EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
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SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of September 8,
1997, by and among THE L.L. XXXXXXXXXXXXX CO., INC., a corporation organized
under the laws of the State of California (the "Company"), with headquarters
located at 00000 Xxxxxxxxxxxx Xxxxx, Xxxx Xxxxxx, XX 00000, and the purchaser
(the "Purchaser") set forth on the execution page hereof (the "Execution Page").
WHEREAS:
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");
B. The Purchaser desires to purchase, upon the terms and conditions
stated in this Agreement, (i) convertible debentures in the aggregate principal
amount of Five Million Dollars ($5,000,000) of the Company, in the form attached
hereto as Exhibit A (the "Debentures"), convertible into shares of the Company's
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common stock, no par value per share (the "Common Stock"), and (ii) warrants
(the "Warrants"), in the form attached hereto as Exhibit B, to acquire such
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number of shares of Common Stock as is equal to seven hundred fifty thousand
(750,000) divided by the Fixed Conversion Price set forth in the Debentures.
The shares of Common Stock issuable upon conversion of or otherwise pursuant to
the Debentures are referred to herein as the "Conversion Shares" and the shares
of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants
are referred to herein as the "Warrant Shares." The Debentures, the Warrants,
the Conversion Shares and the Warrant Shares are collectively referred to herein
as the "Securities."
C. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
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pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF UNITS
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a. Purchase of Units. On the Closing Date (as defined below), subject to
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the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, the Company shall issue and
sell to the Purchaser, and the Purchaser agrees to purchase from the Company,
the Debentures and the Warrants for an aggregate purchase price (the "Purchase
Price") equal to Five Million Dollars ($5,000,000).
b. Form of Payment. On the Closing Date, the Purchaser shall pay the
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aggregate Purchase Price hereunder by wire transfer to the Company, in
accordance with the Company's written wiring instructions, against delivery of
duly executed Debentures and Warrants and the Company shall deliver such
Debentures and Warrants against delivery of such aggregate Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
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conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Debentures and the Warrants pursuant to this
Agreement (the "Closing") shall be 12:00 noon Eastern Daylight Savings Time on
September 8, 1997, subject to a two (2) business day grace period at either
party's option, but in no event later than September 10, 1997, or such other
time as may be mutually agreed upon by the Company and the Purchaser (the
"Closing Date"). The Closing shall occur at the offices of Klehr, Harrison,
Xxxxxx, Xxxxxxxxx & Xxxxxx, 0000 Xxxxxx Xxxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx
00000.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
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The Purchaser represents and warrants to the Company as follows:
a. Investment Purpose. The Purchaser is purchasing the Securities for
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the Purchaser's own account for investment purposes and not with a present view
towards the public sale or distribution thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. The Purchaser understands that the
Purchaser must bear the economic risk of this investment indefinitely, unless
the Securities are registered pursuant to the Securities Act and any applicable
state securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering any such
Securities other than as contemplated by the Registration Rights Agreement.
Notwithstanding anything in this Section 2(a) to the contrary, by making the
representations herein, the Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
b. Accredited Investor Status. The Purchaser is an "Accredited Investor"
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as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Purchaser understands that the Securities
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are being offered and sold to the Purchaser in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Purchaser's compliance with, the representations, warranties,
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agreements, acknowledgments and understandings of the Purchaser set forth herein
in order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Securities.
d. Information. The Purchaser and its counsel have been furnished all
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materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
specifically requested by the Purchaser or its counsel. The Purchaser and its
counsel have been afforded the opportunity to ask questions of the Company and
have received what the Purchaser believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by the Purchaser or its counsel or any of its representatives shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. The Purchaser
understands that Purchaser's investment in the Securities involves a high degree
of risk.
e. Governmental Review. The Purchaser understands that no United States
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federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Purchaser understands that (i) except as
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provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or (b)
the Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred under an exemption from such
registration, or (c) sold under Rule 144 promulgated under the Securities Act
(or a successor rule) ("Rule 144"), or (d) sold or transferred to an affiliate
of the Purchaser; and (ii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement).
g. Legends. The Purchaser understands that the Debentures and the
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Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the Securities Act (including registration pursuant to
Rule 416 thereunder) as contemplated by the Registration Rights Agreement or
otherwise may be sold by the Purchaser under Rule 144, the certificates for the
Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
state of the United States. The securities represented hereby may not be
offered or sold in the absence of an effective registration statement for
the securities under applicable securities
laws unless offered, sold or transferred under an available exemption from
the registration requirements of those laws.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder), or (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the Securities Act or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold under Rule 144. The Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the
legend has been removed, pursuant to an effective registration statement or
under an exemption from the registration requirements of the Securities Act. In
the event the above legend is removed from any Security and thereafter the
effectiveness of a registration statement covering such Security is suspended or
the Company determines that a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to the Purchaser
the Company may require that the above legend be placed on any such Security and
the Purchaser shall cooperate in the prompt replacement of such legend. Such
legend shall be removed when such Security may be sold pursuant to an effective
registration statement or sold under Rule 144.
h. Authorization; Enforcement. This Agreement and the Registration
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Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Purchaser and are valid and binding agreements of the Purchaser
enforceable in accordance with their terms.
i. Residency. The Purchaser is a resident of the jurisdiction set forth
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under the Purchaser's name on the Execution Page hereto executed by the
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to the Purchaser as follows:
a. Organization and Qualification. The Company and each of its
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subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its obligations hereunder
and under the Debentures, the Warrants or the Registration Rights Agreement or
(iii) the business, operations, properties, prospects or financial condition of
the Company and its subsidiaries, taken as a whole.
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b. Authorization; Enforcement. (i) The Company has the requisite
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corporate power and authority to enter into and perform its obligations under
this Agreement, the Debentures, the Warrants and the Registration Rights
Agreement, to issue and sell the Debentures and Warrants in accordance with the
terms hereof, to issue the Conversion Shares upon conversion of the Debentures
in accordance with the terms thereof and to issue the Warrant Shares upon
exercise of the Warrants in accordance with the terms thereof; (ii) the
execution, delivery and performance of this Agreement, the Debentures, the
Warrants and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Debentures and the Warrants,
and the issuance and reservation for issuance of the Conversion Shares and the
Warrant Shares) have been duly authorized by the Company's Board of Directors
and no further consent or authorization of the Company, its Board or Directors
or its stockholders is required (under Rule 4460(i) promulgated by the National
Association of Securities Dealers ("NASD") or otherwise); (iii) this Agreement
has been duly executed and delivered by the Company; and (iv) this Agreement
constitutes, and, upon execution and delivery by the Company of the Registration
Rights Agreement, the Debentures and the Warrants, such agreements will
constitute, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms.
c. Capitalization. The capitalization of the Company as of the date
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hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Debentures and the Warrants)
exercisable for, or convertible into or exchangeable for any shares of capital
stock and the number of shares to be reserved for issuance upon conversion of
the Debentures and exercise of the Warrants is set forth on Schedule 3(c). All
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of such outstanding shares of capital stock have been, or upon issuance will be,
validly issued, fully paid and nonassessable. No shares of capital stock of the
Company (including the Conversion Shares and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except for the Securities and as disclosed in
Schedule 3(c), as of the date of this Agreement, (i) there are no outstanding
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options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its subsidiaries, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement). Except as set forth on Schedule
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3(c), there are no securities or instruments containing antidilution or similar
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provisions that will be triggered by the issuance of the Securities in
accordance with the terms of this Agreement, the Debentures or the Warrants.
The Company has furnished to the Purchaser true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof
("Certificate of Incorporation"), the Company's By-laws as in effect on the date
hereof (the "By-laws"), and all other instruments and agreements governing
securities convertible into or exercisable or exchangeable for capital stock of
the Company.
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d. Issuance of Shares. The Conversion Shares and Warrant Shares are duly
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authorized and reserved for issuance, and, upon conversion of the Debentures and
exercise of the Warrants in accordance with the terms thereof, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
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Agreement, the Registration Rights Agreement, the Debentures and the Warrants by
the Company, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance, as applicable, of the Debentures, the Warrants, the
Conversion Shares and the Warrant Shares) will not (i) result in a violation of
the Certificate of Incorporation or By-laws or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including U.S. federal and
state securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation, By-laws or other organizational
documents and neither the Company nor any of its subsidiaries is in default (and
no event has occurred which, with notice or lapse of time or both, would put the
Company or any of its subsidiaries in default) under, nor has there occurred any
event giving others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, except for actual or possible violations, defaults or rights as would
not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its subsidiaries are not being conducted, and
shall not be conducted so long as the Purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity, except
for actual or possible violations, if any, the sanctions for which either singly
or in the aggregate would not have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, approval, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self
regulatory agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement, the
Debentures or the Warrants, in each case in accordance with the terms hereof or
thereof. The Company is not in violation of the listing requirements of the
Nasdaq National Market ("NASDAQ") and does not reasonably anticipate that the
Common Stock will be delisted by NASDAQ for the foreseeable future.
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f. SEC Documents, Financial Statements. Since January 26, 1995, the date
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on which the Company consummated its initial public offering (the "IPO Date"),
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the United States Securities and
Exchange Commission ("SEC") pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing filed prior to the date hereof and after the IPO Date, and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). The Company has delivered to the Purchaser true
and complete copies of the SEC Documents, except for the exhibits and schedules
thereto and the documents incorporated therein. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents is, or has
been, required to be updated or amended under applicable law. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared
in accordance with U.S. generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to immaterial year-end audit adjustments). Except as set
forth in the financial statements of the Company included in the SEC Documents
filed prior to the date hereof, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such financial statements and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which liabilities and obligations
referred to in clauses (i) and (ii), individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
g. Absence of Certain Changes. Since December 31, 1996, there has been
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no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 3(g) or in the SEC Documents
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filed prior to the date hereof.
h. Absence of Litigation. Except as disclosed in the SEC Documents filed
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prior to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-
regulatory organization or body pending or, to the knowledge
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of the Company or any of its subsidiaries, threatened against or affecting the
Company, any of its subsidiaries, or any of their respective directors or
officers in their capacities as such which will have a Material Adverse Effect.
There are no facts which, if known by a potential claimant or governmental
authority, could give rise to a claim or proceeding which, if asserted or
conducted with results unfavorable to the Company or any of its subsidiaries,
could have a Material Adverse Effect.
i. Intellectual Property. Each of the Company and its subsidiaries owns
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or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "Intangibles")
necessary for the conduct of its business as now being conducted and as
described in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. To the best knowledge of the Company, neither the Company
nor any subsidiary of the Company infringes or is in conflict with any right of
any other person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect. Neither the Company nor any of its subsidiaries
has received written notice of any pending conflict with or infringement upon
such third party Intangibles. Neither the Company nor any of its subsidiaries
has entered into any consent, indemnification, forbearance to xxx or settlement
agreements with respect to the validity of the Company's or its subsidiaries'
ownership or right to use its Intangibles and, to the best knowledge of the
Company, there is no reasonable basis for any such claim to be successful. The
Intangibles are valid and enforceable and no registration relating thereto has
lapsed, expired or been abandoned or canceled or is the subject of cancellation
or other adversarial proceedings, and all applications therefor are pending and
in good standing. The Company and its subsidiaries have complied, in all
material respects, with their respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best knowledge
of the Company, no person is infringing on or violating the Intangibles owned or
used by the Company of its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any of its
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subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
k. Disclosure. All information relating to or concerning the Company set
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forth in this Agreement or provided to the Purchaser pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No
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event or circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial conditions, which has not been publicly disclosed but, under
applicable law, rule or regulation, would be required to be disclosed by the
Company in a registration statement filed on the date hereof by the Company
under the Securities Act with respect to a primary issuance of the Company's
securities.
l. Acknowledgment Regarding the Purchaser's Purchase of the Securities.
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The Company acknowledges and agrees that the Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby, and the
relationship between the Company and the Purchaser is "arms length" and that any
statement made by the Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to the Purchaser's purchase
of Securities and has not been relied upon by the Company, its officers or
directors in any way. The Company further represents to the Purchaser that the
Company's decision to enter into this Agreement has been based solely on an
independent evaluation by the Company and its representatives.
m. Form S-3 Eligibility. The Company is currently eligible to register
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the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement).
n. No General Solicitation. Neither the Company nor any distributor
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participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
o. No Integrated Offering. Neither the Company, nor any of its
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affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offerers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
p. No Brokers. The Company has taken no action which would give rise to
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any claim by any person for brokerage commissions, finder's fees or similar
payments by the Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with The Shemano Group, whose
commissions and fees will be paid by the Company.
q. Acknowledgment of Dilution. The number of Conversion Shares issuable
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upon conversion of the Debentures may increase substantially in certain
circumstances, including the circumstance wherein the trading price of the
Common Stock declines. The Company's executive
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officers have studied and fully understand the nature of the Securities being
sold hereunder. The Company acknowledges that its obligation to issue Conversion
Shares upon conversion of the Debentures in accordance with the terms of the
Debentures is absolute and unconditional, regardless of the dilution that such
issuance may have on the ownership interests of other stockholders. Taking the
foregoing into account, the Company's Board of Directors has determined in its
good faith business judgment that the issuance of the Debentures and the
Warrants hereunder and the consummation of the other transactions contemplated
hereby are in the best interests of the Company and its stockholders.
r. Tax Status. Except as set forth in the SEC Documents filed prior to
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the date hereof or on Schedule 3(r), the Company and each of its subsidiaries
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has made or filed all federal, state and local income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The
Company has not executed a waiver with respect to any statute of limitations
relating to the assessment or collection of any federal, state or local tax.
None of the Company's tax returns has been or is being audited by any taxing
authority.
s. Title. The Company and its subsidiaries have good and marketable
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title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(s) or such as do not
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materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
4. COVENANTS.
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a. Best Efforts. The parties shall use their best efforts timely to
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satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
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respect to the Securities as required under Regulation D and to provide a copy
thereof to the Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the
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Company shall reasonably determine is necessary to qualify the Securities for
sale to the Purchaser pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States or obtain exemption
therefrom, and shall provide evidence of any such action so taken to the
Purchaser on or prior to the Closing Date.
c. Reporting Status. So long as the Purchaser beneficially owns any of
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the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Debenture and the Warrant as set forth on Schedule 4(d).
-------------
e. Additional Equity Capital; Right of First Offer. The Company agrees
-----------------------------------------------
that during the period beginning on the date hereof and ending on the date which
is 240 days following the Closing Date (the "Lock-Up Period"), the Company will
not, without the prior written consent of the Purchaser, contract with any party
to obtain additional financing in which any equity or equity-linked securities
are issued (including any debt financing with an equity component) ("Future
Offerings"). In addition, the Company will not conduct any Future Offering
during the period beginning on the date hereof and ending 120 days following the
expiration of the Lock-Up Period, unless it shall have first delivered to the
Purchaser, at least ten (10) business days prior to the closing of such Future
Offering, written notice describing the proposed Future Offering, including the
terms and conditions thereof, and providing the Purchaser and its affiliates an
option during the ten (10) business day period following delivery of such notice
to purchase all of the securities being offered in the Future Offering on the
same terms as contemplated by such Future Offering (the limitations referred to
in this and the immediately preceding sentence are collectively referred to as
the "Capital Raising Limitations"). The Capital Raising Limitations shall not
apply to any transaction involving issuances of securities as consideration in a
merger, consolidation or acquisition of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or as consideration for the acquisition of a business,
product or license by the Company. The Capital Raising Limitations also shall
not apply to (i) the issuance of securities pursuant to an underwritten public
offering, (ii) the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof or (iii) the grant of additional options or warrants, or the
issuance of additional securities, under any duly authorized Company stock
option or restricted stock plan for the benefit of the Company's employees or
directors.
f. Expenses. The Company shall pay to the Purchaser, or at its
--------
direction, at the Closing, reimbursement for the expenses reasonably incurred by
the Purchaser and its affiliates and advisors in connection with the
negotiation, preparation, execution and delivery of this Agreement and the other
agreements to be executed in connection herewith, including, without limitation,
such Purchaser's and its affiliates' and advisors' reasonable due diligence and
attorneys' fees and expenses
-11-
(the "Expenses"). In addition, from time to time thereafter, upon the
Purchaser's written request, the Company shall pay to the Purchaser such
additional Expenses, if any, not covered by such payment, in each case to the
extent reasonably incurred by the Purchaser in connection with the negotiation,
preparation, execution and delivery of this Agreement and the other agreements
to be executed in connection herewith. Notwithstanding the foregoing, the
Company shall not be obligated to reimburse the Purchaser for more than $35,000
pursuant to this Section 4(f).
g. Financial Information. The Company agrees to send the following
---------------------
reports to the Purchaser until the Purchaser transfers, assigns or sells all of
its Securities: (i) within ten (10) days after the filing with the SEC, a copy
of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy
statements and any Current Reports on Form 8-K; and (ii) within one (1) day
after release, copies of all press releases issued by the Company or any of its
subsidiaries.
h. Reservation of Shares. The Company shall at all times have authorized
---------------------
and reserved for the purpose of issuance a sufficient number of shares of Common
Stock to provide for the full conversion of the Debentures and issuance of the
Conversion Shares in connection therewith and the full exercise of the Warrants
and the issuance of the Warrant Shares in connection therewith and as otherwise
required by the Debentures and the Warrants. In that regard, a "sufficient
number of shares" with respect to the Debentures shall be deemed to be equal to
the number of shares of Common Stock required to be reserved for issuance by the
Company pursuant to Article V of the Debentures. The Company shall not reduce
the number of shares reserved for issuance upon conversion of the Debentures and
the full exercise of the Warrants (except as a result of any such conversion or
exercise) without the consent of the Purchaser.
i. Listing. The Company shall promptly secure the listing of the
-------
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion of the Debentures
and all Warrant Shares from time to time issuable upon exercise of the Warrants.
The Company will take all action necessary to continue the listing and trading
of its Common Stock on the NASDAQ, the New York Stock Exchange ("NYSE") or the
American Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the NASD and such exchanges, as applicable. In the event the Common Stock is
not eligible to be traded on any of the NASDAQ, NYSE or AMEX and the Common
Stock is not eligible for listing on any such exchange or system, the Company
shall use its best efforts to cause the Common Stock to be eligible for trading
on the over-the-counter bulletin board at the earliest practicable date and
remain eligible for trading while any Conversion Shares and Warrant Shares are
outstanding. The Company shall promptly provide to the holders of the
Debentures copies of any notices it receives regarding the continued eligibility
of the Common Stock for trading in the over-the-counter market or, if
applicable, any securities exchange (including the NASDAQ) on which securities
of the same class or series issued by the Company are then listed or quoted, if
any.
-12-
j. Corporate Existence. So long as the Purchaser beneficially owns any
-------------------
Debentures or any Warrants, the Company shall maintain its corporate existence,
except in the event of a merger, consolidation or sale of all or substantially
all of the Company's assets, as long as the surviving or successor entity in
such transaction (i) assumes the Company's obligations hereunder and under the
Debentures and the Warrants and the agreements and instruments entered into in
connection herewith regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the conversion of all Debentures and the exercise in
full of all Warrants outstanding as of the date of such transaction and (ii) is
a publicly traded corporation whose common stock is listed for trading on the
NASDAQ, NYSE or AMEX. Notwithstanding the foregoing, the Company covenants and
agrees that it will not engage in a merger, consolidation or sale of all or
substantially all of its assets at any time prior to the 181st day following the
Issue Date (as defined in the Debentures) without providing the Purchaser with
written notice of such transaction at least sixty (60) days prior to the
consummation of the transaction.
k. No Integrated Offerings. The Company shall not make any offers or
------------------------
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of Securities to be integrated with any
other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
l. Redemptions and Dividends. So long as the Purchaser beneficially owns
-------------------------
any Debentures, the Company shall not, without first obtaining the written
approval of the Purchaser, redeem, or declare or pay any cash dividend or
distribution on, any shares of capital stock of the Company.
5. TRANSFER AGENT INSTRUCTIONS.
---------------------------
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of the Purchaser or its nominee, for the Conversion
Shares and the Warrant Shares in such amounts as specified from time to time by
such Purchaser to the Company upon conversion of the Debentures or exercise of
the Warrants, as applicable. To the extent and during the periods provided in
Section 2(f) and Section 2(g) of this Agreement, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement.
b. The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof in the case of the transfer of the Conversion Shares and the
Warrant Shares prior to registration of the Conversion Shares and the Warrant
Shares under the Securities Act or without an exemption therefrom, will be given
by the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way
-13-
the Purchaser's obligations and agreement set forth in Section 2(g) hereof to
resell the Securities pursuant to an effective registration statement or under
an exemption from the registration requirements of applicable securities law.
c. If the Purchaser provides the Company with an opinion of counsel,
which opinion of counsel shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration, or the Purchaser provides the Company with
reasonable assurances that such Securities may be sold under Rule 144, the
Company shall permit the transfer, and, in the case of the Conversion Shares and
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the
Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
----------------------------------------------
The obligation of the Company hereunder to issue and sell the Debentures
and the Warrants to the Purchaser hereunder is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
a. The Purchaser shall have executed the signature page to this Agreement
and the Registration Rights Agreement, and delivered the same to the Company.
b. The Purchaser shall have delivered the Purchase Price in accordance
with Section 1(b) above.
c. The representations and warranties of the Purchaser shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date), and the Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Purchaser at or
prior to the Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
-14-
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE.
----------------------------------------------------
The obligation of the Purchaser hereunder to purchase the Debentures and
the Warrants hereunder is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Purchaser's sole benefit and may be waived by the Purchaser at any time
in the Purchaser's sole discretion:
a. The Company shall have executed the signature page to this Agreement
and the Registration Rights Agreement, and delivered the same to the Purchaser.
b. The Company shall have delivered to the Purchaser the duly executed
Debentures and Warrants (in such denominations as such Purchaser shall request)
in accordance with Section 1(b) above.
c. The Common Stock shall be authorized for quotation on NASDAQ and
trading in the Common Stock (or NASDAQ generally) shall not have been suspended
by the SEC or NASDAQ.
d. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. The Purchaser shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by the Purchaser.
e. No statute, rule, regulation, executive order, decree, ruling,
injunction, action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of, any of the transactions contemplated by this Agreement.
f. The Purchaser shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit D
---------
attached hereto.
g. The Company shall have delivered evidence reasonably satisfactory to
the Purchaser that the Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit E.
---------
-15-
h. No material adverse change or development in the business, operations,
properties, prospects, financial condition, or results of operations of the
Company shall have occurred since the date hereof.
8. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in San Francisco, California in any suit or proceeding
based on or arising under this Agreement and irrevocably agrees that all claims
in respect of such suit or proceeding may be determined in such courts. The
Company irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Company further agrees that service
of process upon the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of the Purchaser to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof.
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
----------------------------
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchaser make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the
-16-
party to be charged with enforcement and no provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
Purchaser.
f. Notices. Any notices required or permitted to be given under the
-------
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
The L.L. Xxxxxxxxxxxxx Co., Inc.
00000 Xxxxxxxxxxxx Xxxxx
Xxxx Xxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx, CFO
with a copy to:
Xxxxxxx X. Xxxxx, Esq.
00 Xxxxxxxxxxx
Xxxx Xxxxxx, XX 00000
Telecopy: (000) 000-0000
If to the Purchaser, to the address set forth under the Purchaser's name on
the signature page hereto executed by the Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and assigns. Except as
provided herein, neither the Company nor the Purchaser shall assign this
Agreement or any rights or obligations hereunder. Notwithstanding the foregoing,
the Purchaser may assign its rights hereunder to any of its "affiliates," as
that term is defined under the Exchange Act, without the consent of the Company
or to any other person or entity with the consent of the Company. This
provision shall not limit the Purchaser's right to transfer the Securities
pursuant to the terms of this Agreement, the Debentures, the Warrants or the
Registration Rights Agreement or to assign the Purchaser's rights hereunder
and/or thereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
-------------------------
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
-17-
i. Survival. The representations and warranties of the Company and the
--------
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Purchaser. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies the Purchaser may have under applicable federal or state securities
laws. The Company agrees to indemnify and hold harmless the Purchaser and each
of the Purchaser's officers, directors, employees, partners, members, agents and
affiliates for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations or covenants set
forth herein, including advancement of expenses as they are incurred.
j. Publicity. The Company and the Purchaser shall have the right to
---------
approve before issuance any press releases, SEC, NASDAQ or NASD filings, or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchaser, to make any press release or SEC, NASDAQ or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchaser shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
------------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing Date shall not have
-----------
occurred on or before September 10, 1997, unless the parties agree otherwise,
this Agreement shall terminate at the close of business on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
m. Joint Participation in Drafting. Each party to this Agreement has
-------------------------------
participated in the negotiation and drafting of this Agreement, the Debentures,
the Warrants and the Registration Rights Agreement. As such, the language used
herein and therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
n. Equitable Relief. The Company acknowledges that a breach by it of its
----------------
obligations hereunder will cause irreparable harm to the Purchaser by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
hereunder (including, but not limited to, its obligations pursuant to Section 5
hereof) will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement (including, but not
limited to, its obligations pursuant to Section 5 hereof), that the Purchaser
shall be entitled, in addition to all other available remedies,
-18-
to an injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond or
other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-19-
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
THE L.L. XXXXXXXXXXXXX CO., INC.
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, its authorized agent
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
RESIDENCE: Cayman Islands
ADDRESS:
c/o Heights Capital Management
000 Xxxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx Xxxxx
with copies of all notices to:
Klehr, Harrison, Xxxxxx, Xxxxxxxxx & Xxxxxx
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esquire
