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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
July 27, 1998
--------------------
Date of Report (Date of earliest event reported)
VALENCE TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-20028 77-0214673
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation File Number) Identification No.)
301 CONESTOGA WAY
HENDERSON, NV 89015
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(Address of principal executive offices)
(702) 558-1000
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(Registrant's telephone number, including area code)
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ITEM 5 OTHER EVENTS
On July 27, 1998, Valence Technology, Inc. (the "Company") entered into
an agreement with an institutional investor for the private placement of up
to $15,000,000 of its convertible preferred stock. The Company completed the
issuance of $7,500,000 of its Series A convertible preferred stock on July
27, 1998. The investor has made a commitment to purchase up to $7.5 million
in additional shares of convertible preferred stock, subject to the
achievement by the Company of certain specified milestones. In connection
with the private placement, the Company also issued warrants to purchase up
to 535,261 shares of its common stock to the investor and certain advisors
involved in the transaction. The Company will issue warrants to purchase up
to an additional 447,761 shares of common stock to the investor upon the
completion of the second and third installments of the financing.
Concurrently with the preferred stock financing, Baccarat Electronics,
Inc., an affiliate of Carl Berg, a director of the Company, has loaned the
Company $2.5 million and has agreed to loan the Company up to an additional
$7.5 million on terms specified in the amended loan agreement. Such
affiliate received a warrant to purchase shares of the common stock of the
Company, and will be entitled to warrants to purchase additional shares if
additional amounts are drawn down under the loan.
The press release announcing such financing is filed herewith as Exhibit
99.1 and incorporated herein by reference.
ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
4.1 Securities Purchase Agreement, dated July 27, 1998
4.2 Registration Rights Agreement, dated July 27, 1998
4.3 Certificate of Designation of Series A Convertible Preferred
Stock, as filed with the Delaware Secretary of State on
July 27, 1998
4.4 Form of Warrant to Investor
4.5 Form of Warrant to Placement Agent
4.6 Form of Warrant to Baccarat Electronics, Inc.
10.50 Amendment No. 5 to Loan Agreement and Promissory Note between the
Company and Baccarat Electronics, Inc., dated July 27, 1998
99.1 Press Release, dated July 28, 1998
</TABLE>
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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: August 3, 1998
By: /s/ David W. Archibald
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David W. Archibald
Chief Financial Officer
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SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("AGREEMENT") is entered into as of
July 27, 1998, by and between Valence Technology, Inc., a Delaware corporation
(the "COMPANY"), with headquarters located at 301 Conestoga Way, Henderson, NV
89015, and CC Investments, LDC ("PURCHASER") with regard to the following:
RECITALS
A. The Company and Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. Purchaser desires to purchase, upon the terms and conditions
stated in this Agreement, (i) Series A Convertible Participating Preferred Stock
of the Company having the rights set forth in the Certificate of Designations,
Preferences and Rights (the "CERTIFICATE OF DESIGNATION") attached hereto as
EXHIBIT A (the "PREFERRED STOCK" or the "CONVERTIBLE SECURITIES"), which shall
be convertible into shares of the Company's Common Stock, par value $.001 per
share (the "COMMON STOCK") and (ii) a Warrant in the form of EXHIBIT B hereto (a
"WARRANT" and, when taken together with all of the warrants issued hereunder,
the "WARRANTS") entitling the holder thereof to purchase the number of shares
(the "WARRANT SHARES") of Common Stock as set forth below. The shares of
Common Stock issuable upon conversion of or otherwise pursuant to the Preferred
Stock are referred to herein as the "CONVERSION SHARES". The Preferred Stock,
the Warrants and the Conversion Shares are collectively referred to herein as
the "SECURITIES."
C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act, the rules and regulations
promulgated thereunder and applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Purchaser hereby agree as
follows:
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ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 PURCHASE OF PREFERRED STOCK AND WARRANTS. Subject to the terms
and the satisfaction or waiver of the conditions set forth in this Agreement,
the issuance, sale and purchase of the Preferred Stock and Warrants shall be
consummated in three (3) separate closings. The first closing is hereinafter
referred to as the "FIRST CLOSING," the second closing is hereinafter referred
to as the "SECOND CLOSING," and the third closing is hereinafter referred to as
the "THIRD CLOSING" (the First Closing, the Second Closing and the Third Closing
sometimes referred to herein as a "CLOSING"). The purchase price (the "PURCHASE
PRICE") per share of Preferred Stock shall be equal to $1,000.
a. The Company may elect to consummate the Second Closing by (and
only by) delivering a notice satisfying the conditions of this Section (the
"SECOND CLOSING NOTICE") to Purchaser at least three (3) business days prior to
the date that the Company desires to consummate the Second Closing. The Second
Closing may be consummated (i) no earlier than the date the Company has publicly
announced that a material OEM or battery repackager ("POTENTIAL CUSTOMER") has
confirmed in writing to the Company that any of the Company's production
batteries ("BATTERIES") has been tested for both performance and safety and that
such Batteries meet all of such Potential Customer's safety and performance
specifications; (ii) no earlier than the effectiveness of the Registration
Statement contemplated by Section 2.3 of the Registration Rights Agreement (the
"REGISTRATION STATEMENT"); and (iii) no later than January 31, 1999. In the
Second Closing Notice, the Company shall represent to Purchaser that (i) the
Registration Statement is effective; (ii) the Company elects to consummate the
transactions contemplated hereby as the Second Closing; and (iii) the conditions
set forth in Section 7.2 hereof have been satisfied.
b. The Company may elect to consummate the Third Closing by (and only
by) delivering a notice satisfying the conditions of this Section (the "THIRD
CLOSING NOTICE") to Purchaser at least three (3) business days prior to the date
that the Company desires to consummate the Third Closing. The Third Closing may
be consummated (i) no earlier than the effectiveness of the Registration
Statement; (ii) no earlier than the completion of the Second Closing; and (iii)
no later than April 30, 1999. In the Third Closing Notice, the Company shall
represent to Purchaser that: (i) the Registration Statement is effective; (ii)
the Company elects to consummate the transactions contemplated hereby as the
Third Closing; and (iii) the conditions set forth in Section 7.3 hereof have
been satisfied.
c. On the date of the First Closing, subject to the satisfaction of
the conditions set forth in Articles VI and VII, and notwithstanding any
election by the Company, the Company shall issue and sell to Purchaser, and
Purchaser shall purchase from the Company (i) 7,500 shares of Preferred Stock
and (ii) a Warrant entitling the holder thereof to purchase that number of
Warrant Shares as is equal to (x) $2,250,000 divided by (y) the average Closing
Bid Price of the Common Stock for the 10 trading days preceding the First
Closing. The aggregate purchase price for the Securities purchased at the First
Closing shall be seven million five hundred thousand dollars ($7,500,000).
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d. On the date of the Second Closing (if any), subject to the
satisfaction of the conditions set forth in Articles VI and VII, the Company
shall issue and sell to Purchaser and Purchaser shall purchase from the Company
(i) 2,500 shares of Preferred Stock and (ii) a Warrant entitling the holder
thereof to purchase that number of Warrant Shares as is equal to (x) $750,000
divided by (y) the average Closing Bid Price of the Common Stock for the 10
trading days preceding the First Closing. The aggregate purchase price for the
Securities purchased at the Second Closing (if any) shall be two million five
hundred thousand dollars ($2,500,000).
e. On the date of the Third Closing (if any), subject to the
satisfaction of the conditions set forth in Articles VI and VII, the Company
shall issue and sell to Purchaser and Purchaser shall purchase from the Company
(i) 5,000 shares of Preferred Stock and (ii) a Warrant entitling the holder
thereof to purchase that number of Warrant Shares as is equal to (x) $1,500,000
divided by (y) the average Closing Bid Price of the Common Stock for the 10
trading days preceding the First Closing. The aggregate purchase price for the
Securities purchased at the Third Closing (if any) shall be five million dollars
($5,000,000).
f. For purposes of this Agreement, "CLOSING BID PRICE" means, for any
security as of any date, the closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg Financial Markets, or if the foregoing does not apply, the
last reported sale price of such security in the over-the-counter market on the
electronic bulletin board of such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc.
1.2 FORM OF PAYMENT. At each Closing, Purchaser shall pay the
aggregate Purchase Price for the Preferred Stock and Warrant being purchased by
Purchaser by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed stock
certificates for the same, and the Company shall deliver such Preferred Stock
and certificates representing the Warrants against delivery of such aggregate
Purchase Price.
1.3 CLOSING DATES. Subject to the satisfaction of the conditions set
forth in Articles VI and VII below, the date and time of the issuance, sale and
purchase of the Securities pursuant to this Agreement shall be (i) for the First
Closing, within forty-eight (48) hours of the execution of this Agreement and
(ii) for the Second Closing or the Third Closing, on the day three (3) business
days following receipt by Purchaser of the Second Closing Notice or the Third
Closing Notice, as the case may be, from the Company. Each Closing shall occur
at 12:00 p.m. Chicago time, at the offices of Altheimer & Gray, 10 S. Wacker
Drive, Chicago, IL 60606.
ARTICLE II
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants to the Company as set forth in this
Article II. Purchaser does not make any other representations or warranties,
express or implied, to the Company in
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connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by Purchaser
to the Company in connection with the transactions contemplated hereby shall
be deemed to have been merged in this Agreement and any such prior
representations and warranties, if any, shall not survive the execution and
delivery of this Agreement.
2.1 INVESTMENT PURPOSE. Purchaser is purchasing the Convertible
Securities for Purchaser's own account for investment only and not with a view
toward or in connection with the public sale or distribution thereof. Purchaser
will not resell the Convertible Securities or any securities which may be issued
upon conversion thereof except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act. Purchaser understands that Purchaser must bear the economic
risk of this investment indefinitely, unless the Securities are registered
pursuant to the Securities Act and any applicable state securities laws or an
exemption from such registration is available, and that the Company has no
present intention of registering any such Securities other than as contemplated
by the Registration Rights Agreement. By making the representations in this
Section 2.1, Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
from registration under the Securities Act.
2.2 ACCREDITED INVESTOR STATUS. Purchaser is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
2.3 RELIANCE ON EXEMPTIONS. Purchaser understands that the
Convertible Securities are being offered and sold to Purchaser in reliance upon
specific exemptions from the registration requirements of the United States
federal and state securities laws and that the Company is relying upon the truth
and accuracy of, and Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of Purchaser to acquire the Convertible Securities.
2.4 INFORMATION. Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Convertible Securities which
have been specifically requested by Purchaser. Purchaser has been afforded the
opportunity to ask questions of the Company and has received what Purchaser
believes to be complete and satisfactory answers to any such inquiries. Neither
such inquiries nor any other due diligence investigation conducted by Purchaser
or any of its representations shall modify, amend or affect Purchaser's right to
rely on the Company's representations and warranties contained in Article III.
Purchaser understands that Purchaser's investment in the Securities involves a
high degree of risk.
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2.5 GOVERNMENTAL REVIEW. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.
2.6 TRANSFER OR RESALE. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
will not be registered under the Securities Act or any state securities laws,
and may not be transferred unless subsequently registered thereunder or an
exemption from such registration is available (which exemption the Company
expressly agrees may be established as contemplated in clauses (b) and (c) of
Section 5.1 hereof); (ii) any sale of such Securities made in reliance on Rule
144 under the Securities Act (or a successor rule) ("RULE 144") may be made only
in accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities without registration under the
Securities Act under circumstances in which the seller may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to this Agreement or
the Registration Rights Agreement).
2.7 LEGENDS. Purchaser understands that, subject to Article V hereof,
the certificates for the Convertible Securities, and until such time as the
Conversion Shares have been registered under the Securities Act as contemplated
by the Registration Rights Agreement or otherwise may be sold by Purchaser
pursuant to Rule 144, the certificates for the Conversion Shares will bear a
restrictive legend (the "LEGEND") in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
2.8 AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms.
2.9 RESIDENCY. Purchaser is a resident of the Cayman Islands.
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2.10 TRANSACTIONS IN COMMON STOCK OF THE COMPANY. As of the date
hereof, Purchaser owns no shares of the Common Stock of the Company. In
addition, Purchaser represents that it has not, within the 90 days prior to the
date hereof, engaged in any purchases or sales of the Common Stock of the
Company or, without limitation, any puts, calls, futures contracts, short sales
or hedging or arbitrage transactions with respect thereto.
2.11 ACKNOWLEDGMENTS REGARDING PLACEMENT AGENT. Purchaser acknowledges
that Gemini Capital is acting as placement agent (the "PLACEMENT AGENT") for the
Securities being offered hereby and will be compensated by the Company for
acting in such capacity. Purchaser further acknowledges that the Placement
Agent has acted solely as placement agent in connection with the offering of the
Securities by the Company, that the information and data provided to Purchaser
in connection with the transactions contemplated hereby have not been subjected
to independent verification by the Placement Agent, and that the Placement Agent
makes no representation or warranty with respect to the accuracy or completeness
of such information, data or other related disclosure material. Purchaser
further acknowledges that in making its decision to enter into this Agreement
and purchase the Securities it has relied on its own examination of the Company
and the terms of, and consequences, of holding the Securities. Purchaser
further acknowledges that the provisions of this Section 2.11 are for the
benefit of, and may be enforced by, the Placement Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that as of the date
hereof, as of the First Closing, as of the Second Closing, and as of the Third
Closing, and except as specifically set forth in the Schedule of Exceptions
attached hereto:
3.1 ORGANIZATION AND QUALIFICATION. The Company and each of its
subsidiaries is a corporation duly organized, validity existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction where the failure to so qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on either (i) the business, operations, properties, financial condition,
operating results or prospects of the Company and its subsidiaries, taken as a
whole on a consolidated basis or (ii) the transactions contemplated hereby.
3.2 AUTHORIZATION; ENFORCEMENT. (a) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Warrants and the Registration Rights Agreement, and to issue and sell, perform
its obligations with respect to, the Convertible Securities and the Warrants in
accordance with the terms hereof and to issue the Conversion Shares in
accordance with the terms and conditions of the Certificate of Designation and
the Warrant Shares in accordance with the terms and conditions of the Warrant;
(b) the execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Company and the
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consummation by it of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Convertible Securities and
the Warrants and the reservation for issuance and issuance of the Conversion
Shares and the Warrant Shares) have been duly authorized by all necessary
corporate action and, except as set forth on SCHEDULE 3.2 hereof, no further
consent or authorization of the Company, its board of directors, or its
stockholders or any other person, body or agency is required with respect to
any of the transactions contemplated hereby or thereby (whether under rules
of the Nasdaq SmallCap Market or the Nasdaq National Market System
("NASDAQ"), the National Association of Securities Dealers or otherwise); (c)
this Agreement, the Registration Rights Agreement and the Convertible
Securities have been duly executed and delivered by the Company; and (d) this
Agreement, the Registration Rights Agreement and the Convertible Securities
constitute legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance.
3.3 CAPITALIZATION. The capitalization of the Company as of the
date hereof, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares reserved for issuance pursuant
to the Company's stock option plans, the number of shares reserved for
issuance pursuant to securities (other than the Convertible Securities and
the Warrants) exercisable for, or convertible into or exchangeable for any
shares of Common Stock and the number of shares to be initially reserved for
issuance upon conversion of the Convertible Securities and the exercise of
the Warrants is set forth on SCHEDULE 3.3. All of such outstanding shares of
capital stock have been, or upon issuance will be, validly issued, fully paid
and non-assessable. No shares of capital stock of the Company (including the
Preferred Stock and the Conversion Shares) are subject to preemptive rights
or any other similar rights of the stockholders of the Company or any liens
or encumbrances. Except as disclosed in SCHEDULE 3.3, as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into or exercisable or exchangeable for,
any shares of capital stock of the Company or any of its subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares
of capital stock of the Company or any of its subsidiaries, and (ii) there
are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights
Agreement). The Company has furnished to Purchaser true and correct copies
of the Company's Certificate of Incorporation as currently in effect
("CERTIFICATE OF INCORPORATION"), and the Company's By-laws as currently in
effect (the "BY-LAWS"). The Company has set forth on SCHEDULE 3.3 all
instruments and agreements (other than the Certificate of Incorporation and
By-laws) governing securities convertible into or exercisable or exchangeable
for Common Stock of the Company (and the Company shall provide to Purchaser
copies thereof upon the request of Purchaser). The Company shall provide
Purchaser with a written update of this representation signed by the
Company's Chief Executive Officer or Chief Financial Officer on behalf of the
Company as of the date of the Closing and as of the first anniversary of the
Closing.
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3.4 ISSUANCE OF SHARES. The Conversion Shares and Warrant Shares
are duly authorized and reserved for issuance, and, upon conversion of the
Convertible Securities in accordance with the terms thereof, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or other
similar rights of stockholders of the Company. The Convertible Securities
and Warrants are duly authorized and reserved for issuance, and are validly
issued, fully paid and non-assessable, and free from all taxes, liens claims
and encumbrances and are not and will not be subject to preemptive rights or
other similar rights of stockholders of the Company. The Board of Directors
of the Company has unanimously approved the issuance of shares of Common
Stock upon conversion of shares of Preferred Stock and upon the exercise of
the Warrants pursuant to the terms hereof in the aggregate in excess of
twenty percent (20%) of the outstanding shares of Common Stock (the "RULE
4460(i) AUTHORIZATION") and has unanimously recommended, or will promptly
recommend unanimously, to the stockholders of the Company the approval of the
Rule 4460(i) Authorization. Accordingly, no further corporate authorization
or approval (other than the Stockholder Approval (as defined in Section
4.13)) is required under the rules of the Nasdaq with respect to the
transaction contemplated by this Agreement, including, without limitation,
the issuance of the Conversion Shares and the Warrant Shares and the
inclusion thereof on the Nasdaq.
3.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company, and the
consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for
issuance, as applicable, of the Convertible Securities and Conversion Shares)
will not (a) result in a violation of the Certificate of Incorporation or
By-laws, (b) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party (except for such conflicts, defaults, terminations,
amendments, accelerations, and cancellations as would not, individually or in
the aggregate, have a Material Adverse Effect), or (c) result in a violation
of any law, rule, regulation, order, judgment or decree (including, without
limitation, U.S. federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries, or by which any
property or asset of the Company or any of its subsidiaries, is bound or
affected. Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation, by-laws or other organizational documents,
and neither the Company nor any of its subsidiaries is in default (and no
event has occurred which, with notice or lapse of time or both, would put the
Company or any of its subsidiaries in default) under, nor has there occurred
any event giving others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, except for possible defaults or rights as would not, individually or
in the aggregate, have a Material Adverse Effect. The business of the Company
and its subsidiaries is not being conducted, and shall not be conducted so
long as Purchaser owns any of the Securities, in violation of any law,
ordinance, rule, regulation, order, judgment or decree of any governmental
entity, court or arbitration tribunal except for possible violations the
sanctions for which either singly or in the aggregate would not have a
Material Adverse Effect. Except as set forth on SCHEDULE 3.5, the Company is
not required to obtain
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any consent, authorization or order of, or make any filing or registration
with, any court or governmental agency or any regulatory or self-regulatory
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or the Registration Rights Agreement or to perform its
obligations in accordance with the terms hereof or thereof. The Company is
not in violation of the listing requirements of Nasdaq and does not
reasonably anticipate that the Common Stock will be de-listed by Nasdaq for
the foreseeable future.
3.6 REGISTRATION AND SEC DOCUMENTS. The Common Stock is registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been so registered since May 7, 1992. Except as
disclosed in SCHEDULE 3.6, since December 31, 1993, the Company has timely
filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
Exchange Act (all of the foregoing filed after December 31, 1993 and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being referred to herein as the
"SEC DOCUMENTS"). The Company has delivered to Purchaser true and complete
copies of the SEC Documents, except for exhibits, schedules and incorporated
documents (the SEC documents filed prior to the date hereof, the "FILED SEC
DOCUMENTS"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such SEC
Documents is currently required to be updated or amended under applicable
law. The financial statements of the Company included in the SEC Documents
have been prepared in accordance with U.S. generally accepted accounting
principles, consistently applied, and the rules and regulations of the SEC
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they do not include footnotes or are
condensed or summary statements) and present accurately and completely the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, immaterial year-end audit adjustments).
Except as set forth in the financial statements of the Company included in
the Filed SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred subsequent to the date of such
financial statements in the ordinary course of business consistent with past
practice and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, in each
case of clause (i) and (ii) next above which, individually or in the
aggregate, are not material to the financial condition, business, operations,
properties, operating results or prospects of the Company and its
subsidiaries taken on a whole. The Filed SEC Documents contain a complete
and accurate list of all material undischarged written or oral contracts,
agreements, leases or other instruments to which the Company or any
subsidiary is a party or by which the Company or any subsidiary is bound or
to which any of the properties or assets of the Company or any subsidiary is
subject (each a
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"CONTRACT"). None of the Company, its subsidiaries or, to the best knowledge
of the Company, any of the other parties thereto, is in breach or violation
of any Contract, which breach or violation would have a Material Adverse
Effect. No event, occurrence or condition exists which, with the lapse of
time, the giving of notice, or both, or the happening of any further event or
condition, would become a breach or default by the Company or its
subsidiaries under any Contract which breach or default would have a Material
Adverse Effect.
3.7 ABSENCE OF CERTAIN CHANGES. Since March 31, 1998, there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in SCHEDULE 3.7.
3.8 ABSENCE OF LITIGATION. Except as disclosed in SCHEDULE 3.8, there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, governmental agency or authority, or self-regulatory organization
or body pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect or
would adversely affect the transactions contemplated by this Agreement or any of
the documents contemplated hereby or which would adversely affect the validity
or enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents. There are no
facts which, if known by a potential claimant or governmental agency or
authority, could give rise to a claim or proceeding which, if asserted or
conducted with results unfavorable to the Company or any of its subsidiaries,
could have a Material Adverse Effect.
3.9 DISCLOSURE. No information relating to or concerning the Company
set forth in this Agreement or provided to Purchaser in connection with the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were made, not
misleading. Except for the execution and performance of this Agreement, no
material fact (within the meaning of the federal securities laws of the United
States) exists with respect to the Company or any of its subsidiaries which has
not been publicly disclosed.
3.10 ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF THE SECURITIES.
The Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between Purchaser and
the Company, are "arms-length", and that any statement made by Purchaser, or any
of its representatives or agents, in connection with this Agreement or the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Purchaser's purchase of the Securities and has not been relied
upon in any way by the Company, its officers, directors or other
representatives. The Company further represents to Purchaser that the
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Company's decision to enter into this Agreement and the transactions
contemplated hereby has been based solely on an independent evaluation by the
Company and its representatives.
3.11 CURRENT PUBLIC INFORMATION. The Company is currently eligible to
register the resale of the Conversion Shares on a registration statement on Form
S-3 under the Securities Act.
3.12 NO GENERAL SOLICITATION. Neither the Company nor any person
acting on behalf of the Company has conducted any "general solicitation," as
described in Rule 502(c) under Regulation D, with respect to any of the
Securities being offered hereby.
3.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the Securities Act pursuant to the provisions of Regulation
D. The transactions contemplated hereby are exempt from the registration
requirements of the Securities Act, assuming the accuracy of the representations
and warranties herein contained of Purchaser to the extent relevant for such
determination.
3.14 NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Gemini Capital (the fees of which
shall be paid in full by the Company). The Company will indemnify Purchaser from
and against any fees and expenses sought or other claims made by Gemini Capital.
3.15 ACKNOWLEDGMENT OF DILUTION. The number of Conversion Shares
issuable upon conversion of the Convertible Securities may increase
substantially in certain circumstances, including the circumstance wherein the
trading price of the Common Stock declines. The Company's executive officers
and directors have studied and fully understand the nature of the securities
being sold hereunder and recognize that they have a potential dilutive effect.
The board of directors of the Company has concluded in its good faith business
judgment that such issuance is in the best interests of the Company. The
Company acknowledges that its obligation to issue Conversion Shares upon
conversion of the Convertible Securities and the Warrant Shares upon exercise of
the Warrants is binding upon it and enforceable regardless of the dilution that
such issuance may have on the ownership interests of other stockholders.
3.16 INTELLECTUAL PROPERTY. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "INTANGIBLES") used or necessary for the conduct of its
business as now being conducted and as previously described in the Company's
Annual Report on Form 10-K for its most recently ended
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fiscal year. To the knowledge of the Company and its subsidiaries, neither
the Company nor any subsidiary of the Company infringes on or is in conflict
with any right of any other person with respect to any Intangibles nor is
there any claim of infringement made by a third party against or involving
the Company or any of its subsidiaries, which infringement, conflict or
claim, individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect.
3.17 FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee. Without limiting the generality of the foregoing, the Company and its
subsidiaries have not directly or indirectly made or agreed to make (whether or
not said payment is lawful) any payment to obtain, or with respect to, sales
other than usual and regular compensation to its or their employees and sales
representatives with respect to such sales.
3.18 KEY EMPLOYEES. Each Key Employee (as defined below) is
currently serving the Company in the capacity disclosed in SCHEDULE 3.18.
No Key Employee, to the best of the knowledge of the Company and its
subsidiaries, is, or is now expected to be, in violation of any material term
of any employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each
Key Employee does not subject the Company or any of its subsidiaries to any
liability with respect to any of the foregoing matters. No Key Employee has,
to the best of the knowledge of the Company and its subsidiaries, any
intention to terminate or limit his employment with, or services to, the
Company or any of its subsidiaries, nor is any such Key Employee subject to
any constraints (e.g., litigation) which would cause such employee to be
unable to devote his full time and attention to such employment or services.
"Key Employee" means each of Lev M. Dawson, David P. Archibald, Jerry Barker
and Joe Horning.
ARTICLE IV
COVENANTS
4.1 BEST EFFORTS. The Company shall use its best efforts timely to
satisfy each of the conditions described in Articles VI and VII of this
Agreement.
4.2 SECURITIES LAWS. The Company agrees to file a Form D with respect
to the Securities with the SEC as required under Regulation D. The Company
agrees to file a Form 8-K disclosing this Agreement and the transactions
contemplated hereby with the SEC within five (5) days following the date of the
First Closing. The Company shall, on or prior to the date of each Closing,
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take such action as is necessary to sell the Securities to Purchaser in
accordance with applicable securities laws of the states of the United
States, and shall provide evidence of any such action so taken to Purchaser
on or prior to the date of each Closing. Without limiting any of the
Company's obligations under this Agreement, the Registration Rights Agreement
or the Certificate of Designation, from and after the date of the First
Closing, neither the Company nor any person acting on its behalf shall take
any action which would adversely affect any exemptions from registration
under the Securities Act with respect to the transactions contemplated hereby.
4.3 REPORTING STATUS. So long as Purchaser beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
4.4 USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Preferred Stock only for working capital, the purchase of capital
equipment and to pay costs incident to the transactions contemplated by this
Agreement.
4.5 RESTRICTION ON ISSUANCE OF SECURITIES. For a period of three
hundred sixty (360) days following the date of the First Closing, and except as
set forth in the last sentence of this Section 4.5, the Company shall not issue
or agree to issue, (except (i) to Purchasers pursuant to this Agreement, (ii)
pursuant to a merger entered into by the Company undertaken at the reasonable
discretion of the Board of Directors of the Company, the primary purpose of
which is not to raise equity capital, (iii) in private placements of such
securities to Strategic Investors (as defined below), or (iv) a public offering
of the Company's securities), any equity securities at a price less than the
fair market value thereof or any variably priced equity securities or equity
like securities of the Company (or any security convertible into or exercisable
or exchangeable, directly or indirectly, for equity or equity like securities of
the Company) (each of the foregoing being a "RESTRICTED SECURITY"); provided,
however, that the foregoing restriction shall apply only for so long as
Purchaser continues to hold thirty percent (30%) of the Preferred Stock (or
equity securities into which such Preferred Stock was converted) on the date of
such issuance. Without implication that the contrary would otherwise be true,
the Company shall not indirectly accomplish any action which the immediately
preceding sentence would have otherwise prohibited from being effected directly
(e.g., by an asset drop-down to a subsidiary followed by the offering of
securities of such subsidiary) The term "STRATEGIC INVESTORS" shall mean
purchasers of such securities who are prohibited, by contract or otherwise, from
converting such securities into Common Stock (in the case of convertible
securities) or from otherwise transferring such securities for a period of at
least two years from the date of the private placement in question.
Notwithstanding the above, if the Company elects to consummate the transactions
contemplated hereof as the Second Closing and all conditions set forth in
Section 7.2 have been satisfied, and Purchaser willfully fails to purchase the
amount of shares of Preferred Stock and Warrants set forth herein to be
purchased at the Second Closing, then following the date Purchaser fails to so
purchase such Securities, Purchaser shall have no further rights to restrict the
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issuance of Company securities as set forth herein, and this Section 4.5 shall
be of no further force and effect.
4.6 EXPENSES. The Company shall pay to Purchaser, or at its
direction, at the First Closing, reimbursement for the expenses reasonably
incurred by it and its affiliates and advisors in connection with the
negotiation, preparation, execution, and delivery of this Agreement and the
other agreements to be executed in connection herewith, including, without
limitation, Purchaser's and its affiliates' and advisors' due diligence and
attorneys' fees and expenses (the "EXPENSES"); provided, however, that such
reimbursement of Expenses shall not exceed $50,000. In addition, from time to
time thereafter, upon Purchaser's written request, subject to such $50,000
limit, the Company shall pay to Purchaser such Expenses, if any, not so paid at
the First Closing and/or covered by such payment, in each case to the extent
reasonably incurred by Purchaser.
4.7 INFORMATION. The Company agrees to send the following reports to
Purchaser until Purchaser transfers, assigns or sells all of its Securities:
(a) within five (5) business days after the filing with the SEC, a copy of its
Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy
statements and any Current Reports on Form 8-K; and (b) within three (3)
business days after release, copies of all press releases issued by the Company
or any of its subsidiaries. The Company further agrees to promptly provide to
any Holder any information with respect to the Company, its properties, or its
business or Holder's investment as such Holder may reasonably request; provided,
however, that the Company shall not be required to give any Holder any material
non-public information. Without limitation of the foregoing, if any information
requested by a Holder from the Company contains material non-public information,
the Company shall inform the Holder in writing that the information requested
contains material non-public information and shall in no event provide such
information to Holder without the express prior written consent of such Holder
after being so informed.
4.8 [Intentionally Deleted]
4.9 LISTING. For so long as Purchaser owns any of the Securities, the
Company shall continue the listing and trading of its Common Stock on the Nasdaq
SmallCap Market, the Nasdaq National Market System, the New York Stock Exchange
or the American Stock Exchange, secure and maintain listing and trading of the
Conversion Shares and Warrant Shares on such exchange, and comply in all
respects with the Company's reporting, filing and other obligations under the
by-laws or rules of such exchange.
4.10 PROSPECTUS DELIVERY REQUIREMENT. Purchaser understands that the
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by Purchaser of the Common Stock being
sold, and Purchaser shall use its reasonable efforts to comply with the
applicable prospectus delivery requirements of the Securities Act in connection
with any such sale.
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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, the Company shall use all commercially reasonable efforts to
maintain its corporate existence, except in the event of a merger, consolidation
or sale of all or substantially all of the Company's assets, as long as the
surviving or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the conversion of all Preferred Stock outstanding as
of the date of such transaction and (ii) is a publicly traded corporation whose
Common Stock is listed for trading on the Nasdaq SmallCap Market, the Nasdaq
National Market System, the New York Stock Exchange or the American Stock
Exchange.
4.13 SHARE AUTHORIZATION. The Company covenants and agrees that it
shall (i) solicit by proxy the authorization and approval (the "SHAREHOLDER
APPROVAL") of the Rule 4460(i) Authorization by the stockholders of the Company
in its Proxy Statement for the next annual meeting of stockholders of the
Company, and in any event, not later than six months following the date of the
Closing, and (ii) use its best efforts to obtain the Shareholder Approval at the
next annual meeting of stockholders of the Company, and in any event, not later
than the date which is six months after the First Closing.
4.14 HEDGING TRANSACTIONS. The Company understands that Purchaser is a
so-called "hedge" fund and the Company hereby expressly agrees that Purchaser
shall not in any way be prohibited or restricted from any purchases or sales of
any securities or other instruments of, or related to, the Company or any of
its securities, including, without limitation, puts, call, futures contracts,
short sales and hedging and arbitrage transactions. Neither Purchaser nor any
of its affiliates shall engage in any conduct with the purpose of manipulating
the market price of the Common Stock. Purchaser acknowledges that such
purchases, sales and other transactions may be subject to various Federal and
state securities laws.
ARTICLE V
LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES
5.1 REMOVAL OF LEGEND. The Legend shall be removed and the Company
shall issue a certificate without any legend to the holder of any Security upon
which such Legend is stamped, and a certificate for a security shall be
originally issued without any legend, if, unless otherwise required by
applicable state securities laws, (a) the sale of such Security is registered
under the Securities Act, (b) such holder provides the Company with an opinion
of counsel, in form, substance and scope
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customary for opinions of counsel in comparable transactions (the reasonable
cost of which shall be borne by the Company), to the effect that a public
sale or transfer of such Security may be made without registration under the
Securities Act or (c) such Security can be sold pursuant to Rule 144.
Purchaser agrees to sell all Securities, including those represented by a
certificate(s) from which the Legend has been removed, or which were
originally issued without the Legend, pursuant to an effective registration
statement and to deliver a prospectus in connection with such sale or in
compliance with an exemption from the registration requirements of the
Securities Act. In the event the Legend is removed from any Security or any
Security is issued without the Legend and thereafter the effectiveness of a
registration statement covering the resale of such Security is suspended or
the Company determines that a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to Purchaser
holding such Security, the Company may require that the Legend be placed on
any such Security that cannot then be sold pursuant to an effective
registration statement or Rule 144 or with respect to which the opinion
referred to in clause (b) next above has not been rendered, which Legend
shall be removed when such Security may be sold pursuant to an effective
registration statement or Rule 144 or such holder provides the opinion with
respect thereto described in clause (b) next above.
5.2 TRANSFER AGENT INSTRUCTIONS. The Company shall instruct its
transfer agent to issue certificates, registered in the name of Purchaser or its
nominee, for the Conversion Shares in such amounts as specified from time to
time by Purchaser to the Company upon, and in accordance with, the conversion of
the Preferred Stock. Such certificates shall bear a legend only in the form of
the Legend and only to the extent permitted by Section 5.1 above. The Company
warrants that no instruction other than such instructions referred to in this
Article V, and no stop transfer instructions other than stop transfer
instructions to give effect to Section 2.6 hereof in the case of the Conversion
Shares prior to registration of the Conversion Shares under the Securities Act,
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company.
Nothing in this Section shall affect in any way Purchaser's obligations and
agreement set forth in Section 5.1 hereof to resell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. Without limiting the foregoing, if
(a) Purchaser provides the Company with an opinion of counsel, which opinion of
counsel shall be in form, substance and scope customary for opinions of counsel
in comparable transactions (the reasonable cost of which shall be borne by the
Company), to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from registration or (b) Purchaser
transfers Securities to an affiliate or pursuant to Rule 144, the Company shall
permit the transfer, and, in the case of the Conversion Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denomination as specified by Purchaser in order to effect such a
transfer or sale. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to Purchaser by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Article V will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Article V, that
Purchaser shall be entitled, in addition to all other available
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remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Convertible Securities to Purchaser
at each Closing is subject to the satisfaction, as of the date of each Closing,
of each of the following conditions thereto, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion:
(i) Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
the Company.
(ii) Purchaser shall deliver the applicable Purchase Price for
the Convertible Securities purchased at the Closing.
(iii) The representations and warranties of Purchaser shall be
true and correct as of the date when made and as of the Closing as though
made at that time, and Purchaser shall have performed, satisfied and
complied in all material respects with the covenants and agreements
required by this Agreement to be performed or complied with by Purchaser
at or prior to the Closing.
(iv) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which restricts or prohibits the consummation of any
of the transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE
7.1 CONDITIONS TO THE FIRST CLOSING. The obligation of Purchaser
hereunder to purchase the Convertible Securities and Warrants to be purchased by
it on the date of the First Closing is subject to the satisfaction of each of
the following conditions (including conditions to be performed at the First
Closing), provided that these conditions are for Purchaser's sole benefit and
may be waived by Purchaser (with respect to it) at any time in Purchaser's sole
discretion:
(i) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
Purchaser.
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(ii) The Company shall have delivered duly executed certificates
for the Preferred Stock (in such denominations as Purchaser shall
request) being so purchased by Purchaser at the Closing.
(iii) The Common Stock shall be listed on the Nasdaq SmallCap
Market, the Nasdaq National Market System, the New York Stock Exchange or
the American Stock Exchange and trading in the Common Stock shall not
have been suspended by the Nasdaq SmallCap Market, the Nasdaq National
Market System, the New York Stock Exchange or the American Stock
Exchange, the SEC or other regulatory authority and no de-listing or
suspension shall be reasonably likely for the foreseeable future.
(iv) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Closing as though
made at that time and the Company shall have performed, satisfied and
complied with the covenants and agreements required by this Agreement to
be performed or complied with by the Company at or prior to the First
Closing. Purchaser's counsel shall have received a certificate, executed
by the Chief Executive Officer or Chief Financial Officer of the Company,
dated as of the First Closing to the foregoing effect and as to such
other matters as may be reasonably requested by Purchaser.
(v) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(vi) Purchaser's counsel shall have received the officer's
certificate described in Section 3.3, dated as of the First Closing.
(vii) Purchaser's counsel shall have received opinions of the
Company's outside legal counsel, dated as of the First Closing from firms
and in form and substance reasonably acceptable to Purchaser.
(viii) The Company's transfer agent has agreed to act in
accordance with irrevocable instructions in the form attached hereto as
EXHIBIT D.
(ix) The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of Delaware shall have been
delivered to Purchaser.
(x) The Company shall have borrowed $2,500,000 in cash from
Baccarat Electronics, Inc. ("BACCARAT"), and Baccarat shall have
unconditionally agreed in writing to lend to the Company, from time to
time as requested by the Company prior to July 1, 1999,
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further amounts totaling $7,500,000, on such terms and conditions as
are reasonably acceptable to the Company.
7.2 CONDITIONS TO THE SECOND CLOSING. The obligation of Purchaser
hereunder to purchase the Convertible Securities and Warrants to be purchased by
it on the date of the Second Closing is subject to the satisfaction of each of
the following conditions (including conditions to be performed at the Second
Closing):
(i) The First Closing shall have been consummated.
(ii) The Company shall have publicly announced that a Potential
Customer has confirmed in writing to the Company that any of the
Company's Batteries has been tested for both performance and safety and
that such Batteries meet all of such Potential Customer's safety and
performance specifications.
(iii) The Company shall have delivered duly executed certificates
for the Preferred Stock (in such denominations as Purchaser shall
request) being so purchased by Purchaser at the Second Closing.
(iv) The Common Stock shall be listed on the Nasdaq SmallCap
Market, the Nasdaq National Market System, the New York Stock Exchange or
the American Stock Exchange and trading in the Common Stock shall not
have been suspended by the Nasdaq SmallCap Market, the Nasdaq National
Market System, the New York Stock Exchange or the American Stock
Exchange, the SEC or other regulatory authority and no delisting or
suspension shall be reasonably likely for the foreseeable future.
(v) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Second Closing as
though made at that time and the Company shall have performed, satisfied
and complied with the covenants and agreements required by this Agreement
to be performed or complied with by the Company at or prior to the Second
Closing, in each case, with respect to representations and warranties,
except for such changes as would not have a Material Adverse Effect or a
material adverse effect on Purchaser's investment. Purchaser's counsel
shall have received a certificate, executed by the Chief Executive
Officer or Chief Financial Officer of the Company, dated as of the Second
Closing to the foregoing effect and as to such other matters as may be
reasonably requested by Purchaser.
(vi) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
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(vii) Purchaser's counsel shall have received the officer's
certificate described in Section 3.3, dated as of the Second Closing.
(viii) Purchaser's counsel shall have received opinions of the
Company's outside legal counsel, dated as of the Second Closing, in the
form used in the First Closing, with respect to matters as of the Second
Closing.
(ix) The Company's transfer agent has agreed to act in
accordance with irrevocable instructions in the form attached hereto as
EXHIBIT D.
(x) The Registration Statement shall have been declared
effective by the SEC, and shall be available for use by Purchaser for the
resale of all of the Registrable Securities (as defined in the
Registration Rights Agreement), including, without limitation, shares of
Conversion Shares and Warrant Shares receivable upon conversion or
exercise of Securities to be purchased at the Second Closing and the
Third Closing.
(xi) The Closing Bid Price of the Common Stock in each of the
ten (10) trading days immediately prior to the date of the Second Closing
shall have been equal to or greater than $3.00.
(xii) There shall be no breach by the Company of this Agreement
or of any other agreement entered into in connection herewith, no
Redemption Event (as defined in the Certificate of Designation) shall
have occurred and there shall be no state of facts which, if continued,
would become a Redemption Event with the lapse of time.
(xiii) No Bankruptcy Event (as defined in the Certificate of
Designation) shall have occurred.
(xiv) Baccarat's agreement to lend the Company amounts totalling
$7,500,000, as described in Section 7.1(x), shall remain in full force
and effect, without any amendment thereto, as of the date of the Second
Closing, and all such amounts shall be available for immediate borrowing
thereunder, except to the extent (x) such amounts have been previously
borrowed by the Company thereunder and not repaid as of such date, and
provided that (i) if, as of the date of the Second Closing, $8,000,000 is
immediately available under a working capital line of credit and/or IDB
funding, secured (if secured) by the inventory, accounts receivable
and/or fixed assets of the Company, and the Company shall have no reason
to expect that the availability of such funding shall terminate prior to
the second anniversary of the Second Closing, Baccarat's agreement need
not be in full force and effect, and (ii) if, as of the date of the
Second Funding, an amount less than $8,000,000 is immediately available
under such a working capital line of credit and/or IDB funding, and the
Company shall have no reason to expect that the availability of such
funding shall terminate prior to the second anniversary of the Second
Closing, Baccarat's agreement need only be in full
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force and effect as to the amount by which $8,000,000 exceeds the
amount so available under such funding.
7.3 CONDITIONS TO THE THIRD CLOSING. The obligation of Purchaser
hereunder to purchase the Convertible Securities and Warrants to be purchased by
it on the date of the Third Closing is subject to the satisfaction of each of
the following conditions (including conditions to be performed at the Third
Closing):
(i) The First Closing and the Second Closing shall have been
consummated.
(ii) The Company shall have delivered duly executed certificates
for the Preferred Stock (in such denominations as Purchaser shall
request) being so purchased by Purchaser at the Third Closing.
(iii) The Common Stock shall be listed on the Nasdaq SmallCap
Market, the Nasdaq National Market System, the New York Stock Exchange or
the American Stock Exchange and trading in the Common Stock shall not
have been suspended by the Nasdaq SmallCap Market, the Nasdaq National
Market System, the New York Stock Exchange or the American Stock
Exchange, the SEC or other regulatory authority and no delisting or
suspension shall be reasonably likely for the foreseeable future.
(iv) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Third Closing as
though made at that time and the Company shall have performed, satisfied
and complied with the covenants and agreements required by this Agreement
to be performed or complied with by the Company at or prior to the Third
Closing, in each case, with respect to representations and warranties,
except for such changes as would not have a Material Adverse Effect or a
material adverse effect on Purchaser's investment. Purchaser's counsel
shall have received a certificate, executed by the Chief Executive
Officer or Chief Financial Officer of the Company, dated as of the Third
Closing to the foregoing effect and as to such other matters as may be
reasonably requested by Purchaser.
(v) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(vi) Purchaser's counsel shall have received the officer's
certificate described in Section 3.3, dated as of the Third Closing.
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(vii) Purchaser's counsel shall have received opinions of the
Company's outside legal counsel, dated as of the Third Closing, in the
form used in the First Closing, with respect to matters as of the Third
Closing.
(viii) The Company's transfer agent has agreed to act in
accordance with irrevocable instructions in the form attached hereto as
EXHIBIT D.
(ix) The Registration Statement shall have been declared
effective by the SEC, and shall be available for use by Purchaser for the
resale of all of the Registrable Securities (as defined in the
Registration Rights Agreement), including, without limitation, shares of
Conversion Shares and Warrant Shares receivable upon conversion or
exercise of Securities to be purchased at the Third Closing.
(x) The Closing Bid Price of the Common Stock in each of the
ten (10) trading days immediately prior to the date of the Third Closing
shall have been equal to or greater than $3.00.
(xi) There shall be no breach by the Company of this Agreement
or of any other agreement entered into in connection herewith, no
Redemption Event (as defined in the Certificate of Designation) shall
have occurred and there shall be no state of facts which, if continued,
would become a Redemption Event with the lapse of time.
(xii) No Bankruptcy Event (as defined in the Certificate of
Designation) shall have occurred.
(xiii) The Company shall have signed and publicly announced a
material contract or material contracts for the sale of Batteries.
(xiv) Baccarat's agreement to lend the Company amounts totalling
$7,500,000, as described in Section 7.1(x), shall remain in full force
and effect, without any amendment thereto, as of the date of the Third
Closing, and all such amounts shall be available for immediate borrowing
thereunder, except to the extent (x) such amounts have been previously
borrowed by the Company thereunder and not repaid as of such date, and
provided that (i) if, as of the date of the Third Closing, $8,000,000 is
immediately available under a working capital line of credit and/or IDB
funding, secured (if secured) by the inventory, accounts receivable
and/or fixed assets of the Company, and the Company shall have no reason
to expect that the availability of such funding shall terminate prior to
the second anniversary of the Third Closing, Baccarat's agreement need
not be in full force and effect, and (ii) if, as of the date of the Third
Closing, an amount less than $8,000,000 is immediately available under
such a working capital line of credit and/or IDB funding, and the Company
shall have no reason to expect that the availability of such funding
shall terminate prior to the second anniversary of the Third Closing,
Baccarat's agreement need only be in full force and effect as to the
amount by which $8,000,000 exceeds the amount so available under such
funding.
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ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The parties hereto
irrevocably consent to the jurisdiction of the United States federal courts
located in the State of Delaware and the state courts located in the County of
New Castle in the State of Delaware in any suit or proceeding based on or
arising under this Agreement or the transactions contemplated hereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company mailed by the first
class mail shall be deemed in every respect effective service of process upon
the Company in any suit or proceeding arising hereunder. Nothing herein shall
affect Purchaser's right to serve process in any other manner permitted by law.
The parties hereto agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
8.2 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be delivered to the other parties.
8.3 HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4 SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
8.5 SCOPE OF AGREEMENT; AMENDMENTS. Except as specifically set forth
herein, Purchaser makes no representation, warranty, covenant or undertaking
with respect to the transactions contemplated hereby. No provision of this
Agreement may be waived other than by an instrument in writing signed by the
party to be charged with enforcement and no provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and
Purchaser.
8.6 NOTICE. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or by
facsimile-machine confirmed telecopy, and
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shall be deemed delivered at the time and date of receipt (which shall
include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
Valence Technology, Inc.
301 Conestoga Way
Henderson, NV 89015
Telecopy: (702) 558-1310
Attention: David Archibald
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
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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
Certificate of Designation, the Warrants or the Registration Rights Agreement,
the Securities may be pledged, and all rights of Purchaser under this Agreement
or any other agreement or document related to the transaction contemplated
hereby may be assigned, without further consent of the Company, to a bona fide
pledgee in connection with Purchaser's margin or brokerage accounts.
8.8 THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
8.9 SURVIVAL. The representations and warranties of Purchaser and the
Company and the agreements and covenants set forth in Articles III, IV, V and
VIII shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of Purchaser. The Company agrees to
indemnify and hold harmless Purchaser and each of Purchaser's officers,
directors, employees, partners, agents and affiliates for loss or damage or
expenses (including reasonable attorneys fees) arising as a result of or related
to (a) any breach or alleged breach by the Company of any of its representations
or covenants set forth herein, including advancement of expenses as they are
incurred, (b) any cause of action, suit or claim brought or made against
Purchaser and arising out of or resulting from the execution, delivery,
performance or enforcement of the Transaction Documents or the Certificate of
Designations or any other certificate, instrument or document contemplated
hereby or thereby, (c) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of the issuance of the
Securities or (d) the status of Purchaser or holder of the Securities as an
investor in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall
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<PAGE>
make the maximum contribution to the payment and satisfaction of each of the
indemnified liabilities which is permissible under applicable law..
8.10 PUBLIC FILINGS; PUBLICITY. Immediately following the First
Closing, the Company shall issue a press release with respect to the
transactions contemplated hereby. Prior to the expiration of five (5) days
following the date of the First Closing, the Company shall file a Form 8-K
regarding the transaction contemplated by this Agreement; such Form 8-K shall
have as exhibits thereto the material documents executed in connection with this
transaction contemplated hereby. The Company and Purchaser's counsel shall have
the right to approve before issuance any press releases (including the foregoing
press release), SEC or other filings, or any other public statements, with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of Purchaser, to make any
press release or SEC, NASDAQ, NASD or exchange filings with respect to such
transactions as is required by applicable law and regulations (although
Purchaser shall (to the extent time permits) be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
8.11 FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.12 REMEDIES. No provision of this Agreement providing for any remedy
to Purchaser shall limit any remedy which would otherwise be available to
Purchaser at law or in equity. Nothing in this Agreement shall limit any rights
Purchaser may have with any applicable federal or state securities laws with
respect to the investment contemplated hereby.
8.13 TERMINATION. In the event that the First Closing shall not have
occurred within forty-eight (48) hours of the execution of this Agreement,
unless the parties agree otherwise, this Agreement shall terminate.
* * *
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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:
CC INVESTMENTS, LDC
By: /s/ John Ziegelman
------------------------------
Its: Director
-----------------------------
COMPANY:
VALENCE TECHNOLOGY, INC.
By: /s/ Lev M. Dawson
------------------------------
Its: President, Chairman and
Chief Executive Officer
-----------------------------
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Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), is made as of
July 27, 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 of even
date herewith by and between the Company and the Initial Purchaser (the
"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) shares of Series A Convertible Participating Preferred Stock of
the Company (the "PREFERRED STOCK") that is convertible into shares (the
"CONVERSION SHARES") of the Company's common stock, par value $.001 per share
(the "COMMON STOCK") and (ii) a Warrant (a "WARRANT" and, when take together
with all of the warrants issuable under the Securities Purchase Agreement, the
"WARRANTS") entitling the holder thereof to purchase the number of shares of
Common Stock set forth in the Securities Purchase Agreement (the "WARRANT
SHARES"), upon the terms and subject to the limitations and conditions set forth
in the Certificate of Designations, Preferences and Rights with respect to such
Preferred Stock (the "CERTIFICATE OF DESIGNATION"), in the form attached as
Exhibit A to the Securities Purchase Agreement.
B. To induce the Initial Purchaser to execute and deliver the
Securities Purchase Agreement, the Company has 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.
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 agrees as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "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.
<PAGE>
(b) "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").
(c) "REGISTRABLE SECURITIES" means the Conversion Shares
(including any Conversion Shares issuable with respect to conversion default
payments under the Certificate of Designation) issued or issuable with respect
to the Preferred Stock and the Warrant Shares issued or issuable with respect to
the Warrants (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 Registrable Securities.
(d) "REGISTRATION STATEMENT" means a registration
statement of the Company under the Securities Act.
1.2 CAPITALIZED TERMS. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings set forth in the
Securities Purchase Agreement.
ARTICLE II
REGISTRATION
2.1 MANDATORY REGISTRATION. The Company shall prepare, and, on or
prior to twenty (20) days after the date of the Closing (the "FILING DATE"),
file with the SEC a 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 Registrable Securities,
subject to the consent of the Initial Purchasers (as determined pursuant to
Section 11.10 hereof)) covering the resale of 5,000,000 shares of Common
Stock (which Registration Statement shall be amended or supplemented as soon
as practicable following the Shareholder Approval (as defined in the
Securities Purchase Agreement) to add at least an additional 2,000,000 shares
of Common Stock, such that the resale of at least 7,000,000 shares of Common
Stock is covered by the Registration Statement), 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 (i) to prevent dilution
resulting from stock splits, stock dividends or similar transactions or (ii)
by reason of changes in the Conversion Price of the Preferred Stock or the
Exercise Price of the Warrants in accordance with the terms thereof, as the
case may be. The Registrable Securities included in the Registration
Statement shall be allocated among the Purchasers as set forth in Section
11.11 hereof. The Registration Statement (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.
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<PAGE>
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 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 registration
statement to become effective as soon as practicable, but in no event later than
the ninetieth (90th) day following the date of the Closing (or, if the SEC
comments on the Registration Statement, the one hundred twentieth (120th) day
following the date of the Closing) (the "REGISTRATION DEADLINE"). If (i) the
registration statement(s) covering the Registrable Securities required to be
filed by the Company pursuant to Section 2.1 hereof is not declared effective by
the SEC on or before the Registration Deadline, or (ii) after the 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 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), 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 (i) an amount equal to (A)
.01 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) prorated per day for the first thirty
(30) days following the Registration Deadline (the "GRACE PERIOD") prior to the
date the Registration Statement filed pursuant to Section 2.1 is declared
effective by the SEC (the "EFFECTIVE DATE"), and (ii) 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 sum of: (A) the number of
months (prorated per day for partial months) following the Grace Period prior to
the Effective Date plus (B) the number of months (prorated per day for partial
months) following the Grace Period but prior to the termination of the
Registration Period that sales cannot be made pursuant to the Registration
Statement after the Effective Date. 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 Certificate of Designation), subject, however, to the
limitations set forth in Section IV6(ii) of the Certificate of Designation of
Section 8(f) of the 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 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
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<PAGE>
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 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.
4
<PAGE>
ARTICLE III
OBLIGATIONS OF THE COMPANY
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1 The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2.1, and cause such Registration
Statement relating to Registrable Securities to become effective as soon as
practicable after such filing, and keep the 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 Registrable Securities have been sold (and no further
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 Statement (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 Statement. 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 Registrable Securities issued or issuable upon conversion
of the Preferred Stock held by any Purchaser, the Company shall amend, if
permissible, the 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 Registrable Securities issued or issuable to
such Purchaser, 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
5
<PAGE>
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 Statement 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) 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
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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 Certificate of Designation 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
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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 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 Statement
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 not later than the
effective date of the Registration Statement.
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, within one (1)
business day after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, 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.
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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).
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.
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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 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.
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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 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,
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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
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
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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 Purchasers 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.
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:
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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 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 an Initial Purchaser who no longer owns any Preferred
Stock or Registrable Securities and who 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
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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:
If to the Company:
Valence Technology, Inc.
301 Conestoga Way
Henderson, NV 89015
Attn: David Archibald
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
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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.
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 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
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set forth or referred to herein and therein. This Agreement, the Preferred
Stock, the Warrants and the Securities Purchase Agreement supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
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.
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.
17
<PAGE>
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
-----------------------------
Name:
Title: President, Chairman and
Chief Executive Officer
Initial Purchaser:
CC INVESTMENTS, LDC
By:/s/ John Ziegelman
-----------------------------
Name:
Title: Director
19
<PAGE>
EXHIBIT 1
TO 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 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 Securities Purchase Agreement,
dated as of July , 1998, by and among the Company and the signatories thereto
(the "AGREEMENT"). Pursuant to a Registration Rights Agreement, dated as of
July , 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>
Exhibit 4.3
DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
VALENCE TECHNOLOGY, INC.
I. DESIGNATION AND AMOUNT
The designation (this "Certificate of Designation") of this series, which
consists of fifteen thousand (15,000) shares of Preferred Stock of Valence
Technology, Inc., a Delaware corporation (the "COMPANY"), is the Series A
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
<PAGE>
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 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).
-2-
<PAGE>
D. "CONVERSION PRICE" means, (x) with respect to any Conversion Date
which is prior to the first anniversary of the First Closing (as defined below)
(or, if the Company has not signed and announced a material contract or material
contracts for the sale of batteries within six months following the First
Closing, the date which is six months after the First Closing), the Fixed
Conversion Price, and (y) with respect to any Conversion Date which is on or
after the first anniversary of the First Closing (or the date which is six
months after the First Closing, as applicable), 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 one hundred and twenty percent
(120%) of the average of the Closing Bid Prices of the common stock, $.001 par
value per share, of the Company (the "COMMON STOCK") for the ten (10) trading
days immediately preceding the First Closing (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 applicable Closing to, and
including, the Conversion Date.
G. "VARIABLE CONVERSION PRICE" means, as of any Conversion Date,
101% of the average of the two (2) lowest of the Closing Bid Prices of the
Common Stock for the number of consecutive trading days ending on the trading
day immediately preceding the Conversion Date (subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or
similar events during the such period), as determined below, subject to
adjustment as provided herein. Such number of days shall be determined
pursuant to the following tables, based on the date of the Conversion Date:
If the Company has signed and announced a material contract or material
contracts for the sale of batteries within six months following the First
Closing:
<TABLE>
<CAPTION>
CONVERSION DATE: NUMBER OF DAYS IN PERIOD:
---------------- -------------------------
<S> <C>
Before August __, 1999 10
August __, 1999 - September __, 1999 11
September __, 1999 - October __, 1999 12
October __, 1999 - November __, 1999 13
November __, 1999 - December __, 1999 14
After December __, 1999 15
</TABLE>
-3-
<PAGE>
If the Company has not signed and announced a material contract or material
contracts for the sale of batteries within six months following the First
Closing:
<TABLE>
<CAPTION>
CONVERSION DATE: NUMBER OF DAYS IN PERIOD:
---------------- -------------------------
<S> <C>
Before February __, 1999 10
February __, 1999 - March __, 1999 11
March __, 1999 - April __, 1999 12
April __, 1999 - May __, 1999 13
May __, 1999 - June __, 1999 14
After June __, 1999 15
</TABLE>
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 beginning on the earliest of (i) the sixtieth (60th)
day after the First Closing, (ii) the effectiveness of a registration statement
of the Company under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively the
"SECURITIES ACT") as contemplated by the Registration Rights Agreement, (iii)
the occurrence of a material adverse change or development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company (a "MATERIAL ADVERSE CHANGE"), (iv) the occurrence of a
Bankruptcy Event, and (v) the occurrence of a Redemption Event (as herein
defined) 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
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<PAGE>
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.
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 which, as of the date of
initial issuance of shares
-5-
<PAGE>
of Preferred Stock, 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.
(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 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 (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 the third (3rd) anniversary of the
First Closing (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 a Bankruptcy Event, Material Adverse Change or
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
-6-
<PAGE>
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 7,000,000 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 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
-7-
<PAGE>
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 six months following
the date of the First Closing, 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 the date which is six months after the
First Closing.
B. OBLIGATION TO NOTIFY. If at any time after the first anniversary
of the First Closing 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 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.
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
-8-
<PAGE>
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.
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
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<PAGE>
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 Registration Rights Agreement, dated as of July , 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;
(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;
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(vi) the Registration Statement required to be filed by the
Corporation pursuant to the Registration Rights Agreement, has not been filed
within twenty (20) days of the First Closing or has not been declared effective
by the one hundred and eightieth (180th) day following the First Closing or such
Registration Statement, after being declared effective, cannot be utilized by
the Holders of Preferred Stock and the Warrants for the resale of all of their
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 within six (6)
months following the First Closing and thereafter a Trading Market Trigger Event
occurs;
(ix) the Company fails to obtain the effectiveness of any
amendment to an existing registration statements 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 the first anniversary of the First Closing.
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 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
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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
---------------------------------
C P 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.
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
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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.
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 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
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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 First Closing, 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.
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<PAGE>
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 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
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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.
D. [Intentionally Deleted].
E. ISSUANCE OF OTHER SECURITIES. If, at any time after the First
Closing, 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 First Closing, 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
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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.
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
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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).
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.
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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 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
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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 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.
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert (the "CONVERSION")
$__________ Face Amount of the Series A Convertible Participating Preferred
Stock (the "Preferred Stock") (I.E., $_________) plus all accrued and unpaid
Conversion Default Payments relating thereto (if any) (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 A 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 of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.
In the event of partial exercise, please reissue an appropriate certificate for
the principal balance which shall not have been converted.
Date of Conversion:
-----------------------------
Applicable Conversion Price:
--------------------
Amount of Conversion Default Payments
to be Converted, if any:
------------------------
Number of Shares of
Common Stock to be Issued:
----------------------
Signature:
--------------------------------------
Name:
-------------------------------------------
Address:
----------------------------------------
cc: [Transfer Agent]
------------------
ACKNOWLEDGED AND AGREED:
VALENCE TECHNOLOGY, INC.
BY:
----------------------------
NAME:
--------------------------
TITLE: DATE:
------------------------- -----------------------------
-21-
<PAGE>
Exhibit 4.4
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: July 27, 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 Securities Purchase Agreement
dated July 27, 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
<PAGE>
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.
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
2
<PAGE>
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 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 the first (1st) anniversary of the date hereof and
before 5:00 P.M., Henderson, Nevada time on the fifth (5th) anniversary of the
date hereof (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 Preferred Stock of the Company.
(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
3
<PAGE>
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 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;
4
<PAGE>
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.
(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.
5
<PAGE>
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(A) 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)(B) 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 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.
(B) 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)(A)
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.
6
<PAGE>
(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 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 Common Shares (as defined in the Securities Purchase Agreement) or Warrants
in accordance with terms of the Securities Purchase Agreement; or (iv) upon the
exercise of the Warrants.
(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
7
<PAGE>
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 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
8
<PAGE>
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 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
9
<PAGE>
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
(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.
10
<PAGE>
(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.
(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 Preferred Stock, which, as of the date of initial issuance
of the shares of Preferred 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 shares of Preferred Stock and Warrants held by it and
shall be applied to such
11
<PAGE>
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 8
hereof are assignable only in accordance with the provisions of that certain
Registration Rights Agreement, dated as of July , 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.
12
<PAGE>
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 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:
13
<PAGE>
If to the Company:
Valence Technology, Inc.
301 Conestoga Way
Henderson, NV 89015
Telecopy: (702) 558-1310
Attention: David Archibald
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.
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
14
<PAGE>
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
difference between the then current Market Price per share of the Common Stock
and 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.
* * *
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
VALENCE TECHNOLOGY, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
16
<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:
---------------------------------
---------------------------------
17
<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 hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, 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.
18
<PAGE>
Exhibit 4.5
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: July 27, 1998
VALENCE TECHNOLOGY, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________________, 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 "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
<PAGE>
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.
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 the first (1st) anniversary of the date hereof and
before 5:00 P.M., Henderson, Nevada time on the fifth (5th) anniversary of the
date hereof (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 Preferred Stock of the Company.
(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
3
<PAGE>
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
4
<PAGE>
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as herein defined) immediately after
the Dilutive Issuance.
(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.
5
<PAGE>
(A) 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)(B) 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 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.
(B) 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)(A)
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.
6
<PAGE>
(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 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 Common Shares (as defined in that certain Securities Purchase Agreement
dated July 27, 1998 between the Company and CC Investments LDC (the "SECURITIES
PURCHASE AGREEMENT")) or Warrants (as defined in the Securities Purchase
Agreement) in accordance with terms of the Securities Purchase Agreement; or
(iv) upon the exercise of the Warrants.
(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
7
<PAGE>
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 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
8
<PAGE>
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 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
9
<PAGE>
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
(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.
10
<PAGE>
(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.
(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 Preferred Stock, which, as of the date of initial issuance
of the shares of Preferred 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 shares of Preferred Stock and Warrants held by it and
shall be applied to such
11
<PAGE>
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 8
hereof are assignable only in accordance with the provisions of that certain
Registration Rights Agreement, dated as of July , 1998, by and among the
Company and CC Investments, LDC (the "REGISTRATION RIGHTS AGREEMENT"), as if the
Holder were a "Purchaser" thereunder.
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.
12
<PAGE>
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 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 if, and to the extent, elected by such successor holder
concurrently with its acquisition of such Warrants, such election to be promptly
confirmed in writing to the Company (provided no transfer or series of transfer
to a successor holder or holders shall be used by a Holder to evade the
limitations contained in this paragraph).
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, as if they were "Purchasers" thereunder.
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
13
<PAGE>
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: David Archibald
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.
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.
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<PAGE>
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
difference between the then current Market Price per share of the Common Stock
and 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.
* * *
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
VALENCE TECHNOLOGY, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
16
<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:
-------------------------------
-------------------------------
17
<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 hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, 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.
18
<PAGE>
VOID AFTER 5:00 P.M. HENDERSON, NEVADA
TIME ON JULY ____, 2002
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 ___________ Shares of
Common Stock, per value $.001 per share
Date: July -, 1998
VALENCE TECHNOLOGY, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Baccarat Electronics, Inc. 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, ________________ fully paid and
nonassessable shares of the Company's common stock, par value $.001 per share
(the "COMMON STOCK"), at an exercise price (the "EXERCISE PRICE") per share
equal to 135% of the average Closing Bid Price (as defined in that certain
Securities Purchase Agreement, dated July _____, 1998, between the Company and
the signatories thereto (the "SECURITIES PURCHASE AGREEMENT") of the Common
Stock for the 10 trading days preceding the First Closing (as defined in the
Securities Purchase Agreement). This Warrant is being issued pursuant to the
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.
1.
<PAGE>
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-countermarket 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.
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.
2.
<PAGE>
(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 SHAMS. 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 the first (1st) anniversary of the date hereof and
before 5:00 P.M., Henderson, Nevada time on the fifth (5th) anniversary of the
date hereof (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 Preferred Stock of the Company.
3.
<PAGE>
(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 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:
4.
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E' = (E) (0 + 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 Issurance;
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.
(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.
5.
<PAGE>
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(A) 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)(B) 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 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.
(B) 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)(A)
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.
6.
<PAGE>
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. It; 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 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 o f 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 Common Shares (as defined in the Securities Purchase Agreement) or Warrants
in accordance with terms of the Securities Purchase Agreement: or (iv) upon the
exercise of' the Warrants.
(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
7.
<PAGE>
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 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
8.
<PAGE>
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 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 and
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.
9.
<PAGE>
(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
(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 or 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.
10.
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(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.
(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 Preferred Stock, which, as of the date of initial issuance of
the shares of Preferred 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 shares 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.
11.
<PAGE>
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 transferor 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 8 hereof are assignable
only in accordance with the provisions of that certain Registration Rights
Agreement, dated as of July -, 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
12.
<PAGE>
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 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) 558-1301
Attention: David Archibald
with a copy to:
Cooley Godward LLP
3000 E1 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.
13.
<PAGE>
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.
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
difference between the then current Market Price per share of the Common Stock
and 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:_______________________________
Name:_____________________________
Title:____________________________
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 hereinbelow, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- ---------------------------- ---------------------------- --------------------
, 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.
2.
<PAGE>
Exhibit 10.50
AMENDMENT NO. 5 TO LOAN AGREEMENT AND PROMISSORY NOTE
This Amendment No. 5 is entered into as of July 27, 1998 by and between
Valence Technology, Inc. (previously Ultracell, Inc.), a Delaware corporation
("Borrower"), and Baccarat Electronics, Inc., whose address is 10050 Bandley
Drive, Cupertino, CA 95014 ("Lender").
RECITALS
A. Borrower and Lender have entered into that certain Loan Agreement
dated as of July 17, 1990 (the "Loan Agreement") and amended as of March 15,
1991 ("Amendment No. 1"), as of March 24, 1992 ("Amendment No. 2"), as of
August 17, 1992 ("Amendment No. 3"), and as of September 19, 1997 ("Amendment
No. 4") ( the "Loan Agreement and Amendments No. 1, No. 2, No. 3, and No. 4 are
referred to collectively herein as the "Agreements"), pursuant to which Lender
agreed to provide a revolving line of credit to Borrower in the aggregate
principal sum of $10,000,000.00 (the "Loans") and pursuant to which Borrower has
executed and delivered to the Lender that certain New Amended Promissory Note
dated as of September 19, 1997 (the "Amended Promissory Note").
B. In connection with the sale of Series A Preferred Stock of Borrower to
certain outside investors (the "Financing"), Borrower and Lender now desire to
amend the Agreements to specify the timing of the Loans and to change the terms
of the warrants issued pursuant to the Agreements. Certain terms capitalized
herein but not otherwise defined shall have the meaning defined for such terms
in the Securities Purchase Agreement between Borrower and such investors dated
as of July 27, 1998 (the "Purchase Agreement").
NOW THEREFORE, in consideration of the promises and mutual agreements
contained herein, the parties hereto agree as follows:
1. Lender agrees to advance to Borrower an aggregate principal amount of
$2,500,000 upon the Initial Closing of the Financing. In addition, at any time
and from time to time, on or prior to July 1, 1999, Lender agrees to advance
Borrower up to an aggregate of the lesser of: (A) $7,500,000, and (b) if
Borrower has entered into a line of credit secured (if secured) by the
inventory, accounts receivable and/or fixed assets of Borrower, the amount by
which the credit line entered into by Borrower is less than $8,000,000.
2. The Warrant attached to the Loan Agreement as Exhibit C thereto is
replaced and superseded in its entirety with an amended Warrant attached
hereto. Any additional Warrants granted pursuant to the Agreements shall be
at a rate equal to 0.3 multiplied by the number of dollars borrowed and
divided by the average Closing Bid Price (as defined in the Purchase
Agreement) of the Common Stock for the 10 trading days preceding the First
Closing (as defined in the Purchase Agreement). The amended Warrant and any
future Warrants issued pursuant to the Agreements shall have an exercise
price per share equal to 135% of the average Closing Bid Price (as defined in
the Purchase Agreement) of the Common Stock for the 10 trading days preceding
the First Closing (as defined in the Purchase Agreement).
4. Except as stated herein, all provisions of the Agreements and the
Amended Promissory Note shall remain in full force and effect. This Amendment
No. 5 shall be deemed effective as of the date first written above.
1.
<PAGE>
5. This Amendment No. 5 may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts taken together shall constitute and be considered a part
of a single original agreement.
2.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to
be duly executed and delivered by their proper and duly authorized officers as
of the date first written above.
BACCARAT ELECTRONICS, INC. VALENCE TECHNOLOGY, INC.
By: /s/ Carl E. Berg By: /s/ Lev M. Dawson
-------------------------- ---------------------------
Carl E. Berg Lev M. Dawson
President President, Chairman and Chief
Executive Officer
3.
<PAGE>
VALENCE TECHNOLOGY, INC.
COMPLETES DEBT AND EQUITY
FINANCING
HENDERSON, Nev., July 28 /PRNewswire/ -- Valence Technology, Inc. (Nasdaq:
VLNC) today announces that it has completed private financing arrangements of
up to $25 million, under which it has drawn down $2.5 million in debt and
$7.5 million of convertible preferred stock.
Under the terms of the agreements, Valence sold 7,500 shares of newly
designed Series A Convertible Preferred Stock for gross proceeds of $7.5
million. An affiliate of Castle Creek Partners, LLC, a Chicago-based
technology investor, was the sole purchaser of the Series A Stock in a
private placement and, upon Valence's achieving certain milestones, has made
a commitment to purchase up to $7.5 million additional shares of Convertible
Preferred Stock.
Simultaneously, Valence has arranged a guaranteed line of credit from Carl
Berg, a director and principal shareholder of the Company, in an amount up to
$10 million, under which it has already drawn down $2.5 million. Upon the
Company's achieving certain milestones, Valence may draw down the balance of
the funds.
The Series A Convertible Preferred Stock is convertible into shares of Common
Stock at a premium of 20%. If the Company meets a certain milestone, the
Series A Convertible Preferred Stock will be convertible at a variable price
after twelve months from issuance. While the Series A Preferred Stock pays no
dividend, it does accrete at an annual rate of 6% per year.
Both the debt and equity arrangements carry warrant coverages of 30%
exercisable at a premium of 35%. Lev Dawson, Chairman, President and CEO,
stated, "This is a good partnership for our investors and is intended to
provide Valence with the financial resources to pursue implementation of our
battery commercialization program."
"In addition to the above agreements, Valence will be receiving an advance of
$1.7 million from the Industrial Development Board of Northern Ireland
(IDB)," added Dave Archibald, Vice President and CFO. "These agreements,
combined with the IDB advance against our manufacturing equipment grants,
greatly strengthen our balance sheet and enhance our financial stability."
The securities 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 establishment,
development and potential success of product development and production
outcomes, as well as future draw downs under the financing arrangements
described above, could differ materially from those
<PAGE>
presented here, depending on factors both within and outside Valence's
control. These and other risk factors are described from time to time in
Valence SEC reports, including on Form 10K for the year ended March 29, 1998,
to which readers are referred.
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 the symbol VLNC.
Valence can be found on the Internet at HTTP://WWW.VALENCE-TECH.COM.SOURCE
Valence Technology, Inc.
Copyright PR Newswire. All rights reserved.
