragraph (e). If the Major Transaction Consideration does not consist entirely
of United States currency, such holder may elect to receive United States
currency in an amount equal to the value of the Major Transaction Consideration
in lieu of the Major Transaction Consideration by delivering notice of such
election to the Company within five (5) days of the holder's receipt of the
Notice of Major Transaction.
The "BLACK-SCHOLES AMOUNT" shall be an amount determined by calculating the
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer
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available utilizing the Bloomberg online page, the Holder shall calculate such
amount in its sole discretion using the closest available alternative mechanism
and variable values to those available utilizing the Bloomberg online page for
such calculation function.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, by way of return of capital
or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "DISTRIBUTION"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) NOTICES OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the Holder, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease in
the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock; provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution to
the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
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(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then, in each such case, the Company
shall give to the Holder (a) notice of the date on which the books of the
Company shall close or a record shall be taken for determining the holders of
Common Stock entitled to receive any such dividend, distribution, or
subscription rights or for determining the holders of Common Stock entitled to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take place.
Such notice shall also specify the date on which the holders of Common Stock
shall be entitled to receive such dividend, distribution, or subscription rights
or to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least 30 days prior to the record date or the date on which
the Company's books are closed in respect thereto, but in no event earlier than
public announcement of such proposed transaction or event. Failure to give any
such notice or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.
(k) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the number
of shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in case of any adjustment
required by Section 4(a) resulting from the issuance of any Options, the maximum
total number of shares of Common Stock issuable upon the exercise of the Options
for which the adjustment is required (including any Common Stock issuable upon
the conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) "MARKET PRICE," as of any date, (i) means the average of
the Closing Bid Prices for the shares of Common Stock as reported to Nasdaq
National Market System for the trading day immediately preceding such date, or
(ii) if the Nasdaq National Market System is not the principal trading market
for the Common Stock, the average of the last reported bid prices on the
principal trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the average fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holders of a majority in interest of the Warrants,
with the costs of the appraisal to be borne by the Company. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall
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apply with respect to any other security in respect of which a determination as
to market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this Section 4, includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Stock in
respect of which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. CAP AMOUNT. Prior to Stockholder Approval (as herein defined), unless
otherwise permitted by the Nasdaq National Market System or the Nasdaq SmallCap
Market or unless the rules thereof do not apply to the Warrants, in no event
shall the total number of shares of Common Stock issued upon exercise of the
Warrants exceed the maximum number of shares of Common Stock that the Company
can without stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or
any successor rule) (the "CAP AMOUNT") upon exercise of the Warrants and
conversion of the Series A Stock and Series B Stock, which, as of the date of
initial issuance of the shares of Series A Stock and Warrants, shall be
5,071,913 shares (or such higher number as such rules permit). The Cap Amount
shall be allocated pro-rata to the Holders. A Holder's allocable portion of the
Cap Amount shall be applicable to both series of Preferred Stock and Warrants
held by it and shall be applied to such Preferred Stock and Warrants on the
basis of the time of conversion or exercise, as the case may be, thereof.
6. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. TRANSFER, EXCHANGE, REDEMPTION AND REPLACEMENT OF WARRANT.
(A) RESTRICTION ON TRANSFER. This Warrant and the rights granted to
the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of Assignment
attached hereto as Exhibit 2, at the office or agency of the Company referred to
in Section 7(e) below. Until due presentment for registration of transfer on
the books of the Company, the Company may treat the registered holder hereof as
the owner and holder hereof for all purposes, and the Company shall not be
affected by any notice to the contrary. Notwithstanding anything to the contrary
contained herein, the registration rights described in Section 9 hereof are
assignable only in accordance
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with the provisions of that Amended and Restated Registration Rights Agreement,
dated as of December 11, 1998, by and among the Company and the other
signatories thereto (the "REGISTRATION RIGHTS AGREEMENT").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
is exchangeable, upon the surrender hereof by the Holder at the office or agency
of the Company referred to in Section 7(e) below, for new Warrants, in the form
hereof, of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the Holder of at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrants, in the form hereof, in such
denominations as Holder may request.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all issuance taxes (other than securities transfer taxes) and
charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 7.
(e) WARRANT REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) ADDITIONAL RESTRICTION ON EXERCISE OR TRANSFER. Notwithstanding
anything to the contrary contained herein, the Warrants shall not be exercisable
by the Holder to the extent (but only to the extent) that, if exercisable by
Holder, Holder or any of its affiliates would beneficially own in excess of 4.9%
(the "APPLICABLE PERCENTAGE") of the shares of Common Stock. To the extent the
above limitation applies, the determination of whether the Warrants shall be
exercisable (vis-a-vis other securities owned by Holder) and of which Warrants
shall be exercisable (as among Warrants) shall, subject to such aggregate
percentage limitation, be on a first submission basis. No prior inability to
exercise Warrants pursuant to this paragraph shall have any effect on the
applicability of the provisions of this paragraph with respect to any subsequent
determination of exercisability. For the purposes of this paragraph, beneficial
ownership and all determinations and calculations, including without limitation,
with respect to calculations of percentage ownership, shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and G thereunder. The provisions of this paragraph
shall be implemented in a manner otherwise than in strict conformity with the
terms this Section (f): (i) to correct this paragraph (or any portion
12.
<PAGE>
hereof) which may be defective or inconsistent with the intended Applicable
Percentage beneficial ownership limitation herein contained or to make changes
or supplements necessary or desirable to properly give effect to such Applicable
Percentage limitation; and (ii) with respect to any other matter, with the
consent of the holders of a majority of the then outstanding shares of Common
Stock. The limitations contained in this paragraph shall apply to a successor
holder of Warrants.
9. REGISTRATION RIGHTS. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. NOTICES. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
Valence Technology, Inc.
301 Conestoga Way
Henderson, NV 89015
Telecopy: (702) 558-1310
Attention: Lev Dawson
with a copy to:
Cooley Godward LLP
3000 El Camino Real
Palo Alto, CA 94306
Telecopy: (650) 857-0663
Attention: Andrei Manoliu, Esq.
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 9.
11. GOVERNING LAW; JURISDICTION. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the County of New Castle in the State of Delaware in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company agrees that a final
nonappealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
13.
<PAGE>
12. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "CASHLESS EXERCISE").
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the Holder shall surrender this Warrant for the number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the amount
by which the then current Market Price per share of the Common Stock exceeds the
Exercise Price, and the denominator of which shall be such then current Market
Price per share of Common Stock.
(d) ASSIGNABILITY. This Warrant shall be binding upon the Company
and its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the assignment
of this Warrant.
* * *
14.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
VALENCE TECHNOLOGY, INC.
By: ___________________________________
Lev Dawson
Chief Executive Officer and President
15.
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of Valence Technology, Inc., a
Delaware corporation (the "COMPANY"), evidenced by the attached Warrant, and
[herewith makes payment of the Exercise Price with respect to such shares in
full/ elects to effect a Cashless Exercise pursuant to the terms of the
Warrant], all in accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant,
except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the Warrant in the name of the Holder (or such
other person or persons indicated below) and delivered to the
undersigned (or designee(s) at the address (or addresses) set forth
below:
Date:___________________
____________________________________________
Signature of Holder
____________________________________________
Name of Holder (Print)
Address: ___________________________________
____________________________________________
____________________________________________
1.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth herein below, to:
<TABLE>
<CAPTION>
Number of
Name of Assignee Address Shares
- --------------------------- -------------------------------- -------------
<S> <C> <C>
</TABLE>
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of:
____________________________________________
Name
____________________________________________
Signature
____________________________________________
Title of Signing Officer or Agent (IF ANY)
Address: ___________________________________
____________________________________________
____________________________________________
NOTE: The above signature should correspond exactly with the name on the face
of the within Warrant.
1.
<PAGE>
Exhibit 99.1
VALENCE TECHNOLOGY, INC. TO COMPLETE ADDITIONAL $7.5 MILLION
PREFERRED STOCK FINANCING
HENDERSON, Nev., Dec. 14 /PRNewswire/ -- Valence Technology, Inc. (Nasdaq: VLNC)
today announced that it has reached an agreement with its preferred stock
investor to complete the second half of its $15 million preferred stock
financing and to eliminate the variable conversion price on the existing $7.5
million preferred. The investor, an affiliate of Castle Creek Partners, L.L.C.,
a Chicago-based technology investor, has waived the milestone contingencies
previously required to complete this investment. In connection with this new
agreement, Castle Creek waived certain other rights and agreed to certain volume
limitations on its trading of Valence's common stock, and relaxed certain
restrictions on Valence's ability to sell additional equity securities.
The terms of the preferred stock to be issued in the second half of the
financing are similar to the terms negotiated with Castle Creek for the first
half of the financing, with minor technical amendments, including that the
variable conversion price for the second half of the financing will not be
applicable until the end of July, 1999.
In addition to the issuance of the second $7.5 million of preferred stock,
Valence will also issue to the investor a warrant to purchase the same number of
shares of its common stock at the same exercise price as it would have had the
second portion of the preferred stock financing been completed as previously
contemplated.
Valence's guaranteed line of credit from Carl Berg, a director and principal
stockholder of the Company, in an amount of up to $10 million and under which
under Valence has already drawn down $2.5 million, is unaffected by the amended
financing and remains in place.
"We're very pleased with the support to the Company provided by Castle Creek,"
said Lev Dawson, Chairman, President and CEO of Valence. "The amended
arrangement not only provides the Company with an additional $7.5 million of
capital, but also removes significant pricing uncertainties related to the $7.5
million previously raised," added Mr. Dawson.
The securities issued and to be issued in the private placement have not been
registered under the Securities Act of 1933, as amended, and may not be offered
or sold in the United States absent registration or an applicable exemption from
registration requirements.
The information contained herein includes forward-looking statements that
involve risks and uncertainties. In particular, the closing of the second half
of the preferred stock financing will occur only if certain limited conditions
are met, some of which may not be met due to factors outside of Valence's
control. Other risk factors relating to the Company are described from time to
time in Valence's SEC reports, including on Form 10-K for the year ended March
29, 1998, to which readers are referred.
<PAGE>
Valence Technology, Inc. is engaged in the research and development of advanced
rechargeable batteries based on lithium polymer technologies. The Company is
traded on the Nasdaq National Market under symbol VLNC. Valence can be found on
the Internet at www.Valence-Tech.com.
/CONTACT: Lev Dawson, Chairman and CEO of Valence Technology, Inc.,
702-558-1000; or Elizabeth Truax of The Financial Relations Board, 208-233-8323/
