Document:

Exhibit 10.1

 

VALENCE
TECHNOLOGY, INC.

5,000,000 SHARES

 

At Market
Issuance Sales Agreement

 

February 22, 2008

 

Wm Smith & Co.

1700 Lincoln Street, Suite 2545

Denver CO 80203

 

Ladies and Gentlemen:

 

Valence Technology, Inc., a Delaware
corporation (the “Company”), confirms its agreement (this “Agreement”)
with Wm Smith & Co.  (“Wm
Smith”), as follows:

 

1.                                   Issuance
and Sale of Shares.  The Company
agrees that, from time to time during the term of this Agreement, on the terms
and subject to the conditions set forth herein, it may issue and sell through
Wm Smith, acting as agent and/or principal, up to 5,000,000 shares (the “Shares”)of
the Company’s common stock, par value $0.001 per share (the “Common Stock”).  Notwithstanding anything to the contrary
contained herein, the parties hereto agree that compliance with the limitations
set forth in this Section 1 on the number of Shares issued and sold under
this Agreement shall be the sole responsibility of the Company and that Wm
Smith shall have no obligation in connection with such compliance.  The issuance and sale of Shares through Wm
Smith will be effected pursuant to the Registration Statement (as defined
below) filed by the Company and declared effective by the Securities and
Exchange Commission (the “Commission”), although nothing in this
Agreement shall be construed as requiring the Company to use the Registration
Statement to issue Common Stock or Preferred Stock.

 

The Company has filed, in accordance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations thereunder (collectively, the “Securities Act”), with the
Commission a registration statement on Form S-3 (File No. 333-148632),
including a base prospectus, with respect to equity and other offerings,
including the Shares, and which incorporates by reference documents that the
Company has filed or will file in accordance with the provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (collectively, the “Exchange Act”).  The Company has prepared a prospectus
supplement (the “Prospectus Supplement”) to the base prospectus included
as part of such registration statement. 
The Company has furnished to Wm Smith, for use by Wm Smith, copies of
the prospectus included as part of such registration statement, as supplemented
by the Prospectus Supplement, relating to the Shares.  Except where the context otherwise requires,
such registration statement, as amended when it became effective, including all
documents filed as part thereof or incorporated by reference therein, and
including any information contained in a Prospectus (as defined below)
subsequently filed with the Commission pursuant to Rule 424(b) under
the Securities Act and also including any other registration statement filed
pursuant to Rule 462(b) under the Securities Act, collectively, are
herein called the “Registration Statement,” 

 

 

and the base prospectus,
including all documents incorporated therein by reference, included in the
Registration Statement, as it may be supplemented by the Prospectus Supplement,
in the form in which such prospectus and/or Prospectus Supplement have most
recently been filed by the Company with the Commission pursuant to Rule 424(b) under
the Securities Act is herein called the “Prospectus.” Any reference
herein to the Registration Statement, the Prospectus or any amendment or
supplement thereto shall be deemed to refer to and include the documents
incorporated by reference therein, and any reference herein to the terms “amend,”
“amendment” or “supplement” with respect to the Registration Statement or the
Prospectus shall be deemed to refer to and include the filing after the
execution hereof of any document with the Commission deemed to be incorporated
by reference therein.  For purposes of
this Agreement, all references to the Registration Statement, the Prospectus or
to any amendment or supplement thereto shall be deemed to include any copy
filed with the Commission pursuant to its Electronic Data Gathering Analysis
and Retrieval System (“EDGAR”).

 

2.            Placements.  Each time that the Company wishes to issue
and sell Shares hereunder (each, a “Placement”), it will notify Wm Smith
by email notice (or other method mutually agreed to in writing by the Parties)
of the number of Shares (the “Placement Shares”) to be issued, the type
of Shares, the time period during which sales are requested to be made, any
limitation on the number of Shares that may be sold in any one day and any
minimum price below which sales may not be made (a “Placement Notice”),
the form of which is attached hereto as Schedule 1.  The Placement Notice shall originate from any
of the individuals from the Company set forth on Schedule 3 (with a copy to
each of the other individuals from the Company listed on such schedule), and
shall be addressed to each of the individuals from Wm Smith set forth on
Schedule 3, as such Schedule 3 may be amended from time to time.  The Placement Notice shall be effective
unless and until (i) Wm Smith declines to accept the terms contained
therein for any reason, in its sole discretion, (ii) the entire amount of
the Placement Shares have been sold, (iii) the Company suspends or
terminates the Placement Notice or (iv) the Agreement has been terminated
under the provisions of Section 12. 
The amount of any discount, commission or other compensation to be paid
by the Company to Wm Smith in connection with the sale of the Placement Shares
shall be calculated in accordance with the terms set forth in Schedule 2.  It is expressly acknowledged and agreed that
neither the Company nor Wm Smith will have any obligation whatsoever with
respect to a Placement or any Placement Shares unless and until the Company
delivers a Placement Notice to Wm Smith and Wm Smith does not decline such
Placement Notice pursuant to the terms set forth above, and then only upon the
terms specified therein and herein.  In
the event of a conflict between the terms of this Agreement and the terms of a
Placement Notice, the terms of the Placement Notice will control. 

 

3.            Sale
of Placement Shares by Wm Smith. 
Subject to the terms and conditions herein set forth, upon the Company’s
issuance of a Placement Notice, and unless the sale of the Placement Shares
described therein has been declined, suspended, or otherwise terminated in
accordance with the terms of this Agreement, Wm Smith will use its commercially
reasonable efforts consistent with its normal trading and sales practices to
sell such Placement Shares up to the amount specified, and otherwise in
accordance with the terms of such Placement Notice.  

 

2

 

Wm Smith will provide written confirmation to
the Company no later than the opening of the Trading Day (as defined below)
immediately following the Trading Day on which it has made sales of Placement
Shares hereunder setting forth the number of Placement Shares sold on such day,
the compensation payable by the Company to Wm Smith pursuant to Section 2
with respect to such sales, and the Net Proceeds (as defined below) payable to
the Company.  Wm Smith may sell Placement
Shares by any method permitted by law deemed to be an “at the market” offering
as defined in Rule 415 of the Securities Act, including without limitation
sales made directly on NASDAQ Capital Market (the “Exchange”), on any
other existing trading market for the Common Stock or to or through a market
maker.  Wm Smith may also sell Placement
Shares in privately negotiated transactions. 
The Company acknowledges and agrees that (i) there can be no
assurance that Wm Smith will be successful in selling Placement Shares, and (ii) Wm
Smith will incur no liability or obligation to the Company or any other person
or entity if it does not sell Placement Shares for any reason other than a
failure by Wm Smith to use its commercially reasonable efforts consistent with
its normal trading and sales practices to sell such Placement Shares as
required under this Section 3.  For
the purposes hereof, “Trading Day” means any day on which Common Stock
is purchased and sold on the principal market on which the Common Stock is
listed or quoted.

 

4.            Suspension
of Sales.  The Company or Wm Smith
may, upon notice to the other party in writing (including by email
correspondence to each of the individuals of the other Party set forth on
Schedule 3, if receipt of such correspondence is actually acknowledged by any
of the individuals to whom the notice is sent, other than via auto-reply) or by
telephone (confirmed immediately by verifiable facsimile transmission or email
correspondence to each of the individuals of the other Party set forth on
Schedule 3), suspend any sale of Placement Shares; provided, however, that such
suspension shall not affect or impair either party’s obligations with respect
to any Placement Shares sold hereunder prior to the receipt of such
notice.  Each of the Parties agrees that
no such notice under this Section 4 shall be effective against the other
unless it is made to one of the individuals named on Schedule 3 hereto, as such
Schedule may be amended from time to time.

 

5.            Settlement.

 

(a)     Settlement of Placement Shares.  Unless otherwise specified in the applicable
Placement Notice, settlement for sales of Placement Shares will occur on the
third (3rd) Trading Day (or such earlier day as is industry practice for
regular-way trading) (each, a “Settlement Date”) following the
respective Point of Sale (as defined below). 
The amount of proceeds to be delivered to the Company on a Settlement
Date against receipt of the Placement Shares sold (the “Net Proceeds”)
will be equal to the aggregate sales price received by Wm Smith at which such
Placement Shares were sold, after deduction for (i) Wm Smith’s commission,
discount or other compensation for such sales payable by the Company pursuant
to Section 2 hereof, (ii) any other amounts due and payable by the
Company to Wm Smith hereunder pursuant to Section 7(g) (Expenses)
hereof, and (iii) any transaction fees imposed by any governmental or
self-regulatory organization in respect of such sales.

 

(b)     Delivery of Placement Shares.  On or before each Settlement Date, the
Company will, or will cause its transfer agent to, electronically transfer the
Placement Shares 

 

3

 

being sold by crediting Wm Smith’s or its
designee’s account at The Depository Trust Company through its Deposit and
Withdrawal at Custodian System or by such other means of delivery as may be
mutually agreed upon by the parties hereto which in all cases shall be freely
tradeable, transferable, registered shares in good deliverable form.  On each Settlement Date, Wm Smith will
deliver the related Net Proceeds in same day funds to an account designated by
the Company on, or prior to, the Settlement Date.  The Company agrees that if the Company, or
its transfer agent (if applicable), defaults in its obligation to deliver
Placement Shares on a Settlement Date, the Company agrees that in addition to
and in no way limiting the rights and obligations set forth in Section 10(a) (Indemnification
and Contribution) hereto, it will (i) hold Wm Smith harmless against any
loss, claim, damage, or expense (including reasonable legal fees and expenses),
as incurred, arising out of or in connection with such default by the Company
and (ii) pay to Wm Smith any commission, discount, or other compensation
to which it would otherwise have been entitled absent such default.

 

6.            Representations
and Warranties of the Company.  The
Company represents and warrants to, and agrees with, Wm Smith that as of the
date of this Agreement and as of each Representation Date (as defined in Section 7(m) below)
on which a certificate is required to be delivered pursuant to Section 7(m) of
this Agreement, as the case may be, except as may be disclosed in the
Registration Statement or a Disclosure Schedule delivered in connection
herewith:

 

(a)     Registration Statement and Prospectus.  The Company and, assuming no act or omission
on the part of Wm Smith that would make such statement untrue, the transactions
contemplated by this Agreement meet the requirements for and comply with the
conditions for the use of Form S-3 under the Securities Act.  The Registration Statement has been filed
with the Commission and has been declared effective under the Securities
Act.  The Registration Statement or
Prospectus has named Wm Smith as an underwriter, acting as principal and/or
agent, that the Company might engage in the section entitled “Plan of
Distribution.” The Company has not received, and has no notice of, any order of
the Commission preventing or suspending the use of the Registration Statement,
or threatening or instituting proceedings for that purpose.  The Registration Statement and the offer and
sale of Shares as contemplated hereby meet the requirements of Rule 415
under the Act and comply in all material respects with said Rule.  Any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration Statement have
been so described or filed.  Copies of
the Registration Statement, the Prospectus, and any such amendments or
supplements and all documents incorporated by reference therein that were filed
with the Commission on or prior to the date of this Agreement have been
delivered, or are available through EDGAR, to Wm Smith and their counsel.  The Company has not distributed and, prior to
the later to occur of each Settlement Date and completion of the distribution
of the Placement Shares, will not distribute any offering material in
connection with the offering or sale of the Placement Shares other than the
Registration Statement and the Prospectus and any Issuer Free Writing
Prospectus (as defined below) to which Wm Smith has consented.  The Common Stock is currently listed on the
NASDAQ Capital Market under the trading symbol “VLNC”.  Except as disclosed in the Registration
Statement, the Company has not, in the 12 months preceding the date hereof,
received notice from the Exchange to the effect that the Company is not in
compliance with the listing or 

 

4

 

maintenance requirements.  The Company has no reason to believe that it
will not in the foreseeable future continue to be in compliance with all such
listing and maintenance requirements.

 

(b)     No Misstatement or Omission.  The Registration Statement, when it became or
becomes effective, and the Prospectus, and any amendment or supplement thereto,
on the date of such Prospectus or amendment or supplement, conformed or will
conform in all material respects with the requirements of the Securities
Act.  At each Settlement Date, the
Registration Statement and the Prospectus, as of such date, will conform in all
material respects with the requirements of the Act.  The Registration Statement, when it became or
becomes effective, did not, or will not, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.  The Prospectus and any amendment or
supplement thereto, on the date thereof and at each Point of Sale, did not or
will not include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.  The documents incorporated by reference in
the Prospectus or any Prospectus Supplement did not, and any further documents
filed and incorporated by reference therein will not, when filed with the
Commission, contain an untrue statement of a material fact or omit to state a
material fact required to be stated in such document or necessary to make the
statements in such document, in light of the circumstances under which they
were made, not misleading.  The foregoing
shall not apply to statements in, or omissions from, any such document made in
reliance upon, and in conformity with, information furnished to the Company by
Wm Smith specifically for use in the preparation thereof.  “Point of Sale” means, for a
Placement, the time at which an acquiror of Placement Shares entered into a
contract, binding upon such acquiror, to acquire such Shares.

 

(c)     Conformity with Securities Act and
Exchange Act.  The documents
incorporated by reference in the Registration Statement, the Prospectus or any
amendment or supplement thereto, when such documents were or are filed with the
Commission under the Securities Act or the Exchange Act or became or become
effective under the Securities Act, as the case may be, conformed or will
conform in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable.

 

(d)     Financial Information.  The consolidated financial statements and the
related notes thereto included or incorporated by reference in the Registration
Statement and the Prospectus comply with the applicable requirements of the Act
and the Exchange Act, as applicable, and present fairly, the financial position
of the Company and its Subsidiaries (as defined below) as of the dates
indicated and the results of their operations and the changes in their
consolidated cash flows for the periods specified; such financial statements
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods covered thereby (except (i) as
may be otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim financial statements, to the extent
that they may not include footnotes or may be condensed or summary statements),
and the other financial information included or incorporated by reference in
the Registration Statement and the Prospectus has been derived from the
accounting records of the Company and its Subsidiaries and presents fairly the
information shown thereby.  Any pro forma
financial statements or data included or incorporated by reference in the
Registration Statement 

 

5

 

and the Prospectus comply with the
requirements of Regulation S-X of the Securities Act, including, without
limitation, Article 11 thereof, and the assumptions used in the
preparation of such pro forma financial statements and data are reasonable, the
pro forma adjustments used therein are appropriate to give effect to the
circumstances referred to therein and the pro forma adjustments have been
properly applied to the historical amounts in the compilation of those
statements and data.  No other financial
statements or schedules of the Company or any other entity are required by the
Act to be included in the Registration Statement or the Prospectus.  Except as set forth on Schedule 4, all
disclosures contained in the Registration Statement, the Pricing Disclosure
Materials and the Prospectus regarding “non-GAAP financial measures” (as such
term is defined by Item 10 of Regulation S-K under the Act) comply with
Regulation G of the Exchange Act and Item 10 of Regulation S-K under the Act,
to the extent applicable.  The Company
does not have any material liabilities or obligations, direct or contingent
(including any off-balance sheet obligations and any “variable interest
entities” within the meaning of Financial Accounting Standards Board
Interpretation No. 46), not disclosed in the Registration Statement, the
Pricing Disclosure Materials and the Prospectus.

 

(e)     Conformity with EDGAR Filing.  The Prospectus delivered to Wm Smith for use
in connection with the sale of the Placement Shares pursuant to this Agreement
will be identical to the versions of the Prospectus created to be transmitted
to the Commission for filing via EDGAR, except to the extent permitted by
Regulation S-T.

 

(f)      Organization.  The Company and each of its Subsidiaries are,
and will be, duly organized, validly existing as a corporation and in good
standing under the laws of their respective jurisdictions of organization.  The Company and each of its Subsidiaries are,
and will be, duly licensed or qualified as a foreign corporation for
transaction of business and in good standing under the laws of each other
jurisdiction in which their respective ownership or lease of property or the
conduct of their respective businesses requires such license or qualification,
and have all corporate power and authority necessary to own or hold their
respective properties and to conduct their respective businesses as described
in the Registration Statement and the Prospectus, except where the failure to
be so qualified or in good standing or have such power or authority would not,
individually or in the aggregate, have a material adverse effect or would
reasonably be expected to have a material adverse effect on or affecting the
business, properties, management, consolidated financial position, stockholders’
equity or results of operations of the Company and its Subsidiaries taken as a
whole (a “Material Adverse Effect”).

 

(g)     Subsidiaries.  Valence Technology (Suzhou) Co., Ltd., and
Valence Energy-Tech (Suzhou) Co., Ltd., the Company’s two wholly-owned foreign
enterprises located in Suzhou, China  and
Valence Techology Caymen Islands, Inc. (collectively, the “Subsidiaries”),
are the Company’s only significant subsidiaries (as such term is defined in Rule 1-02
of Regulation S-X promulgated by the Commission).  Except as set forth in the Registration
Statement in and the Prospectus, the Company owns, directly or indirectly, all
of the membership interests of the Subsidiaries free and clear of any lien,
charge, security interest, encumbrance, right of first refusal or other
restriction, and all the membership interests of the Subsidiaries are validly
issued and are fully paid, nonassessable and free of preemptive and similar
rights.

 

(h)     No Violation or Default.  Neither the Company nor any of its
Subsidiaries are (i) in violation of its charter or by-laws or similar
organizational documents; (ii) in default, 

 

6

 

and no event has occurred that, with notice
or lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or its Subsidiaries are a party or by which the
Company or its Subsidiaries are bound or to which any of the property or assets
of the Company or its Subsidiaries are subject; or (iii) in violation of
any law or statute or any judgment, order, rule or regulation of any court
or arbitrator or governmental or regulatory authority, except, in the case of
each of clauses (ii) and (iii) above, for any such violation or
default that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. 
To the Company’s knowledge, no other party under any material contract
or other agreement to which it or a Subsidiary is a party is in default in any
respect thereunder where such default would have a Material Adverse Effect.

 

(i)      No Material Adverse Change.  Except as set forth in or otherwise
contemplated by the Registration Statement (exclusive of any amendment thereof)
or the Prospectus (exclusive of any supplement thereto), since the date of the
most recent financial statements of the Company included or incorporated by
reference in the Registration Statement and the Prospectus and prior to each
Settlement Date, (i) there has not been and will not have been any change
in the capital stock of the Company (except for changes in the number of
outstanding shares of Common Stock of the Company due to the issuance of shares
upon the exercise or conversion of securities exercisable for, or convertible
into, shares of Common Stock outstanding on the date hereof) or long-term debt
of the Company or of its Subsidiaries or any dividend or distribution of any
kind declared, set aside for payment, paid or made by the Company on any class
of capital stock, that has resulted in or that would reasonably be expected to
result in a Material Adverse Effect to the Company and its Subsidiaries taken
as a whole; (ii) other than this Agreement, neither the Company nor its
Subsidiaries have entered or will enter into any transaction or agreement, not
in the ordinary course of business, that is material to the Company and its
Subsidiaries taken as a whole or incurred or will incur any liability or
obligation, direct or contingent, not in the ordinary course of business, that
is material to the Company and its Subsidiaries taken as a whole; (iii) there
has not been any material adverse change in the business, properties,
management, financial position, stockholders’ equity, or results of operations
of the Company and its Subsidiaries, taken as a whole; and (iv) neither
the Company nor its Subsidiaries have sustained any material loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor disturbance or dispute
or any action, order or decree of any court or arbitrator or governmental or
regulatory authority.

 

(j)      Capitalization.  The issued and outstanding shares of capital
stock of the Company have been validly issued, are fully paid and nonassessable
and, other than as disclosed in or contemplated by the Registration Statement
or the Prospectus, are not subject to any preemptive rights, rights of first
refusal or similar rights.  The Company
has an authorized, issued and outstanding capitalization as set forth in the
Registration Statement and the Prospectus as of the dates referred to therein
(other than the grant of additional options under the Company’s existing stock
option plans, or changes in the number of outstanding shares of Common Stock of
the Company due to the issuance of shares upon the exercise or conversion of
securities exercisable for, or convertible into, shares of Common Stock
outstanding on the date hereof) and such authorized capital stock conforms to
the description thereof set forth in the 

 

7

 

Registration Statement and the
Prospectus.  The description of the
securities of the Company in the Registration Statement and the Prospectus is
complete and accurate in all material respects. 
Except as disclosed in or contemplated by the Registration Statement or
the Prospectus, as of the date referred to therein, the Company does not have
outstanding any options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or exchangeable for, or
any contracts or commitments to issue or sell, any shares of capital stock or
other securities.

 

(k)     Authorization; Enforceability.  The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions
contemplated hereby.  This Agreement has
been duly authorized, executed and delivered by the Company and is a legal,
valid and binding agreement of the Company enforceable in accordance with its
terms, except to the extent that (i) enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ rights generally and by general equitable principles and (ii) the
indemnification and contribution provisions of Section 10 hereof may be
limited by federal or state securities laws and public policy considerations in
respect thereof.

 

(l)      Authorization of Placement Shares.  The Placement Shares, when issued and
delivered pursuant to the terms approved by the Board of Directors or a duly
designated committee thereof, against payment therefor as provided herein, will
be duly and validly authorized and issued and fully paid and nonassessable,
free and clear of any pledge, lien, encumbrance, security interest or other
claim, including any statutory or contractual preemptive rights, resale rights,
rights of first refusal or other similar rights, and will be registered
pursuant to Section 12 of the Exchange Act.  The Placement Shares, when issued, will
conform in all material respects to the description thereof set forth in or
incorporated into the Prospectus.

 

(m)    No Consents Required.  No consent, approval, authorization, order,
registration or qualification of or with any court or arbitrator or
governmental or regulatory authority is required for the execution, delivery
and performance by the Company this Agreement, the issuance and sale by the
Company of the Placement Shares, except for the registration of the Placement
Shares under the Act and such consents, approvals, authorizations, orders and
registrations or qualifications as may be required under applicable state
securities laws or by the by-laws and rules of the Financial Industry
Regulatory Authority (“FINRA”) or the Exchange in connection with the
sale of the Placement Shares by Wm Smith.

 

(n)     No Preferential Rights.  Except as set forth in the Registration
Statement and the Prospectus, (i) no person, as such term is defined in Rule 1-02
of Regulation S-X promulgated under the Securities Act (each, a “Person”),
has the right, contractual or otherwise, to cause the Company to issue or sell
to such Person any shares of Common Stock or shares of any other capital stock
or other securities of the Company, (ii) no Person has any preemptive
rights, resale rights, rights of first refusal, or any other rights (whether
pursuant to a “poison pill” provision or otherwise) to purchase any shares of
Common Stock or shares of any other capital stock or other securities of the
Company, (iii) following expiration of the ten (10) day notice period
required for the termination of the Company’s previous controlled equity
offering agreement with Cantor Fitzgerald & Co., no Person has the
right to act as an underwriter or as a financial advisor to the Company in
connection with the offer and sale of the Shares, and (iv) no 

 

8

 

Person has the right, contractual or
otherwise, to require the Company to register under the Securities Act any
shares of Common Stock or shares of any other capital stock or other securities
of the Company, or to include any such shares or other securities in the
Registration Statement or the offering contemplated thereby, whether as a
result of the filing or effectiveness of the Registration Statement or the sale
of the Placement Shares as contemplated thereby or otherwise.

 

(o)     Independent Public Accountant.  PMB Helin Donovan, LLP (“PMB Helin Donovan”),
whose report on the consolidated financial statements of the Company is filed
with the Commission as part of the Registration Statement and the Prospectus,
are and, during the periods covered by their report, were independent public
accountants within the meaning of the Securities Act and the Public Company
Accounting Oversight Board (United States). 
To the Company’s knowledge, after due and careful inquiry, PMB Helin
Donovan is not in violation of the auditor independence requirements of the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) with respect to
the Company.

 

(p)     Enforceability of Agreements.  To the knowledge of the Company, all
agreements between the Company and third parties expressly referenced in the
Prospectus are legal, valid and binding obligations of the Company enforceable
in accordance with their respective terms, except to the extent that (i) enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors’ rights generally and by general equitable principles
and (ii) the indemnification provisions of certain agreements may be
limited be federal or state securities laws or public policy considerations in
respect thereof and except for any unenforceability that, individually or in
the aggregate, would not unreasonably be expected to have a Material Adverse
Effect.

 

(q)     No Litigation.  Except as set forth in the Registration
Statement or the Prospectus, there are no legal, governmental or regulatory
actions, suits or proceedings pending, nor, to the Company’s knowledge, any
legal, governmental or regulatory investigations, to which the Company or a
Subsidiary is a party or to which any property of the Company or any of its
Subsidiaries is the subject that, individually or in the aggregate, if
determined adversely to the Company or any of its Subsidiaries, would
reasonably be expected to have a Material Adverse Effect or materially and
adversely affect the ability of the Company to perform its obligations under
this Agreement; to the Company’s knowledge, no such actions, suits or
proceedings are threatened or contemplated by any governmental or regulatory
authority or threatened by others; and (i) there are no current or pending
legal, governmental or regulatory investigations, actions, suits or proceedings
that are required under the Act to be described in the Prospectus that are not
so described; and (ii) there are no contracts or other documents that are
required under the Act to be filed as exhibits to the Registration Statement
that are not so filed.

 

(r)      Licenses and Permits.  Except as set forth in the Registration
Statement or the Prospectus, the Company and each of its Subsidiaries possess
or have obtained, and at each Settlement Date will possess and will have
obtained, all licenses, certificates, consents, orders, approvals, permits and
other authorizations issued by, and have made all declarations and filings
with, the appropriate federal, state, local or foreign governmental or
regulatory authorities that are necessary for the ownership or lease of their
respective properties or the conduct of their respective businesses as
described in the Registration Statement and the Prospectus (the 

 

9

 

“Permits”), except where the failure
to possess, obtain or make the same would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.  Except as disclosed in the Registration
Statement or the Prospectus, neither the Company nor any of its Subsidiaries
have received written notice of any proceeding relating to revocation or
modification of any such Permit or has any reason to believe that such Permit
will not be renewed in the ordinary course, except where the failure to obtain
any such renewal would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

(s)     Market Capitalization.  As of the close of trading on the
Exchange on the Trading Day immediately prior to the date of this
Agreement, the aggregate market value of the outstanding voting common
equity (as defined in  Rule 405
promulgated under the Securities Act) of the Company held by persons other than
affiliates of the Company (as defined under Rule 144 promulgated under the
Securities Act)  (the “Non-Affiliate Shares”), was equal to or
greater than $100 million  (calculated by multiplying (x) the price
at which the common equity of the Company was last sold on the Exchange on the
Trading Day immediately prior to the date of this Agreement times (y) the
number of Non-Affiliate Shares).

 

(t)      No Material Defaults.  Neither the Company nor any of the
Subsidiaries has defaulted on any installment on indebtedness for borrowed
money or on any rental on one or more long-term leases, which defaults,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.  The Company has
not filed a report pursuant to Section 13(a) or 15(d) of the
Exchange Act since the filing of its last Annual Report on Form 10-K,
indicating that it (i) has failed to pay any dividend or sinking fund
installment on preferred stock or (ii) has defaulted on any installment on
indebtedness for borrowed money or on any rental on one or more long-term
leases, which defaults, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.

 

(u)     Certain Market Activities.  Neither the Company, nor any of the Subsidiaries,
nor any of their respective directors, officers or controlling persons has
taken, directly or indirectly, any action designed, or that has constituted or
might reasonably be expected to cause or result in, under the Exchange Act or
otherwise, the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Placement Shares.

 

(v)     Broker/Dealer Relationships.  Neither the Company nor any of the
Subsidiaries or any related entities (i) is required to register as a “broker”
or “dealer” in accordance with the provisions of the Exchange Act or (ii) directly
or indirectly through one or more intermediaries, controls or is a “person
associated with a member” or “associated person of a member” (within the meaning
of Article I of the NASD Manual administered by FINRA).

 

(w)    No Reliance.  The Company has not relied upon Wm Smith or
legal counsel for Wm Smith for any legal, tax or accounting advice in
connection with the offering and sale of the Placement Shares.

 

(x)     Taxes.  The Company and each of its Subsidiaries have
filed all federal, state, local and foreign tax returns which have been
required to be filed and paid all taxes shown 

 

10

 

thereon through the date hereof, to the
extent that such taxes have become due and are not being contested in good
faith.  Except as otherwise disclosed in
or contemplated by the Registration Statement or the Prospectus, no tax
deficiency has been determined adversely to the Company or any of its
Subsidiaries which has had, or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.  The Company has no knowledge of any federal,
state or other governmental tax deficiency, penalty or assessment which has
been or might be asserted or threatened against it which could have a Material
Adverse Effect.

 

(y)     Title to Real and Personal Property.  Except as set forth in the Registration
Statement or the Prospectus, the Company and its Subsidiaries have good and
valid title in fee simple to all items of real property and good and valid
title to all personal property described in the Registration Statement or
Prospectus as being owned by them that are material to the businesses of the
Company or such Subsidiary, in each case free and clear of all liens,
encumbrances and claims, except those that (i) do not materially interfere
with the use made and proposed to be made of such property by the Company and
any of its Subsidiaries or (ii) would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.  Any real property described in the
Registration Statement or Prospectus as being leased by the Company and any of
its Subsidiaries is held by them under valid, existing and enforceable leases,
except those that (A) do not materially interfere with the use made or
proposed to be made of such property by the Company or any of its Subsidiaries
or (B) would not be reasonably expected, individually or in the aggregate,
to have a Material Adverse Effect.

 

(z)     Intellectual Property.  Except as set forth in the Registration
Statement or the Prospectus, the Company and its Subsidiaries own or possess
adequate enforceable rights to use all patents, patent applications, trademarks
(both registered and unregistered), service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses and know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures) (collectively, the “Intellectual
Property”), necessary for the conduct of their respective businesses as
conducted as of the date hereof, except to the extent that the failure to own
or possess adequate rights to use such Intellectual Property would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; the Company and any of its Subsidiaries have not received any
written notice of any claim of infringement or conflict which asserted Intellectual
Property rights of others, which infringement or conflict, if the subject of an
unfavorable decision, would result in a Material Adverse Effect; the Company
has conducted searches of the United States patents of record and published
foreign patents issued to third parties that may interfere with any of the
Company’s or its Subsidiaries’ patents or patent applications and it has
determined that none of the Company’s or its Subsidiaries’ patents or patent
applications interfere with any other United States patents or United States
patent applications which correspond to published foreign patents; the Company
has conducted an infringement search and determined that no patent held by any
third party is infringed by the activities of the Company and its Subsidiaries;
there are no pending, or to the Company’s knowledge, threatened judicial
proceedings or interference proceedings challenging the Company’s or its
Subsidiaries’ rights in or to or the validity of the scope of any of the
Company’s or its Subsidiaries’ patents, patent applications or proprietary
information; no other entity or individual has any right or claim in any of the
Company’s or its Subsidiaries’ patents, patent applications or any patent to be
issued therefrom by virtue of any contract, license or other agreement entered
into between such entity or individual and the Company or by any 

 

11

 

non-contractual obligation, other than by
written licenses granted by the Company; the Company and its Subsidiaries have
not received any written notice of any claim challenging the rights of the
Company or a Subsidiary in or to any Intellectual Property owned, licensed or
optioned by the Company or such Subsidiary which claim, if the subject of an
unfavorable decision would result in an Material Adverse Effect.

 

(aa)   Compliance Program.  The Company has established and administers a
compliance program applicable to the Company, to assist the Company and the
directors, officers and employees of the Company in complying with applicable
regulatory guidelines.

 

(bb)  Environmental Laws.  Except as set forth in the Registration
Statement or the Prospectus, the Company and its Subsidiaries (i) are in
compliance with any and all applicable federal, state, local and foreign laws,
rules, regulations, decisions and orders relating to the protection of human
health and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (collectively, “Environmental Laws”); (ii) have
received and are in compliance with all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their
respective businesses as described in the Registration Statement and the
Prospectus; and (iii) have not received notice of any actual or potential
liability for the investigation or remediation of any disposal or release of
hazardous or toxic substances or wastes, pollutants or contaminants, except, in
the case of any of clauses (i), (ii) or (iii) above, for any such
failure to comply or failure to receive required permits, licenses, other
approvals or liability as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

(cc)   Disclosure Controls.  The Company and each of its Subsidiaries
maintain systems of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.  The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15 and
15d-15) for the Company and designed such disclosure controls and procedures to
ensure that material information relating to the Company and each of its
Subsidiaries is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s Annual Report
on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, is
being prepared.  The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and procedures
as of a date within 90 days prior to the filing date of the Form 10-K for
the fiscal year ended March 31, 2007 (such date, the “Evaluation
Date”).  The Company presented in its
Form 10-K for the fiscal year ended March 31, 2007 the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date.  Since the Evaluation
Date, there have been no significant changes in the Company’s internal controls
(as such term is defined in Item 307(b) of Regulation S-K under the Act)
or, to the Company’s knowledge, in other factors that could significantly
affect the Company’s internal controls.

 

12

 

(dd)  Sarbanes-Oxley.  To the knowledge of the Company, there is and
has been no failure on the part of the Company and any of the Company’s
directors or officers, in their capacities as such, to comply with any
applicable provisions of the Sarbanes-Oxley Act and the rules and
regulations promulgated thereunder.  Each
of the principal executive officer and the principal financial officer of the
Company (or each former principal executive officer of the Company and each
former principal financial officer of the Company as applicable) has made all
certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act with
respect to all reports, schedules, forms, statements and other documents
required to be filed by it or furnished by it to the Commission.  For purposes of the preceding sentence, “principal
executive officer” and “principal financial officer” shall have the meanings
given to such terms in the Sarbanes-Oxley Act.

 

(ee)   Finder’s Fees.  Neither the Company nor any of the
Subsidiaries has incurred any liability for any finder’s fees, brokerage
commissions or similar payments in connection with the transactions herein
contemplated, except as may otherwise exist with respect to Wm Smith pursuant
to this Agreement.

 

(ff)    Labor Disputes.  No labor disturbance by or dispute with employees
of the Company or any of its Subsidiaries exists or, to the knowledge of the
Company, is threatened which would reasonably be expected to result in a
Material Adverse Effect

 

(gg)  Investment Company Act.  Neither the Company nor any of the Subsidiaries
is or, after giving effect to the offering and sale of the Placement Shares,
will be an “investment company” or an entity “controlled” by an “investment
company,” as such terms are defined in the Investment Company Act of 1940, as
amended (the “Investment Company Act”).

 

(hh)  Operations.  The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance with
applicable financial record keeping and reporting requirements of the Currency
and Foreign Transactions Reporting Act of 1970, as amended, the money
laundering statutes of all jurisdictions to which the Company or its
Subsidiaries are subject, the rules and regulations thereunder and any
related or similar rules, regulations or guidelines, issued, administered or
enforced by any governmental agency (collectively, the “Money Laundering
Laws”), except as would not reasonably be expected to result in a Material
Adverse Effect; and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its Subsidiaries with respect to the Money Laundering Laws is pending
or, to the knowledge of the Company, threatened.

 

(ii)     Off-Balance Sheet Arrangements.  There are no transactions, arrangements and
other relationships between and/or among the Company, and/or, to the knowledge
of the Company, any of its affiliates and any unconsolidated entity, including,
but not limited to, any structural finance, special purpose or limited purpose
entity (each, an “Off Balance Sheet Transaction”) that could reasonably
be expected to affect materially the Company’s liquidity or the availability of
or requirements for its capital resources, including those Off Balance Sheet
Transactions described in the Commission’s Statement about Management’s
Discussion and Analysis of Financial Conditions and Results of Operations 

 

13

 

(Release Nos. 
33-8056; 34-45321; FR-61), required to be described in the Prospectus
which have not been described as required.

 

(jj)     Underwriter Agreements.  Except for the Company’s previous controlled
equity offering agreement with Cantor Fitzgerald & Co, which will
expire following the ten (10) day notice period required for the
termination of such agreement, the Company is not a party to any agreement with
an agent or underwriter for any other “at-the-market” or continuous equity
transaction.

 

(kk)   ERISA. 
To the knowledge of the Company, each material employee benefit plan,
within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), that is maintained,
administered or contributed to by the Company or any of its affiliates for
employees or former employees of the Company and any of its Subsidiaries has
been maintained in material compliance with its terms and the requirements of
any applicable statutes, orders, rules and regulations, including but not
limited to ERISA and the Internal Revenue Code of 1986, as amended (the “Code”);
no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975
of the Code, has occurred which would result in a material liability to the
Company with respect to any such plan excluding transactions effected pursuant
to a statutory or administrative exemption; and for each such plan that is
subject to the funding rules of Section 412 of the Code or Section 302
of ERISA, no “accumulated funding deficiency” as defined in Section 412 of
the Code has been incurred, whether or not waived, and the fair market value of
the assets of each such plan (excluding for these purposes accrued but unpaid
contributions) exceeds the present value of all benefits accrued under such
plan determined using reasonable actuarial assumptions.

 

(ll)     Forward Looking Statements.  No forward-looking statement (within the
meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act) (a “Forward Looking Statement”) contained in the
Registration Statement and the Prospectus has been made or reaffirmed without a
reasonable basis or has been disclosed other than in good faith.  The Forward Looking Statements incorporated
by reference in the Registration Statement and the Prospectus from the Company’s
Annual Report on Form 10-K for the fiscal year most recently ended (i) are
within the coverage of the safe harbor for forward looking statements set forth
in Section 27A of the Act, Rule 175(b) under the Act or Rule 3b-6
under the Exchange Act, as applicable, (ii) were made by the Company with
a reasonable basis and in good faith and reflect the Company’s good faith
commercially reasonable best estimate of the matters described therein, and (iii) have
been prepared in accordance with Item 10 of Regulation S-K under the Act.

 

(mm)       Wm Smith Purchases. 
The Company acknowledges and agrees that Wm Smith has informed the
Company that Wm Smith may, to the extent permitted under the Securities Act and
the Exchange Act, purchase and sell shares of Common Stock for its own account
while this Agreement is in effect, provided, that (i) no such purchase or
sales shall take place while a Placement Notice is in effect (except to the
extent Wm Smith may engage in sales of Placement Shares purchased or deemed
purchased from the Company as a “riskless principal” or in a similar capacity)
and (ii) the Company shall not be deemed to have authorized or consented
to any such purchases or sales by Wm Smith.

 

14

 

(nn)  Margin Rules.  Neither the issuance, sale and delivery of
the Shares nor the application of the proceeds thereof by the Company as
described in the Registration Statement and the Prospectus will violate
Regulation T, U or X of the Board of Governors of the Federal Reserve System or
any other regulation of such Board of Governors.

 

(oo)  Insurance.  The Company and each of its Subsidiaries
carry, or are covered by, insurance in such amounts and covering such risks as
the Company and each of its Subsidiaries reasonably believe are adequate for
the conduct of their properties and as is customary for companies engaged in
similar businesses in similar industries.

 

(pp)  No Improper Practices.  (i) Neither the Company nor, to the
Company’s knowledge, the Subsidiaries, nor to the Company’s knowledge, any of
their respective executive officers has, in the past five years, made any
unlawful contributions to any candidate for any political office (or failed
fully to disclose any contribution in violation of law) or made any
contribution or other payment to any official of, or candidate for, any federal,
state, municipal, or foreign office or other person charged with similar public
or quasi-public duty in violation of any law or of the character required to be
disclosed in the Prospectus; (ii) no relationship, direct or indirect,
exists between or among the Company or, to the Company’s knowledge, any
Subsidiary or any affiliate of any of them, on the one hand, and the directors,
officers and stockholders of the Company or, to the Company’s knowledge, any
Subsidiary, on the other hand, that is required by the Securities Act to be
described in the Registration Statement and the Prospectus that is not so
described; (iii) no relationship, direct or indirect, exists between or
among the Company or any Subsidiary or any affiliate of them, on the one hand,
and the directors, officers, stockholders or directors of the Company or, to
the Company’s knowledge, any Subsidiary, on the other hand, that is required by
the rules of FINRA to be described in the Registration Statement and the
Prospectus that is not so described; and (iv) except as described in the
Prospectus, there are no material outstanding loans or advances or material
guarantees of indebtedness by the Company or, to the Company’s knowledge, any
Subsidiary to or for the benefit of any of their respective officers or
directors or any of the members of the families of any of them.

 

(qq)  Status Under the Securities Act.  The Company was not and is not an ineligible
issuer as defined in Rule 405 under the Securities Act at the times
specified in Rules 164 and 433 under the Act in connection with the
offering of the Shares.

 

(rr)    No Misstatement or Omission in an Issuer
Free Writing Prospectus.  Each issuer
free writing prospectus, as defined in Rule 405 under the Act (an “Issuer
Free Writing Prospectus,” and together with the Preliminary Prospectus the “Pricing
Disclosure Materials”), when considered together with the Pricing
Disclosure Materials as of the applicable Point of Sale, did not or, in the
case of Pricing Disclosure Materials to be prepared in the future, will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representation or warranty with
respect to any statement contained in any Issuer Free Writing Prospectus in
reliance upon and in conformity with information concerning Wm Smith and
furnished by Wm Smith to the Company expressly for use in the Issuer Free
Writing Prospectus.

 

15

 

(ss)   Conformity of Issuer Free Writing
Prospectus.  Each Issuer Free Writing
Prospectus conformed or will conform in all material respects to the requirements
of the Act on the date of first use, and the Company has complied or will
comply with any filing requirements applicable to such Issuer Free Writing
Prospectus pursuant to the Act.  Each
Issuer Free Writing Prospectus, as of its issue date and at all subsequent
times through the completion of the public offer and sale of the Shares, did
not, does not and will not include any information that conflicted, conflicts
or will conflict with the information contained in the Registration Statement
or the Prospectus, including any document incorporated by reference therein
that has not been superseded or modified. 
The Company has not made any offer relating to the Shares that would
constitute an Issuer Free Writing Prospectus without the prior written consent
of Wm Smith.  The Company has retained in
accordance with the Act all Issuer Free Writing Prospectuses that were not
required to be filed pursuant to the Act.

 

(tt)    Pricing Disclosure Materials.  The Pricing Disclosure Materials did not, as
of the applicable Point of Sale contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representation or warranty with respect to any statement contained in the
Pricing Disclosure Materials in reliance upon and in conformity with
information concerning Wm Smith and furnished in writing by Wm Smith to the
Company expressly for use in the Pricing Disclosure Materials.

 

(uu)  No Conflicts.  Neither the execution of this Agreement, nor
the issuance, offering or sale of the Shares, nor the consummation of any of
the transactions contemplated herein and therein, nor the compliance by the
Company with the terms and provisions hereof and thereof will conflict with, or
will result in a breach of, any of the terms and provisions of, or has
constituted or will constitute a default under, or has resulted in or will result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to the terms of any contract or
other agreement to which the Company may be bound or to which any of the
property or assets of the Company is subject, except (i) such conflicts,
breaches or defaults as may have been waived and (ii) such conflicts,
breaches and defaults that would not have a Material Adverse Effect; nor will
such action result (x) in any violation of the provisions of the
organizational or governing documents of the Company, or (y) in any
material violation of the provisions of any statute or any order, rule or
regulation applicable to the Company or of any court or of any federal, state
or other regulatory authority or other government body having jurisdiction over
the Company.

 

(vv)  Stock Transfer Taxes.  On each Settlement Date, all stock transfer
or other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Shares to be sold hereunder will
be, or will have been, fully paid or provided for by the Company and all laws
imposing such taxes will be or will have been fully complied with.

 

7.            Covenants
of the Company.  The Company
covenants and agrees with Wm Smith that:

 

(a)     Registration Statement Amendments.  After the date of this Agreement and during
any period in which a Prospectus relating to any Placement Shares is required
to be 

 

16

 

delivered by Wm Smith under the Securities
Act (including in circumstances where such requirement may be satisfied
pursuant to Rule 172 under the Securities Act), (i) the Company will
notify Wm Smith promptly of the time when any subsequent amendment to the
Registration Statement, other than documents incorporated by reference, has
been filed with the Commission and/or has become effective or any subsequent
supplement to the Prospectus has been filed and of any request by the
Commission for any amendment or supplement to the Registration Statement or
Prospectus or for additional information, (ii) the Company will prepare
and file with the Commission, promptly upon Wm Smith’s request, any amendments
or supplements to the Registration Statement or Prospectus that, in Wm Smith’s
reasonable opinion, may be necessary or advisable in connection with the
distribution of the Placement Shares by Wm Smith (provided, however, that the
failure of Wm Smith to make such request shall not relieve the Company of any
obligation or liability hereunder, or affect Wm Smith’s right to rely on the
representations and warranties made by the Company in this Agreement and
provided, further, that the only remedy Wm Smith shall have with respect to the
failure to make such filing shall be to cease making sales under this Agreement
until such amendment or supplement is filed); (iii) the Company will not
file any amendment or supplement to the Registration Statement or Prospectus
relating to the Placement Shares or a security convertible into the Placement
Shares unless a copy thereof has been submitted to Wm Smith within a reasonable
period of time before the filing and Wm Smith has not reasonably objected
thereto (provided, however, that the failure of Wm Smith to make such objection
shall not relieve the Company of any obligation or liability hereunder, or
affect Wm Smith’s right to rely on the representations and warranties made by
the Company in this Agreement and provided, further, that the only remedy Wm
Smith shall have with respect to the failure to by the Company to obtain such
consent shall be to cease making sales under this Agreement) and the Company
will furnish to Wm Smith at the time of filing thereof a copy of any document
that upon filing is deemed to be incorporated by reference into the
Registration Statement or Prospectus, except for those documents available via
EDGAR; and (iv) the Company will cause each amendment or supplement to the
Prospectus to be filed with the Commission as required pursuant to the
applicable paragraph of Rule 424(b) of the Securities Act or, in the
case of any document to be incorporated therein by reference, to be filed with
the Commission as required pursuant to the Exchange Act, within the time period
prescribed (the determination to file or not file any amendment or supplement
with the Commission under this Section 7(a), based on the Company’s
reasonable opinion or reasonable objections, shall be made exclusively by the
Company).

 

(b)     Notice of Commission Stop Orders.  The Company will advise Wm Smith, promptly
after it receives notice or obtains knowledge thereof, of the issuance or
threatened issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, of the suspension of the
qualification of the Placement Shares for offering or sale in any jurisdiction,
or of the initiation or threatening of any proceeding for any such purpose; and
it will promptly use its commercially reasonable efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such a stop order should
be issued.  The Company will advise Wm
Smith promptly after it receives any request by the Commission for any
amendments to the Registration Statement or any amendment or supplements to the
Prospectus or any Issuer Free Writing Prospectus or for additional information
related to the offering of the Shares or for additional information related to
the Registration Statement, the Prospectus or any Issuer Free Writing
Prospectus.

 

17

 

(c)     Delivery of Prospectus; Subsequent
Changes.  During any period in which
a Prospectus relating to the Placement Shares is required to be delivered by Wm
Smith under the Securities Act with respect to the offer and sale of the
Placement Shares, (including in circumstances where such requirement may be
satisfied pursuant to Rule 172 under the Securities Act), the Company will
comply with all requirements imposed upon it by the Securities Act, as from
time to time in force, and to file on or before their respective due dates all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission pursuant to Sections 13(a), 13(c), 14, 15(d) or
any other provision of or under the Exchange Act.  If the Company has omitted any information
from the Registration Statement pursuant to Rule 430A under the Act, it
will use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to said Rule 430A and to
notify Wm Smith promptly of all such filings. 
If during such period any event occurs as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances then existing, not
misleading, or if during such period it is necessary to amend or supplement the
Registration Statement or Prospectus to comply with the Securities Act, the
Company will promptly notify Wm Smith to suspend the offering of Placement
Shares during such period and the Company will promptly amend or supplement the
Registration Statement or Prospectus (at the expense of the Company) so as to
correct such statement or omission or effect such compliance.

 

(d)     Listing of Placement Shares.  During any period in which the Prospectus
relating to the Placement Shares is required to be delivered by Wm Smith under
the Securities Act with respect to the offer and sale of the Placement Shares,
the Company will use its reasonable best efforts to cause the Placement Shares
to be listed on the Exchange and to qualify the Placement Shares for sale under
the securities laws of such jurisdictions as Wm Smith reasonably designates and
to continue such qualifications in effect so long as required for the
distribution of the Placement Shares; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation or
dealer in securities or file a general consent to service of process in any
jurisdiction.

 

(e)     Delivery of Registration Statement and
Prospectus.  The Company will furnish
to Wm Smith and its counsel (at the expense of the Company) copies of the
Registration Statement, the Prospectus (including all documents incorporated by
reference therein) and all amendments and supplements to the Registration
Statement or Prospectus that are filed with the Commission during any period in
which a Prospectus relating to the Placement Shares is required to be delivered
under the Securities Act (including all documents filed with the Commission
during such period that are deemed to be incorporated by reference therein), in
each case as soon as reasonably practicable and in such quantities as Wm Smith
may from time to time reasonably request and, at Wm Smith’s request, will also
furnish copies of the Prospectus to each exchange or market on which sales of
the Placement Shares may be made; provided, however, that the Company shall not
be required to furnish any document (other than the Prospectus) to Wm Smith to
the extent such document is available on EDGAR.

 

(f)      Earnings Statement.  The Company will make generally available to
its security holders as soon as practicable, but in any event not later than 15
months after the end of 

 

18

 

the Company’s current fiscal
quarter, an earnings statement covering a 12-month period that satisfies the
provisions of Section 11(a) and Rule 158 of the Securities Act

 

(g)     Expenses.  The Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is terminated, in
accordance with the provisions of Section 12 hereunder, will pay the
following all expenses incident to the performance of its obligations
hereunder, including, but not limited to, expenses relating to (i) the
preparation, printing and filing of the Registration Statement and each
amendment and supplement thereto, of each Prospectus and of each amendment and
supplement thereto, (ii) the preparation, issuance and delivery of the
Placement Shares, (iii) the qualification of the Placement Shares under
securities laws in accordance with the provisions of Section 7(d) of
this Agreement, including filing fees and any reasonable fees or disbursements
of counsel for Wm Smith in connection therewith, (iv) the printing and
delivery to Wm Smith of copies of the Prospectus and any amendments or
supplements thereto, and of this Agreement, (v) the fees and expenses
incurred in connection with the listing or qualification of the Placement
Shares for trading on the Exchange, (vi) filing fees and expenses, if any,
of the Commission and the FINRA Corporate Financing Department.

 

(h)     Use of Proceeds.  The Company will use the Net Proceeds as
described in the Prospectus in the section entitled “Use of Proceeds.”

 

(i)      Notice of Other Sales.  Without the prior written consent of Wm
Smith, the Company will not, directly or indirectly, offer to sell, sell,
contract to sell, grant any option to sell or otherwise dispose of any shares
of Common Stock (other than the Shares offered pursuant to the provisions of
this Agreement) or securities convertible into or exchangeable for Common
Stock, warrants or any rights to purchase or acquire, Common Stock during the
period beginning on the fifth (5th) Trading Day immediately prior to the date on
which any Placement Notice is delivered to Wm Smith hereunder and ending on the
fifth (5th) Trading Day immediately following the final Settlement Date with
respect to Placement Shares sold pursuant to such Placement Notice (or, if the
Placement Notice has been terminated or suspended prior to the sale of all
Shares covered by a Placement Notice, the date of such suspension or
termination); and will not directly or indirectly in any other “at-the-market”
or continuous equity transaction offer to sell, sell, contract to sell, grant
any option to sell or otherwise dispose of any shares of Common Stock (other
than the Shares offered pursuant to the provisions of this Agreement) or
securities convertible into or exchangeable for Common Stock, warrants or any rights
to purchase or acquire, Common Stock prior to the later of the termination of
this Agreement and the sixtieth (60th) day immediately following the final
Settlement Date with respect to Placement Shares sold pursuant to such
Placement Notice; provided, however, that such restrictions will not be
required in connection with the Company’s issuance or sale of (i) Common
Stock, options to purchase shares of Common Stock or Common Stock issuable upon
the exercise of options, pursuant to any employee or director stock option or
benefits plan, stock ownership plan or dividend reinvestment plan (but not
shares subject to a waiver to exceed plan limits in its dividend reinvestment
plan) of the Company whether now in effect or hereafter implemented, (ii) Common
Stock issuable upon conversion of securities or the exercise of warrants,
options or other rights in effect or outstanding, and disclosed in filings by
the Company available on EDGAR or otherwise in writing to Wm Smith and (iii) Common
Stock issued or sold to Carl Berg or any of his affiliates.

 

19

 

(j)      Change of Circumstances.  The Company will, at any time during the
pendency of a Placement Notice advise Wm Smith promptly after it shall have
received notice or obtained knowledge thereof, of any information or fact that
would alter or affect in any material respect any opinion, certificate, letter
or other document required to be provided to Wm Smith pursuant to this
Agreement.

 

(k)     Due Diligence Cooperation.  The Company will cooperate with any
reasonable due diligence review conducted by Wm Smith or its agents in
connection with the transactions contemplated hereby, including, without
limitation, providing information and making available documents and senior
corporate officers, during regular business hours and at the Company’s
principal offices, as Wm Smith may reasonably request.

 

(l)      Required Filings Relating to Placement
of Placement Shares.  The Company
agrees that on such dates as the Securities Act shall require, the Company will
(i) file a prospectus supplement with the Commission under the applicable
paragraph of Rule 424(b) under the Securities Act (each and every
filing under Rule 424(b), a “Filing Date”), which prospectus
supplement will set forth, within the relevant period, the amount of Placement
Shares sold through Wm Smith, the Net Proceeds to the Company and the
compensation payable by the Company to Wm Smith with respect to such Placement
Shares, and (ii) deliver such number of copies of each such prospectus
supplement to each exchange or market on which such sales were effected as may
be required by the rules or regulations of such exchange or market.

 

(m)    Representation Dates; Certificate.  During the term of this Agreement, on the
date of each Placement Notice given hereunder and each time the Company (i) files
the Prospectus relating to the Placement Shares or amends or supplements the
Registration Statement or the Prospectus relating to the Placement Shares
(other than a prospectus supplement filed in accordance with Section 7(l) of
this Agreement) by means of a post-effective amendment, sticker, or supplement
but not by means of incorporation of document(s) by reference to the
Registration Statement or the Prospectus relating to the Placement Shares; (ii) files
an annual report on Form 10-K under the Exchange Act; (iii) files its
quarterly reports on Form 10-Q under the Exchange Act; (iv) files a
report on Form 8-K containing amended financial information (other than an
earnings release, to “furnish” information pursuant to Items 2.02 or 7.01 of Form 8-K
or to provide disclosure pursuant to Item 8.01 of Form 8-K relating to the
reclassifications of certain properties as discontinued operations in
accordance with Statement of Financial Accounting Standards No. 144) under
the Exchange Act or (v) files a Form 8-K under the Exchange Act for
any other purpose (other than to “furnish” information pursuant to Items 2.02
or 7.01 of revised Form 8-K) (each date of filing of one or more of the
documents referred to in clauses (i) through (v) shall be a “Representation
Date”); the Company shall furnish Wm Smith (but in the case of clause (v) above
only if Wm Smith reasonably determines that the information contained in such Form 8-K
is material) with a certificate, in the form attached hereto as Exhibit 7(m).  The requirement to provide a certificate
under this Section 7(m) shall be waived for any Representation Date
occurring at a time at which no Placement Notice is pending, which waiver shall
continue until the earlier to occur of the date the Company delivers a
Placement Notice hereunder (which for such calendar quarter shall be considered
a Representation Date) and the next occurring Representation Date; provided,
however, that such waiver shall not apply for any Representation Date on which
the Company files its annual report on Form 10-K.  Notwithstanding the foregoing, if the Company
subsequently decides to sell 

 

20

 

Placement Shares following a
Representation Date when the Company relied on such waiver and did not provide
Wm Smith with a certificate under this Section 7(m), then before the
Company delivers the Placement Notice or Wm Smith sells any Placement Shares,
the Company shall provide Wm Smith with a certificate, in the form attached
hereto as Exhibit 7(m), dated the date of the Placement Notice.

 

(n)     Legal Opinion.  On the date of this Agreement, on the date of
the first Placement Notice given hereunder and within three Trading Days of
each Representation Date with respect to which the Company is obligated to
deliver a certificate in the form attached hereto as Exhibit 7(m) for
which no waiver is applicable, the Company shall cause to be furnished to Wm
Smith a written opinion of Andrews Kurth LLP (“Company Counsel”), or other
counsel satisfactory to Wm Smith, in form and substance satisfactory to Wm
Smith and its counsel, dated the date of this Agreement or the Representation
Date, as the case may be, substantially similar to the form attached hereto as Exhibit 7(n)(1)(a) and
Exhibit 7(n)(1)(b), respectively, modified, as necessary, to relate to the
Registration Statement and the Prospectus as then amended or supplemented;
provided, however, that in lieu of such opinions for subsequent Representation
Dates, counsel may furnish Wm Smith with a letter (a “Reliance Letter”)
to the effect that Wm Smith may rely on a prior opinion delivered under this Section 7(n) to
the same extent as if it were dated the date of such letter (except that
statements in such prior opinion shall be deemed to relate to the Registration
Statement and the Prospectus as amended or supplemented at such Representation
Date).

 

(o)     Comfort Letter.  On the date of the first Placement Notice
given hereunder and thereafter within three Trading Days of each Representation
Date occurring during any period in which the Prospectus relating to the
Placement Shares is required to be delivered by Wm Smith (including in
circumstances where such requirement may be satisfied pursuant to Rule 172
under the Act) and each Representation Date with respect to which the Company
is obligated to deliver a certificate in the form attached hereto as Exhibit 7(m) for
which no waiver is applicable, the Company shall cause its independent
accountants to furnish Wm Smith letters (the “Comfort Letters”), dated
the date of the Comfort Letter is delivered, in form and substance satisfactory
to Wm Smith, (i) confirming that they are an independent public accounting
firm within the meaning of the Securities Act and the PCAOB, (ii) stating,
as of such date, the conclusions and findings of such firm with respect to the
financial information and other matters ordinarily covered by accountants’ “comfort
letters” to underwriters in connection with registered public offerings (the
first such letter, the “Initial Comfort Letter”) and (iii) updating
the Initial Comfort Letter with any information that would have been included
in the Initial Comfort Letter had it been given on such date and modified as
necessary to relate to the Registration Statement and the Prospectus, as
amended and supplemented to the date of such letter.

 

(p)     Market Activities.  The Company will not, directly or indirectly,
(i) take any action designed to cause or result in, or that constitutes or
might reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares or (ii) sell, bid for, or purchase the Shares, or pay anyone
any compensation for soliciting purchases of the Shares other than Wm Smith.

 

21

 

(q)     Investment Company Act.  The Company will conduct its affairs in such
a manner so as to reasonably ensure that neither it nor the Subsidiaries will
be or become, at any time prior to the termination of this Agreement, an “investment
company,” as such term is defined in the Investment Company Act, assuming no
change in the Commission’s current interpretation as to entities that are not
considered an investment company.

 

(r)      No Offer to Sell.  Other than an Issuer Free Writing Prospectus
approved in advance by the Company and Wm Smith in its capacity as principal or
agent hereunder, neither Wm Smith nor the Company (including its agents and
representatives, other than Wm Smith in its capacity as such) will make, use,
prepare, authorize, approve or refer to any written communication (as defined
in Rule 405 under the Act), required to be filed with the Commission, that
constitutes an offer to sell or solicitation of an offer to buy Shares
hereunder.

 

(s)     Sarbanes-Oxley Act.  The Company and the Subsidiaries will
maintain and keep accurate books and records reflecting their assets and
maintain internal accounting controls in a manner designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and including those policies and procedures that
(i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets
of the Company, (ii) provide reasonable assurance that transactions are
recorded as necessary to permit the preparation of the Company’s consolidated
financial statements in accordance with generally accepted accounting
principals, (iii) that receipts and expenditures of the Company are being
made only in accordance with management’s and the Company’s directors’
authorization, and (iv) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on its financial
statements.  The Company and the
Subsidiaries will maintain such controls and other procedures, including,
without limitation, those required by Sections 302 and 906 of the
Sarbanes-Oxley Act, and the applicable regulations thereunder that are designed
to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s rules and
forms, including, without limitation, controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its Chief Executive Officer and principal
financial officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure and to ensure that
material information relating to the Company or the Subsidiaries is made known
to them by others within those entities, particularly during the period in
which such periodic reports are being prepared.

 

8.            Covenants of Wm Smith.  Wm Smith covenants and agrees that it is duly
registered and qualified as a broker-dealer under FINRA, the Exchange Act, and
the applicable statutes and regulations of each state or other jurisdiction in
which the Shares will be offered or sold, except such states or other
jurisdictions in which Wm Smith is exempt from registration or qualification or
such registration or qualification is not otherwise required.  Throughout the term of this Agreement, Wm
Smith shall continue to be duly registered and qualified as a broker-dealer
under FINRA, the Exchange Act, and the applicable statutes and regulations of
each state or other jurisdiction in which the Shares will be offered or sold, 

 

22

 

except such states or other
jurisdictions in which Wm Smith is exempt from registration or qualification or
such registration or qualification is not otherwise required.

 

9.            Conditions to Wm Smith’s
Obligations.  The obligations of Wm
Smith hereunder with respect to a Placement will be subject to the continuing
accuracy and completeness of the representations and warranties made by the
Company herein, to the due performance by the Company of its obligations
hereunder, to the completion by Wm Smith of a due diligence review satisfactory
to Wm Smith in its reasonable judgment, and to the continuing satisfaction (or
waiver by Wm Smith in its sole discretion) of the following additional
conditions:

 

(a)     Registration Statement Effective.  The Registration Statement shall have become
effective and shall be available for the (i) resale of all Placement
Shares issued to Wm Smith and not yet sold by Wm Smith and (ii) the sale
of all Placement Shares contemplated to be issued by any Placement Notice.

 

(b)     No Material Notices.  None of the following events shall have
occurred and be continuing: (i) receipt by the Company of any request for
additional information from the Commission or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement, the response to which would require any post-effective amendments or
supplements to the Registration Statement or the Prospectus; (ii) the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose; (iii) receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Placement Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) the occurrence of any event that makes any material
statement made in the Registration Statement or the Prospectus or any material
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the Registration
Statement, related Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any materially untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and, that in
the case of the Prospectus, it will not contain any materially untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

 

(c)     No Misstatement or Material Omission.  Wm Smith shall not have advised the Company
that the Registration Statement or Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact that in Wm Smith’s reasonable
opinion is material, or omits to state a fact that in Wm Smith’s opinion is
material and is required to be stated therein or is necessary to make the
statements therein not misleading.

 

(d)     Material Changes.  Except as contemplated in the Prospectus, or
disclosed in the Company’s reports filed with the Commission, there shall not
have been any material adverse change, on a consolidated basis, in the
authorized capital stock of the Company or any Material Adverse Effect, or any
development that could reasonably be expected to cause a Material Adverse
Effect, or a downgrading in or withdrawal of the rating assigned to any of the 

 

23

 

Company’s securities (other
than asset backed securities) by any rating organization or a public
announcement by any rating organization that it has under surveillance or
review its rating of any of the Company’s securities (other than asset backed
securities), the effect of which, in the case of any such action by a rating
organization described above, in the reasonable judgment of Wm Smith (without
relieving the Company of any obligation or liability it may otherwise have), is
so material as to make it impracticable or inadvisable to proceed with the
offering of the Placement Shares on the terms and in the manner contemplated in
the Prospectus.

 

(e)     Legal Opinion.  Wm Smith shall have received the opinions of
Company Counsel required to be delivered pursuant Section 7(n) on or
before the date on which such delivery of such opinion is required pursuant to Section 7(n).

 

(f)      Comfort Letter.  Wm Smith shall have received the Comfort
Letter required to be delivered pursuant Section 7(o) on or before
the date on which such delivery of such opinion is required pursuant to Section 7(o).

 

(g)     Representation Certificate.  Wm Smith shall have received the certificate
required to be delivered pursuant to Section 7(m) on or before the
date on which delivery of such certificate is required pursuant to Section 7(m).

 

(h)     No Suspension.  Trading in the Shares shall not have been
suspended on the Exchange.

 

(i)      Other Materials.  On each date on which the Company is required
to deliver a certificate pursuant to Section 7(m), the Company shall have
furnished to Wm Smith such appropriate further information, certificates and
documents as Wm Smith may reasonably request. 
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof. 
The Company will furnish Wm Smith with such conformed copies of such
opinions, certificates, letters and other documents as Wm Smith shall
reasonably request.

 

(j)      Securities Act Filings Made.  All filings with the Commission required by Rule 424
under the Securities Act to have been filed prior to the issuance of any
Placement Notice hereunder shall have been made within the applicable time
period prescribed for such filing by Rule 424.

 

(k)     Approval for Listing.  The Placement Shares shall either have been
approved for listing on the Exchange, subject only to notice of issuance, or (ii) the
Company shall have filed an application for listing of the Placement Shares on
the Exchange at, or prior to, the issuance of any Placement Notice.

 

(l)      No Termination Event.  There shall not have occurred any event that
would permit Wm Smith to terminate this Agreement pursuant to Section 12(a).

 

10.          Indemnification and Contribution.

 

(a)     Company Indemnification.  The Company agrees to indemnify and hold
harmless Wm Smith, the directors, officers, partners, employees and agents of
Wm Smith and each person, if any, who (i) controls Wm Smith within the
meaning of Section 15 of the 

 

24

 

Securities Act or Section 20
of the Exchange Act, or (ii) is controlled by or is under common control
with Wm Smith (a “Wm Smith Affiliate”) from and against any and all
losses, claims, liabilities, expenses and damages (including, but not limited
to, any and all reasonable investigative, legal and other expenses incurred in
connection with, and any and all amounts paid in settlement (in accordance with
Section 10(c)) of, any action, suit or proceeding between any of the
indemnified parties and any indemnifying parties or between any indemnified
party and any third party, or otherwise, or any claim asserted), as and when
incurred, to which Wm Smith, or any such person, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based, directly or
indirectly, on (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus or in
any Issuer Free Writing Prospectus or in any application or other document
executed by or on behalf of the Company or based on written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Shares under the securities laws thereof or filed with the
Commission, (ii) the omission or alleged omission to state in any such
document a material fact required to be stated in it or necessary to make the
statements in it not misleading or (iii) any breach by any of the
indemnifying parties of any of their respective representations, warranties and
agreements contained in this Agreement; provided, however, that this indemnity
agreement shall not apply to the extent that such loss, claim, liability,
expense or damage arises from the sale of the Placement Shares pursuant to this
Agreement and is caused directly or indirectly by an untrue statement or
omission made in reliance on and in conformity with information relating to Wm
Smith.  This indemnity agreement will be
in addition to any liability that the Company might otherwise have.

 

(b)     Wm Smith Indemnification.  Wm Smith agrees to indemnify and hold
harmless the Company and its directors and each officer of the Company who
signed the Registration Statement, and each person, if any, who (i) controls
the Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act or (ii) is controlled by or is under common control
with the Company (a “Company Affiliate”) against any and all loss, liability,
claim, damage and expense described in the indemnity contained in Section 10(c),
as incurred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in the Registration Statement (or
any amendments thereto) or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with information relating to Wm
Smith and furnished to the Company by Wm Smith.

 

(c)     Procedure.  Any party that proposes to assert the right
to be indemnified under this Section 10 will, promptly after receipt of
notice of commencement of any action against such party in respect of which a
claim is to be made against an indemnifying party or parties under this Section 10,
notify each such indemnifying party of the commencement of such action,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve the indemnifying party from (i) any
liability that it might have to any indemnified party otherwise than under this
Section 10 and (ii) any liability that it may have to any indemnified
party under the foregoing provision of this Section 10 unless, and only to
the extent that, such omission results in the forfeiture of substantive rights
or defenses by the indemnifying party. 
If any such action is brought against any indemnified party and it
notifies the indemnifying party of its commencement, the indemnifying party
will be entitled to 

 

25

 

participate in and, to the
extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly
notified, to assume the defense of the action, with counsel reasonably
satisfactory to the indemnified party, and after notice from the indemnifying
party to the indemnified party of its election to assume the defense, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses except as provided below and except for the reasonable costs of
investigation subsequently incurred by the indemnified party in connection with
the defense.  The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified
party has been authorized in writing by the indemnifying party, (2) the
indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(3) a conflict or potential conflict exists (based on advice of counsel to
the indemnified party) between the indemnified party and the indemnifying party
(in which case the indemnifying party will not have the right to direct the
defense of such action on behalf of the indemnified party) or (4) the
indemnifying party has not in fact employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action, in each of which cases the reasonable fees, disbursements and
other charges of counsel will be at the expense of the indemnifying party or
parties.  It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm admitted
to practice in such jurisdiction at any one time for all such indemnified party
or parties.  All such fees, disbursements
and other charges will be reimbursed by the indemnifying party promptly as they
are incurred.  An indemnifying party will
not, in any event, be liable for any settlement of any action or claim effected
without its written consent.  No
indemnifying party shall, without the prior written consent of each indemnified
party, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to the matters
contemplated by this Section 10 (whether or not any indemnified party is a
party thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding.

 

(d)     Contribution.  In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in the
foregoing paragraphs of this Section 10 is applicable in accordance with
its terms but for any reason is held to be unavailable from the Company or Wm
Smith, the Company and Wm Smith will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than Wm
Smith, such as persons who control the Company within the meaning of the
Securities Act, officers of the Company who signed the Registration Statement
and directors of the Company, who also may be liable for contribution) to which
the Company and Wm Smith may be subject in such proportion as shall be
appropriate to reflect the relative benefits received by the Company on the one
hand and Wm Smith on the other.  The
relative benefits received by the Company on the one hand and Wm Smith on the
other hand shall be deemed to be in the same proportion as the total net
proceeds from the sale of the Placement 

 

26

 

Shares (before deducting
expenses) received by the Company bear to the total compensation received by Wm
Smith (before deducting expenses) from the sale of Placement Shares on behalf
of the Company.  If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, on the one hand,
and Wm Smith, on the other, with respect to the statements or omission that
resulted in such loss, claim, liability, expense or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect to such offering.  Such relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company or Wm Smith, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement or
omission.  The Company and Wm Smith agree
that it would not be just and equitable if contributions pursuant to this Section 10(d) were
to be determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to
herein.  The amount paid or payable by an
indemnified party as a result of the loss, claim, liability, expense, or
damage, or action in respect thereof, referred to above in this Section 10(d) shall
be deemed to include, for the purpose of this Section 10(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim to the extent consistent
with Section 10(c) hereof. 
Notwithstanding the foregoing provisions of this Section 10(d), Wm
Smith shall not be required to contribute any amount in excess of the
commissions received by it under this Agreement and no person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.  For purposes of this Section 10(d), any
person who controls a party to this Agreement within the meaning of the
Securities Act, and any officers, directors, partners, employees or agents of
Wm Smith, will have the same rights to contribution as that party, and each
officer of the Company who signed the Registration Statement will have the same
rights to contribution as the Company, subject in each case to the provisions
hereof.  Any party entitled to
contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 10(d), will notify any such party or parties from whom
contribution may be sought, but the omission to so notify will not relieve that
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 10(d) except to the extent
that the failure to so notify such other party materially prejudiced the
substantive rights or defenses of the party from whom contribution is
sought.  Except for a settlement entered
into pursuant to the last sentence of Section 10(c) hereof, no party
will be liable for contribution with respect to any action or claim settled
without its written consent if such consent is required pursuant to Section 10(c) hereof.

 

11.          Representations and Agreements to
Survive Delivery.  The indemnity and
contribution agreements contained in Section 10 of this Agreement and all
representations and warranties of the Company herein or in certificates
delivered pursuant hereto shall survive, as of their respective dates,
regardless of (i) any investigation made by or on behalf of Wm Smith, any
controlling persons, or the Company (or any of their respective officers,
directors or controlling persons), (ii) delivery and acceptance of the
Placement Shares and payment therefor or (iii) any termination of this
Agreement.

 

27

 

12.          Termination.

 

(a)     Wm Smith shall have the right by giving
notice as hereinafter specified at any time to terminate this Agreement if (i) any
Material Adverse Effect, or any development that has actually occurred and that
is reasonably expected to cause a Material Adverse Effect has occurred that, in
the reasonable judgment of Wm Smith, may materially impair the ability of Wm
Smith to sell the Placement Shares hereunder, (ii) the Company shall have
failed, refused or been unable to perform any agreement on its part to be
performed hereunder; provided, however, in the case of any failure of the
Company to deliver (or cause another person to deliver) any certification,
opinion, or letter required under Sections 7(m), 7(n), or 7(o), Wm Smith’s
right to terminate shall not arise unless such failure to deliver (or cause to
be delivered) continues for more than thirty days from the date such delivery
was required; or (iii) any other condition of Wm Smith’s obligations
hereunder is not fulfilled, or (iv), any suspension or limitation of trading in
the Placement Shares or in securities generally on the Exchange shall have
occurred.  Any such termination shall be
without liability of any party to any other party except that the provisions of
Section 7(g) (Expenses), Section 9 (Indemnification), Section 11
(Survival of Representations), Section 17 (Applicable Law; Consent to
Jurisdiction) and Section 18 (Waiver of Jury Trial) hereof shall remain in
full force and effect notwithstanding such termination.  If Wm Smith elects to terminate this
Agreement as provided in this Section 12(a), Wm Smith shall provide the
required notice as specified in Section 13 (Notices).

 

(b)     The Company shall have the right, by giving
ten days notice as hereinafter specified to terminate this Agreement in its
sole discretion at any time after the date of this Agreement.  Any such termination shall be without
liability of any party to any other party except that the provisions of Section 7(g),
Section 10, Section 11, Section 17 and Section 18 hereof
shall remain in full force and effect notwithstanding such termination.

 

(c)     Wm Smith shall have the right, by giving
ten days notice as hereinafter specified to terminate this Agreement in its
sole discretion at any time after the date of this Agreement.  Any such termination shall be without
liability of any party to any other party except that the provisions of Section 7(g),
Section 10, Section 11, Section 17 and Section 18 hereof
shall remain in full force and effect notwithstanding such termination.

 

(d)     Unless earlier terminated pursuant to this Section 12,
this Agreement shall automatically terminate upon the issuance and sale of all
of the Placement Shares through Wm Smith on the terms and subject to the
conditions set forth herein; provided that the provisions of Section 7(g),
Section 10, Section 11, Section 17 and Section 18 hereof
shall remain in full force and effect notwithstanding such termination.

 

(e)     This Agreement shall remain in full force
and effect unless terminated pursuant to Sections 12(a), (b), (c), or (d) above
or otherwise by mutual agreement of the parties; provided, however, that any
such termination by mutual agreement shall in all cases be deemed to provide
that Section 7(g), Section 10, Section 11, Section 17 and Section 18
shall remain in full force and effect.

 

(f)      Any termination of this Agreement shall be
effective on the date specified in such notice of termination; provided,
however, that such termination shall not be effective 

 

28

 

until the close of business on
the date of receipt of such notice by Wm Smith or the Company, as the case may
be.  If such termination shall occur
prior to the Settlement Date for any sale of Placement Shares, such Placement
Shares shall settle in accordance with the provisions of this Agreement.

 

13.          Notices.  All notices or other communications required
or permitted to be given by any party to any other party pursuant to the terms
of this Agreement shall be in writing, unless otherwise specified, and if sent
to Wm Smith, shall be delivered to:

 

(i)      Wm Smith at Wm Smith & Co., 1700 Lincoln Street, Suite 2545,
Denver, CO 80203 (facsimile:  (303)
831-0881), Attention: William S.  Smith,
with a copy to Holme Roberts & Owen LLP, 1700 Lincoln Street, Suite 4100,
Denver, CO 80203 (facsimile:  (303)
866-0200), Attn:  Garth Jensen; or

 

(ii)     Valence Technology, Inc., 12201 Technology Boulevard, Suite 150,
Austin, Texas 78727 (facsimile: 
512-527-2910), Attn:  Chief
Financial Officer, with copies to Roger Williams, General Counsel, at the same
address, and Andrews Kurth LLP, 111 Congress Ave., Suite 1700, Austin, TX
78701 (facsimile:  512-320-9292),
Attn:  J. Matthew Lyons.

 

Each party to this Agreement
may change such address for notices by sending to the parties to this Agreement
written notice of a new address for such purpose.  Each such notice or other communication shall
be deemed given (i) when delivered personally or by verifiable facsimile
transmission (with an original to follow) on or before 4:30 p.m., New York
City time, on a Business Day or, if such day is not a Business Day, on the next
succeeding Business Day, (ii) on the next Business Day after timely
delivery to a nationally-recognized overnight courier and (iii) on the
Business Day actually received if deposited in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid).  For purposes of this Agreement, “Business
Day” shall mean any day on which the Exchange and commercial banks in the
City of New York are open for business.

 

An electronic communication (“Electronic
Notice”) shall be deemed written notice for purposes of this Section 13
if sent to the electronic mail address specified by the receiving party under
separate cover.  Electronic Notice shall
be deemed received at the time the party sending Electronic Notice receives
verification of receipt by the receiving party. 
Any party receiving Electronic Notice may request and shall be entitled
to receive the notice on paper, in a nonelectronic form (“Nonelectronic
Notice”) which shall be sent to the requesting party within ten (10) days
of receipt of the written request for Nonelectronic Notice.

 

14.          Successors and Assigns.  This Agreement shall inure to the benefit of
and be binding upon the Company and Wm Smith and their respective successors
and the affiliates, controlling persons, officers and directors referred to in Section 10
hereof.  References to any of the parties
contained in this Agreement shall be deemed to include the successors and
permitted assigns of such party.  Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and permitted
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.  Neither party may assign its rights or
obligations under 

 

29

 

this Agreement without the
prior written consent of the other party; provided, however, that Wm Smith may
assign its rights and obligations hereunder to an affiliate of Wm Smith without
obtaining the Company’s consent.

 

15.          Adjustments for Stock Splits.  The parties acknowledge and agree that all
share-related numbers contained in this Agreement shall be adjusted to take
into account any stock split, stock dividend or similar event effected with
respect to the Shares.

 

16.          Entire Agreement; Amendment;
Severability.  This Agreement
(including all schedules and exhibits attached hereto and Placement Notices
issued pursuant hereto) constitutes the entire agreement and supersedes all
other prior and contemporaneous agreements and undertakings, both written and
oral, among the parties hereto with regard to the subject matter hereof.  Neither this Agreement nor any term hereof
may be amended except pursuant to a written instrument executed by the Company
and Wm Smith.  In the event that any one
or more of the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable as written by a court
of competent jurisdiction, then such provision shall be given full force and
effect to the fullest possible extent that it is valid, legal and enforceable,
and the remainder of the terms and provisions herein shall be construed as if
such invalid, illegal or unenforceable term or provision was not contained
herein, but only to the extent that giving effect to such provision and the
remainder of the terms and provisions hereof shall be in accordance with the
intent of the parties as reflected in this Agreement.

 

17.          Applicable Law; Consent to
Jurisdiction.  This Agreement shall
be governed by, and construed in accordance with, the internal laws of the
State of New York without regard to the principles of conflicts of laws.  Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection with any transaction contemplated hereby, 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 brought in an inconvenient forum
or that the venue of 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 (certified or registered mail,
return receipt requested) 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.

 

18.          Waiver of Jury Trial.  The Company and Wm Smith each hereby
irrevocably waives any right it may have to a trial by jury in respect of any
claim based upon or arising out of this agreement or any transaction
contemplated hereby.

 

19.          Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument. 
Delivery of an executed Agreement by one party to the other may be made
by facsimile transmission.

 

30

 

[Remainder of Page Intentionally
Blank]

 

31

 

If the foregoing correctly sets forth the
understanding between the Company and Wm Smith, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between the Company and Wm Smith.

 

Very truly yours,

 

 

	
   

  	
  VALENCE TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert L. Kanode

  
	
   

  	
   

  	
  Name:  Robert L. Kanode

  
	
   

  	
   

  	
  Title:  President and Chief
  Executive Officer

  
				

 

 

ACCEPTED as of the date

first-above written:

 

 

	
   

  	
  WM SMITH & CO.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William S. Smith

  
	
   

  	
   

  	
  Name: William S. Smith

  
	
   

  	
   

  	
  Title: President

  

 

32

 

SCHEDULE 1

 

FORM OF
PLACEMENT NOTICE

 

 

	
  From:

  	
  [

  	
   

  	
  ]

  
	
   

  	
   

  	
   

  	
   

  
	
  Cc:

  	
  [

  	
   

  	
  ]

  
	
   

  	
   

  	
   

  	
   

  
	
  To:

  	
  [

  	
  ]

  	
   

  

 

Subject:                                                   At
Market Issuance–Placement Notice

 

Gentlemen:

 

Pursuant to the terms and subject to the
conditions contained in the At Market Issuance Sales Agreement between Valence
Technology, Inc.  (the “Company”),
and Wm Smith & Co.  (“Wm
Smith”) dated February   , 2008, the Company hereby requests
that Wm Smith sell up to
                        
shares of the Company’s common stock, par value $0.001 per share, at a minimum
market price of
$              
per share.

 

33

 

SCHEDULE 2

 

 

Compensation

 

 

Except as may be otherwise agreed in a
particular circumstance, Wm Smith shall be paid compensation equal to six
percent (6%) of the gross proceeds from the sales of Shares pursuant to the
terms of this Agreement.

 

34

 

SCHEDULE 3

 

WM SMITH & CO

 

Bill Smith

 

Ty Gates

 

Jenna Smith

 

VALENCE TECHNOLOGY, INC.

 

Robert L. Kanode

 

Galen H. Fischer

 

35

 

EXHIBIT
7(m)

 

Form of
Representation Date Certificate

(to be provided by supplement)

 

36

 

EXHIBIT
7(n)(1)(A)

 

Form Of
Legal Opinion

(to be provided by supplement)

 

37

 

EXHIBIT
7(n)(1)(B)

 

Form Of
Legal Opinion Delivered In Connection With Each Representation Date

(to be provided by supplement)

 

38Exhibit 10.2

 

                                                                                                February 21,
2008

 

Mr. Carl
E. Berg

Berg &
Berg Enterprises, LLC.

10050
Bandley Drive

Cupertino,
CA  95014

 

Re:
Share Purchase

 

Dear
Mr. Berg:

 

This
letter is entered into in connection with an agreement entered into by Berg &
Berg Enterprises, LLC. (Berg & Berg) and Valence Technology, Inc.(Valence).

 

                Pursuant to the agreement Berg &
Berg has funded One Million Dollars ($1,000,000.00) to Valence, to purchase
shares of common stock of Valence.  The
per share price of the common stock to be sold to Berg & Berg shall be
the closing price of the common stock on the principal market on Wednesday February 27,
2008.

 

 

	
   

  	
   

  	
   

  	
  Sincerely,

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  VALENCE
  TECHNOLOGY, INC.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/
  Robert L. Kanode

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Robert
  L. Kanode

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Chief
  Executive Officer

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ACCEPTED AND AGREED:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Berg &
  Berg, LLC.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  /s/ Carl E. Berg

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Carl
  E. Berg

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