<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission File Number 0-29038
TANISYS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
WYOMING 74-2675493
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12201 TECHNOLOGY BLVD., SUITE 125
AUSTIN, TEXAS 78727
(Address of principal executive offices) (Zip Code)
(512) 335-4440
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicated below are the number of shares outstanding of the Registrant's
common stock and 5% Series A Convertible Preferred Stock at August 13, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES
TITLE OF CLASS OUTSTANDING
-------------- ----------------
<S> <C>
Common Stock, no par value 20,729,714
Preferred Stock, $1.00 par value 400
</TABLE>
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1998
(unaudited) and September 30, 1997 . . . . . . . . . . . . . 3
Consolidated Statements of Operations - For the Three
and Nine Month Periods Ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - For the Nine
Month Periods Ended June 30, 1998 and 1997 (unaudited). . . . 5
Notes to Consolidated Financial Statements(unaudited) . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,043,543 $ 1,990,017
Restricted cash 8,121 1,539,448
Trade accounts receivable, net of allowance
of $280,213 and $180,157, respectively 4,070,675 3,519,369
Accounts receivable from related parties 0 12,371
Inventory, net of allowance of $470,132
and $317,023, respectively 3,872,129 4,489,050
Prepaid expenses and other current assets 485,990 364,042
- ------------------------------------------------------------------------------------
Total current assets 12,480,458 11,914,297
- ------------------------------------------------------------------------------------
Property and equipment, net of accumulated
depreciation of $2,561,013 and $1,730,832,
respectively 5,589,555 2,539,324
Organization costs, net 128 512
Patents and trademarks, net 72,750 80,327
Goodwill, net of accumulated amortization
of $7,170,998 and $5,079,457, respectively 0 2,091,541
Other noncurrent assets 541,808 605,957
- ------------------------------------------------------------------------------------
Total Assets $ 18,684,699 $ 17,231,958
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,262,028 $ 3,917,786
Accounts payable to related parties 0 250
Accrued liabilities 2,981,535 710,189
Revolving credit note 3,323,588 4,172,516
- ------------------------------------------------------------------------------------
Total current liabilities 12,567,151 8,800,741
- ------------------------------------------------------------------------------------
Obligations under capital lease 641,608 81,114
- ------------------------------------------------------------------------------------
Total liabilities 13,208,759 8,881,855
- ------------------------------------------------------------------------------------
Mandatorily redeemable convertible preferred
stock:
5% Series A Convertible Preferred
Stock - $1 par value, 400 shares
authorized, 400 and 0 shares issued and
outstanding, respectively 1,917,688 0
- ------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, no par value, 50,000,000 shares
authorized, 20,729,714 and 20,334,714 shares
issued and outstanding, respectively 29,034,774 28,599,524
Additional paid-in capital 1,687,312 0
Foreign translation adjustment (2,625) 0
Accumulated deficit (27,161,209) (20,249,421)
- ------------------------------------------------------------------------------------
Total stockholders' equity 3,558,252 8,350,103
- ------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 18,684,699 $ 17,231,958
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
June 30, June 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $6,774,445 $11,234,115 $23,981,692 $38,555,153
Cost of goods sold 6,138,178 9,757,174 19,927,368 33,879,602
- --------------------------------------------------------------------------------------------------------------
Gross profit 636,267 1,476,941 4,054,324 4,675,551
- --------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 638,498 600,442 2,115,613 1,772,782
Sales and marketing 739,684 701,319 2,093,590 2,135,651
General and administrative 1,097,717 861,270 3,385,568 2,604,922
Depreciation and amortization 479,361 1,064,738 2,611,187 3,128,221
Bad debt expense 108,925 400,185 350,868 2,206,832
- --------------------------------------------------------------------------------------------------------------
Total operating expenses 3,064,185 3,627,954 10,556,826 11,848,408
- --------------------------------------------------------------------------------------------------------------
Operating loss (2,427,918) (2,151,013) (6,502,502) (7,172,857)
- --------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 15,917 3,036 50,127 17,435
Interest expense (152,190) (144,863) (459,413) (461,737)
- --------------------------------------------------------------------------------------------------------------
Net loss ($2,564,191) ($2,292,840) ($6,911,788) ($7,617,159)
- --------------------------------------------------------------------------------------------------------------
Basic and diluted loss from operations per share ($0.12) ($0.13) ($0.34) ($0.45)
- --------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 20,729,714 17,851,214 20,568,707 16,932,967
Diluted 20,729,714 17,851,214 20,568,707 16,932,967
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED,
JUNE 30,
1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($6,911,788) ($7,617,159)
Adjustments to reconcile net loss to net cash
earned (used) in operating activities:
Depreciation and amortization 2,948,091 3,128,221
Issuance of stock options 123,000 0
Decrease in restricted cash 1,531,327 0
(Increase) decrease in accounts receivable (538,935) 618,460
(Increase) decrease in inventory 616,921 (1,404,725)
Decrease in prepaid expense (121,948) (72,314)
(Increase) decrease in other assets 64,149 (572,042)
Increase in accounts payable and accrued
liabilities 4,615,338 2,999,923
- ----------------------------------------------------------------------------------
Net cash earned (used) in operating activities 2,326,155 (2,919,636)
- ----------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (3,920,457) (1,063,634)
Proceeds from sale of property and equipment 21,637 0
Patent and trademark costs 0 (6,094)
- ----------------------------------------------------------------------------------
Net cash used in investing activities (3,898,820) (1,069,728)
- ----------------------------------------------------------------------------------
Cash flows from financing activities:
Draws (payments) on revolving credit note, net (848,928) (234,646)
Principal draws (payments) on capital lease
obligations 560,494 (43,237)
Increase in foreign translation adjustment (2,625) 0
Net proceeds from issuance of preferred stock 3,605,000 0
Net proceeds from issuance of common stock 182,000 0
Net proceeds from exercise of stock options 128,250 32,900
Net proceeds from exercise of stock warrants 2,000 2,485,968
Premerger tax distributions on retained earnings 0 (16,500)
- ----------------------------------------------------------------------------------
Net cash provided by financing activities 3,626,191 2,224,485
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,053,526 (1,764,879)
Cash and cash equivalents, beginning of period 1,990,017 2,689,569
- ----------------------------------------------------------------------------------
Cash and cash equivalents, end of period $4,043,543 $924,690
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for interest $459,413 $420,930
Cash received from interest $50,127 $17,435
Non-cash activity:
20,000 shares issued to satisfy accounts payable $32,000 0
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS.
5
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements present the financial
position, results of operations and cash flows of Tanisys Technology, Inc.
("Tanisys") and its wholly owned subsidiaries (collectively referred to as
the "Company") as of the dates and for the periods indicated. All material
intercompany accounts and transactions have been eliminated in consolidation.
All adjustments have been made to the accompanying interim consolidated
financial statements which are, in the opinion of the Company's management,
necessary for fair presentation of the Company's operating results.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. It is recommended that these interim consolidated
financial statements be read in conjunction with the Company's consolidated
financial statements and the notes thereto for the fiscal year ended
September 30, 1997 contained in the Company's Form 10-K as filed with the
Securities and Exchange Commission on December 29, 1997.
NOTE 2: INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
---------- -------------
<S> <C> <C>
Raw Materials $3,157,000 $3,976,488
Work-in-process 236,229 204,783
Finished goods 949,032 624,802
---------- ----------
4,342,261 4,806,073
Less inventory allowance (470,132) (317,023)
---------- ----------
Inventory, net $3,872,129 $4,489,050
---------- ----------
---------- ----------
</TABLE>
Inventory is stated at the lower of cost or market value. Inventory costs
include direct materials, direct labor and certain indirect manufacturing
overhead expenses.
6
<PAGE>
NOTE 3: STOCKHOLDERS' EQUITY
EARNINGS PER SHARE
In the first quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings per Share," which establishes standards for computing and
presenting earnings per share ("EPS") for entities with publicly held common
stock or potential common stock. This statement requires the restatement of
historical earnings per share amounts to conform with the new methodology.
However, the adoption of this statement did not change the calculation of
Primary EPS to Basic or Diluted EPS from prior years because of the
antidilutive effect of the common stock equivalents.
The following table sets forth the computation of Basic and Diluted EPS:
<TABLE>
<CAPTION>
Three months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss-numerator for Basic and Diluted
earnings per share ($2,564,191) ($2,292,840) ($6,911,788) ($7,617,159)
Denominator:
Denominator for basic earnings per share-
weighted average shares 20,729,714 17,851,214 20,568,707 16,932,967
Effect of dilutive securities: None - - - -
----------- ----------- ----------- -----------
Denominator for diluted earnings per share-
adjusted weighted average shares 20,729,714 17,851,214 20,568,707 16,932,967
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per share ($0.12) ($0.13) ($0.34) ($0.45)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per share ($0.12) ($0.13) ($0.34) ($0.45)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Stock options and warrants not included in the
Denominator for diluted earnings per share as
their effect would have been antidilutive 4,461,377 2,367,317 4,461,377 2,367,317
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
PREFERRED STOCK
Pursuant to a Convertible Stock Purchase Agreement dated June 30, 1998 (the
"Stock Purchase Agreement"), the Company issued 400 shares of its 5% Series A
Convertible Preferred Stock, par value $1 per share ("Series A Stock"), for
$4 million. The Company incurred offering costs of approximately $400
thousand.
The Series A Stock is convertible into the Company's no par value common
stock ("Common Stock") at the option of the holder beginning 90 days after
the June 30, 1998 closing date. During the next 150 days, the holder has
agreed to convert no more than 15% of the Series A Stock if certain quarterly
revenue targets are met by the Company through December 31, 1998. The Company
also has agreed to register the underlying Common Stock by October 15, 1998.
Should this date not be met, the 15% restriction will increase to 25%. The
conversion price is the lesser of the fixed conversion price of $2.31 per
share or a variable conversion price. The Company has valued this beneficial
conversion feature at approximately $1.4 million and has reflected this
amount in additional paid-in capital. This amount will be charged to the
accumulated deficit through the earliest date of conversion.
The Series A Stock carries mandatory redemption rights which can be exercised
by the holder if certain triggering events occur. These redemption rights
could require the Company to redeem the Series A Stock for cash based on a
formula provided in the Stock Purchase Agreement. The Company cannot
estimate if or when the triggering events might occur nor the redemption
price. Therefore, the mandatory redemption
7
<PAGE>
feature has not been valued. Should a triggering event occur, the Company
will record a charge to the accumulated deficit equal to the difference
between the redemption price and the carrying value of the Series A Stock.
Dividends are payable quarterly in registered shares of Common Stock, but
must be paid in cash upon the occurrence of certain events.
Attached to the Series A Stock were warrants to purchase 199,999 shares of
Common Stock at $3.00 per share. The warrants currently are exercisable and
have a term of four years. The Company has valued the warrants at
approximately $284,000 and has reflected this amount in additional paid-in
capital.
At June 30, 1998, the carrying value of the Series A Stock reflects the $4
million issuance price, less the offering costs and the values of the
beneficial conversion feature and warrants.
WARRANTS
At June 30, 1998, warrants for the purchase of 289,998 shares of Common Stock
were outstanding, of which 268,747 were exercisable.
OPTIONS
During the three months ended June 30, 1998, the Board of Directors granted
seven-year stock options exercisable for the purchase of 142,000 shares of
Common Stock to employees at an exercise price of $2.69 per share.
NOTE 4: RELATED PARTY TRANSACTIONS
None.
NOTE 5: RECENT PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income," SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," and SFAS No. 132, "Employers' Disclosure
About Pension and Other Postretirement Benefits," all of which must be
adopted by the Company as of October 1, 1998. Management believes that the
adoption of these new standards will have no material effect on the Company's
financial position or results of operations.
NOTE 6: SUBSEQUENT EVENT
In connection with the issuance of Series A Stock and Common Stock Warrants
discussed in Note 3, the Company granted the holders certain registration
rights related to the shares of Common Stock underlying the Series A Stock,
dividends on the Series A Stock and the exercise of the warrants. The
Company filed a registration statement on Form S-3 on August 13, 1998 to
register the underlying Common Stock. Such registration statement has not
yet been declared effective.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Quarterly Report on Form 10-Q contains certain forward-looking
statements and information relating to Tanisys and its subsidiaries that are
based on the beliefs of the Company's management as well as assumptions made
by and information currently available to the Company's management. When
used in this report, the words "anticipate," "believe," "estimate," "expect,"
and "intend" and words or phrases of similar import, as they relate to the
Company or its management, are intended to identify forward-looking
statements. Such statements reflect the current risks, uncertainties and
assumptions related to certain factors including, without limitations,
competitive factors, general economic conditions, customer concentrations,
customer relationships and financial conditions, relationships with vendors,
the interest rate environment, governmental regulation and supervision,
seasonality, distribution networks, product introductions and acceptance,
technological change, changes in industry practices, one-time events and
other factors described herein. Based upon changing conditions, should any
one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated, expected or
intended. The Company does not intend to update these forward-looking
statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion of the interim consolidated financial
condition and results of operations of the Company for the three and
nine-month periods ended June 30, 1998 and 1997. It should be read in
conjunction with the Consolidated Financial Statements, the Notes thereto and
other financial information included elsewhere in this report, and also in
the Company's Form 10-K as filed with the Securities and Exchange Commission
on December 29, 1997. For purposes of the following discussion, references to
year periods refer to the Company's fiscal year ended September 30, 1997 and
references to quarterly periods refer to the Company's fiscal quarters ended
June 30, 1998 and 1997.
Effective second quarter 1998, the Company established Tanisys (Europe)
Limited, a wholly owned subsidiary of Tanisys located in Scotland. Tanisys
(Europe) Limited is offering its Comprehensive Logistics and Supply Solutions
("C.L.A.S.S.") program, build-to-order services, turnkey manufacturing
services and manufactures and markets products consisting of semiconductor
memory modules. Tanisys (Europe) Limited also is serving as the European
sales and marketing office for Darkhorse tester products designed and
manufactured by Tanisys Technology, Inc., including the recently announced
Sigma-3-TM- tester that offers module manufacturers truly affordable,
high-volume, production testing systems for 100 MHz SDRAM.
Pursuant to a Convertible Preferred Stock Purchase Agreement dated June
30, 1998 (the "Purchase Agreement") between the Company and KA Investments
LDC, a Cayman Islands corporation ("KA Investments"), the Company issued 400
shares of its 5% Series A Convertible Preferred Stock, par value $1.00 per
share ("Series A Stock"), for an aggregate purchase price of $4,000,000. The
Series A Stock is convertible into shares of Common Stock pursuant to a
formula based upon the Conversion Price, which shall be equal to the lower of
either (a) $2.31 per share or (b) 80% of the average of the three lowest
closing bid prices per share of Common Stock for the 30 trading days
immediately prior to conversion (as more fully described in the Articles of
Incorporation of the Company). Dividends accrue on the Series A Stock at a
rate of 5% per annum, and may be paid in shares of Common Stock, but must be
paid in cash upon the occurrence of certain events. The Company is required
to redeem certain of the shares of Series A Stock upon the occurrence of
certain triggering events. In addition, the Company granted warrants (the
"Warrants") to KA Investments, Midori Capital Corporation ("Midori"), Hoth
Incorporated ("Hoth") and Randy Stein ("Stein") (KA Investments, Midori, Hoth
and Stein collectively referred to as the "Selling Stockholders") to purchase
an aggregate of approximately 200,000 shares of Common Stock at a purchase
price of $3.00 per share (subject to adjustment as provided by the terms of
the Warrants). The Warrants may be exercised on or before June 30, 2002.
Pursuant to a Registration Rights Agreement between the Company and KA
Investments dated June 30, 1998, the Company granted the Selling Stockholders
certain registration rights related to the shares of Common Stock issuable
upon conversion of the Series A Stock and upon the exercise of the Warrants.
The Registration Statement to which this Prospectus is a part has been filed
pursuant to the terms of such Registration Rights Agreement and registers the
resale by the Selling Stockholders of such shares of Common Stock issuable
upon conversion of the Series A Stock and upon exercise of the Warrants. The
Purchase Agreement, the Registration Rights Agreement, a form of the Warrants
and the Articles of Incorporation of the Company, as amended (containing the
terms of the Series A Stock) have been filed as exhibits hereto.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain consolidated operations data of
the Company expressed as a percentage of net sales (unaudited) for the three
and nine-month periods ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 90.6 86.9 83.1 87.9
----- ----- ----- -----
Gross profit 9.4 13.1 16.9 12.1
----- ----- ----- -----
Operating expenses:
Research and development 9.4 5.3 8.8 4.6
Sales and marketing 10.9 6.2 8.7 5.5
General and administrative 16.2 7.7 14.1 6.8
Depreciation and amortization 7.1 9.5 10.9 8.1
Bad debt expense 1.6 3.6 1.5 5.7
----- ----- ----- -----
Total operating expenses 45.2 32.3 44.0 30.7
----- ----- ----- -----
Operating loss (35.8) (19.2) (27.1) (18.6)
Other expense, net (2.0) (1.3) (1.7) (1.2)
----- ----- ----- -----
Net loss (37.8%) (20.5%) (28.8%) (19.8%)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
NET SALES
Net sales consist of custom manufacturing services, custom memory
modules, standard memory modules, design engineering fees, memory module test
solutions and advanced technology services, less returns and discounts. Net
sales decreased to $6.8 million in the third quarter of fiscal 1998 from
$11.2 million in the third quarter of fiscal 1997. Net sales decreased to
$24.0 million in the first nine months of fiscal 1998 from $38.6 million in
the first nine months of fiscal 1997. The decrease in fiscal 1998 is
primarily due to changes in product mix. The Company is emphasizing its
quick-turn manufacturing program, C.L.A.S.S., which is designed to support
the build-to-order ("BTO") and configuration-to-order ("CTO") emphasis
currently in place or contemplated by all major personal computer
manufacturers. The semiconductor memory chips used in this program,
primarily Dynamic Random Access Memory ("DRAM"), are supplied by the
customer, which reduces net sales and cost of sales by removing the highest
cost component in a memory module. The decrease in net sales in the third
quarter of fiscal 1998 is due to a decreased demand in memory modules by
C.L.A.S.S. customers as a result of a major PC Company purging inventory in
its dealer channels.
COST OF SALES AND GROSS PROFIT
Cost of sales includes the costs of all components and materials
purchased for the manufacture of products and the direct labor and overhead
costs associated with manufacturing. Gross profit decreased to $636 thousand
in third quarter fiscal 1998 from $1.5 million in third quarter fiscal 1997.
Gross profit decreased to $4.1 million in the first nine
10
<PAGE>
months of fiscal 1998 from $4.7 million in the first nine months of fiscal
1997. Gross profit margin decreased to 9.4% in third quarter fiscal 1998
from 13.1% in third quarter fiscal 1997. Gross profit margin increased to
16.9% in the first nine months of fiscal 1998 from 12.1% for the same period
in 1997. The decreases in gross profit and in gross profit margin for the
third quarter were due primarily to the decrease in sales to the Company's
C.L.A.S.S customers, as discussed in Net Sales above. A secondary cause for
the decrease in gross profit and in gross profit margin for third quarter
1998 is the additional expenses associated with establishing the Scotland
subsidiary. The increase in gross profit margin for the first nine months
of 1998 compared to the same period in 1997 was due primarily to the
transition to the C.L.A.S.S. program and the continuing decline in the cost
of raw materials, as described in Net Sales above.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of the costs associated with
the design and testing of new technologies and products. These relate
primarily to the costs of materials, personnel, management and employee
compensation and engineering design consulting fees. Research and
development expenses increased to $638 thousand in third quarter fiscal 1998
from $600 thousand in third quarter fiscal 1997. Expenses for the first nine
months of fiscal 1998 increased to $2.1 million from $1.8 million in the
first nine months of fiscal 1997. The increase was due primarily to the
development of new tester products and expenses related to the design of
standard and custom modules. Expenses relating to research and development
are expected to remain approximately the same in terms of absolute dollars
and to decrease as a percentage of revenue as the anticipated growth in
revenue occurs.
SALES AND MARKETING
Sales and marketing expenses include all compensation of employees and
independent sales personnel, as well as the costs of advertising, promotions,
trade shows, travel, direct support and overhead. Sales and marketing
expenses increased to $739 thousand in third quarter fiscal 1998 from $701
thousand in third quarter fiscal 1997. Sales and marketing expenses were
$2.1 million for the first nine months of both fiscal 1998 and fiscal 1997.
Sales and marketing expenses expressed as a percentage of revenues increased
to 8.7% in the first nine months of fiscal 1998 from 5.5% in the first nine
months of fiscal 1997, primarily due to decreased revenues. Sales and
marketing expenses are expected to decrease slightly when expressed as a
percentage of revenue and to continue to increase steadily in terms of
absolute dollars in future periods as revenues increase.
GENERAL AND ADMINISTRATIVE
General and administrative costs consist primarily of personnel costs,
including compensation and employee benefits and support costs, including
utilities, insurance, professional fees and all costs associated with a
reporting company. General and administrative expenses increased to $1.1
million in third quarter fiscal 1998 from $861 thousand in third quarter
fiscal 1997. In the first nine months of fiscal years 1998 and 1997, general
and administrative expenses were $3.4 million and $2.6 million, respectively.
The increase in actual funds expended in fiscal 1998 is primarily due to the
opening of the Company's facility in Scotland and the addition of staff at
the facility in the United States. Expenses associated with the general and
administrative area are expected to remain relatively constant in absolute
dollars and decrease as a percentage of revenue in future periods.
11
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization includes the depreciation for all fixed
assets exclusive of those used in the manufacturing process and included as
part of "Cost of Sales" and the amortization of intangibles, including
goodwill incurred in the May 1996 acquisitions of 1st Tech Corporation ("1st
Tech") and DarkHorse Systems, Inc. ("DarkHorse"). Depreciation and
amortization decreased to $479 thousand in third quarter fiscal 1998 from
$1.1 million in third quarter fiscal 1997. Depreciation and amortization
expenses for the first nine months of 1998 were $2.6 million, a decrease of
$517 thousand from the same time period in fiscal 1997. The decrease is due
primarily to the complete amortization in April 1998 of goodwill relating to
the acquisitions of 1st Tech and DarkHorse. Depreciation expenses are
expected to decrease as a percentage of revenue and increase in term of
absolute dollars with additional facility expansions and equipment purchases
used in manufacturing and research and development.
OTHER INCOME (EXPENSE), NET
Other income (expense), net consists primarily of interest income less
interest expense. Interest expense is attributable to borrowings from a
revolving credit note. Substantially all of the interest expense relates to
credit line draws made for short-term inventory requirements and to fund
accounts receivable. Interest income relates to investment of available cash
in short-term interest bearing accounts and cash equivalent securities.
Other income (expense) decreased to $137 thousand of expense in the third
quarter of fiscal 1998 from $139 thousand in the third quarter of fiscal
1997. Other income (expense) has decreased to $409 thousand in the first
nine months of fiscal 1998 from $444 thousand in the first nine months of
fiscal 1997. The Company incurs net interest expense in order to maintain
balances of inventories and accounts receivable. The decrease in other
income (expense) is primarily due to a decrease in short-term borrowings on
the revolving credit note. The Company expects to continue to require
borrowings to fund growth in accounts receivable in the future and therefore
expects to continue to reflect net interest expense. Interest expense is
expected to increase slightly in terms of absolute dollars due to debt
related to short-term borrowings for accounts receivable and inventory
purchases to support the increase in revenues.
PROVISION FOR INCOME TAXES
During fiscal 1997, the Company incurred consolidated net operating
losses for U.S. income tax purposes of approximately $6.0 million. The loss
carryforwards expire in 2012 and 2011, respectively. During 1997, the
Company had temporary differences resulting in future tax deductions of $513
thousand, principally representing tax basis in accrued liabilities and
intangible assets. Deferred income tax assets from the loss carryforwards and
asset basis differences aggregated $4.6 million and $2.2 million,
respectively, at September 30, 1997.
For financial reporting purposes, valuation allowances of $4.6 million
and $2.2 million have been recorded to offset the deferred tax assets due to
the uncertainty of the benefits to be realized.
The availability of the net operating loss carryforward and future tax
deductions to reduce taxable income are subject to various limitations under
the Internal Revenue Code of 1986, as amended (the "Code"), in the event of
an ownership change as defined in Section 382 of the Code. The Company may
lose the benefit of such net operating loss carryforwards due to Internal
Revenue Service ("IRS") Code Section 382 limitations. This section states
that after reorganization or other change in corporate ownership, the use of
certain carryforwards may be limited or prohibited. The Company does not
believe that an IRS Code Section 382 limitation existed at September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Tanisys has utilized the funds acquired in equity
financings of its common stock and preferred stock, the exercise of stock
warrants and stock options, capital leases, operating leases, vendor credits,
certain bank borrowings and funds generated from operations to support its
operations, carry on research and development activities, acquire capital
equipment, finance inventories and accounts receivable balances and pay its
general and administrative expenses. During the third quarter of fiscal
12
<PAGE>
1998, the Company generated $3.6 million in net cash from financing
activities versus $2.2 million in the third quarter of fiscal 1997. The $3.6
million in fiscal 1998 consisted of the purchase of convertible preferred
stock. At June 30, 1998, the Company had $4.1 million of cash and restricted
cash. The Company's working capital is negative $87 thousand but is expected
to increase when long-term financing is secured for approximately $1.7
million of equipment classified in "accrued liabilities" on the June 30, 1998
balance sheet.
Capital expenditures totaled approximately $1.3 million and $1.4
million in the third quarter of fiscal years 1998 and 1997, respectively.
These expenditures were primarily for the purchase of manufacturing
equipment, test equipment and the expansion of manufacturing facilities in
the U.S. and Scotland to meet customer demand. The Company plans to spend an
additional $3.2 million in the remainder of fiscal 1998 in capital
expenditures for additional manufacturing capacity in the U.S. and leasehold
improvements to the Scotland manufacturing facility, of which $2.0 million is
committed and expected to be financed through working capital, operating
leases and capital leases. The Company expects to obtain financing for
approximately $1.7 million of manufacturing equipment located in its Scotland
facility in the fourth fiscal quarter of 1998.
The Company has entered into certain capital lease arrangements. The
outstanding principal on these obligations at June 30, 1998 was $641
thousand.
The Company is aggressively pursuing new customers, which will require
additional manufacturing capacity. In addition, current customers have
indicated that additional capacity may secure additional orders, and the
Company intends to take advantage of these opportunities. Expected sales
growth of both new and existing customers is expected to require additional
accounts receivable and inventories. The Company believes that its existing
funds, anticipated cash flow from operations and amounts available from
future vendor credits, bank borrowings, operating and capital lease
financing, the exercise of outstanding warrants and stock options and equity
financings will be sufficient to meet its working capital and capital
expenditure needs for the next 12 months.
There is no assurance that the Company will be able to locate an
alternate source or sources for the required increase in its outstanding debt
or that it will be successful in its attempts to raise a sufficient amount of
funds in a subsequent equity offering or offerings. In such event, the
Company's inability to raise needed funds could have a material adverse
effect on the Company.
SIGNIFICANT CUSTOMER CONCENTRATION
A significant percentage of the Company's net sales are produced by a
relatively small number of customers. In the third quarter of fiscal 1998
and 1997, the ten largest customers accounted for approximately 79.3% and
54.1% of net sales, respectively. In the first nine months of fiscal 1998
and 1997, the ten largest customers accounted for approximately 66.3% and
54.6% of net sales, respectively. The Company's two largest customers
accounted for 21.1% and 19.8% of total revenue in the third quarter of fiscal
1998. One customer represented approximately 32.3% of total revenue for the
nine months ended June 30, 1998. In the third quarter of fiscal 1997, one
customer produced 16.6% of net sales. The same customer produced 13.8% of
sales for the nine months ended June 30, 1997. While the Company expects to
continue to be dependent on a relatively small number of customers for a
significant percentage of its net sales, there can be no assurance that any
of the top ten customers in fiscal 1998 will continue to utilize the
Company's products or services. The actual customers producing the sales are
different between the two periods, and the Company expects this type of
variation in volume of purchases from a particular customer to continue
throughout this fiscal year.
The Company in general has no firm long-term volume commitments from its
customers and generally enters into individual purchase orders with its
customers. Customer purchase orders are subject to change, cancellation or
delay with little or no consequence to the customer. The Company has
experienced such changes and cancellations and expects to continue to do so
in the future. The replacement of canceled, delayed or reduced purchase
orders with new business cannot be assured. The Company's business,
financial condition and results of operations will depend significantly on
its ability to obtain purchase orders from existing and new customers, upon
the financial condition and success of its
13
<PAGE>
customers, the success of customer's products and the general economy.
Factors affecting the industries of the Company's major customers could have
a material adverse effect on the Company's business, financial condition and
results of operations.
YEAR 2000 COMPLIANCE
The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The majority of the
Company's enterprise computer systems and software are already Year 2000
compliant and the Company does not expect that the cost to modify its
remaining information technology infrastructure to be Year 2000 compliant
will be material to its financial condition or results of operations. The
Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance.
The Company does not currently have any comprehensive information
concerning Year 2000 compliance status of its suppliers and customers but is
in the process of gathering such information. In the event that any of the
Company's significant suppliers or customers do not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
At the date hereof, there are no pending, or to the best knowledge of
the Company, threatened matters involving litigation involving the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to a Convertible Preferred Stock Purchase Agreement dated June
30, 1998 (the "Purchase Agreement") between the Company and KA Investments
LDC, a Cayman Islands corporation ("KA Investments"), the Company issued 400
shares of its 5% Series A Convertible Preferred Stock, par value $1.00 per
share ("Series A Stock"), for an aggregate purchase price of $4,000,000. The
Series A Stock is convertible into shares of Common Stock pursuant to a
formula based upon the Conversion Price, which shall be equal to the lower of
either (a) $2.31 per share or (b) 80% of the average of the three lowest
closing bid prices per share of Common Stock for the 30 trading days
immediately prior to conversion (as more fully described in the Articles of
Incorporation of the Company). Dividends accrue on the Series A Stock at a
rate of 5% per annum, and may be paid in shares of Common Stock, but must be
paid in cash upon the occurrence of certain events. The Company is required to
redeem certain of the shares of Series A Stock upon the occurrence of certain
triggering events. In addition, the Company granted warrants (the "Warrants")
to KA Investements, Midori Capital Corporation ("Midori"), Hoth Incorporated
("Hoth") and Randy Stein ("Stein") (KA Investments, Midori, Hoth and Stein
collectively referred to herein as the "Selling Stockholders") to purchase an
aggregate of approximately 200,000 shares of Common Stock at a purchase price
of $3.00 per share (subject to adjustment as provided by the terms of the
Warrants). The Warrants may be exercised on or before June 30, 2002. Except
as required by law or otherwise provided in the Certificate of Designation
for the Preferred Stock, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the
Company shall not and shall cause its subsidiaries not to, without the
affirmative vote of the holders of all of the shares of the Preferred Stock
then outstanding, authorize or create any class of stock ranking as to
dividends or distribution of assets of the Company upon a liquidation senior
to or otherwise pari passu with or senior to the Preferred Stock. Upon any
liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary, the holders of the Preferred Stock shall be entitled to receive
out of the assets of the Company, whether such assets are capital or surplus,
for each share of Preferred Stock an amount equal to the $10,000, plus all
due but unpaid dividends per share, whether declared or not, before any
distribution or payment shall be made to the holders of Common Stock.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
The exhibits listed below are filed as part of or incorporated by
reference in this report. Where such filing is made by incorporation by
reference to a previously filed document, such document is identified in
parentheses.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of Tanisys Technology, Inc., as amended
(Exhibit 3.1 to Form S-3 Registration Statement filed August 13, 1998)
3.2 Restated Bylaws of the Company (Exhibit 3.5 to Form 10 Registration
Statement filed November 27, 1996)
4.1 Form of Common Stock Certificate (Exhibit 4.6 to Form 10 Registration
Statement filed November 27, 1996)
15
<PAGE>
4.2 Registration Rights Agreement dated June 30, 1998 between Tanisys
Technology, Inc. and KA Investments LDC (Exhibit 4.1 to Form S-3
Registration Statement filed August 13, 1998)
10.1 Covertible Preferred Stock Purchase Agreement dated June 30, 1998,
between Tanisys Technology, Inc. and KA Investments LDC (Exhibit 10.1
to Form S-3 Registration Statement filed August 13, 1998)
10.2 Form of Warrant to Purchase Common Stock granted by Tanisys
Technology, Inc. to each of KA Investments LDC, Midori Capital
Corporation, Hoth Incorporated and Randy Stein (Exhibit 10.2 to
Form S-3 Registration Statement filed August 13, 1998)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
(b) CURRENT REPORTS ON 8-K:
None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
TANISYS TECHNOLOGY, INC.
Date: August 14, 1998 By: /s/ JOE O. DAVIS
----------------------------------------------
Joe O. Davis
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND CORPORATE SECRETARY
(Duly authorized and Principal Financial Officer)
Date: August 14, 1998 By: /s/ DONALD R. TURNER
----------------------------------------------
Donald R. Turner
CORPORATE CONTROLLER
(Duly authorized and Principal Accounting Officer)
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR TANISYS TECHNOLOGY,
INC. AND SUBSIDIARIES AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE
NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,043,543
<SECURITIES> 0
<RECEIVABLES> 4,070,675
<ALLOWANCES> 280,213
<INVENTORY> 3,872,129
<CURRENT-ASSETS> 12,480,458
<PP&E> 5,589,555
<DEPRECIATION> 2,561,013
<TOTAL-ASSETS> 18,684,699
<CURRENT-LIABILITIES> 12,567,151
<BONDS> 0
3,605,000
0
<COMMON> 29,034,774
<OTHER-SE> (27,163,834)
<TOTAL-LIABILITY-AND-EQUITY> 18,684,699
<SALES> 23,981,692
<TOTAL-REVENUES> 23,981,692
<CGS> 19,927,368
<TOTAL-COSTS> 19,927,368
<OTHER-EXPENSES> 10,556,826
<LOSS-PROVISION> 350,868
<INTEREST-EXPENSE> 459,413
<INCOME-PRETAX> (6,911,788)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,911,788)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,911,788)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
KA INVESTMENTS LDC
and
TANISYS TECHNOLOGY, INC.
Dated as of June 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as
of June 30, 1998, between Tanisys Technology, Inc., a Wyoming corporation (the
"COMPANY"), and KA Investments LDC, a Cayman Islands corporation (the
"PURCHASER").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase from the Company, shares of the Company's 5% Series A Convertible
Preferred Stock, par value $1.00 per share (the "PREFERRED STOCK"), which are
convertible into shares of the Company's common stock, no par value (the "COMMON
STOCK").
IN CONSIDERATION of the mutual covenants contained in this Agreement, and
for other good and valuable consideration the receipt and adequacy are hereby
acknowledged, the Company and Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 THE CLOSING.
(a) THE CLOSING. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchaser and the
Purchaser shall purchase 400 shares of Preferred Stock (the "SHARES") for an
aggregate purchase price of $4,000,000. The closing of the purchase and sale of
the Shares (the "CLOSING") shall take place at the offices of Robinson Silverman
Pearce Aronsohn & Berman LLP (the "ESCROW AGENT"), 1290 Avenue of the Americas,
New York, New York 10104, immediately following the execution hereof or such
later date as the parties shall agree. The date of the Closing is hereinafter
referred to as the "CLOSING DATE."
(ii) At the Closing, the parties shall deliver or shall cause to
be delivered such items as are required to be delivered by them in accordance
with the terms of this Agreement, including the following: (A) the Company shall
deliver (1) stock certificates representing the Shares, registered in the name
of the Purchaser, (2) a Common Stock purchase warrant, in the form of EXHIBIT D,
registered in the name of the Purchaser, pursuant to which the Purchaser shall
have the right at any time and from time to time thereafter through the fourth
anniversary date of the Original Issue Date to acquire 133,333 shares of Common
Stock at an exercise price per share of $3.00 (the "WARRANT"), (3) the legal
opinion of Audie Long, counsel to the Company, substantially in the form of
EXHIBIT C, and (4) all other documents, instruments and writings required to
have been delivered at or prior to the Closing Date by the Company pursuant to
this Agreement, including an executed Registration Rights Agreement, dated the
date hereof, between the Company and the Purchaser, in the form of EXHIBIT B
(the "REGISTRATION RIGHTS AGREEMENT"), and the Irrevocable Transfer Agent
Instructions, in the form of EXHIBIT F, delivered to and acknowledged by the
Company's transfer agent (the "TRANSFER AGENT INSTRUCTIONS"); and (B) the
Purchaser shall deliver (1) $4,000,000 in United States dollars in immediately
available funds by wire transfer to an account designated prior to the Closing
Date in writing by the Company for such purpose, and (2) all documents,
instruments
Convertible Preferred
Stock Purchase Agreement
<PAGE>
and writings required to have been delivered at or prior to the Closing Date
by the Purchaser pursuant to this Agreement, including, without limitation,
an executed Registration Rights Agreement.
1.2 FORM OF PREFERRED STOCK. The Preferred Stock shall have the
rights preferences and privileges set forth in EXHIBIT A, and shall be
incorporated into an Articles of Amendment ("ARTICLES OF AMENDMENT"), in form
and substance mutually agreed to by the parties.
For purposes of this Agreement, "CONVERSION PRICE," "ORIGINAL ISSUE
DATE," "CONVERSION DATE" and "TRADING DAY" shall have the meanings set forth in
Exhibit A; "BUSINESS DAY" shall mean any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
State of Wyoming, with the requisite corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in SCHEDULE
2.1(a) (collectively the "SUBSIDIARIES"). Each of the Subsidiaries is an
entity, duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the full power and authority to own and use its properties
and assets and to carry on its business as currently conducted. Each of the
Company and the Subsidiaries is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of the Securities (as defined
below) or any of this Agreement, the Articles of Amendment, the Registration
Rights Agreement or the Warrant (collectively, the "TRANSACTION DOCUMENTS"), (y)
have or result in a material adverse effect on the results of operations,
assets, prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents (any of (x), (y) or (z), a "MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, and otherwise to carry out
its obligations thereunder. The execution and
Convertible Preferred
Stock Purchase Agreement
-2-
<PAGE>
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
action is required by the Company. Each of the Transaction Documents has
been duly executed by the Company and, when delivered (or filed, as the case
may be) in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective certificate of
incorporation, by-laws or other charter documents.
(c) CAPITALIZATION. The number of authorized, issued and outstanding
capital stock of the Company is set forth in SCHEDULE 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in SCHEDULE 2.1(c), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Shares and the Warrant, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the knowledge of
the Company, except as specifically disclosed in the SEC Documents (as defined
below) or SCHEDULE 2.1(c), no Person or group of related Persons beneficially
owns (as determined pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT")) or has the right to
acquire by agreement with or by obligation binding upon the Company beneficial
ownership of in excess of 5% of the Common Stock. A "PERSON" means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
(d) ISSUANCE OF THE SHARES AND THE WARRANT. The Shares and the
Warrant are duly authorized, and, when issued and paid for in accordance with
the terms hereof, shall have been validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, "LIENS"). The Company has on the date hereof and will, at
all times while the Shares and the Warrant are outstanding, maintain an adequate
reserve of duly authorized shares of Common Stock, reserved for issuance to the
holders of the Shares, to enable it to perform its conversion, exercise and
other obligations under this Agreement, the Articles of Amendment and the
Warrant. Such number of reserved and available shares of Common Stock is not
less than the sum of (i) 200% of the number of shares of Common Stock which
would be issuable upon conversion in full of the Shares, assuming such
conversion occurred on the Original Issue Date or the Filing Date (as defined in
the Registration Rights Agreement), whichever yields a lower Conversion Price,
(ii) the number of shares of Common Stock issuable upon exercise of the Warrant,
and (iii) the number of shares Common Stock which would be issuable upon payment
of dividends on the Shares, assuming each Share is outstanding for three years
and all dividends are paid in shares of Common Stock (such number of shares, the
"INITIAL MINIMUM"). All such
Convertible Preferred
Stock Purchase Agreement
-3-
<PAGE>
authorized shares of Common Stock shall be duly reserved for issuance to the
holders of such Shares and Warrant. The shares of Common Stock issuable upon
conversion of the Shares, as payment of dividends thereon and upon exercise
of the Warrant are collectively referred to herein as the "UNDERLYING
SHARES." The Shares, the Warrant and the Underlying Shares are,
collectively, the "SECURITIES." When issued in accordance with the Articles
of Amendment and the Warrant, in accordance with their respective terms, the
Underlying Shares shall have been duly authorized, validly issued, fully paid
and nonassessable, free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), 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 (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument
(evidencing a Company debt or otherwise) to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including Federal and
state securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Neither the Company nor any Subsidiary
is required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other Federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing of the Articles of Amendment with the
Secretary of State of Delaware, (ii) the filings required pursuant to Section
3.12, (iii) the filing of a registration statement meeting the requirements set
forth in the Registration Rights Agreement (an "UNDERLYING SECURITIES
REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"COMMISSION") meeting the requirements set forth in the Registration Rights
Agreement and covering the resale of the Underlying Shares by the Purchaser,
(iv) the application(s) to the Nasdaq SmallCap Market (the "NASDAQ") for the
listing of the Underlying Shares with the NASDAQ (and with any other national
securities exchange or market on which the Common Stock is then listed), (v)
applicable Blue Sky filings and, and (vi) in all other cases where the failure
to obtain such consent, waiver, authorization or order, or to give such notice
or make such filing or registration could not have or result in, individually or
in the aggregate, a Material Adverse Effect (the consents, waivers,
authorizations, orders, notices and filings referred to in (i)-(vi) of this
Section are, collectively, the "REQUIRED APPROVALS").
Convertible Preferred
Stock Purchase Agreement
-4-
<PAGE>
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed in the
SEC Documents, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (Federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, have or result in a Material Adverse Effect.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred which has
not been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in a Material Adverse Effect.
(i) PRIVATE OFFERING. Assuming the accuracy of the representations
and warranties of the Purchaser set forth in Sections 2.2(b)-(h), the offer,
issuance and sale of the Securities to the Purchaser as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"). Neither the Company nor any Person acting on
its behalf has taken any action could subject the offering, issuance or sale of
the Securities to the registration requirements of the Securities Act.
(j) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the three years preceding the date hereof
(or such shorter period as the Company was required by law to file such
material) (the foregoing materials being collectively referred to herein as the
"SEC DOCUMENTS" and, together with the Schedules to this Agreement the
"DISCLOSURE MATERIALS") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, 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. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required. The financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
generally accepted accounting ("GAAP") principles applied on a consistent basis
during the periods
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involved, except as may be otherwise specified in such financial statements
or the notes thereto, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. Since December 31, 1997, except as
specifically disclosed in the SEC Documents, (a) there has been no event,
occurrence or development that has had or that could have or result in a
Material Adverse Effect, (b) the Company has not incurred any liabilities
(contingent or otherwise) other than (x) liabilities incurred in the ordinary
course of business consistent with past practice and (y) liabilities not
required to be reflected in the Company's financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (c) the
Company has not altered its method of accounting or the identity of its
auditors and (d) except as set forth in SCHEDULE 2.1(j), the Company has not
declared or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock option plans) with respect to its capital stock, or purchased,
redeemed (or made any agreements to purchase or redeem) any shares of its
capital stock. The Company last filed audited financial statements with the
Commission on December 29, 1997, and has not received any comments from the
Commission in respect thereof.
(k) INVESTMENT COMPANY. The Company is not, and is not an Affiliate
(as defined in Rule 405 under the Securities Act) ) of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(l) CERTAIN FEES. Except for certain fees payable by the Company to
Midori Capital Corporation, no fees or commissions will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, or bank with respect to the transactions contemplated by this
Agreement. The Purchaser shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchaser, its employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as such fees
and expenses are incurred.
(m) SOLICITATION MATERIALS. Neither the Company nor any Person
acting on the Company's behalf has (i) distributed any offering materials in
connection with the offering and sale of the Securities, or (ii) solicited any
offer to buy or sell the Securities by means of any form of general solicitation
or advertising.
(n) FORM S-3 ELIGIBILITY. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) EXCLUSIVITY. The Company shall not issue and sell the Shares to
any Person other than the Purchaser other than with the specific prior written
consent of the Purchaser.
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(p) SENIORITY. No class of equity securities of the Company is
senior to the Shares in right of payment, whether upon liquidation or
dissolution, or otherwise.
(q) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The Company has
not, in the two years preceding the date hereof, received notice (written or
oral) from the NASDAQ or any other stock exchange, market or trading facility on
which the Common Stock is or has been listed (or on which it has been quoted) to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is in compliance with all
such maintenance requirements.
(r) PATENTS AND TRADEMARKS. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights (collectively, the
"INTELLECTUAL PROPERTY RIGHTS") which are necessary or material for use in
connection with its business, and which the failure to so have would have a
Material Adverse Effect. To the best knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(s) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as set
forth on SCHEDULE 6(b) to the Registration Rights Agreement, (i) the Company has
not granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied and
(ii) no Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(t) REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate Federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents, except where the failure to
possess such permits could not, individually or in the aggregate, have or result
in a Material Adverse Effect ("MATERIAL PERMITS"), and neither the Company nor
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(u) TITLE. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property and personal property owned by them
which is material to the business of the Company and its Subsidiaries, in each
case free and clear of all Liens, except for liens, claims or encumbrances as do
not materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company and its
Subsidiaries. Any real property and facilities held under lease by the Company
and its Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its Subsidiaries.
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(v) DISCLOSURE. The Company confirms that it has not provided the
Purchaser or its agents or counsel with any information that constitutes or
might constitute material non-public information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Purchaser regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority, to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations thereunder.
The purchase by the Purchaser of the Securities hereunder has been duly
authorized by all necessary action on the part of the Purchaser. Each of this
Agreement and the Registration Rights Agreement has been duly executed and
delivered by the Purchaser and constitutes the valid and legally binding
obligation of the Purchaser, enforceable against it in accordance with its
terms.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Securities for
its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from such
registration.
(c) PURCHASER STATUS. At the time the Purchaser was offered the
Shares and the Warrant, it was, and at the date hereof it is, and at each
exercise date under the Warrant, it will be, an "accredited investor" as defined
in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF THE PURCHASER. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF THE PURCHASER TO BEAR RISK OF INVESTMENT. The
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. The Purchaser acknowledges receipt of the
Disclosure Materials and further acknowledges that it has reviewed the
Disclosure Materials and has been
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afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning
the terms and conditions of the offering of the Securities and the merits and
risks of investing in the Securities; (ii) access to information about the
Company and the Company's financial condition, results of operations,
business, properties, management and prospects sufficient to enable it to
evaluate its investment; and (iii) the opportunity to obtain such additional
information which the Company possesses or can acquire without unreasonable
effort or expense that is necessary to make an informed investment decision
with respect to the investment and to verify the accuracy and completeness of
the information contained in the Disclosure Materials. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect
such Purchaser's right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) GENERAL SOLICITATION. The Purchaser is not purchasing the
Shares as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Shares published in any newspaper, magazine
or similar media or broadcast over television or radio or presented at any
seminar.
(h) RELIANCE. The Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and the Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to register on the books of the Company and with any transfer agent
for the securities of the Company any transfer of Securities by the Purchaser to
an Affiliate of the Purchaser or to a fund under common management with the
Purchaser, and any transfer among any such Affiliates or funds, provided that
transferee
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certifies to the Company that it is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and that it is acquiring the Securities
solely for investment purposes. Any such transferee shall agree in writing
to be bound by the terms of this Agreement and shall have the rights of a
Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
The Company shall issue Underlying Shares free of the legend set
forth above (and free of any other legend) if the conversion of Shares, the
payment of dividends thereon, or exercise of the Warrant or other issuances of
Underlying Shares as contemplated hereby, by the Articles of Amendment or the
Warrant occurs at any time while an Underlying Securities Registration Statement
is effective under the Securities Act or, in the event there is not an effective
Underlying Securities Registration Statement at such time, if in the opinion of
counsel to the Company such legend is not required under applicable requirements
of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The Company shall cause its counsel to
issue the legal opinion included in the Transfer Agent Instructions to the
Company's transfer agent on the day that the Underlying Securities Registration
Statement is declared effective by the Commission. The Company agrees that it
will provide the Purchaser, upon request, with a certificate or certificates
representing Underlying Shares that may have been issued with the restrictive
legend set forth above, free from such legend at such time as such legend is no
longer required hereunder (for example, there is an effective Underlying
Securities Registration Statement). The Company may not make any notation on
its records or give instructions to any transfer agent of the Company which
enlarge the restrictions of transfer set forth in this Section.
3.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Shares and payment
of dividends thereon in accordance with the terms of the Articles of Amendment,
and (ii) exercise of the Warrant in accordance with its terms, may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares upon (x) conversion of the Shares
and payment of dividends thereon in accordance with the terms of the Articles of
Amendment, and (y) exercise of
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the Warrant in accordance with its terms, is unconditional and absolute,
subject to the limitations set forth in the Articles of Amendment or pursuant
to the Warrant, regardless of the effect of any such dilution.
3.3 FURNISHING OF INFORMATION. So long as the Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. So long as the Purchaser owns Securities, if the Company is not
required to file reports pursuant to such sections, it will prepare and furnish
to the Purchaser and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in this Section. Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer as
to whether it has complied with such requirements.
3.4 BLUE SKY LAWS. In accordance with the Registration Rights Agreement,
the Company shall qualify or exempt the issuance and sale of the Underlying
Shares under the securities or Blue Sky laws of such jurisdictions as the
Purchaser may reasonably request and shall continue such qualification or
exemption at all times until the Purchaser notifies the Company in writing that
it no longer owns Securities; PROVIDED, HOWEVER, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then subject.
3.5 INTEGRATION. The Company shall not, and shall use its best efforts to
ensure that, no Affiliate shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchaser.
3.6 INCREASE IN AUTHORIZED SHARES. Subject to the operation of any floor
that may then be applicable to the Conversion Price in accordance with the
Articles of Amendment, at such times as the Company would be, if a notice of
conversion or exercise (as the case may be) were to be delivered on such date,
precluded from (a) issuing 200% of the number of Underlying Shares as would then
be issuable upon a conversion in full of the Shares and as payment of any
accrued and unpaid dividends in respect thereof in shares of Common Stock, or
(b) honoring the exercise in full of the Warrant, in either case, due to the
unavailability of a sufficient number of shares of authorized
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but unissued or reserved Common Stock, the Board of Directors of the Company
shall promptly (and in any case, within 30 Business Days from such date)
prepare and mail to the stockholders of the Company proxy materials
requesting authorization to amend the Company's Certificate of Incorporation
to increase the number of shares of Common Stock which the Company is
authorized to issue to at least such number of shares as reasonably requested
by the Purchaser in order to provide for such number of authorized and
unissued shares of Common Stock to enable the Company to comply with its
conversion, exercise and reservation of shares obligations as set forth in
this Agreement, the Articles of Amendment and the Warrant (the sum of (x) the
number of shares of Common Stock then authorized, (y) the number of shares of
Common Stock then outstanding plus all shares of Common Stock issuable upon
exercise of all outstanding options, warrants and convertible instruments
(other than the Underlying Shares), and (z) subject to the operation of any
floor that may then be applicable to the Conversion Price in accordance with
the Articles of Amendment the sum of (i) 200% of the number of Underlying
Shares as are then issuable upon a conversion in full of all Shares and as
payment of dividends thereon, and (ii) the number of Underlying Shares as are
issuable upon exercise in full of the Warrant, shall be a reasonable number).
In connection therewith, the Board of Directors shall (a) adopt proper
resolutions authorizing such increase, (b) recommend to and otherwise use its
best efforts to promptly and duly obtain stockholder approval to carry out
such resolutions (and hold a special meeting of the stockholders no later
than the 60th day after delivery of the proxy materials relating to such
meeting) and (c) within five (5) Business Days of obtaining such stockholder
authorization, file an appropriate amendment to the Company's Certificate of
Incorporation to evidence such increase.
3.7 LISTING AND RESERVATION OF UNDERLYING SHARES. (a) The Company shall
(i) not later than the fifth Business Day following the Closing Date hereunder
prepare and file with the NASDAQ (or such other national securities exchange or
market or trading or quotation facility on which the Common Stock is then
listed) an additional shares listing application covering a number of shares of
Common Stock which is at least equal to the number of shares required to be
reserved pursuant to Section 2.1(d), (ii) take all steps necessary to cause
such shares to be approved for listing in the NASDAQ (as well as on any such
other national securities exchange or market or trading or quotation facility on
which the Common Stock is then listed) as soon as possible thereafter, and (iii)
provide to the Purchaser evidence of such listing, and the Company shall
maintain the listing of its Common Stock thereon. If the number of Underlying
Shares as are issuable upon conversion in full of the then outstanding Shares,
as payment of dividends thereon, and upon exercise of the then unexercised
portion of the Warrant exceeds 85% of the number of Underlying Shares previously
listed on account thereof with NASDAQ (and such other required exchanges), the
Company shall take the necessary actions to immediately list a number of
Underlying Shares as equals the sum of (x) 200% of the number of Underlying
Shares then issuable upon conversion of the Shares and as payment of dividends
thereon and (y) the number of Underlying Shares as are then issuable upon
exercise of the Warrant.
(b) The Company shall maintain a reserve of Common Stock for issuance
upon conversion of the Shares and for payment of dividends thereupon in shares
of Common Stock pursuant to the terms of the Articles of Amendment and upon
exercise of the Warrant in accordance with its terms, in such amount as may be
required to fulfill obligations in full under the Transaction
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Documents, which reserve shall include a number of shares of Common Stock
equal to no less than the Initial Minimum.
3.8 CONVERSION PROCEDURES. The Transfer Agent Instructions, Conversion
Notice (as defined in EXHIBIT A) and Notice of Exercise under the Warrant set
forth the totality of the procedures with respect to the conversion of the
Shares and exercise of the Warrant, including the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to convert its Shares and exercise the Warrant as contemplated in the
Articles of Amendment and the Warrant (as applicable).
3.9 NOTICE OF BREACHES. (a) Each of the Company and the Purchaser shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of the Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
(b) Notwithstanding the generality of Section 3.9(a), the Company
shall promptly notify the Purchaser of any notice or claim (written or oral)
that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by the Transaction Documents
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Securities a copy of any written statement in support of or
relating to such claim or notice.
3.10 CONVERSION AND EXERCISE OBLIGATIONS OF THE COMPANY. The Company shall
honor conversions of the Shares and exercises of the Warrant and shall deliver
Underlying Shares in accordance with the respective terms, conditions and time
periods set forth in the respective Articles of Amendment and the Warrant.
3.11 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS. (a) Subject to the
provisions of Section 3.11(b), the Company shall not, directly or indirectly,
without the prior written consent of the Purchaser, offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or any option to purchase or other disposition) any of its or its Affiliates'
equity or equity-equivalent securities in a transaction intended to be exempt or
not subject to registration under the Securities Act (a "SUBSEQUENT PLACEMENT")
for a period of 360 days after the Closing Date, except (i) the granting of
options or warrants to employees, officers and directors, and the issuance of
shares upon exercise of options granted, under any stock option plan heretofore
or hereinafter duly adopted by the Company, (ii) shares of Common Stock issued
upon exercise of any currently outstanding warrants and upon conversion of any
currently outstanding convertible securities of the Company, in each case
disclosed in SCHEDULE 2.1(c), (iii) Common Stock issued on a primary basis
pursuant to an underwritten public offering, so long as any shares of Common
Stock sold in such underwritten offering are not sold at a price less than the
average of the Per Share Market Values on the five (5) Trading Days immediately
preceding the sale of such Common Stock and (iv) shares of Common
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Stock issued upon conversion of Preferred Stock and as payment of dividends
thereon and upon exercise of the Warrant in accordance with the Articles of
Amendment or the Warrant, respectively, unless (A) the Company delivers to
the Purchaser a written notice (the "SUBSEQUENT PLACEMENT NOTICE") of its
intention effect such Subsequent Placement, which Subsequent Placement Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Placement, the amount of proceeds intended to be raised thereunder, the
Person with whom such Subsequent Placement shall be effected, and attached to
which shall be a term sheet or similar document relating thereto and (B) the
Purchaser shall not have notified the Company by 5:00 p.m. (New York City
time) on the tenth (10th) Trading Day after its receipt of the Subsequent
Placement Notice of its willingness to provide (or to cause its sole designee
to provide), subject to completion of mutually acceptable documentation,
financing to the Company on substantially the terms set forth in the
Subsequent Placement Notice. If the Purchaser shall fail to notify the
Company of its intention to enter into such negotiations within such time
period, the Company may effect the Subsequent Placement substantially upon
the terms and to the Persons (or Affiliates of such Persons) set forth in the
Subsequent Placement Notice; PROVIDED, that the Company shall provide the
Purchaser with a second Subsequent Placement Notice, and the Purchaser shall
again have the right of first refusal set forth above in this paragraph (a),
if the Subsequent Placement subject to the initial Subsequent Placement
Notice shall not have been consummated for any reason on the terms set forth
in such Subsequent Placement Notice within thirty (30) Trading Days after the
date of the initial Subsequent Placement Notice with the Person (or an
Affiliate of such Person) identified in the Subsequent Placement Notice.
(b) Notwithstanding anything to the contrary contained in
Section 3.11(a), the Company may conduct a Subsequent Placement without
affording the Purchaser its right of first refusal set forth in Section 3.11(a)
so long as (i) the amount of capital to be raised is not in excess of
$2,000,000, (ii) the only investors permitted to participate (directly or
indirectly) in the Subsequent Placement described in this Section 3.11(b) (a
"LIMITED PLACEMENT") are Persons that the Company can prove to the Purchaser's
satisfaction were beneficial owners of the capital stock of the Company on the
Closing Date, and the Purchaser, as provided below, (iii) the securities issued
in the Limited Placement may not be resold and no registration statement
covering such shares or the resale thereof may be filed for a period of one (1)
year following the consummation of such Limited Placement and (iii) (A) the
Company shall have delivered to the Purchaser a written notice ("LIMITED
PLACEMENT NOTICE") of its intention to effect such Limited Placement which
Limited Placement Notice shall describe in reasonable detail the proposed terms
of such Limited Placement, the amount of proceeds intended to be raised
thereunder, the Persons with whom such Limited Placement shall be effected, and
attached to which shall be a term sheet or similar document relating thereto and
(B) the Purchaser shall not have notified the Company by 5:00 p.m. (New York
City time) on the third (3rd) Trading Day after its receipt of the Limited
Placement Notice of its willingness to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, up to
forty (40%) percent of the financing in the Limited Placement on substantially
the terms set forth in the Limited Placement Notice. If the Purchaser shall
fail to notify the Company of its intention to enter into such negotiations
within such time period, the Company may effect the Limited Placement
substantially upon the terms and to the Persons set forth in the Limited
Placement Notice; PROVIDED, that the Company shall provide the Purchaser with a
second
Convertible Preferred
Stock Purchase Agreement
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Limited Placement Notice, and the Purchaser shall again have the right of
first refusal set forth above in this paragraph (b)(i), if the Limited Placement
subject to the initial Limited Placement Notice shall not have been consummated
for any reason on the terms set forth in such Limited Placement Notice within
thirty (30) Trading Days after the date of the initial Limited Placement Notice
with the Persons identified in the Limited Placement Notice; and
(c) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
the Registration's Rights Agreement to be registered in the Underlying
Securities Registration in accordance with the Registration Rights Agreement,
and (z) Common Stock to be registered for resale in connection with financings
permitted pursuant to paragraph (a)(i) - (iv) of Section 3.11(a), the Company
shall not, without the prior written consent of the Purchaser (i) issue or sell
any of its or any of its Affiliates' equity or equity-equivalent securities
pursuant to Regulation S promulgated under the Securities Act, or (ii) register
for resale any securities of the Company for a period of not less than 90
Trading Days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission. Any days that a Purchaser is
unable to sell Underlying Securities under the Underlying Securities
Registration Statement shall be added to such 90 Trading Day period for the
purposes of (i) and (ii) above.
3.12 CERTAIN SECURITIES LAWS DISCLOSURES; PUBLICITY. The Company shall:
(i) issue a press release acceptable to the Purchaser disclosing the
transactions contemplated hereby on the Closing Date, (ii) file with the
Commission a Report on Form 8-K disclosing the transactions contemplated hereby
within ten (10) Business Days after the Closing Date, and (iii) timely file with
the Commission a Form D promulgated under the Securities Act as required under
Regulation D promulgated under the Securities Act and provide a copy thereof to
the Purchaser promptly after the filing thereof. The Company shall, no less than
two (2) Business Days prior to the filing of any disclosure required by clauses
(ii) and (iii) above, provide a copy thereof to Purchaser. No such filing or
disclosure may be made that mentions the Purchaser by name without the prior
consent of Purchaser.
3.13 USE OF PROCEEDS. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of Company debt or to redeem any Company equity or
equity-equivalent securities. Pending application of the proceeds of this
placement in the manner permitted hereby, the Company will invest such proceeds
in interest bearing accounts and/or short-term, investment grade interest
bearing securities.
3.14 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in connection with
the sale of all or substantially all of the assets of the Company, the Company
shall not transfer, sell or otherwise dispose of any Intellectual Property
Rights, or allow any of the Intellectual Property Rights to become subject to
any Liens, or fail to renew such Intellectual Property Rights (if renewable and
it would otherwise lapse if not renewed), without the prior written consent of
the Purchaser.
Convertible Preferred
Stock Purchase Agreement
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3.15 REIMBURSEMENT. If the Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse the Purchaser for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which the Purchaser is a named party, the Company will pay the
Purchaser the charges, as reasonably determined by the Purchaser, for the time
of any officers or employees of the Purchaser devoted to appearing and preparing
to appear as witnesses, assisting in preparation for hearings, trials or
pretrial matters, or otherwise with respect to inquiries, hearings, trials, and
other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of the
Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the Purchaser or entity in connection with the
transactions contemplated by this Agreement.
3.16 INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
the Purchaser, the officers, directors, agents, brokers, investment advisors and
employees of the Purchaser, each Person who controls the Purchaser (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses, as incurred,
arising out of or relating the inaccuracy of any of the representations and
warranties of the Company set forth in Section 2.1 hereto.
3.17 DELIVERY OF OPINION. Within 30 calendar days of the Closing
Date, the Company shall deliver or cause to be delivered to the Company a legal
opinion of outside counsel to the Company reasonably acceptable to the
Purchaser, substantially in the form of EXHIBIT C. If the Company fails to
deliver to the Purchaser the legal opinion referenced in this Section within 30
calendar days of the Closing Date, the Company shall pay to the Purchaser, in
cash, as liquidated damages and not as a penalty, $20,000 for each day
thereafter ("OPINION DAMAGES") until the Company delivers such legal opinion to
the Purchaser. The Opinion Damages shall be payable weekly to the Purchaser.
Convertible Preferred
Stock Purchase Agreement
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ARTICLE IV
MISCELLANEOUS
4.1 FEES AND EXPENSES. At the Closing the Company shall pay $15,000
to the Escrow Agent in connection with the preparation and negotiation of the
Transaction Documents. Other than the amounts contemplated in the immediately
preceding sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
4.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement, the Articles
of Amendment, the Transfer Agent Instructions and the Warrant contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
4.3 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified below later than 8:00 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:
If to the Company: Tanisys Technology, Inc.
12201 Technology Blvd., Suite 125
Austin, TX 78727-6101
Facsimile No.: (512) 257-5351
Attention: Chief Financial Officer
With copies to: Mr. Andie Long
c/o Billing Concepts Corp.
7411 John Smith Drive, Suite 1500
San Antonio, TX 78229
Facsimile No.: (210) 949-7024
If to the
Purchaser: KA Investments LDC
Convertible Preferred
Stock Purchase Agreement
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1712 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4284
Attention: Mr. Bruce Lieberman
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver
of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. Except as set forth in
Section 3.1(a), the Purchaser may not assign this Agreement or any of the rights
or obligations hereunder (other than to an Affiliate of the Purchaser) without
the consent of the Company, except that the Purchaser may assign its rights
hereunder and under the Transaction Documents without the consent of the Company
so long as such assignee demonstrates to the reasonable satisfaction of the
Company its satisfaction of the representations and warranties set forth in
Section 2.2. This provision shall not limit the Purchaser's right to transfer
securities or transfer or assign rights hereunder or under the Registration
Rights Agreement.
4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns, is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan,
Convertible Preferred
Stock Purchase Agreement
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for the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of the any of the Transaction Documents), and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, that such suit, action or proceeding is improper. Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner permitted
by law.
4.9 SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Shares and the Warrant.
4.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together 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, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 PUBLICITY. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements or
filings and other communications with the Commission or any regulatory agency
or stock market or trading facility with respect to the transactions
contemplated hereby and neither party shall issue any such press release or
otherwise make any such public statement, filings or other communications
without the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other party with prior notice of such public statement, filing
or other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of the Purchaser, or include the name of the
Purchaser in any filing with the Commission, or any regulatory agency, trading
facility or stock market without the prior written consent of Purchaser, except
to the extent such disclosure (but not any disclosure as to the controlling
Persons thereof) is required by law, in which case the Company shall provide the
Purchaser with prior notice of such disclosure.
4.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
Convertible Preferred
Stock Purchase Agreement
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4.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchaser agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
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Stock Purchase Agreement
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
TANISYS TECHNOLOGY, INC.
By: /s/ Joe O. Davis
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Name: Joe O. Davis
Title: Sr. V.P. & CFO
KA INVESTMENTS LDC
For and on behalf of
FIELD SECRETARIES (CAYMAN) LIMITED
As Secretary of KA Investments LDC
By: /s/ Kelly Ireland /s/ Rob Wiens
----------------------------------------------
Name: Kelly Ireland Rob Wiens
Title:
