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EXHIBIT 10.20
PREFERRED STOCK PURCHASE AGREEMENT
(SERIES D-1 AND D-2)
THIS PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
the ___ day of November, 1998, by and among NextCard, Inc. (formerly known as
INTERNET ACCESS FINANCIAL CORPORATION), a California corporation (the
"Company"), with its principal office at 000 Xxxxxx Xxxxxx, Xxxxx 000, Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000 and the Investors whose names and addresses are set
forth on the Investor Schedule attached as Exhibit A hereto (each of whom is an
"Investor" and, collectively, the "Investors"). For the purposes hereof, "D
Preferred" will refer collectively to the Company's Series D-1 Preferred Stock
(the "Series D-1 Preferred") and Series D-2 Preferred Stock (the "Series D-2
Preferred") as defined pursuant to the Restated Articles (as defined below).
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of D Preferred.
(a) The Company shall adopt and file with the Secretary of
State of California on or before the First Closing (as defined below) the Fourth
Amended and Restated Articles of Incorporation in the form attached hereto as
Exhibit B (the "Restated Articles"). As used in this Agreement, the term
"Closing" shall refer to either or both of the First Closing or the Second
Closing, as the context shall require.
(b) Subject to the terms and conditions of this Agreement,
each Investor severally agrees to purchase at the Closing, and the Company
agrees to sell and issue to each Investor at the Closing, that number of shares
and series of the Company's D Preferred set forth opposite such Investor's name
on Exhibit A hereto for the purchase price set forth thereon. The shares of D
Preferred to be issued and sold by the Company are referred to herein as the
"Shares."
1.2 First Closing. The initial purchase and sale of the Shares
shall take place at the offices of the Company at 1:00 p.m., Pacific Standard
Time, on November __, 1998, or at such other time and place as the Company and
the Investors initially purchasing a majority of the D Preferred hereunder
mutually agree upon orally or in writing (which time and place are designated as
the "First Closing"). At the First Closing, the Company shall deliver to counsel
for the Investors a certificate of the Secretary of the Company attesting to the
registration on the stock transfer records of the Company that number of shares
designated on Exhibit A to be purchased by each Investor against payment of the
purchase price therefor by check or wire transfer (such wire transfers to be
sent to the trust account of Company's counsel unless otherwise agreed). As soon
thereafter as practicable, the Company will issue to each Investor a
certificate, registered in such Investor's name as set forth on Exhibit A,
representing such shares. At the First Closing, each Investor shall become a
party to that certain Third Amended and Restated Investors' Rights Agreement
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dated of even date herewith, by and among the Company and the Investors hereto
(the "Investors' Rights Agreement") and shall have the rights and obligations
hereunder and thereunder.
1.3 Second Closing. As soon as practicable following the First
Closing, the Company shall fix a second closing date (the "Second Closing") for
those existing investors that have notified the Company of their intention to
exercise their preemptive rights granted pursuant to the Third Amended and
Restated Investors' Rights Agreement (the "Investors' Rights Agreement") to
purchase up to their permitted number of shares of Series D-1 Preferred Stock,
at a price not less than $12.00 per share on the same terms and conditions
contained herein, provided that the Second Closing shall be completed not later
than sixty (60) days after the date of this Agreement. Upon execution of a
signature page counterpart, any such purchaser shall become a party to this
Agreement without need for any amendment hereto, and shall be deemed an
"Investor" for purposes of this Agreement
1.4 Regulatory Assistance. The Company will request that its
regulatory counsel assist, at the expense of the Company, the counsel for any
Investor in rebutting, as to such Investor, any presumption of control that may
arise as a result of such Investor's ownership of equity securities of the
Company under current law or the current rules and regulations of either of the
Office of the Comptroller of the Currency ("OCC") or the Board of Governors of
the Federal Reserve System ("FRB").
2. Representations, Warranties and Covenants of the Company. Except as
set forth in the Schedule of Exceptions attached hereto as Exhibit C, the
Company hereby represents and warrants, or covenants as the case may be, as of
the date of the Closing, as follows:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as currently conducted and as proposed to be conducted. The Company is
duly qualified to transact business and is in good standing in each jurisdiction
in which the failure to so qualify would have a material adverse effect on its
business or properties. True and accurate copies of the Restated Articles and
Bylaws, each as amended and in effect at the First Closing have been delivered
to the Investors or their counsel.
2.2 Capitalization. The authorized capital stock of the
Company, immediately prior to the First Closing, will be as set forth on Exhibit
D hereto. All shares of stock reflected on Exhibit D as being issued and
outstanding have been duly authorized and validly issued and are fully paid and
nonassessable. The Company has reserved that amount of Common Stock for issuance
upon conversion of the Series A Preferred, the Series B-1 Preferred, the Series
B-2 Preferred, the Series C-1 Preferred, the Series C-2 Preferred, the Series
D-1 Preferred and the Series D-2 Preferred as are reflected on Exhibit D. In
addition, the Company has reserved 2,000,000 shares of Common Stock for issuance
under the Company's 1997 Stock Plan (the "Option Plan") for employees, officers,
directors and
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consultants of the Company as may be determined and approved by the Company's
Board of Directors from time to time, and 128,202 shares of Common Stock
(including (A) 8,621 shares of Series C-1 Preferred Stock, which Series C-1
Preferred Stock is convertible at will into Common Stock and (B) 5,000 shares of
Series D-1 Preferred Stock, which Series D-1 Preferred Stock is convertible at
will into Common Stock) for issuance upon the exercise of outstanding warrants,
as reflected on Exhibit D. Except as provided above, there are no outstanding
rights, options, warrants, preemptive rights, rights of first refusal or similar
rights for the purchase or acquisition from the Company of any securities of the
Company. All outstanding securities have been issued in compliance with state
and federal securities laws, and in compliance with all contractual pre-emptive
rights and rights of first refusal. To the best knowledge of the Company, there
are no voting trusts, irrevocable proxies or other instruments or agreements
between or among any shareholders of the Company and pertaining to the Company's
voting securities.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
material joint venture, partnership, or similar arrangement other than the
Consumer Credit Card Program Agreement between the Company and Heritage Bank of
Commerce.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the Investors' Rights
Agreement attached hereto as Exhibit E, the performance of all obligations of
the Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Shares being sold hereunder
and the Common Stock issuable upon conversion of the D Preferred has been taken
or will be taken prior to the First Closing, and this Agreement and the
Investors' Rights Agreement constitute valid and legally binding obligations of
the Company, enforceable in accordance with their respective terms, subject to:
(i) judicial principles limiting the availability of specific performance,
injunctive relief, and other equitable remedies; (ii) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
generally relating to or affecting creditors' rights; and (iii) public policy
limitations of federal or state securities laws on the enforceability of the
indemnification provisions of the Investors' Rights Agreement.
2.5 Valid Issuance of Preferred and Common Stock. The Shares
that are being purchased by the Investors hereunder when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein will be duly and validly issued, fully paid, and nonassessable,
will have the rights, preferences, privileges and restrictions described in the
Restated Articles, and will be free of restrictions on transfer other than
restrictions on transfer set forth in this Agreement, in the Investors' Rights
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the D Preferred has been duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Restated Articles, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer set forth in this Agreement, in the Investors' Rights
Agreement
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and under applicable state and federal securities laws. Subject to any
applicable restrictions on transfer set forth in this Agreement, in the
Investors' Rights Agreement and under applicable state and federal securities
laws, the issuance and delivery of the Shares and the Common Stock issuable upon
conversion thereof, as applicable, are not subject to any antidilution
provisions or preemptive or other similar rights or any liens or encumbrances.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the execution and delivery of this
Agreement, the Investors' Rights Agreement and the offer, sale or issuance of
the Shares (and the Common Stock issuable upon conversion of the D Preferred),
or the consummation of any other transaction contemplated hereby, except for the
following: (i) the filing of the Restated Articles in the Office of the
Secretary of State of the State of California, which shall be filed by the
Company on or prior to the Closing; (ii) the filing of such notices as may be
required under the Securities Act of 1933, as amended (the "Securities Act");
(iii) the filing of a notice of exemption pursuant to Section 25102(f) of the
California Corporate Securities Law of 1968, as amended (the "California
Securities Law"), which shall be filed by the Company promptly following the
Closing; and (iv) compliance with other applicable state securities laws, which
compliance will have occurred within the appropriate time periods therefor.
Based in part on the representations of the Investors set forth in Section 3
below, the offer, sale and issuance of the Shares in conformity with the terms
of this Agreement are exempt from the registration requirements of Section 5 of
the Securities Act, from the qualification requirements of Section 25110 of the
California Securities Law and from the qualification requirements of other
applicable state securities laws. The Company has not taken and will not take
any action that would subject the offer, sale and issuance of the Shares to
either Section 5 of the Securities Act, Section 25110 of the California
Securities Law or the qualification requirements of other applicable state
securities laws.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened before any court, administrative agency or other governmental body
against the Company which questions the validity of this Agreement or the
Investors' Rights Agreement or the right of the Company to enter into either of
them, or to consummate the transactions contemplated hereby or thereby, or which
could result, either individually or in the aggregate, in any adverse change in
the condition (financial or otherwise), business, prospects, property, assets or
liabilities of the Company. The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
intellectual property, information or techniques allegedly proprietary to any of
their former employers, or their obligations under any agreements with their
former employers. The Company is not a party or subject to, and none of its
assets is bound by, the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality.
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2.8 Employees. To the best knowledge of the Company, no officer or key
employee is in violation of any confidentiality agreement or any contract,
proprietary information agreement or obligation, whether written or oral, with
his or her former employers and, to the best knowledge of the Company, it is not
a violation of any of the foregoing for such person to assist the Company in
pursuing its business. The Company is not a party to or bound by any currently
effective collective employment contract, deferred compensation agreement, bonus
plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation agreement or arrangement with any collective bargaining
agent. No employees of the Company are represented by any labor union or covered
by any collective bargaining agreement. There is no pending or, to the best of
the Company's knowledge, threatened labor dispute involving the Company and any
of its employees. Other than as disclosed in Exhibit C, the Company is not a
party to or bound by the terms of any employee benefit or welfare plan or
arrangement. Offers of employment are extended by the Company pursuant to a
standard form, a copy of which has been provided to Investors' counsel, which is
customized for each offer.
2.9 Patents and Trademarks. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted.
Other than with respect to "off the shelf" licensed software programs used by
the Company in the ordinary course of the Company's business, there are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights and processes of any other person or entity. The Company has not
received, and to the best knowledge of the Company none of its employees has
received, any communication alleging that the Company (or any employee in
connection with employment by the Company) has violated or, by conducting the
business of the Company as now conducted or as proposed to be conducted, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity and
knows of no basis therefore. To the best knowledge of the Company, no person has
violated, or by conducting its business would violate, any of the Company's
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights. To the best knowledge of the Company, none of the
Company's employees are obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict in any manner with the Company's business as
conducted. Neither the execution nor delivery of this Agreement or the
Investors' Rights Agreement, nor the carrying on of the Company's business by
the employees of the Company, nor the conduct of the Company's business, will,
to the best of the Company's knowledge, conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not and will not need to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company that
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have not previously been fully and exclusively assigned to the Company without
restrictions.
2.10 Compliance with Other Instruments.
(a) The Company is not in violation or default of any
provision of the Restated Articles or its Bylaws, each as amended and in effect
on and as of the date of this Agreement. The Company is not in violation or
default of any material provision of any instrument, mortgage, deed of trust,
loan, contract, commitment, judgment, decree, order or obligation to which it is
a party or by which it or any of its properties or assets are bound which
violation or default would materially adversely affect the condition (financial
or otherwise), prospects, business, property, assets or liabilities of the
Company or of any provision of any federal, state or local statute, rule or
governmental regulation which violation or default would materially adversely
affect the condition (financial or otherwise), business, prospects, property,
assets or liabilities of the Company. The execution, delivery and performance of
and compliance with this Agreement and the Investors' Rights Agreement, and the
issuance and sale of the Shares and the issuance of Common Stock upon the
conversion thereof, will not result in any such violation, be in conflict with
or constitute, with or without the passage of time or giving of notice, a
default under any such provision, require any consent or waiver under any such
provision (other than any consents or waivers that have been obtained), or
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company pursuant to any such provision.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any assignment, license, distribution or other
agreement, the loss of which would materially adversely affect the condition
(financial or otherwise), business, property, assets or liabilities of the
Company.
2.11 Permits. The Company has all franchises, permits,
licenses and similar authorities necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authorities for the conduct of its business as planned to
be conducted. The Company is not in default under any franchises, permits,
licenses or other similar authorities and neither the execution, delivery nor
performance of this Agreement and the Investors' Rights Agreement and the
consummation of the transactions contemplated hereby and thereby will result in
any suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
2.12 Registration Rights. Except as provided in the Investors'
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
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2.13 Title to Property and Assets. The Company has good and marketable
title to all of its properties and assets free and clear of all mortgages, liens
and encumbrances, except liens for current taxes and assessments not yet due and
possible minor liens and encumbrances which do not, in any case, in the
aggregate, materially detract from the value of the property subject thereto or
materially impair the operations of the Company. With respect to the properties
and assets it leases, the Company is in compliance with such leases and holds a
valid leasehold interest free of all liens, claims or encumbrances, and to the
best knowledge of the Company, all other parties to the leases are in compliance
with all material terms of such leases. The Company's properties and assets are
in good condition and repair in all material respects, reasonable wear and tear
excepted.
2.14 Brokers or Finders. The Company has not agreed to incur,
directly or indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
2.15 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein, the
Restated Articles and Bylaws of the Company are in the form previously provided
to the Investors' counsel.
2.16 Financial Statements. The Company has delivered its
financial statements to the Investors, consisting of: (i) audited financial
statements as of and for the period ended December 31, 1997; (ii) an unaudited
balance sheet as of September 30, 1998, and (iii) an unaudited income statement
for the period ended September 30, 1998 (collectively the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects, present fairly the financial position and results of operations of the
Company at the dates and for the periods to which they relate, have been
prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved, and show all material
liabilities, absolute or contingent, of the Company required to be recorded
therein in accordance with generally accepted accounting principles consistently
applied, except that the September 30, 1998 Financial Statements have been
prepared by the Company, have not been audited, are subject to normal year-end
audit adjustments and do not contain footnotes normally associated with year-end
financial statements. Except as set forth in the Financial Statements, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to September 30, 1998,
which, individually or in the aggregate, are not materially adverse to the
financial condition or operating results of the Company, (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 the
Financial Statements which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company, and (iii)
obligations under contracts or arrangements described in this Agreement or in
the Schedule of Exceptions.
2.17 Changes. Since September 30, 1998, there has not been:
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(a) Any material adverse change in the business, property,
assets, liabilities, financial condition, prospects or results of operations of
the Company;
(b) Any material adverse change (individually or in the
aggregate), except in the ordinary course of business, in the contingent
obligations of the Company by way of guarantee, endorsement, indemnity, warranty
or otherwise;
(c) Any material damage, destruction, or loss, whether or
not covered by insurance, materially and adversely affecting the condition of
the business, property, assets or liabilities of the Company;
(d) Any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
(e) Any loans made by the Company to its employees,
officers, or directors other than travel advances and other advances made in the
ordinary course of business;
(f) Any extraordinary increase in the compensation or
benefits payable to any of the Company's employees, officers or directors;
(g) Any declaration or payment of any dividend by the
Company on its capital stock, any redemption, purchase or other acquisition of
shares of its capital stock or any other distribution of assets of the Company,
other then the repurchase of shares at cost from terminated employees or
consultants pursuant to the terms of written stock purchase agreements calling
for such repurchase;
(h) Any receipt of notice by the Company that there has
been a cancellation of any material contract, the cancellation or loss of which
would materially adversely affect the condition, business, prospects, property,
assets or liabilities of the Company;
(i) Any resignation or termination of employment of any
key officer to employee of the Company and any impending resignation or
termination of employment known by the Company of any key officer or employee of
the Company in either case which, if consummated, would materially adversely
affect the condition (financial or otherwise), business, prospects, property,
assets or liabilities of the Company;
(j) Any labor dispute involving the Company or any of its
employees;
(k) Any other event or condition of any character known to
the Company that has materially and adversely affected the Company's business or
prospects;
(l) Any amendment or other change to the Restated Articles
or Bylaws of the Company (except as contemplated by this Agreement);
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(m) Any sale or other disposition of any right, title or
interest in or to any assets or properties of the Company or any revenues
derived therefrom other than in the ordinary course of business and consistent
with past practice;
(n) Any creation, incurring or assumption of any
indebtedness for money borrowed by the Company exceeding $50,000 individually or
$500,000 in the aggregate, other than in the ordinary course of business;
(o) Any material capital expenditures by the Company not
in the ordinary course of business; or
(p) Any material agreement or commitment by the Company to
do any of the things described in this Section 2.17.
2.18 Disclosures. The Company has provided the Investors with
all the information that the Investors have requested for deciding whether to
purchase the Shares. No representation or warranty of the Company contained in
this Agreement, the Exhibits attached hereto or in any certificate furnished or
to be furnished to the Investors at the Closing contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
2.19 No Conflict of Interest. The Company is not indebted,
directly or indirectly, to any of its officers or directors or to their
respective spouses or children, in any amount whatsoever other than in
connection with expenses or advances of expenses incurred in the ordinary course
of business or relocation expenses of employees. None of said officers or
directors, or any members of their immediate families are indebted to the
Company or, to the Company's knowledge, have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company except that officers, directors and/or shareholders of
the Company may own stock in publicly traded companies which may compete with
the Company. No officer or director or any member of their immediate families,
is, directly or, to the Company's knowledge, indirectly, interested in any
material contract with the Company. The Company is not a guarantor or indemnitor
of any indebtedness of any other person, firm or corporation.
2.20 Company's Contracts. All of the contracts and agreements
with expected receipts or expenditures in excess of $50,000 (other than
marketing agreements made in the ordinary course of business) or involving a
license or grant of rights to or from the Company involving patents, trademarks,
service marks, trade names, copyrights, trade secrets or other proprietary
information applicable to the business of the Company other than non-disclosure
agreements signed in the ordinary course with prospective investors, suppliers,
customers and licensees concerning prospective relationships, to which the
Company is a party as of the date of the Closing are listed on the Schedule of
Exceptions. All such contracts and agreements are legally binding, valid and in
full force and effect in all
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material respects, and the Company is not aware of reduced activity or threat of
anticipated termination relating to any such contract or agreement (other than
in the ordinary course of business) by any of the parties to any such contract
or agreement. The Company has fully complied with all material obligations under
such contracts, to the extent such compliance is now due. The Company has no
knowledge of any counterparty to any such contract or agreement being in breach
of any material term or condition of such contract or agreement.
2.21 ERISA. The Company has no employee benefit plan subject
to the Employee Retirement Income Security Act of 1974.
2.22 Environmental Regulations. Except for failures which will
not materially adversely affect the business of the Company, the Company has
met, and continues to meet, all applicable local, state, federal and national
environmental regulations and has disposed of its waste products and effluents
and/or has caused others to dispose of such waste products and effluents, in
accordance with all applicable state, local, federal and national environmental
regulations and in such a manner that no harm has resulted or will result to any
of its respective employees or properties or to any other person or entities or
their properties.
2.23 Confidentiality and Inventions Agreements. Each employee
with access to confidential information regarding the Company's operations
("Designated Employee") and each founder and officer of the Company has executed
a Confidentiality and Inventions Agreement. Each consultant of the Company has
executed a Consulting Agreement. Typical forms of such Confidentiality and
Inventions Agreements and Consulting Agreements have been made available for
inspection by counsel for the Investors and the Company represents that all of
such Confidentiality and Inventions Agreements adequately protect the Company
with respect to its proprietary information. The Company, after reasonable
investigation, is not aware that any of its Designated Employees, officers or
consultants are in violation of such agreements.
2.24 Insurance. The Company maintains the insurance policies
set forth in the Schedule of Exceptions. The Company will maintain Directors'
and Officers' Liability Insurance at a prudent level, as determined from time to
time by the Company's Board of Directors.
2.25 Agreements; Action. The Company has not engaged in the
past three months in any discussion (i) with any representative of any
corporation or corporations regarding the merger of the Company with or into any
such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a merger, consolidation or other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company would be disposed of or (iii) regarding any other form of liquidation,
dissolution or winding up of the Company.
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2.26 Certain Tax Representations. The Company is not a real property
holding corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code of 1986, as amended, and any regulations promulgated thereunder.
The Company is a "qualified small business" within the meaning of Section
1202(d) of the Internal Revenue Code of 1986, as amended. The Company has filed
on a timely basis all income tax returns required to be filed by it pursuant to
all applicable laws or regulations.
2.27 Offering of D Preferred. Other than with respect to (i)
the sale of Series D-1 Preferred Stock to existing investors at the Second
Closing pursuant to the terms of the Investors' Rights Agreement, (ii) any
exchange of shares of (A) Series B-1 Preferred Stock for an equal number of
shares of Series B-2 Preferred Stock, (B) Series C-1 Preferred Stock for an
equal number of shares of Series C-2 Preferred Stock and (C) Series D-1
Preferred Stock for an equal number of shares of Series D-2 Preferred Stock, and
(iii) any options, warrants or other similar securities issued in connection
with any transaction described in Section 2.1(b) of the Investors' Rights
Agreement, the Company will not offer, sell or originally issue any shares of B
Preferred, C Preferred or D Preferred following the Second Closing.
2.28 Regulatory Considerations in the Event of a Conversion of
Preferred Stock. The Company will use its best efforts to calculate the effect
of any change in the percentage of ownership or voting power held by any
Investor with respect to any "class of voting shares" (as that term is currently
defined in 12 C.F.R. 225.2(q)(3) and reasonably interpreted by regulatory
counsel to the Company) of the Company as a result of any actual or potential
conversion or redemption of all or any portion of any series of Preferred Stock,
as described in the Restated Articles. The Company will discuss with the
Investors such reasonable actions as regulatory counsel to the Company may
suggest, including but not limited to proposing to the Board of Directors and
the shareholders of the Company the creation of a series of non-voting common
stock and the exchange of voting shares of any class or series for a like number
of non-voting shares of the same class or series, if such actions are necessary
or appropriate to avoid (i) any Investor becoming either a "bank holding
company" or a "control person of a bank holding company," as those terms are,
from time to time, interpreted by the OCC and/or the FRB, or (ii) any Investor
who is not a "principal shareholder" (as that term is defined by the OCC's
regulations and reasonably interpreted by regulatory counsel to the Company)
following the First Closing or the Second Closing, as the case may be, from
becoming a "principal shareholder."
2.29 Mechanics of Exchange. At any time upon the written
request of any holder who owns, controls or has power to vote five percent (5%)
or more of the outstanding shares of any "class" (as that term is reasonably
interpreted by regulatory counsel to the Company) of the Company's voting
securities, the Company will, upon the surrender of the appropriate stock
certificate(s), exchange a number of voting shares of any class or series for a
like number of non-voting shares of the same class or series and reissue an
appropriate certificate or certificates therefore, subject to the authorization
by the shareholders of the Company of sufficient non-voting shares of such class
or series.
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3. Representations and Warranties of the Investors. Each Investor hereby
severally represents and warrants to the Company with the respect to the
transactions contemplated hereby that:
3.1 Experience. Such Investor is experienced in evaluating
early stage companies such as the Company, is able to fend for itself in
transactions such as the one contemplated by this Agreement, has such knowledge
and experience in financial and business matters that Investor is capable of
evaluating the merits and risks of Investor's prospective investment in the
Company, has the ability to bear the economic risks of the investment and is an
"accredited investor" within the meaning of Regulation D, as promulgated by the
Securities and Exchange Commission.
3.2 Investment. Such Investor is acquiring the Shares (and the
Common Stock issuable upon conversion of the Shares) for investment for such
Investor's own account and not with the view to, or for resale in connection
with, any distribution thereof. Such Investor understands that the Shares (and
the Common Stock issuable upon conversion of the Shares) have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein. Such
Investor further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any third person with respect to any of the Shares (or any
Common Stock acquired upon conversion of the Shares). Such Investor understands
and acknowledges that the offering of the Shares pursuant to this Agreement and,
except as provided in the Investors' Rights Agreement, any issuance of Common
Stock on conversion of the Shares will not be registered under the Securities
Act on the ground that the sale provided for in this Agreement and the issuance
of securities hereunder is exempt from the registration requirements of the
Securities Act.
3.3 Rule 144. Such Investor acknowledges that the Shares (and
the Common Stock issuable upon conversion of the Shares) must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Such Investor is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions. Such Investor covenants that, in the absence
of an effective registration statement covering the stock in question, such
Investor will sell, transfer, or otherwise dispose of the Shares (and any Common
Stock issued on conversion of the D Preferred) only in a manner consistent with
such Investor's representations and covenants set forth in this Section 3. In
connection therewith, such Investor acknowledges that the Company will make a
notation on its stock books regarding the restrictions on transfers set forth in
this Section 3 and will transfer securities on the books of the Company only to
the extent not inconsistent therewith.
3.4 No Public Market. Such Investor understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for any of
the Company's securities.
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3.5 Access to Data. Such Investor has received and reviewed
information about the Company and has had an opportunity to discuss the
Company's business, management and financial affairs with its management and to
review the Company's facilities.
3.6 Authorization. This Agreement when executed and delivered
by an Investor will constitute a valid and legally binding obligation of such
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or limiting the availability of
specific performance, injunctive relief, and other equitable remedies; (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights; and
(iii) limitations on the enforceability of the indemnification provisions of the
Investors' Rights Agreement.
3.7 Brokers or Finders. Such Investor has agreed not to incur,
directly or indirectly, any liability for brokerage or finder's fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
4. Conditions of Investors' Obligations at Closing. The obligations of
the Investors under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective unless Investors purchasing a majority of
the D Preferred hereunder consent in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The Chairman and Chief Executive
Officer of the Company shall deliver to each Investor at the Closing a
certificate stating that the conditions specified in Sections 4.1 and 4.2 have
been fulfilled.
4.4 Opinions of Company Counsel. The Investors shall have
received from Howard, Rice, Nemerovski, Canady, Xxxx & Xxxxxx, A Professional
Corporation, counsel for the Company, an opinion, dated as of the Closing, in
the form attached hereto as Exhibit F. In addition, the Investors shall have
received from Xxxxxx Xxxxxxxxx, Esq., General Counsel to the Company, an
opinion, dated as of the Closing, in the form attached hereto as Exhibit G.
4.5 Investors' Rights Agreement. The Company and the Investors
shall have entered into the Investors' Rights Agreement.
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4.6 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
4.7 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Investors and their counsel.
4.8 Restated Articles. The Restated Articles shall have been
filed with and approved by the Secretary of State of California.
4.9 Contemporaneous Investment. At least two million seven
hundred fifty thousand (2,750,000) Shares shall have been purchased at the First
Closing and the Company shall have received the purchase price therefor.
4.10 Certain Regulatory Matters. The Investors or their
counsel will be satisfied as to regulatory matters.
4.11 No Violation. The execution, delivery and performance of
this Agreement will not violate any law or regulation to which the Company or
the Investors are subject.
4.12 Election of Board Member. The By-laws of the Company
shall have been amended such that the size of the Board of Directors of the
Company shall be seven (7) members, and Xxxx Xxxxxx shall have been elected a
Director of the Company.
4.13 Waiver of Certain Preemptive Rights. To the extent that
any of Brentwood Venture Capital, Trinity Ventures, St. Xxxx Venture Capital or
Mesquite Partners (the "Existing Institutional Investors") have not exercised
their right to purchase their full pro rata allocation of D Preferred, such
Existing Institutional Investors shall have waived their right(s) to do so.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investors under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by each
Investor:
5.1 Representations and Warranties. The representations and
warranties of each Investor contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. Each Investor shall have
delivered the purchase price specified on Exhibit A hereto against delivery of
the Shares by the Company to such Investor.
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5.3 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
5.4 Investors' Rights Agreement. Each Investor shall have
executed the Investors' Rights Agreement on or prior to the date of the Closing.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Company and its counsel.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California.
6.2 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
6.3 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
6.4 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by hand or by messenger, addressed (a) if to an Investor, at
such Investor's address set forth on Exhibit A, or at such other address as such
Investor shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, at its address
set forth on the first page of this Agreement addressed to the attention of the
Chairman and Chief Executive Officer, or at such other address as the Company
shall have furnished to the Investors. If notice is provided by mail, notice
shall be deemed to have been given on the business day following proper deposit
of such notice with the United States mail.
6.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an
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acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
holder of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing or as provided in this Agreement. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
6.6 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE, OR OTHER APPLICABLE LAW. THE RIGHTS OF ALL PARTIES
TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
6.7 Expenses. The Company will be responsible for the
reasonable costs and expenses of the offer, sale and issuance of the D Preferred
(including expenses associated with the Investors' reasonable due diligence
investigations), and including the reasonable legal expenses of one counsel to
the Investors, provided that the Company's reimbursement obligations shall be
limited to a total of $30,000.
6.8 Finder's Fees. The Company and each Investor shall each
indemnify and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or such
Investor, or any of their respective partners, employees, or representatives, as
the case may be, is responsible.
6.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which may be executed by less than all parties hereto,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
6.10 Severability of this Agreement. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement will continue
in full force and effect without said provision and the parties agree to replace
such provision with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such provisions;
provided that no such severability will be effective against a party if it
materially and adversely changes the economic benefits of this Agreement to such
party.
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6.11 Attorneys' Fees in a Dispute. In the event of any action
to enforce the terms hereof, the prevailing party will be entitled to receive
its reasonable attorneys' fees and costs in connection therewith.
6.12 Survival. The warranties, representations and covenants
of the Company and the Investors contained in or made pursuant to this Agreement
shall speak only as of the date of the First Closing (or, with respect to the
Second Closing, only to the extent that no instrument amending or modifying such
warranties, representations and covenants of either the Company or any Investor
has been delivered), and shall survive the execution and delivery of this
Agreement and the Closing.
(This space intentionally left blank.)
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NEXTCARD, INC.
By:
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Xxxxxx Xxxx, Chairman & Chief Executive Officer
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
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INVESTORS:
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By:
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Name:
Title:
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
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