CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This Convertible Preferred Stock Purchase Agreement (this
"Agreement") is made and entered into as of April 22, 1998 by and among XXXXX
COMPANY, a California corporation (the "Company"), and XXXXXX X. XXXXXX, XX.
("Investor").
R E C I T A L S
1. It is a condition to each of the Company's and Investor's
obligations to the consummation of the Stock Purchase Agreement dated as of
February 27, 1998, by and among Company and the Selling Shareholders named
therein ("Stock Purchase Agreement") that the Company and Investor execute
and enter into this Agreement as of the Closing, as such term is defined in
the Stock Purchase Agreement (the "Stock Closing").
In consideration of the foregoing and the representations,
warranties, conditions and covenants contained herein, the Company and
Investor hereby agree as follows:
ARTICLE I
THE SECURITIES PURCHASE
1.1 PURCHASE AND SALE OF THE SECURITIES. Subject to and upon the
terms and conditions contained herein, the Company shall sell to Investor,
and Investor shall purchase from the Company, 22,500 shares of Series A
Convertible Preferred Stock, no par value per share (the "Preferred Stock").
The Preferred Stock is convertible into shares of the Company's Common Stock,
no par value (the "Common Stock").
1.2 CONSIDERATION. The purchase price (the "Purchase Price") for
the Securities shall equal an aggregate of Six Hundred Thousand Dollars
(US$600,000).
1.3 CLOSING. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place at or be directed from the
offices of Xxxxxx, Xxxxxx & Xxxxx LLP, 000 Xxxxx Xxxxx Xxxxxx, Xxx Xxxxxxx,
Xxxxxxxxxx 00000, on the day the Stock Closing occurs, or at such other date
and place as the Company and Investor shall agree in writing. The day on
which the Closing occurs is herein referred to as the "Closing Date."
1.4 EXECUTION AND DELIVERIES AT CLOSING. At the Closing, (i)
Investor shall deliver the Purchase Price, by wire transfer or certified or
cashier's check, to the Company, (ii)
the Company shall deliver to Investor certificates evidencing the Securities
and (iii) the Company and Investor shall execute and deliver each agreement
and instrument required or contemplated by this Agreement to be so executed
and delivered and not theretofore executed and delivered. All actions taken
at the Closing shall be deemed to occur simultaneously.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Investor as follows:
2.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of California, has the
requisite corporate power and authority to own and operate its properties and
assets and to carry on its business as it is presently being conducted, to
execute and deliver this Agreement and any other agreement or instrument to
which the Company is or is to be a party the execution and delivery of which is
contemplated by this Agreement (such other agreements or instruments, together
with this Agreement, being the "Transaction Documents"), and to carry out the
provisions of the Transaction Documents.
2.2 AUTHORIZATION. All corporate action on the part of the Company
and its shareholders necessary for the authorization, execution and delivery of
the Transaction Documents, the performance of all obligations of the Company
thereunder at the Closing, and the authorization, issuance (or reservation for
issuance), sale, and delivery of the Securities has been taken or will be taken
prior to the Closing, and the Transaction Documents constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general applicability affecting
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance and other equitable remedies.
2.3 VALID ISSUANCE. The shares of Preferred Stock being purchased by
Investor under this Agreement, when issued, sold, and delivered in accordance
with the terms and conditions of this Agreement for the Purchase Price, will be
duly and validly issued, fully paid, and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and applicable provisions of federal or state securities laws. The
shares of Common Stock issuable upon conversion of such shares of Preferred
Stock (the "Common Conversion Shares") have been duly reserved, and upon
issuance in accordance with the terms of the Certificate of Determination (as
hereinafter defined), will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, and applicable provisions of
federal or state securities laws (the Preferred Stock and the Common Conversion
Shares are together referred to as the "Securities").
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2.4 CAPITALIZATION. The authorized capital stock of the Company
consists of 1,000,000 shares of common stock, no par value per share, 30,000
shares of Class A Common Stock, no par value per share, and 100,000 shares of
preferred stock, no par value per share, 22,500 shares of which have been
designated Series A Convertible Preferred Stock. The rights, preferences and
privileges of the Preferred Stock are as set forth in the Amended and Restated
Articles of Incorporation, attached hereto as Exhibit A, which has been filed
with the Secretary of State of California. As of the date of Closing, there
will be: 221,500 shares of Common Stock issued and outstanding and 6,000 shares
of Class A Common Stock outstanding, (ii) 22,500 shares of Series A Convertible
Preferred Stock issued and outstanding and 22,500 Conversion Common Shares
reserved for issuance upon the conversion of such shares, (iii) 388,000 and
12,000 shares of Common Stock and Class A Common Stock, respectively, reserved
for issuance upon the exercise of warrants, dated October 1, 1997, issued by the
Company to Warner X. Xxxxx (the "Xxxxxx Warrants"), and (iv) 55,000 and 45,000
shares of Common Stock reserved for issuance to Xx. Xxx Xxxx and Investor,
respectively, upon exercise of their rights to acquire additional shares of
Common Stock upon exercise of the Warner Warrants (the "Xxxx Rights" and
"Investor Rights", respectively). All of the issued and outstanding shares of
Common Stock have been duly and validly issued and are fully paid and
nonassessable and free of any preemptive rights. Other than the Warner
Warrants, the Xxxx Rights and the Investor Rights, there is, at the date hereof,
no outstanding security issued by the Company other than the Common Stock and no
outstanding right or option of any kind to purchase, and no outstanding security
issued by the Company convertible or exchangeable into, any security issued by
the Company, and no agreement of the Company to issue any such right, option, or
convertible or exchangeable security.
2.5 NO CONTRAVENTION. The execution, delivery, and performance by
the Company of the Transaction Documents, and the consummation of the
transactions contemplated thereby will not (a) conflict with the Company's
Articles of Incorporation or bylaws, (b) violate laws, orders or regulations
applicable to the Company or any of its material properties; (c) conflict with
or result in a breach of any judgment, order, decree, or ruling to which the
Company is a party or by which it or any material portion of its properties is
bound, or any material agreement to which the Company is a party or by which any
material portion of its properties is bound; or (d) require the approval of any
governmental or nongovernmental third party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby severally represents and warrants to the Company as
follows:
3.1 AUTHORITY RELATIVE TO THIS AGREEMENT. Investor has the requisite
power and authority to enter into the Transaction Documents and to perform
Investor's obligations thereunder. Each of the Transaction Agreements has been
duly and validly executed and delivered by Investor and the Transaction
Documents constitute valid and legally binding
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obligations of Investor enforceable against Investor in accordance with their
respective terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general applicability affecting
creditors' rights generally and (ii) as limited by laws relating to the
availability of specific performance and other equitable remedies.
3.2 NO CONTRAVENTION. The execution, delivery, and performance by
Investor of the Transaction Documents, and the consummation of the transactions
contemplated thereby will not (a) violate laws, orders or regulations applicable
to Investor; (b) conflict with or result in a breach of any judgment, order,
decrees, or ruling to which Investor is a party or any material agreement to
which Investor is a party; or (c) require the approval of any governmental or
nongovernmental third party.
3.3 INVESTMENT INTENTION. The Securities will be acquired for
investment for Investor's own account, and not with a view to the resale or
distribution of any part thereof; Investor has no present intention of selling,
transferring, granting any participation in, or otherwise distributing any of
the Securities, and has no contract, undertaking, agreement, or arrangement with
any person to sell, transfer, or grant any participation with respect to any of
the Securities.
3.4 RELIANCE ON REPRESENTATIONS. Investor understands that the
Securities are not registered under the Securities Act of 1933, as amended (the
"Securities Act"), on the ground that the offer and sale provided for in this
Agreement is exempt from registration under such Act by virtue of an exemption
therefrom, and that the Company's reliance on such exemption is predicated on
Investor's representations set forth herein. Investor realizes that the basis
for an exemption may not be present if, notwithstanding such representations,
Investor has in mind merely acquiring the Securities for a fixed or determinable
period of time, or for a market rise, or for sale if the market does rise; and
Investor has no such intention.
3.5 FINANCIAL CONDITION. Investor's financial situation is such that
Investor can afford to bear the economic risk of holding the Securities for an
indefinite period of time; Investor has adequate means for providing for
Investor's current and reasonably foreseeable needs and contingencies, and
Investor can afford to suffer a complete loss of Investor's investment in the
Securities.
3.6 ACCREDITATION AND SOPHISTICATION. Investor is an "accredited
investor" as such term is defined in Rule 501(a) of Regulation D under the
Securities Act. Investor's knowledge and experience in financial and business
matters are such that Investor is capable of evaluating the merits and risks of
the investment in the Securities.
3.7 SPECULATIVE INVESTMENT. Investor understands that the Company
has no business operations or assets other than those described or referred to
in the Offering Memorandum, that the Securities are a speculative investment
involving a high degree of risk of loss of investment, and that there are
substantial restrictions on the transferability of the Securities.
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3.8 RECEIPT OF INFORMATION. Investor has received the Offering
Memorandum dated April 15, 1998 ("Offering Memorandum") and all other
information that Investor considers necessary or appropriate for deciding
whether to purchase the Securities. Investor has been given the opportunity to
examine all documents and to ask questions of, and to receive answers from, the
Company and its representatives concerning the Offering Memorandum, the Company,
and the terms and conditions of the Securities, and to obtain any additional
information which Investor deems necessary. Investor acknowledges that the
Offering Memorandum consists of forward-looking statements that are based on
numerous assumptions, including among others assumptions as to general economic
conditions, the condition and competitive environment of the business in which
the Company plans to operate, and other factors that are beyond the Company's
control; that any projections included in the Offering Memorandum were not
prepared in accordance with generally accepted accounting principles; and that
there can be no assurance that the Offering Memorandum, such assumptions, or any
such projections will prove to be accurate or that actual results may not vary
materially, including materially to the detriment, from projected or assumed
results.
ARTICLE IV
ANTIDILUTION RIGHTS
4.1 Upon each exercise of the Warner Warrants, Investor shall have
the right to purchase from the Company, on the terms set forth herein, for cash,
.1125 shares of Common Stock for each share of Class A Common Stock or Common
Stock of the Company acquired upon the exercise of the Warner Warrants at a
purchase price per share equal to the exercise price of such Warner Warrant
("Purchase Price"); provided, however, that if the Xxxx Rights are no longer
outstanding at the time of exercise of the Warner Warrants, Investor shall have
the right to purchase shares of Common Stock equal to 9/91 of the shares of
Class A Common Stock or Common Stock acquired upon exercise of the Warner
Warrants.
4.2 The Company shall notify Investor by written notice not later
than thirty (30) business days after an issuance of Class A Common Stock or
Common Stock arising out of an exercise of Warner Warrants and, subject to
Section 4.3 below, if Investor notifies Company in writing within five (5) years
of such notice of his desire to exercise his rights hereunder, the Company shall
upon such notice and the receipt in cash of the purchase price promptly effect
the sale of Common Stock to Investor as set forth herein. In the event Investor
fails to provide the Company with timely notice of his desire to exercise his
rights hereunder, he shall be deemed to have forfeited his rights with respect
to that particular exercise of the Warner Warrant, but not as to any subsequent
exercise.
4.3 Notwithstanding the foregoing, Investor's rights under Section
4.1 and 4.2 hereunder shall cease (i) upon the termination or expiration of the
Warner Warrants and (ii) upon the consummation of an IPO or Sale as to any
rights with respect to previously exercised Warner Warrants (or Warner Warrants
to be exercised in connection with an IPO or Sale). With respect
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to clause (ii), Company shall give Investor notice thirty (30) days in
advance of the effective date of the IPO or Sale (as well as notice of any
planned exercise of the Warner Warrant upon consummation of the IPO or Sale)
and unless Investor notifies the Company of his intent to exercise his rights
hereunder within the first twenty (20) days of such thirty (30) day period
and pays the purchase price prior or on the consummation of the IPO or Sale,
the Company shall be under no obligation to sell Common Stock to Investor
under this Article IV as a result of any exercise of the Warner Warrant.
4.4 The rights of Investor under this Article IV shall terminate upon
Investor's death and the resulting redemption of the Securities.
4.5 For purposes of this Agreement, (i) an IPO shall mean a public
offering of the Company's equity securities having aggregate proceeds to the
Company and/or any selling shareholders (prior to deduction for underwriting
discount and other expenses) of at least Ten Million Dollars ($10,000,000), and
(ii) a Sale shall mean sale of all or substantially all of the Company's assets
or a merger or consolidation of the Company in a transaction in which the
Company is not the surviving entity or a transaction or related series of
transactions in which in excess of 50% of the voting power of the Company is
transferred.
4.6 If the Company shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii) subdivide
or reclassify the outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding Common Stock into a
smaller number of shares, the Investor rights in effect at the time of the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so that the Investor shall be entitled to receive the number of shares of
Common Stock which he would have owned or been entitled to receive had the
rights been exercised immediately prior to such date.
ARTICLE V
REDEMPTIONS
5.1 MANDATORY REDEMPTION. Upon the death of Investor, the Company
shall redeem (i) all the outstanding shares of the Preferred Stock, or any
Conversion Common Shares issued upon conversion of the Preferred Stock, at price
per share of $133.33 per share (or an aggregate purchase price of Three Million
Dollars ($3,000,000)), less amounts previously redeemed under Section 5.2 or
otherwise and (ii) all outstanding shares of Common Stock acquired pursuant to
Article IV hereof (the "Warrant Shares") at a price equal to their purchase
price per share (in each case subject to adjustment for stock dividends, stock
splits or reclassification) ("Mandatory Redemption Price"). Such repurchase
shall occur on the Redemption Date (defined below).
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5.2 VOLUNTARY REDEMPTION. During each of the following periods:
January 1, 2004 -- February 1, 2004
January 1, 2005 -- February 1, 2005
January 1, 2006 -- February 1, 2006
January 1, 2007 -- February 1, 2007
January 1, 2008 -- February 1, 2008
July 1, 2008 -- August 1, 2008
(each a "Redemption Election Period"), Investor may elect to have the Company
redeem one-sixth of his Securities by delivery of a written request to the
Company. On the Redemption Date (as defined below), the Company shall redeem
the number of shares of Preferred Stock held by Investors that is specified in
the written request by paying in cash the amount $133.33 per share, (subject to
adjustment for stock dividends, stock splits, or reclassification) not to exceed
Five Hundred Thousand Dollars ($500,000) with respect to any Redemption Election
Period.
5.3 MECHANICS OF REDEMPTION.
(a) A "Redemption Date" shall occur within thirty (30) days
after Investor's death, with respect to Section 5.1, and within sixty (60) days
after the Company's receipt of Investor's request with respect to Section 5.2.
At least five (5) business days prior to a Redemption Date, written notice shall
be mailed by certified mail, to Investor, calling upon Investor to surrender to
the Company, in the manner and at the place designated, his certificate or
certificates representing the securities to be redeemed (the "Redemption
Notice"). In the event less than all securities represented by any such
certificate are redeemed, a new certificate(s) shall be issued representing the
unredeemed securities.
(b) From and after the Redemption Date, unless there shall have
been a default in payment of the Mandatory or Voluntary Redemption Price, as the
case may be, all rights of the holders of shares of Securities designated for
redemption (except the right to receive such Redemption Price, without interest,
upon surrender of their certificates) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the Company
or be deemed to be outstanding for any purpose whatsoever. If the funds of the
Company legally available for redemption are insufficient to redeem the total
number of shares of securities to be redeemed on such date, those funds which
are legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed based upon their
respective holdings of securities to be redeemed. The shares of securities not
redeemed shall remain outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional funds of the Company
are legally available for the redemption of shares of securities such funds will
immediately be used to redeem the balance of the shares which the Company has
become obligated to redeem on any Redemption Date, but which it has not
redeemed.
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5.4 TERMINATION OF RIGHTS. The redemption provisions of (a) Section
5.1 shall terminate upon an IPO or Sale and (b) Section 5.2 shall terminate upon
Investor's death or an IPO or Sale.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 INSURANCE PROCEEDS. Until Investor's death, the Company, for the
benefit of the Company, shall maintain at its expense, a life insurance policy
("Insurance Policy") for Investor in the principal amount of at least Three
Million Dollars ($3,000,000) for the purposes of funding the redemption of the
Securities upon Investor's death as set forth in Section 5.1 above. Investor
agrees to cooperate with Company in all respects in order to obtain and maintain
the Life Insurance Policy, including without limitation submission to medical
exams.
6.2 LEGEND. So long as required under applicable federal or state
securities laws or any of the Transaction Documents, each certificate evidencing
shares of Preferred Stock purchased hereunder and each certificate evidencing
shares of Common Conversion Shares (including any certificate issued upon the
transfer of such shares) shall be stamped or otherwise imprinted as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii)
RULE 144 UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES.
IN THE CASE OF TRANSFERS OR OTHER DISPOSITIONS MADE OTHERWISE THAN
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, THE
HOLDER SHALL, AT THE COMPANY'S REQUEST, PROVIDE TO THE COMPANY AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS AND ENTITLED TO THE BENEFITS OF A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT, DATED AS OF ___________, 1998. A COPY OF
SUCH AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY.
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A copy of the Transaction Documents shall be filed with the Secretary of the
Company and shall be kept at its principal executive office.
6.3 EXPENSES. Whether or not the Closing is consummated, all costs
and expenses incurred in connection with any of the Transactional Documents and
the transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses.
6.4 BEST EFFORTS. Each of the Company and Investor agrees to use its
best efforts to take, or cause to be taken, all reasonable actions and to do, or
cause to be done, all reasonable things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated
hereby.
6.5 BROKERS AND FINDERS. Each of the Company and Investor represents
and warrants to the other that no broker, finder, or other financial consultant,
banker, or adviser has acted on its behalf in connection with this Agreement or
the transactions contemplated hereby in such a way as to create any liability
upon either the Company or Investor.
6.6 NO TRANSFER. Investor may not Transfer any Preferred Stock,
Conversion Common Shares or Warrant Shares without the Company's express prior
written consent; provided, however, that Investor shall be permitted, without
the consent of the Company, to Transfer such securities to his children (a
"Permitted Transfer"). (Investor's children, however, shall not be permitted to
Transfer such securities.) Any Transfer without such prior written consent
(other than a Permitted Transfer) shall be null and void and the provisions of
Article IV and Section 5.2 shall terminate upon such Transfer. The provisions
of Articles IV and V hereof shall continue to apply to any shares of Preferred
Stock, Conversion Common Shares or Warrant Shares Transferred pursuant to a
Permitted Transfer.
For purposes of this Agreement, "Transfer" shall mean to issue, grant,
sell, transfer, assign or otherwise dispose of; the act of Transferring is a
"Transfer." The restrictions of this Section 6.6 shall terminate upon an IPO or
Sale.
ARTICLE VII
GENERAL PROVISIONS
7.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given upon delivery if delivered personally, upon
the third business day thereafter if mailed by registered or certified mail
(return receipt requested), or upon the day of transmission if faxed with
confirmation of transmission, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
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(a) If to Investor:
Xx. Xxxxxx X. Xxxxxx, Xx.
P. O. Xxx 000
Xxxxxxxxx, XX 00000
(b) If to the Company:
Xxxxx Company
0000 Xxxxxxx Xxxxxx
Xxxxxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
Fax: (000) 000-0000
7.2 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by Investor and the Company.
7.3 SEVERABILITY. If any provision of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
7.4 MISCELLANEOUS. This Agreement (including all Exhibits hereto)
(a) constitutes the entire agreement and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof; (b) is not intended to confer upon any other person
any rights or remedies hereunder; (c) shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
provided, however, that this Agreement shall not be assigned, in whole or in
part, by operation of law or otherwise, without the prior written consent of the
other party; and (d) shall be governed by and interpreted under the laws of the
State of California, without regard to its conflicts-of-laws provisions. This
Agreement may be executed in counterparts which together shall constitute a
single agreement.
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IN WITNESS WHEREOF, the Company and Investor have signed this
Agreement, or caused this Agreement to be signed by their respective officers
thereunto duly authorized, as of the date first written above.
The Company
XXXXX COMPANY, a California corporation
/s/ Xxxxxxx X. Xxxxxxxxx
----------------------------------------
By Xxxxxxx X. Xxxxxxxxx
----------------------------------------
Its President
---------------------------------------
Investor
/s/ Xxxxxx Xxxxxx, Xx.
-------------------------------------------
Xxxxxx X. Xxxxxx, Xx.
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