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EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
SRS LABS, INC.
AND
NORTH 22 CAPITAL PARTNERS 2, INC.
DATED AS OF FEBRUARY 24, 1998
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TABLE OF CONTENTS
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ARTICLE 1 PURCHASE, SALE AND EXCHANGE OF SHARES; CLOSING.........................2
1.1 Purchase, Sale and Exchange of Shares..................................2
1.2 Consideration..........................................................2
1.3 Closing................................................................2
1.4 Seller's Deliveries....................................................2
1.5 Buyer's Deliveries.....................................................4
1.6 All Transactions Simultaneous..........................................4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER...............................4
2.1 Authority..............................................................4
2.2 Due Execution..........................................................4
2.3 The Valence Shares.....................................................4
2.4 No Conflict............................................................5
2.5 Consents...............................................................5
2.6 Actions and Proceedings. etc...........................................6
2.7 Organization, Good Standing and Qualification..........................6
2.8 Capital Structure of Valence...........................................6
2.9 Representations to Management..........................................6
2.10 Representation re "U.S. Person"........................................7
2.11 Accuracy of Documents and Information..................................7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER................................7
3.1 Corporate Existence and Authority......................................7
3.2 No Conflict............................................................7
3.3 Consents...............................................................8
3.4 Binding Obligations....................................................8
3.5 Compliance with Law....................................................8
3.6 Representations........................................................8
3.7 Shares Acquired for Investment.........................................8
3.8 Available Funds........................................................8
ARTICLE 4 COVENANTS OF SELLER....................................................9
4.1 Buyer's Access to Premises and Information.............................9
4.2 Representations and Warranties True at Closing.........................9
4.3 Interim Operations.....................................................9
4.4 Notice of Proceedings.................................................12
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4.5 Proposals to the Seller...............................................12
ARTICLE 5 COVENANTS OF BUYER....................................................13
5.1 General...............................................................13
5.2 Notice of Proceedings.................................................13
5.3 Indebtedness..........................................................13
5.4 Guaranties............................................................14
ARTICLE 6 REMAKING OF REPRESENTATIONS, WARRANTIES,
ETC. AT CLOSING AND SURVIVAL OF TERMS.................................14
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF BUYER................................14
7.1 Representations and Warranties True at Closing........................14
7.2 Performance of Seller.................................................15
7.3 Authority Relating to this Agreement..................................15
7.4 Opinion of Counsel for Seller.........................................15
7.5 Documents from Seller.................................................15
7.6 Absence of Litigation, Etc............................................15
7.7 Material Changes in Business..........................................16
7.8 Consents..............................................................16
7.9 All Conditions Satisfied..............................................16
7.10 Stock Purchase Agreement..............................................16
7.11 Valence Subsidiaries..................................................17
7.12 Option Agreement......................................................17
7.13 Shareholders Agreement................................................17
7.14 Financial Advisory Agreement..........................................17
7.15 Due Diligence.........................................................17
7.16 Currency Fluctuation..................................................17
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF SELLER...............................18
8.1 Representations and Warranties True at Closing........................18
8.2 Buyer's Performance...................................................18
8.3 Authority Relating to this Agreement..................................18
8.4 Documents from Buyer..................................................18
8.5 Consents..............................................................18
8.6 All Conditions Satisfied..............................................19
8.7 Absence of Litigation, Etc............................................19
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ARTICLE 9 INDEMNIFICATION.......................................................19
9.1 Indemnification by Seller.............................................19
9.2 Indemnification of Seller.............................................20
9.3 Notice of Claim.......................................................20
9.4 Defense...............................................................20
9.5 Duration of Parties' Obligations......................................21
9.6 Arbitration...........................................................21
ARTICLE 10 TERMINATION...........................................................22
10.1 Mutual Agreement......................................................22
10.2 Termination by Buyer..................................................22
10.3 Termination by Seller.................................................22
10.4 Effect of Termination.................................................22
ARTICLE 11 COSTS.................................................................23
11.1 Finder's or Broker's Fees.............................................23
11.2 Expenses..............................................................23
11.3 Audit Fees............................................................23
ARTICLE 12 DEFINITIONS AND ACCOUNTING TERMS ...........................23
12.1 Certain Defined Terms.................................................23
12.2 Accounting Terms......................................................25
ARTICLE 13 MISCELLANEOUS.........................................................26
13.1 Headings..............................................................26
13.2 Entire Agreement; Modification; Waiver................................26
13.3 Counterparts..........................................................26
13.4 Parties in Interest...................................................26
13.5 Assignment............................................................26
13.6 Notices...............................................................26
13.7 Governing Law.........................................................27
13.8 Venue.................................................................28
13.9 Prior Agreements......................................................28
13.10 Further Assurances....................................................28
13.11 Gender................................................................28
13.12 Validity; Severability................................................28
13.13 Press Release.........................................................29
13.14 Tax Elections.........................................................29
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13.15 Statutory Books and Records...........................................29
SIGNATURES ..........................................................................30
INDEX TO SCHEDULES AND EXHIBITS......................................................31
SCHEDULES
1.4(b) List of Secretaries, Directors, Officers and Employees
of Valence and the Valence Subsidiaries to Resign (Buyer)
2.4 No Conflict (Seller)
2.5 Consents (Seller)
2.8 Capital Structure (Seller)
2.9 Representations to Management (Seller)
3.3 Consents (Buyer)
3.8 Available Funds (Buyer)
4.3(b)(xiii) Capital Commitments (Seller)
5.4 Guarantees
EXHIBITS
7.4A Opinion of Jones, Day, Reavis & Pogue
7.4B Opinion of Harney, Westwood & Riegels
12.1 Consolidated Valence Balance Sheet as of March 31, 1997
The Schedules and Exhibits referenced above have not been filed herewith.
The Company will furnish supplementally a copy of any omitted schedule to the
U.S. Securities and Exchange Commission upon request.
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this Stock Purchase Agreement, including
all exhibits attached hereto are collectively referred to as the "Agreement") is
made and entered into as of the 24th day of February, 1998, by and between SRS
Labs, Inc., a Delaware corporation ("Buyer"), and North 22 Capital Partners 2
Inc., a British Virgin Islands company ("North 22" or "Seller").
W I T N E S S E T H:
WHEREAS, North 22 is the record and beneficial owner of 4,125,000 ordinary
shares, U.S. $0.13 par value per share, of Valence Technology Inc., a British
Virgin Islands company ("Valence"), representing 55% of the issued and
outstanding shares of capital stock of Valence (the "Valence Shares");
WHEREAS, Valence beneficially owns 100% of the issued share capital of the
following companies: Valence Semiconductor Design Limited, ("VSD"), ASP
Microelectronics Limited ("ASP"), LEC Electronic Components Limited ("LEC"), and
VSD Electronics Limited ("VEL"), each of which is a company limited by shares
incorporated in Hong Kong;
WHEREAS, ASP beneficially owns 100% of the issued share capital of LEC
Microelectronics Limited, a company limited by shares incorporated in Hong Kong
("LML"), and LEC owns 100% of the issued share capital of LEC Electronics
Limited, a company limited by shares incorporated in Hong Kong ("LEL"), and the
entire equity interest in VSD Electronics (Hui Yang) Ltd., a wholly
foreign-owned enterprise established under the laws of the PRC ("VHY");
WHEREAS, Buyer desires to acquire the Valence Shares from Seller and
Seller desires to transfer the Valence Shares to Buyer, upon the terms and
subject to the conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations, and warranties contained herein, the parties agree as follows:
(Capitalized terms not defined where used shall have the meanings provided
in Article 12 herein.)
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ARTICLE 1
PURCHASE, SALE AND EXCHANGE OF SHARES; CLOSING
1.1 Purchase, Sale and Exchange of Shares. Subject to the terms
and conditions set forth in this Agreement, Seller shall sell, convey, transfer,
assign, exchange and deliver the Valence Shares to Buyer and Buyer shall acquire
the Valence Shares from Seller at the Closing (as defined in Section 1.3).
1.2 Consideration.
The purchase price to be paid by Buyer to Seller for the
Valence Shares shall be U.S. $6,000,000, payable in cash at the Closing.
1.3 Closing. The closing of the transactions provided for in this
Agreement (the "Closing") shall take place on the Closing Date. Unless otherwise
agreed by the parties, the Closing shall occur at the offices of Victor Chu &
Co., located on the 19th Floor, Tower II, The Gateway, Harbour City, Kowloon,
Hong Kong, prior to 3:00 p.m. (Hong Kong time) on the designated Closing Date.
1.4 Seller's Deliveries. At the Closing, Seller shall
(a) deliver to Buyer certificates representing Seller's
Valence Shares duly endorsed in blank or accompanied by stock powers duly
executed in blank, with signatures appropriately guaranteed, and in proper form
for transfer, together with such other documents, including but not limited to
any government approvals, as may be necessary to convey to Buyer good, valid and
marketable title to the Valence Shares, free and clear of all liens,
encumbrances, pledges, equities, rights of first refusal and claims of any
nature whatsoever;
(b) use its best efforts to cause such persons as Buyer may
nominate to be validly appointed as directors or secretaries of Valence and/or
the Valence Subsidiaries, and upon such appointment, forthwith use its best
efforts to cause the directors, officers and the secretaries of Valence and the
Valence Subsidiaries listed on Schedule 1.4(b) to resign from their respective
offices in Valence or the Valence Subsidiaries and as employees, each delivering
to the Buyer their resignation acknowledging that the person so retiring has no
claim outstanding for compensation or otherwise;
(c) deliver to Buyer such other instruments and documents as
are required to be delivered at Closing by Seller pursuant to the provisions of
this
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Agreement or as are reasonably required to evidence compliance with the
representations, warranties and covenants of Seller contained in this Agreement;
(d) use its best efforts to deliver to Buyer the statutory
books and common seals of Valence and the Valence Subsidiaries and the share
certificates for all the issued shares in the Valence Subsidiaries together with
indemnities in a form approved by Buyer in respect of any missing certificates
and duly executed transfers and sold notes in favor of the Buyer's nominees of
any shares in the Valence Subsidiaries beneficially held by Valence presently
registered in any name other than or in addition to that of Valence;
(e) use its best efforts to deliver to Buyer certified
copies of the Certificate of Incumbency and a Certificate of Good Standing for
Valence;
(f) use its best efforts to procure that a board meeting of
Valence be held at which it shall be resolved that the transfer in respect of
the Valence Shares be passed for registration;
(g) use its best efforts to cause Valence to deliver to
Buyer all other books of account and records of Valence and each of the Valence
Subsidiaries whatsoever;
(h) use its best efforts to revoke all existing authorities
in respect of the operation of any bank account (if any) in the name of Valence
or any of the Valence Subsidiaries;
(i) deliver to Buyer a certified copy of the board
resolution of Seller approving and authorizing the execution and closing of this
Agreement;
(j) deliver to Buyer a certified copy of Valence's stock
transfer register;
(k) deliver to Buyer a certified copy of a shareholder
resolution of Seller approving and authorizing the execution and closing of this
Agreement, where such approval and authorization is required under the laws of
the British Virgin Islands; and
(l) execute and do all such other documents, acts and things
as Buyer shall reasonably require in order to perfect the right, title and
interest of Buyer to and in the Valence Shares and the share capital of each of
the Valence Subsidiaries.
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1.5 Buyer's Deliveries. At the Closing, Buyer shall deliver the
following as provided under this Agreement:
(a) U.S. $6,000,000 in immediately available United States
funds by electronic bank fund transfers as directed by Seller; and
(b) such other instruments and documents as are required to
be delivered at Closing by Buyer pursuant to the provisions of this Agreement or
as are reasonably required to evidence compliance with the representations,
warranties and covenants of Buyer contained herein.
1.6 All Transactions Simultaneous. All transactions at the Closing
shall be deemed to take place simultaneously and no party shall have any
obligations to deliver any document or take any action contemplated by this
Agreement to be delivered or taken at the Closing unless at the Closing there
occurs simultaneously each and every other transaction contemplated by this
Agreement to occur at the Closing.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
In order to induce Buyer to enter into this Agreement, Seller hereby
makes the representations and warranties set forth below, which representations
and warranties shall be deemed to continue in full force and effect until the
time of Closing and thereafter as set forth herein.
2.1 Authority. Seller has full corporate power, authority and
legal right to enter into and perform its obligations under this Agreement, and
to consummate the transactions contemplated hereby.
2.2 Due Execution. This Agreement has been duly executed and
delivered by Seller and this Agreement constitutes a valid and binding
obligation of Seller, enforceable against Seller in accordance with its
respective terms, except as such enforceability may be subject to or limited by
(a) bankruptcy, insolvency or other similar laws relating to the rights of
creditors generally and (b) the effect of general principles of equity.
2.3 The Valence Shares. Seller has good and valid title to the
Valence Shares being sold by it hereunder, free and clear of any liens, claims,
encumbrances, security interests, options, charges and restrictions of any kind.
Upon delivery to Buyer at the Closing of certificates representing the Valence
Shares being sold hereunder by Seller duly
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endorsed by Seller for transfer to Buyer, and upon Seller's receipt of the
consideration hereunder, good and valid title to the Valence Shares will pass to
Buyer, free and clear of any liens, claims, encumbrances, security interests,
options, pledges, equities, right of first refusal, charges, claims and
restrictions of any kind. Other than this Agreement and the Legend-Valence
Shareholders Agreement (as defined in Section 7.12), the Valence Shares being
sold by Seller hereunder are not subject to any voting trust agreement or other
contract, agreement, arrangement, commitment or understanding, including any
such agreement, arrangement, commitment or understanding restricting or
otherwise relating to the voting, dividend rights or disposition of the Valence
Shares.
2.4 No Conflict. Except as set forth in Schedule 2.4 to this
Agreement, the execution and delivery of this Agreement does not, and the
performance of this Agreement and the consummation of the transactions
contemplated hereby in accordance with the terms, conditions and provisions
hereof will not (a) accelerate the maturity of, or give any person any rights
under, or the right to rescind, or otherwise modify, any obligation,
indebtedness, license, agreement or instrument to which Valence or any of the
Valence Subsidiaries is a party or by which any of them or any of their
respective properties is bound, or (b) result in the creation of any lien,
encumbrance or charge upon any of the properties or assets of Valence or any of
the Valence Subsidiaries or (c) result in a breach or violation of, or be in
conflict with, or constitute (with or without the giving of notice or the
passage of time or both) a default under (i) any statute, law, ordinance, rule
or regulation (including, without limitation, all laws regulating franchises)
applicable to Seller, Valence or any of the Valence Subsidiaries or any of their
properties; (ii) the terms, conditions or provisions of the memorandum or
articles of association of Seller, Valence or any of the Valence Subsidiaries,
or any lease, license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust, partnership agreement or other agreement,
contract, instrument, or arrangement (whether or not in writing) to which
Seller, Valence or any of the Valence Subsidiaries is a party or by which
Seller, Valence or any of the Valence Subsidiaries, or any of their respective
properties, is or may be bound; or (iii) any permit, license, order, judgment or
decree of any court, arbitrator or governmental authority by which Seller,
Valence, or any of the Valence Subsidiaries or any of their respective
properties, is or may be bound other than conflicts, breaches, terminations,
defaults, liens and encumbrances which individually or in the aggregate would
not reasonably be expected to have a materially adverse effect on the business,
financial condition or properties of Valence and the Valence Subsidiaries taken
as a whole.
2.5 Consents. Except as set forth in Schedule 2.5 to this
Agreement, no consent, permit, approval, order, authorization of, or filing with
or notice to, any BVI, Hong Kong, PRC or other foreign, U.S. federal, state,
local governmental department, commission, board, bureau, agency,
instrumentality or authority or any person (whether or not governmental in
character) has been or is required to be obtained, made or given by Seller,
Valence, or any of the Valence Subsidiaries in connection with the execution and
delivery
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of this Agreement or the consummation of the transactions contemplated hereby or
the fulfillment of or the compliance with the terms, conditions and provisions
hereof except for those the failure to make, file, give or obtain which would
not, individually or in the aggregate, prevent the consummation of the purchase
of the Valence Shares.
2.6 Actions and Proceedings. etc. There are no (a) outstanding
judgments, orders, writs, preliminary or permanent injunctions or other decrees
of any court, administrative agency, governmental authority or instrumentality
or arbitration tribunal against Seller which have or could have a material
adverse effect on the ability of Seller to consummate the transactions
contemplated hereby or (b) actions, suits, claims or legal, administrative or
arbitration proceedings or investigations pending or, to the best knowledge of
Seller, threatened against Seller, which have or could have a material adverse
effect on the ability of Seller to consummate the transactions contemplated
hereby.
2.7 Organization, Good Standing and Qualification. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the British Virgin Islands, and has all necessary power and authority to own
and lease its properties and to conduct its business as now owned and presently
operated by it. Neither the nature of the businesses of Seller, nor the
character or location of properties owned or leased by Seller, has made or makes
licensing or qualification in any jurisdiction other than their respective
jurisdictions of organization necessary.
2.8 Capital Structure of Valence. The authorized capital stock of
Valence consists solely of 20,000,000 ordinary shares, par value U.S. $0.13 per
share, of which 7,500,000 shares are currently issued and outstanding. Seller is
the record and beneficial owner of 4,125,000 of the Valence ordinary shares.
Except as stated in Schedule 2.8, there are no outstanding subscriptions,
options, rights, warrants, convertible securities, or other agreements,
commitments or arrangements pursuant to which Valence or any Valence Subsidiary
is or may become obligated to issue, or to transfer from treasury, any
additional shares of its capital stock or any options or rights relating
thereto. Valence is the beneficial owner of the entire issued share capital of
each of VSD, ASP, LEC and VEL. ASP is the beneficial owner of the entire issued
share capital of LML. LEC is the beneficial owner of the entire issued share
capital of LEL and entire registered capital of VHY and holds the entire equity
interest in VHY. The issued share capital of each of VSD, ASP, LEC and VEL is
fully paid.
2.9 Representations to Management. Except as set forth in Schedule
2.9, Seller has disclosed to Wan Wah Tong Thomas, Yat Ming Choi Raymond, or Wong
Yin Bun Kenneth all transactions relating to Valence and the Valence
Subsidiaries entered into by Seller for or on behalf of Valence, the Valence
Subsidiaries or Seller.
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2.10 Representation re "U.S. Person". Seller certifies under
penalty of perjury that it is neither a citizen nor a resident of the U.S. and
that its address set forth in this Agreement is correct.
2.11 Accuracy of Documents and Information. The copies of all
instruments, agreements, other documents and written information delivered to
Buyer by or on behalf of Seller or its representatives, pursuant to this
Agreement are and will be complete and correct in all material respects as of
the date hereof and as of the Closing Date. The representations and warranties
made by Seller in this Agreement, or in other written materials furnished to
Buyer hereunder or in connection with the transactions contemplated hereby, do
not contain any untrue statement of material fact and do not omit any material
fact necessary to make the statements or facts contained herein or therein not
misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
In order to induce Seller to enter into this Agreement, Buyer hereby
makes the representations and warranties set forth below, which representations
and warranties shall be deemed to continue in full force and effect until the
time of the Closing and thereafter as set forth herein:
3.1 Corporate Existence and Authority. Buyer is a corporation duly
incorporated, validly existing, and in good standing under the laws of the State
of Delaware. The Buyer has full power, authority and legal right to enter into
and perform its obligations under this Agreement, and to consummate the
transaction contemplated hereby.
3.2 No Conflict. The execution and delivery of this Agreement do
not, and the performance of this Agreement and the consummation of the
transactions contemplated hereby in accordance with the terms, conditions and
provisions hereof will not result in a breach or violation of, or in conflict
with, or constitute (with or without the giving of notice or the passage of time
or both) a default under:
(a) any statute, law, ordinance, rule or regulation
applicable to Buyer, or
(b) the terms, conditions or provisions of the Certificate
of Incorporation or Bylaws or other organizational documents of Buyer, or any
lease, license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust, partnership agreement or other agreement,
contract, instrument, or arrangement (whether or
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not in writing) to which Buyer is a party or by which Buyer or its properties,
is or may be bound, or
(c) any permit, license, order, judgment or decree of any
court, arbitrator or governmental authority by which Buyer or its properties is
or may be bound.
3.3 Consents. No consent, permit, approval, order, authorization
of, or filing with or notice to, any BVI, Hong Kong, PRC or other foreign, U.S.
federal, state or local governmental department, commission, board, bureau,
agency, instrumentality or authority or any person (whether or not governmental
in character) has been or is required to be obtained, made or given by Buyer in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby or the fulfillment of or the compliance
with the terms, conditions and provisions hereof, except as set forth in
Schedule 3.3 to this Agreement.
3.4 Binding Obligations. This Agreement has been duly authorized,
executed and delivered by Buyer and this Agreement constitutes or will
constitute the legal, valid and binding obligation of Buyer, enforceable in
accordance with its terms against Buyer.
3.5 Compliance with Law. Buyer is in compliance in all material
respects with all applicable statutes, rules, regulations, orders and
restrictions of governmental authorities having jurisdiction over the conduct of
its business.
3.6 Representations. The representations and warranties made by
Buyer in this Agreement, or in other written materials furnished to Seller
hereunder or in connection with the transactions contemplated hereby do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
3.7 Shares Acquired for Investment. Buyer is acquiring the Valence
Shares as an investment for its own account and not with view to the resale or
other distribution thereof.
3.8 Available Funds. Buyer has, or will have available to it, all
funds necessary to (a) satisfy the obligations of Buyer to purchase the Valence
Shares on the Closing Date and (b) repay the outstanding indebtedness of Valence
listed on Schedule 3.8 within five business days after the Closing Date.
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ARTICLE 4
COVENANTS OF SELLER
Seller covenants that, except as otherwise agreed or authorized in
writing by Buyer, from the date of this Agreement until the Closing:
4.1 Buyer's Access to Premises and Information. Seller shall
direct the management of Valence to provide Buyer and its counsel, accountants,
and other representatives as well as employees, agents and representatives of
lenders to Buyer (collectively, the "Representatives") full reasonable access
during normal business hours to all of the properties, books, accounts, records,
contracts, documents and personnel of Valence and each of the Valence
Subsidiaries. Seller shall furnish, or cause to be furnished, to Buyer and its
representatives all data and information concerning the business, finances,
operations and properties of Valence and each of the Valence Subsidiaries that
may reasonably be requested.
4.2 Representations and Warranties True at Closing. Seller shall
use reasonable and diligent efforts to assure that all representations and
warranties of Seller set forth in this Agreement and in any written statements
delivered to Buyer by Seller under this Agreement are true and correct as of the
Closing Date, and that all conditions stated herein to the obligations of the
Buyer are satisfied as soon as practicable and on or before the Closing Date.
4.3 Interim Operations.
(a) Seller has directed and shall direct the management of
Valence to cause the businesses of Valence and each of the Valence Subsidiaries
to be conducted at all times between February 1, 1998 and the Closing Date as
follows:
(i) Except as otherwise provided in this Agreement,
Valence and each of the Valence Subsidiaries shall carry on their
businesses and continue to operate, maintain and repair their properties,
in the normal course of business in all material respects and in
accordance with their past practices;
(ii) The books and records of Valence and each of the
Valence Subsidiaries shall be maintained on a basis consistent with the
Valence Financial Statements prepared in accordance with H.K. GAAP in such
manner as to present fairly the history of the operations and financial
condition of Valence and each of the Valence Subsidiaries;
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(iii) Valence and each of the Valence Subsidiaries shall
carry such insurance against fire, storm damage and other hazards,
consistent with the past practices of Valence and each of the Valence
Subsidiaries subject to the availability thereof at costs not materially
greater than at present; and
(iv) Seller shall use its best efforts and shall
cooperate with Buyer in all respects reasonably requested by Buyer,
without making any commitments on behalf of Buyer, to preserve the
business organizations of Valence and each of the Valence Subsidiaries
intact, to keep available to Valence and each of the Valence Subsidiaries
their present employees, to preserve the goodwill of Valence and each of
the Valence Subsidiaries, and to foster and promote the operations of
Valence and each of the Valence Subsidiaries and their relations with
customers, suppliers, contractors, vendors, purchasers, banks, lenders,
employees and others having business relationships with Valence and each
of the Valence Subsidiaries.
(b) Between February 1, 1998 and the Closing Date, without
prior written agreement or authorization of Buyer, and except as otherwise
specifically provided in this Agreement and in the Exhibits and Schedules
attached hereto, Seller did not take or shall not take any action, or allow any
action to be taken with respect to Valence and each of the Valence Subsidiaries,
which would cause any material change in the businesses of Valence or any of the
Valence Subsidiaries or would result in the inaccuracy or breach of any of the
representations and warranties of Seller in Article 2 if such representations
and warranties were remade immediately after such action, including without
limitation:
(i) incurring or becoming subject to, or agreeing to
incur or become subject to, any liability, indebtedness, claim, obligation
or responsibility (fixed, contingent or otherwise) other than those
incurred in the ordinary course of business, consistent with past practice
or as required by law or contractual obligations existing on the date
hereof which has been disclosed in writing to Buyer prior to the date
hereof;
(ii) discharging or satisfying any lien or encumbrance
or payment of any liability, indebtedness, claim, obligation or
responsibility (fixed, contingent or otherwise) other than current
liabilities reflected on the Corporate Balance Sheet and current
liabilities incurred since the date of the Corporate Balance Sheet in the
ordinary course of business of Valence and each of the Valence
Subsidiaries, consistent with past practice;
(iii) mortgaging, pledging or assuming any lien, charge
or any other encumbrances or the agreement so to do, in respect to any of
the assets, tangible or intangible, of Valence and each of the Valence
Subsidiaries;
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(iv) selling, leasing, transferring, or agreeing to
sell, lease or transfer, any of the assets of Valence and each of the
Valence Subsidiaries, or canceling or agreeing to cancel any debts or
claims, except in each case in the ordinary course of the business of
Valence and each of the Valence Subsidiaries, consistent with past
practice;
(v) entering into any transaction other than in the
ordinary course of business, consistent with past practice;
(vi) increasing the rate of compensation payable or to
become payable to any of the officers, employees, agents or consultants of
Valence and each of the Valence Subsidiaries over the rate being paid to
them on the date of this Agreement except as required by law or
contractual obligations existing on the date of this Agreement which has
been disclosed in writing to Buyer prior to the date hereof ;
(vii) terminating any material contract, agreement,
license or other instrument to which Valence or any of the Valence
Subsidiaries is a party;
(viii) negotiating or otherwise making any commitment,
or incurring any liability or obligation, to any labor organization not
binding and enforceable against Valence and each of the Valence
Subsidiaries on the date of this Agreement except as required by law;
(ix) making, or agreeing to make, any accrual, or
arrangement for or payment of any bonus or special compensation of any
kind, to any officer, employee, agent or consultant of Valence or any of
the Valence Subsidiaries except as required by law or contractual
obligations existing on the date of this Agreement which has been
disclosed in writing to Buyer prior to the date hereof;
(x) directly or indirectly paying or making a
commitment to pay any severance or termination pay to any officer,
employee, agent or consultant of Valence or any of the Valence
Subsidiaries, or entering into or amending, or negotiating or otherwise
making any commitment to enter into or amend, any bonus, incentive
compensation, deferred compensation, profit sharing, retirement, pension,
group insurance or other benefit plan, any employment or consulting
agreement, or any policies or past practices with respect to vacation,
termination, severance, and leave pay and benefits except as required by
law or contractual obligations existing on the date of this Agreement
which has been disclosed in writing to Buyer prior to the date hereof;
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(xi) introducing any new method of accounting in
respect to the businesses of Valence or any of the Valence Subsidiaries or
any of the assets, properties or rights applicable thereto;
(xii) making or agreeing to make any charitable or
political contributions or incurring or agreeing to pay any non-business
expenses in excess of U.S. $20,000 in the aggregate;
(xiii) making, or entering into, any commitments for
capital expenditures, exceeding the aggregate amount of U.S. $25,000,
other than what has already been previously budgeted and set forth on
Schedule 4.3(b)(xiii) attached hereto;
(xiv) declaring or paying any cash or non-cash dividend,
or making any cash or non-cash distribution with respect to the capital
stock or share capital of Valence or any of the Valence Subsidiaries;
directly or indirectly redeeming, purchasing or otherwise acquiring any of
the capital stock or share capital of Valence or any of the Valence
Subsidiaries, issuing or agreeing to issue or in any way disposing or
agreeing to dispose of any shares of the capital stock or share capital of
Valence or any of the Valence Subsidiaries, or repaying any indebtedness
owing to any shareholder of Valence or any of the Valence Subsidiaries
except indebtedness shown on the Corporate Balance Sheet or in Schedules
3.8 and 5.4;
(xv) entering into any agreement with any officer,
director or shareholder of Valence or any of the Valence Subsidiaries, or
any affiliate of any such officer, director or shareholder; or
(xvi) amending, altering or otherwise revising the
memorandum or articles of association or any other charter documents of
Valence or any of the Valence Subsidiaries.
4.4 Notice of Proceedings. Seller will promptly notify Buyer in
writing upon (a) becoming aware of any order or decree or any complaint praying
for an order or decree (or any threat to seek any of the foregoing) restraining
or enjoining the consummation of this Agreement or the transactions contemplated
hereunder, or (b) receiving any notice from any court or governmental agency of
its intention to (i) commence an investigation into, or commence a suit or
proceeding to restrain or enjoin, the consummation of this Agreement or such
transactions, or (ii) nullify or render ineffective this Agreement or such
transactions if consummated.
4.5 Proposals to the Seller. Prior to the earlier of (a) the
Closing or (b) the termination of this Agreement pursuant to Article 10 hereof,
Seller and any of its affiliates
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will not, nor will such persons take any action to permit or cause Valence and
each of the Valence Subsidiaries, to, directly or indirectly, merge with or sell
any stock, shares or assets of Valence and each of the Valence Subsidiaries
(other than in the ordinary course of business) to any person other than Buyer,
nor will Seller and any of its affiliates enter into, or take any action to
permit, Valence and each of the Valence Subsidiaries, to enter into any
agreement, arrangement or understanding with any person with respect to the
foregoing, or engage in any material discussions which might lead to such
agreement, arrangement or understanding; or solicit or accept any offers from
any person with respect to the sale of shares of Valence and/or the Valence
Subsidiaries or any assets thereof (other than in the ordinary course of
business), or provide confidential information regarding Valence and/or the
Valence Subsidiaries to any person, except Buyer and Buyer's affiliates,
directors, officers, employees, representatives, agents and financing parties.
In the event Seller, Valence and/or the Valence Subsidiaries receives any offers
or inquiries regarding any such transaction, such person, as the case may be,
shall immediately notify the offeror or inquirer that none of Seller, Valence
and/or the Valence Subsidiaries is in a position to discuss any such transaction
until further notice and none of Seller, Valence and/or the Valence Subsidiaries
shall engage in any further discussions regarding such offer or inquiry with
such offeror or inquirer.
ARTICLE 5
COVENANTS OF BUYER
5.1 General. Buyer covenants, except as otherwise agreed or
authorized in writing by Seller from the date of this Agreement until Closing,
that it shall use reasonable and diligent efforts to assure that all
representations and warranties of Buyer set forth in this Agreement and in any
written statements delivered to Seller by Buyer under this Agreement are true
and correct as of the Closing Date, and that all conditions stated herein to the
obligations of Seller are satisfied as soon as practicable and on or before the
Closing Date.
5.2 Notice of Proceedings. Buyer will promptly notify Seller in
writing upon (a) becoming aware of any order or decree or any complaint praying
for an order or decree (or any threat to seek any of the foregoing) restraining
or enjoining the consummation of this Agreement or the transactions contemplated
hereunder, or (b) receiving any notice from any court or governmental agency of
its intention to (i) commence an investigation into, or commence a suit or
proceeding to restrain or enjoin, the consummation of this Agreement or such
transactions, or (ii) nullify or render ineffective this Agreement or such
transactions if consummated.
5.3 Indebtedness. Within five business days after the Closing
Date, all outstanding indebtedness existing as of the Closing Date between
Seller or any of its
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affiliates, on the one hand, and Valence and the Valence Subsidiaries, on the
other hand, as set forth on Schedule 3.8 shall be repaid in full, together with
any interest accrued and unpaid to such date.
5.4 Guaranties. After the Closing Date, Buyer and Seller shall
work together to arrange for Buyer or one or more of its affiliates to be
substituted in all respects for Seller and its affiliates, in respect of those
obligations of Seller and any of its affiliates relating to Valence under each
of the guaranties set forth in Schedule 5.4 (the "Guaranties"). Subsequent to
the Closing Date, with respect to any uncancelled Guaranty for which no
substitution is effected, Buyer shall indemnify Seller or any of its affiliates
listed on Schedule 5.4 against any liability under any such Guaranty.
ARTICLE 6
REMAKING OF REPRESENTATIONS, WARRANTIES, ETC.
AT CLOSING AND SURVIVAL OF TERMS
Except as otherwise expressly stated in this Agreement and subject
to the provisions of Section 9.5 hereof, all representations, warranties,
covenants, and agreements of the parties contained in this Agreement, or in any
instrument, certificate, opinion, or other writing provided for, or delivered by
or on behalf of the parties, pursuant to this Agreement, shall be deemed to have
been remade at the Closing, subject to the changes and activities permitted by
this Agreement, shall survive the Closing and the transactions contemplated
hereby.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF BUYER
Except as otherwise specifically set forth in this Agreement or
waived in writing by Buyer, all obligations of Buyer under this Agreement are
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions:
7.1 Representations and Warranties True at Closing. All
representations and warranties of Seller contained in this Agreement, or in any
written statement, Exhibit or Schedule delivered to Buyer by Seller under this
Agreement, shall have been true and correct, in all material respects, when made
and shall be true and correct, in all material respects, as of the Closing Date.
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7.2 Performance of Seller. Each of the covenants, agreements and
conditions of Seller to be performed, satisfied or complied with on or before
the Closing Date pursuant to the terms of this Agreement shall have been duly
performed, satisfied and complied with by Seller in all material respects on or
before the Closing Date. Seller shall have delivered to Buyer a certificate in
form and substance satisfactory to Buyer dated as of the Closing Date and signed
by Seller, certifying in such detail as Buyer shall reasonably request that the
conditions specified in Sections 7.1 and 7.2 have been fulfilled.
7.3 Authority Relating to this Agreement. All actions required to
be taken by, or on the part of, Seller to authorize Seller to execute, deliver
and carry out this Agreement and to consummate the transactions contemplated
hereby in accordance with this Agreement shall have been duly and properly
taken.
7.4 Opinion of Counsel for Seller. Buyer and Buyer's counsel shall
have received from Jones, Day, Reavis & Pogue, and a law firm licensed to
practice in the British Virgin Islands, each counsel for Seller, opinions in
form and substance reasonably satisfactory to Buyer and Buyer's counsel dated
the Closing Date, collectively covering the matters referred to in Exhibits 7.4A
and 7.4B with such language changes as are reasonably agreed to by Buyer and
Seller and with customary qualifications and assumptions.
7.5 Documents from Seller. Seller shall have delivered to Buyer
all of the documents described in Section 1.4 and such other documents as Buyer
has reasonably requested in form, content and substance satisfactory to Buyer in
the exercise of its reasonable discretion.
7.6 Absence of Litigation, Etc. There shall not be pending or
threatened any action, suit, proceeding or investigation by the BVI, Hong Kong,
PRC or other foreign government, or the United States or any state, municipal or
local government, or any department, commission or agency of any of the
foregoing, or any other party for any injunction, writ, preliminary restraining
order or for any order of any court or governmental agency, domestic or foreign,
of competent jurisdiction directly affecting or restraining, or in which it is
sought to obtain damages or other relief in connection with, any of the
transactions contemplated by this Agreement, and there shall not have been
issued and remain in effect any such injunction, writ, preliminary restraining
order or such other order. No decree or order shall have been entered by a court
having jurisdiction in the premises for relief in respect of Seller, Valence
and/or any of the Valence Subsidiaries or adjudging Seller, Valence and/or any
of the Valence Subsidiaries, a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, adjustment or composition of or in
respect of Seller, Valence and/or any of the Valence Subsidiaries, under the
federal bankruptcy law or any other applicable law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of or for Seller, Valence and/or any of the Valence Subsidiaries or
any part of their property, or ordering the winding up or liquidation of their
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affairs. There shall not have been commenced by Seller, Valence and/or any of
the Valence Subsidiaries a voluntary case, or the institution by any of them of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by any of
them to the institution of bankruptcy or insolvency proceedings against it, or
the filing by any of them of a petition or answer or consent seeking
reorganization, arrangement or relief under the federal bankruptcy law or any
other applicable law, or the consent or acquiescence by any of them to the
filing of any such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of any part of its property, or the making by any of them of
an assignment for the benefit of creditors, or the admission by any of them in
writing of its inability to pay its debts generally as they become due, or the
taking of corporate action by Seller, Valence and/or any of the Valence
Subsidiaries in furtherance of any such action.
7.7 Material Changes in Business. Between January 1, 1998 and the
Closing Date, there shall have been no material adverse changes in the financial
condition, results of operations, assets, liabilities, customer or supplier
relationships, properties or sales of Valence and each of the Valence
Subsidiaries, other than changes incurred in the ordinary course of business or
as expressly permitted or contemplated by this Agreement.
7.8 Consents. On or before the Closing Date, the consent or
approval of all third parties, including without limitation landlords, lenders,
and governmental agencies, whose consent or approval is necessary to the valid
and effective transfer of the Valence Shares or to the valid and effective
performance of the parties' obligations hereunder, shall have been granted
except for such consents the failure to obtain which, individually or in the
aggregate, would not preclude consummation of the transactions contemplated by
this Agreement or would not have a material adverse effect on the business,
assets, financial condition or prospects of Valence and the Valence Subsidiaries
taken as a whole.
7.9 All Conditions Satisfied. Buyer shall have received copies of
all documents and other evidence necessary to confirm that all conditions set
forth in this Article 7 shall have been complied with and that all other actions
and things required by this Agreement to be taken and accomplished shall have
been so taken and accomplished, all in form and substance satisfactory to Buyer
in its reasonable judgment.
7.10 Stock Purchase Agreement. Valence, Wan Wah Tong Thomas, Yat
Ming Choi Raymond, Wong Yin Bun Kenneth and Ki Ching Hui and/or companies
controlled by each of them respectively which as the record holder of the
ordinary shares of Valence shall have entered into and consummated a Stock
Purchase Agreement with Buyer to acquire all of the issued and outstanding
shares of the capital stock of Valence not held of record and beneficially by
Seller.
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7.11 Valence Subsidiaries. All of the outstanding capital shares of
the Valence Subsidiaries shall be held beneficially by Valence or a nominee of
Buyer.
7.12 Option Agreement. The Option Agreement by and between North 22
Nominees Ltd. and Valence dated October 17, 1997 shall have been canceled prior
to exercise.
7.13 Shareholders Agreement. The Shareholders Agreement (the
"Legend- Valence Shareholders Agreement") by and among Legend Holdings (BVI)
Limited, Thomrose Holdings (BVI) Limited, Rayfa (BVI) Limited and AnKi (BVI)
Limited, Wan Wah Tong Thomas, Yat Ming Choi Raymond, and Ki Ching Hui, and
Legend-Valence Holdings (BVI) Limited dated May 1, 1995 shall have been
terminated (the parties to the Legend-Valence Shareholders Agreement are
collectively referred to in this Section 7.13 as the "Restricted Stockholders").
In addition, Seller and each of its Affiliates, Valence, and each of the
Restricted Stockholders shall have executed a document stating that the Legend-
Valence Shareholders Agreement and all other written or oral agreements (or
portions of such agreements) related thereto are terminated or amended to effect
termination of such Shareholders Agreement and any other agreements related
thereto.
7.14 Financial Advisory Agreement. The Financial Advisory Letter
Agreement dated 14 July, 1997 by and between Legend-Valence Holdings (BVI)
Limited, currently Valence, and North 22 International Inc. shall have been
cancelled (the "North 22 International Agreement").
7.15 Due Diligence. Buyer shall have completed a due diligence
investigation of the business, operations, condition (financial and otherwise)
and prospects of Valence and the Valence Subsidiaries, and the results of such
investigation shall not have disclosed information that was not previously
furnished in writing to Buyer and its Representatives by Seller, Valence or any
of Wan Wah Tong Thomas, Yat Ming Choi Raymond or Wong Yin Bun Kenneth at least
three business days (California time) prior to the date of this Agreement, and
such information in Buyer's reasonable opinion, could have a material adverse
effect upon the business, financial condition, results of operations, assets,
liabilities, customer or supplier relationships, properties or sales of Valence
or any of the Valence Subsidiaries.
7.16 Currency Fluctuation. There shall not have occurred a (a)
change in the currency exchange rate between the Hong Kong dollar and the U.S.
dollar as announced by the Hong Kong Monetary Authority or (b) devaluation of
the PRC Renminbi against the Hong Kong dollar by 3% or more, as measured by the
average of the official buying and official selling rates between the Hong Kong
dollar and the PRC Renminbi announced by the People's Bank of China, in each
case measured from the date of this Agreement.
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ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF SELLER
Except as otherwise specifically set forth in this Agreement or
waived in writing by Seller, all obligations of Seller under this Agreement are
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions:
8.1 Representations and Warranties True at Closing. All
representations and warranties of Buyer contained in this Agreement, or in any
written statement delivered by Buyer to Seller under this Agreement, shall have
been true and correct, in all material respects, when made and shall be true and
correct, in all material respects, as of the Closing Date.
8.2 Buyer's Performance. Except as otherwise provided in sections
5.3 and 5.4 in this Agreement, each of the covenants, agreements and conditions
of Buyer to be performed, satisfied or complied with on or before the Closing
Date pursuant to the terms of this Agreement shall have been duly performed,
satisfied and complied with by Buyer in all material respects on or before the
Closing Date. Buyer shall have delivered to Seller a certificate in form and
substance satisfactory to Seller dated as of the Closing Date and signed by
Buyer, certifying in such detail as Seller shall reasonably request that the
conditions specified in Sections 8.1 and 8.2 have been fulfilled.
8.3 Authority Relating to this Agreement. All corporate action
required to be taken by, or on the part of, Buyer to authorize Buyer to execute,
deliver and carry out this Agreement and to consummate the transactions
contemplated hereby shall have been duly and properly taken.
8.4 Documents from Buyer. Buyer shall have delivered to Seller all
of the documents described in Section 1.5 in form, content and substance
satisfactory to Seller, in the exercise of its reasonable discretion.
8.5 Consents. On or before the Closing Date, the consent or
approval of all third parties, including without limitation, lenders and
governmental agencies, whose consent or approval is necessary to the valid and
effective performance of the Buyer's obligations hereunder, shall have been
granted except for such consents the failure to obtain which, individually or in
the aggregate, would not preclude consummation of the transactions contemplated
by this Agreement or would not have a material adverse effect on the business,
assets, financial condition or prospects of Valence and the Valence Subsidiaries
taken as a whole.
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8.6 All Conditions Satisfied. Seller shall have received copies of
all documents and other evidence necessary to confirm that all conditions set
forth in this Article 8 shall have been complied with and that all other actions
and things required by this Agreement to be taken and accomplished shall have
been so taken and accomplished, all in form and substance satisfactory to Seller
in its reasonable judgment.
8.7 Absence of Litigation, Etc. There shall not be pending or
threatened any action, suit, proceeding or investigation by the BVI, Hong Kong,
PRC or other foreign government, or the United States or state, municipal or
local government, or any department, commission or agency of any of the
foregoing, or any other party for any injunction, writ, preliminary restraining
order or for any order of any court or governmental agency, domestic or foreign,
of competent jurisdiction directly affecting or restraining, or in which it is
sought to obtain damages or other relief in connection with, any of the
transactions contemplated by this Agreement, and there shall not have been
issued and remain in effect any such injunction, writ, preliminary restraining
order or such other order. No decree or order shall have been entered by a court
having jurisdiction in the premises for relief in respect of Buyer or adjudging
Buyer, a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, adjustment or composition of or in respect of Buyer,
under the federal bankruptcy law or any other applicable federal or state law,
or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of or for Buyer or any part of its property, or
ordering the winding up or liquidation of its affairs. There shall not have been
commenced by Buyer a voluntary case, or the institution by it of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization, arrangement or relief
under the federal bankruptcy law or any other applicable federal or state law,
or the consent or acquiescence by it to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other-similar official) of any part of its
property, or the making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of any action by Buyer in furtherance of any such
action.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by Seller. Seller shall indemnify, defend and
hold harmless Buyer and its officers, directors, employees, attorneys, and
agents and its successors and assigns against and in respect of any and all
losses, damages, claims, obligations, demands, actions, suits, proceedings,
assessments, liabilities, judgments, recoveries and deficiencies, costs and
expenses (including, without limitation, reasonable attorneys' fees and costs
and expenses incurred in investigating, preparing, defending against
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or prosecuting any litigation, claim, proceeding or demand), all on an after-tax
basis, less any amounts actually paid as insurance reimbursement, of any kind or
character (collectively, a "Loss"), which arise out of, result from, or relate
to any breach of, or failure by Seller fully to perform, or any inaccuracy in,
any of the representations, warranties, covenants or agreements of Seller in
this Agreement (whether known or unknown at Closing), or in any Schedule,
Exhibit, certificate, list, or other document furnished or to be furnished by
Seller under this Agreement.
9.2 Indemnification of Seller. Buyer shall indemnify, defend and
hold harmless Seller and its officers, directors, employees, attorneys and
agents and its successors and assigns against and in respect of any and all
Losses, which arise out of, result from, or relate to any breach of, or failure
by Buyer fully to perform, or any inaccuracy in, any of the representations,
warranties, covenants or agreements of Buyer in this Agreement (whether known or
unknown at Closing), or in any Schedule, Exhibit, certified list or other
document furnished or to be furnished by Buyer under this Agreement.
9.3 Notice of Claim. Whenever Buyer or Seller learns of or
discovers any matter which may give rise to a claim for indemnification (the
"Claim") against any other party under this Section 9 (the "Indemnity Obligor"),
Buyer or Seller, as the indemnified party (the "Indemnified Party"), shall give
notice to the Indemnity Obligor of the Claim. With respect to Claims which are
the subject of actions, suits, or proceedings threatened or asserted in writing
by any third party (a "Third Party Claim"), the Indemnified Party shall, within
15 days following receipt of such Third Party Claim, promptly notify the
Indemnity Obligor in writing of any Claim for recovery, specifying in reasonable
detail the nature of the Loss and the amount of the liability estimated to arise
therefrom. If the Indemnified Party does not so notify the Indemnity Obligor
within 15 days of its discovery of a Third Party Claim, such Claim shall be
barred only to the extent that the Indemnity Obligor is prejudiced by such
failure to notify. The Indemnified Party shall provide to the Indemnity Obligor
as promptly as practicable thereafter all information and documentation
reasonably requested by the Indemnity Obligor to verify the Claim asserted.
9.4 Defense. If the facts relating to a Loss arise out a Third
Party Claim, or if there is any claim against a third party available by virtue
of the circumstances of the Loss, the Indemnity Obligor may, by giving written
notice to the Indemnified Party within 15 days following its receipt of the
notice of such claim, elect to assume the defense or the prosecution thereof,
including the employment of counsel or accountants, reasonably satisfactory to
the Indemnified Party, at its cost and expense; provided, however, that during
the interim the Indemnified Party shall use its best efforts to take all action
(not including settlement) reasonably necessary to protect against further
damage or loss with respect to the Loss. The Indemnified Party shall have the
right to employ counsel separate from counsel employed by the Indemnity Obligor
in any such action and to participate therein, but the fees and expenses of such
counsel shall be at the Indemnified Party's own expense, unless (a) the
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employment thereof has been specifically authorized by the Indemnity Obligor,
(b) such Indemnified Party has been advised by counsel reasonably satisfactory
to the Indemnity Obligor that there may be one or more legal defenses available
to it which are different from or additional to those available to the Indemnity
Obligor and in the reasonable judgment of such counsel it is advisable for such
Indemnified Party to employ separate counsel, or (c) the Indemnity Obligor has
failed to assume the defense of such action and employ counsel reasonably
satisfactory to the Indemnified Party. Whether or not the Indemnity Obligor
chooses to defend or prosecute such claim, all the parties hereto shall
cooperate in the defense or prosecution thereof and shall furnish such records,
information and testimony and shall attend such conferences, discovery
proceedings and trial as may be reasonably requested in connection therewith.
The Indemnity Obligor shall not be liable for any settlement of any such claim
effected without its prior written consent. In the event of payment by the
Indemnity Obligor to the Indemnified Party in connection with any Loss arising
out of a Third Party Claim, the Indemnity Obligor shall be subrogated to and
shall stand in the place of the Indemnified Party as to any events or
circumstances in respect of which the Indemnified Party may have any right or
claim against such third party relating to such indemnified matter. The
Indemnified Party shall cooperate with the Indemnity Obligor in prosecuting any
subrogated claim. The Indemnity Obligor will take no action in connection with
any claim that would adversely affect the Indemnified Party without the consent
of the Indemnified Party.
9.5 Duration of Parties' Obligations. The Indemnity Obligor's
indemnification obligations under this Agreement shall survive the Closing and
shall terminate as follows: (a) with respect to claims for indemnity arising as
a result of a breach of the representations and warranties contained in Sections
2.1 through and including 2.7 and 2.9, and Section 5.4 they shall continue and
not terminate and (b) with respect to all other claims for indemnity, after one
year from the Closing Date.
9.6 Arbitration. Any controversy or claim arising out of or
relating to the provisions of Article 9 of this Agreement (including the
validity of an alleged Claim) shall be resolved by arbitration. Arbitration
proceedings shall be commenced by the delivery by any party to a dispute to the
other(s) of written notice requesting arbitration. The matter shall be submitted
to such disinterested arbitrator as shall be agreed upon by the parties to the
dispute, which arbitrator shall determine the rules to govern the arbitration
proceedings. Each party shall bear its own costs and expenses incurred by it in
connection with the arbitration; all other costs, including arbitrators' fees
and expenses, shall be borne equally by the parties. Notwithstanding the
foregoing, if the arbitrator determines that one party acted unreasonably and
not in good faith, the arbitrator shall have authority to assess the costs and
expenses of the arbitration, including the arbitrator's fee and reasonable
attorneys' fees, against that party. In the event the parties are unable to
agree upon an arbitrator within ten business days of the date a notice
requesting arbitration is delivered, the arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American
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Arbitration Association ("AAA"). If arbitration is conducted pursuant to the
rules of the AAA, then the controversy or claim shall be decided by a board of
three arbitrators. Each of Buyer and Seller shall select one arbitrator within
ten business days of a demand for arbitration being made or, in the event of a
party's failure to so select, an arbitrator shall be named for that party by the
AAA. Within ten business days of their selection, the two arbitrators so
selected shall select a third arbitrator from the National Panel of Arbitrators
maintained by the AAA or as they otherwise shall agree. All arbitrators, however
selected, shall possess such experience in, and knowledge of, the subject area
of the controversy or claim so as to qualify as an "expert" with respect to such
subject matter. (For example, any claim or controversy involving financial or
accounting issues shall be decided by certified public accountants.) Any
arbitration hearing shall be held in Orange County, California, unless the
parties to the dispute agree otherwise. Any award rendered by arbitration shall
be final and binding on the parties, and judgment thereon may be entered in any
court of competent jurisdiction. Notwithstanding any arbitration rules to the
contrary, the award of the arbitrator must be made no later than three (3)
months following the date on which the arbitrator or arbitrators are appointed,
unless the issue is the subject of litigation brought by a third party and the
arbitrator deems it appropriate to defer his award until the litigation is
resolved.
ARTICLE 10
TERMINATION
10.1 Mutual Agreement. This Agreement may be terminated at any time
prior or to the Closing Date by the written agreement of the parties hereto.
10.2 Termination by Buyer. This Agreement may be terminated by
Buyer if on the Closing Date the conditions set forth in Article 7 of this
Agreement shall not have been satisfied by Seller or waived by Buyer, or as
otherwise expressly provided herein.
10.3 Termination by Seller. This Agreement may be terminated by
Seller if on the Closing Date the conditions set forth in Article 8 of this
Agreement shall not have been satisfied by Buyer or waived by Seller, or as
otherwise expressly provided herein.
10.4 Effect of Termination. In the event that this Agreement is
terminated pursuant to Sections 10.1, 10.2, or 10.3, this Agreement shall,
except as otherwise expressly provided herein, become null and void and no party
hereto shall have any further rights, obligations or liabilities hereunder.
Except as otherwise expressly provided herein, any party damaged may bring an
action against any party who failed to act in good faith in completing this
transaction, and except further that the parties shall, for a period of three
years from the date hereof, continue to hold confidential the information which
is of a confidential or
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proprietary nature, furnished to them by other parties hereto in connection with
this transaction.
ARTICLE 11
COSTS
11.1 Finder's or Broker's Fees. Seller represents to Buyer that it
or any of its Affiliates has not made any arrangement or had any dealings
whereby Valence, and/or any of the Valence Subsidiaries or Buyer could become
subject, absolutely or contingently, to a claim for any brokerage commission or
finder's fee. Buyer represents to Seller that it has not made any arrangement or
had any dealings whereby Seller, Valence and/or any of the Valence Subsidiaries
could become subject, absolutely or contingently, to a claim for any brokerage
commission or finder's fee. Seller on the one hand, and Buyer on the other hand,
each agree to indemnify and hold harmless the other against any and all claims,
demands, losses, costs, expenses, obligations, liabilities, damages, recoveries,
and deficiencies, including interest, penalties, and reasonable attorneys fees,
incurred or suffered by reason of any brokerage commission or finder's fee
alleged to be payable because of any act, omission or statement of the
indemnifying party.
11.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, except with respect to damages due a party as
provided under Section 10.4, each party shall pay its own fees and expenses
incident to the negotiation, preparation, execution, delivery, and performance
hereof, including, without limitation, the fees and expenses of its respective
counsel, accountants, and other experts.
11.3 Audit Fees. Seller represents that it shall pay 55% of the
fees and expenses of a reputable independent auditing firm acceptable to Buyer
and Seller to (a) provide to Buyer and Valence consolidated financial statements
of Valence and the Valence subsidiaries for the fiscal year ended March 31,
1997, pursuant to H.K. GAAP, and (b) reconcile such consolidated financial
statements to U.S. GAAP.
ARTICLE 12
DEFINITIONS AND ACCOUNTING TERMS
12.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
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"Affiliate" (and, with a correlative meaning, "Affiliated")
shall mean, with respect to any Person, any other Person that directly, or
through one or more intermediaries, controls or is controlled by or is under
common control with such first Person, and, if such a Person is an individual,
any member of the immediate family of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "control" (including, with correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), and "immediate family" shall
mean parents, spouse and children.
"Agreement" means this Stock Purchase Agreement as from time
to time amended and in effect between the parties.
"Buyer" means and shall include SRS Labs, Inc., a Delaware
corporation, and its successors and assigns.
"BVI" means the British Virgin Islands.
"Closing Date" means a date on or before March 3, 1998 (Hong
Kong), as may be mutually agreed upon in writing by Buyer and Seller.
"Consolidated" when used with reference to any term defined
herein shall, except as otherwise specifically provided, mean that term as
applied to the accounts of Valence and the Valence Subsidiaries consolidated in
accordance with U.S. GAAP.
"Corporate Balance Sheet" means the unaudited Consolidated
corporate balance sheet of Valence at March 31, 1997, prepared in accordance
with H.K. GAAP and which is attached hereto as Exhibit "12.1."
"Exchange Act" means the U.S. Securities Exchange Act of 1934,
or any similar federal statute, and the rules and regulations of the Securities
and Exchange Commission (or of any other U.S. federal Agency then administering
the Exchange Act) thereunder, all as the same shall be in effect at the time.
"Hong Kong" means the Hong Kong Special Administrative Region
of the People's Republic of China.
"H.K. GAAP" means Hong Kong generally accepted accounting
principles after eliminating intercompany items and minority interests.
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"Person" means an individual, corporation, partnership, joint
venture, association, joint stock company, trust, estate of a deceased natural
person, foundation, fund, institution, society, union or club or unincorporated
organization, or a government or any agency or political subdivision thereof.
"PRC" means the People's Republic of China.
"Securities Act" means the U.S. Securities Act of 1933, as
amended, or any similar U.S. federal statute, and the rules and regulations of
the U.S. Securities and Exchange Commission (or of any other Federal agency then
administering the Securities Act) thereunder, all as the same shall be in effect
at the time.
"U.S. GAAP" means U.S. generally accepted accounting
principles after eliminating intercompany items and minority interests.
"Valence Financial Statements" means (i) the audited financial
statements of each of Valence and the Valence Subsidiaries for the year ended
March 31, 1997, prepared in accordance with H.K. GAAP, together with the report
thereon by Coopers & Lybrand, (ii) the pro forma Consolidated financial
statements of Valence and the Valence Subsidiaries for the year ended March 31,
1997, prepared in accordance with H.K. GAAP, together with the report thereon by
a reputable independent auditing firm acceptable to Buyer and Seller and (iii)
unaudited pro forma Consolidated financial statements of Valence and the Valence
Subsidiaries for the nine-month period ended December 31, 1997, prepared by
Deloitte and Touche LLP.
"Valence Shares" means the ordinary shares of U.S. $0.13 par
value per share, of Valence Technology, Inc. which are held of record and
beneficially by Seller and which are the subject of purchase by Buyer pursuant
to this Agreement.
"Valence Subsidiary" or "Valence Subsidiaries" means any
corporation, 50% or more of the outstanding voting stock of which shall at the
time be owned by Valence or by one or more of Valence's subsidiaries, or any
other entity or enterprise, 50% or more of the equity of which shall at the time
be owned by Valence or by one or more of Valence's subsidiaries.
12.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with U.S. GAAP, and all other
financial data submitted pursuant to this Agreement shall be prepared and
calculated in accordance with such principles.
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ARTICLE 13
MISCELLANEOUS
13.1 Headings. The subject headings of the Articles and Sections of
this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
13.2 Entire Agreement; Modification; Waiver. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
13.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.4 Parties in Interest. Nothing in this Agreement, whether
express or implied, is intended to:
(a) confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns;
(b) relieve or discharge any obligation or liability of any
third persons to any party to this Agreement; or
(c) confer upon any third person any right of subrogation or
action over or against any party to this Agreement.
13.5 Assignment. This Agreement shall be binding on and shall inure
to the benefit of the parties to it and their respective heirs, legal
representatives, successors, and assigns. This Agreement may not be assigned by
any party except with the written consent of the other party to this Agreement.
13.6 Notices. All notices, payments (other than at Closing),
requests, demands, and other communications under this Agreement shall be in
writing and shall be deemed to have been given if personally delivered or if
sent by telegraph or facsimile or
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mailed by first class, registered or certified mail, postage prepaid, and
properly addressed as follows:
If to Seller: North 22 Capital Partners 2, Inc.
c/o North 22 International Inc.
23/F Citicorp Centre
18 Whitfield Road
Causeway Bay, Hong Kong
Fax: (852) 2508-0868
Attention: Michael Ng
With a copy to: Jones, Day, Reavis & Pogue
29th Floor, Entertainment Building
30 Queen's Road Central, Hong Kong
Fax: (852) 2868-5871
Attention: Benedict Tai, Esq.
If to Buyer: SRS Labs, Inc.
2909 Daimler Street
Santa Ana, California 92705
Fax: (714) 852-1099
Attention: John AuYeung, Director
With a copy to: Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
Seventeenth Floor
Costa Mesa, California 92626-1924
Fax: (714) 979-1921
Attention: John F. Della Grotta, Esq.
Any party may change its address for purposes of this Article by giving the
other parties written notice of the new address in the manner set forth above.
Notice will conclusively be deemed to have been given when personally delivered,
or if given by mail, on the second day after being sent by an overnight,
commercial air courier service or on the fifth day after being sent by first
class, registered or certified mail, or if given by telecopy or facsimile
machine, when confirmation of transmission is indicated by the sender's telecopy
or facsimile machine.
13.7 Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the conflicts of law principles thereof.
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13.8 Venue. The parties hereby irrevocably and unconditionally
consent to submit to the exclusive jurisdiction of the courts of the State of
California, County of Orange, and/or the United States District Court for the
Central District of California (Southern Division) for any actions, suits,
controversies or proceedings arising out of or relating to this agreement and
the transactions contemplated hereby (and the parties agree not to commence any
action, suit or proceeding relating thereto except in such courts), and further
agree that service of any process, summons, notice or document by U.S.
registered mail to the respective addresses set forth above shall be effective
service of process for any action, suit or proceeding brought against the
parties in any such court. The parties hereby irrevocably and unconditionally
waive any objection to the laying of venue of any action, suit, controversies or
proceeding arising out of this agreement or the transactions contemplated
hereby, in the courts of the State of California, County of Orange and/or the
United States District Court for the Central District of California (Southern
Division), and hereby further irrevocably and unconditionally waive and agree
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient or improper forum.
13.9 Prior Agreements. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
13.10 Further Assurances. Seller will from time to time subsequent
to the Closing Date, at Buyer's request and without further consideration,
execute and deliver such other instruments of conveyance, assignment, and
transfer, and take such other actions, as Buyer may reasonably request in order
to more effectively convey, assign, transfer to and vest in Buyer the Valence
Shares.
13.11 Gender. All pronouns used herein shall, regardless of gender,
include all genders, as required by the context.
13.12 Validity; Severability. Each Article, section, subsection and
lesser section of this Agreement constitutes a separate and distinct
undertaking, covenant and/or provision hereof. Whenever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law. In the event that any provision of this Agreement
shall be determined to be unlawful, invalid or unenforceable, such provision
shall be deemed severed from this Agreement, but every other provision of this
Agreement shall remain in full force and effect. In substitution for any
provision of this Agreement held unlawful, invalid or unenforceable, there shall
be substituted a provision of similar import reflecting the original intent of
the parties hereto to the fullest extent permissible under law.
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13.13 Press Release. Seller shall not release a press release
relating to this Agreement or any of the transactions or documents contemplated
hereby without first submitting a copy of such press release to Buyer and
obtaining the prior approval of Buyer to any such press release, which approval
shall not be unreasonably withheld.
13.14 Tax Elections. At Buyer's option, Seller agrees to cooperate
with and assist Buyer (both before and after the Closing) in structuring the
purchase of the Valence Shares to achieve the tax results desired by Buyer for
both United States and Hong Kong income tax purposes, including but not limited
to, the filing of any necessary tax elections, agreeing to any corporate
liquidation, merger, distribution or sale of assets or any other action
requested of Seller by Buyer, to the extent such cooperation or action does not
cause an increase in Seller's aggregate Hong Kong income tax liability on the
sale of the Valence Shares. Seller and Buyer further agree that this Agreement
is intended to constitute a purchase of stock for United States income tax
purposes and is not intended to constitute a reorganization, as such term is
defined in section 368(a)(1) of the Internal Revenue Code of 1986, as amended.
Buyer shall indemnify Seller against any Loss (as defined in Section 9.1 herein)
arising from this Section 13.14.
13.15 Statutory Books and Records. After the Closing, Seller agrees
to cooperate, or use its best efforts to cause its Affiliates and others to
cooperate, with and assist Buyer to make all necessary or appropriate
corrections, amendments and modifications to the statutory books and records of
each of the Valence Subsidiaries as required by applicable law.
(signature page follows)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BUYER
SRS LABS, INC., a Delaware company
By: /s/ THOMAS C.K. YUEN
-------------------------------------
Thomas C.K. Yuen, Chairman of the
Board and Chief Executive Officer
SELLER
NORTH 22 CAPITAL PARTNERS 2, INC., a
British Virgin Islands company
By: ASIAN TECHNOLOGY HOLDING
LIMITED, a Britain Virgin Islands company
By: /s/ NG WAI SANG
--------------------------------------
Ng Wai Sang
Director
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