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EXHIBIT 00.00.XX; PAGE 1
STOCK CONVERSION AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (the "Agreement") is made and entered into
as of the 17th day of January, 2001, by and between XXXXXXX X. XXXXX XXXXX PLAN
XXX XXXXXXX XXXXXX & CO., INC. (hereinafter referred to as "Holder") and
ELECTROPURE, INC., a California corporation (hereinafter referred to as
"Electropure" or the "Company").
R E C I T A L S
WHEREAS, on or about January 15, 1999, Holder purchased One Million
(1,000,000) shares of Electropure, Inc. Series B Preferred Stock ("Series B
Preferred"), par value $1.00, for the sum of One Million Dollars ($1,000,000).
WHEREAS, Holder wishes to convert all of the Series B Preferred into
Series C Convertible Preferred Shares of Electropure ("Series C Preferred"),
$1.00 par value.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
obligations herein contained, it is agreed as follows:
1. CONVERSION
(a) Effective on the date hereof, Holder hereby converts One Million
(1,000,000) Shares of Electropure, Inc. Series B Convertible Preferred Stock,
$1.00 par value, into Two Hundred Fifty Thousand (250,000) Shares of
Electropure, Inc. Series C Convertible Preferred Stock, $1.00 par value.
(b) The Series C Preferred shall have the rights, preferences,
privileges, restrictions and other terms set forth in Exhibit "A" hereto, the
Certificate of Determination for the Series C Convertible Preferred Shares (the
"Certificate").
(c) Upon conversion hereby, Holder surrenders all right, title and
interest in and to the Series B Preferred Shares of Electropure.
2. REPRESENTATIONS AND WARRANTIES OF HOLDER Holder represents and
warrants to the Company:
(a) The Series C Preferred are being acquired by Holder for
investment for an indefinite period, for Holder's own account, not as a nominee
or agent, and not with a view to the sale or distribution of any part thereof,
and the Holder has no present intention of selling, granting participations in,
or otherwise distributing the same except as may be permitted by the Securities
Act of 1933, as amended (the "Act").
(b) Holder does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participation to such
person or to any third person, with respect to the Series C.
(c) That Holder understands that the Series C Preferred have not
been registered under the Securities Act of 1933, as amended (the "Act"), in
reliance upon the exemptions from the registration provisions of the Act
contained in Section 4 (2) thereof, and any continued reliance on such exemption
is predicated on the representations of the Holder set forth herein.
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EXHIBIT 00.00.XX; PAGE 2
(d) Holder understands that the Series C Preferred must be held
indefinitely unless the sale or other transfer thereof is subsequently
registered under the Act, as amended, or an exemption from such registration is
available. Holder further understands that the Company is under no obligation to
register the Securities on its behalf or to assist him in complying with any
exemption from registration except as otherwise provided herein.
(e) Holder (i) has adequate means of providing for his current needs
and possible contingencies, (ii) has no need for liquidity in this investment,
(iii) is able to bear the substantial economic risks of an investment in the
Series C Preferred for an indefinite period, (iv) at the present time, can
afford a complete loss of such investment, and (v) does not have an overall
commitment to investments which are not readily marketable that is
disproportionate to Holder's net worth, and Holder's investment in the Series C
Preferred will not cause such overall commitment to become excessive.
(f) Holder is an "accredited investor" (as defined in Regulation D
promulgated under the Act) and the undersigned's total investment in the Series
C Preferred does not exceed 10% of the Holder's net worth.
(g) Holder recognizes that the Company has had only limited revenues
to date and that the Series C Preferred as an investment involve significant
risks.
(h) Holder will not transfer the Series C Preferred without
registering them under applicable federal and state securities laws unless the
transfer is exempt from registration. Holder realizes that the Company may not
allow a transfer of Series C Preferred unless the transferee is also an
"accredited investor". Holder understands that legends will be placed on
certificates representing the Series C Preferred, with respect to the above
restrictions on resale or other disposition of the Series C Preferred and that
stop transfer instructions have or will be placed with respect to the Series C
Preferred so as to restrict the assignment, resale or other disposition thereof.
(i) The Company will direct its transfer agent to, or will itself,
place such a stop transfer order in its books respecting transfer of the Series
C Preferred, and the certificate or certificates representing the Series C
Preferred will bear the following legend or a legend substantially similar
thereto:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF:
(1) AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
THE ACT, OR (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
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EXHIBIT 00.00.XX; PAGE 3
(j) That Holder understands that Rule 144, promulgated by the
Securities and Exchange Commission under the Act, may not be currently available
for sale of the Series C Preferred, and there is no assurance that it will be
available at any particular time in the future. If and when Rule 144 is
available for sale of the Common Stock underlying the Series C Preferred, such
sales in reliance upon Rule 144 may only be (i) in limited quantities after the
Shares have been held for one (1) year after being sold by the Company, or (ii)
in unlimited quantities by non-affiliates after the Shares have been held for
two (2) years after being sold by the Company, in each case in accordance with
the conditions of the Rule, all of which must be met (including the requirement,
if applicable, that adequate information concerning the Company is then
available to the public). The Company and Holder acknowledges that the Company
has no obligation to supply the information required for sales under Rule 144.
(k) The conversion value for the Series C Preferred has been
determined by Holder as fair and appropriate based solely upon Holder's
independent investigation and due diligence of the Company, and neither Holder
nor the Company nor any of their agents, including, without limitation, any of
their officers, directors, employees, accountants and attorneys, has made any
representations or warranties whatsoever in connection with the issuance of the
Series C Preferred by the Company to Holder. Holder has had sufficient
opportunity in connection with the exchange of the Series C Preferred to review
the Company's business and affairs (including, without limitation, the Company's
financial statements and other information). The Holder has had answered to his
satisfaction any questions with respect to the Company's business and affairs.
Holder further has had the opportunity to obtain independent financial, legal,
accounting, business, tax and other appropriate advice with respect to the
transactions contemplated by this Agreement, and is not relying upon the Company
or any of its agents in any manner in connection with same.
3. REGISTRATION RIGHTS The Company agrees to register under the Act all
of the Common Stock issuable upon conversion of the Series C Preferred by the
Holder in connection with the next Registration Statement filed by the Company
with the Securities and Exchange Commission.
4. REPRESENTATIONS AND WARRANTIES OF ELECTROPURE
(a) Electropure is a corporation duly organized and validly existing
under the laws of the State of California without limit as to duration of its
existence, and is authorized and in good standing to do business in no other
state; Electropure has the corporate power and adequate authority, rights and
franchise to own its property and to carry on its business as now conducted;
and, subject to ratification by its Board of Directors, Electropure has the
corporate power and adequate authority to enter into this Agreement.
(b) The execution and delivery of this Agreement and subject to (1)
ratification by the Board of Directors of the Company and (2) filing the
Certificate with the California Secretary of State, the performance of the
provisions of this Agreement are not in contravention of or in conflict with any
law or regulation or any term or provision of Electropure's Articles of
Incorporation or By-Laws and are duly authorized and do not require the consent
or approval of any governmental body or other regulatory authority; and this
Agreement is a valid, binding and legal obligation of Electropure, enforceable
in accordance with the terms herein.
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EXHIBIT 00.00.XX; PAGE 4
5. ENTIRE AGREEMENT This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings relating to such subject matter.
6. AMENDMENT This Agreement may not be amended except by written
document executed by the parties.
7. SUBJECT HEADINGS Subject headings are included for convenience only
and shall not be deemed part of this Agreement.
8. SEVERABILITY If any provision of this Agreement shall be held
unenforceable as applied to any circumstance, the remainder of this Agreement
and the application of such provision to other circumstances shall be
interpreted so as best to effect the intent of the parties. The parties further
agree to replace any such unenforceable provision with an enforceable provision
(and to take such other action) which will achieve, to the extent possible, the
purposes of the unenforceable provision.
9. GOVERNING LAW This Agreement shall be governed by and construed under
the laws of the State of California in force from time to time.
10. PARTIES BOUND This Agreement is binding on and shall inure to the
benefit of the parties and their respective successors, assign, heirs, and legal
representatives.
11. SURVIVAL The representations, warranties, covenants, and agreements
contained in this Agreement shall survive the consummation of the transactions
contemplated hereby.
12. COUNTERPARTS This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY: ELECTROPURE, INC.
By: /s/ XXXXX X. XXXXXXX
---------------------------------
Xxxxx X. Xxxxxxx, President
00000 Xxxxx Xxxxxx Xxxxx
Xxxxxx Xxxxx, XX 00000-0000
HOLDER: By: /s/ XXXXXXX X. XXXXX
---------------------------------
XXXXXXX X. XXXXX
000 Xxxxxxxxx Xxxxx
Xxxxxxxx Xxxx, XX 00000-0000
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EXHIBIT 00.00.XX; PAGE 5
CERTIFICATE OF DETERMINATION
OF
SERIES C CONVERTIBLE PREFERRED SHARES
OF
ELECTROPURE, INC.
--------------------
The undersigned, Xxxxx X. Xxxxxxx and Xxxxxxxxx Xxxxxxxxx, do hereby
certify:
1. That said Xxxxx X. Xxxxxxx is, and at all times herein mentioned was,
the duly elected and acting President of Electropure, Inc., a California
corporation, and that said Xxxxxxxxx Xxxxxxxxx is, and at all times herein
mentioned was, the duly elected and acting Secretary of said Corporation;
2. That at a meeting of the Board of Directors of said Corporation the
11th day of January, 2001, at which meeting there were at all times present and
acting a quorum of the members of the Board of Directors of said Corporation,
the following resolutions were duly adopted:
WHEREAS, the Articles of Incorporation of this Corporation provide for a
class of its authorized shares known as Preferred Stock, comprising one million
(1,000,000) shares of $1.00 par value each, issuable from time to time in one or
more series; and
WHEREAS, the Board of Directors of this Corporation is authorized to fix
or alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of preferred shares, and the number of shares constituting any
such series and the designation thereof, or any of them; and
WHEREAS, it is the desire of the Board of Directors of this Corporation,
pursuant to its authority as aforesaid, to fix the rights, preferences,
privileges, restrictions and other matters relating to a series of said
preferred shares;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
provide for the issue of a series of preferred stock of the Corporation and does
hereby fix and determine the rights, preferences, privileges, restrictions and
other matters relating to said series of preferred shares as follows:
(a) The preferred shares provided for herein shall be designated and
known as "Series C Convertible Preferred Shares" (hereinafter
referred to as the "Series C Preferred Shares").
(b) The number of shares constituting the Series C Preferred Shares,
shall be two hundred fifty thousand (250,000) shares.
(c) Upon the voluntary or involuntary liquidation, winding up or
dissolution of the Corporation, out of the assets available for
distribution to shareholders the Series C Preferred Shares shall be
entitled to receive, in preference to any payment on the Common
Stock, Class B Common Stock and Convertible Preferred Stock, only,
an amount equal to Four Dollars ($4.00) per share and no more. After
the full preferential liquidation amount has been paid to, or
determined and set apart for, the Series C Preferred Shares, the
remaining assets shall be payable to the Common Stock, Class B
Common Stock and Convertible Preferred Stock. In the event the
assets of the Corporation are insufficient to pay the full
preferential liquidation amount required to be paid to the Series C
Preferred Shares, the Common Stock, Class B Common Stock and
Convertible Preferred Stock shall receive nothing. A reorganization
shall not be considered to be a liquidation, winding up or
dissolution within the meaning of this subdivision (c) and the
Series C Preferred Shares shall be entitled only to the rights
provided in the plan of reorganization and Chapters 12 and 13 of the
California General Corporation Law and elsewhere herein.
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EXHIBIT 00.00.XX; PAGE 6
(d) The Series C Preferred Shares shall have no voting rights.
(e) At the option of the respective holders of Series C Preferred
Shares, each one (1) of the Series C Preferred Shares shall be
convertible into four (4) shares of Common Stock (the "conversion
ratio") at any time.
(f) The Corporation shall reserve and keep reserved out of its
authorized but unissued shares of Common Stock sufficient shares to
effect the conversion of all shares of Series C Preferred Shares
outstanding from time to time. A holder of Series C Preferred Shares
subject to conversion shall deliver the share certificate to the
Corporation at its principal executive office accompanied, if
appropriate, by a written request to convert, specifying the number
of shares to be converted. The endorsement of the share certificate
and the request to convert shall be in form satisfactory to the
Corporation. Upon the date of such delivery, the conversion is
deemed to have occurred and the person entitled to receive share
certificates for Common Stock shall be regarded for all corporate
purposes from and after such date as the holder of the number of
shares of Common Stock to which he is entitled upon the conversion.
In the event of a stock split, reverse stock split, stock dividend,
reorganization or recapitalization affecting the number of shares of
Common Stock outstanding, the conversion ratio set forth in this
subdivision (e) shall be proportionately revised so as to fairly and
equitably preserve the conversion rights of the Series C Preferred
Shares.
(g) Except as provided in subdivision (f) hereof, no holder of the
Series C Preferred Shares shall be entitled as of right to subscribe
for, purchase, or receive any part of any new or additional shares
of any class, whether now or hereafter authorized, or of bonds,
debentures, or other evidences of indebtedness convertible into or
exchangeable for shares of any class, but all such new or additional
shares of any class, or bond, debentures, or other evidences of
indebtedness convertible into or exchangeable for shares, may be
issued and disposed of by the Board of Directors on such terms and
for such consideration (to the extent permitted by law), and to such
person or persons as the Board of Directors in their absolute
discretion may deem advisable.
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EXHIBIT 00.00.XX; PAGE 7
RESOLVED, FURTHER, that the President and the Secretary of this Corporation be,
and they hereby are, authorized and directed to prepare and file a certificate
of determination of preferences in accordance with the foregoing resolution and
the provisions of California law.
3. That the authorized number of preferred shares of said Corporation is
one million (1,000,000), and that the number of preferred shares constituting
Series C Preferred Shares, none of which has been issued, is two hundred fifty
thousand (250,000).
IN WITNESS WHEREOF, the undersigned have executed this certificate this
16th day of January, 2001.
/s/ XXXXX X. XXXXXXX
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XXXXX X. XXXXXXX, President of
ELECTROPURE, INC.
/s/ XXXXXXXXX XXXXXXXXX
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XXXXXXXXX XXXXXXXXX, Secretary
of ELECTROPURE, INC.
The undersigned, Xxxxx X. Xxxxxxx, President, and Xxxxxxxxx Xxxxxxxxx,
Secretary, of Electropure, Inc., a California corporation, each certifies under
penalty of perjury that the matters set out in the foregoing Certificate of
Determination are true and correct.
Executed at Laguna Hills, California, on January 16, 2001.
/s/ XXXXX X. XXXXXXX
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XXXXX X. XXXXXXX
/s/ XXXXXXXXX XXXXXXXXX
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XXXXXXXXX XXXXXXXXX
