EXHIBIT 10.4
US-SINO GATEWAY, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
February 14, 2003 by and between US-Sino Gateway, Inc., a California corporation
(the "Company"), located at 0000 Xxxx Xxxxxxxx Xxxxxxx, Xxxxx 000, Xxxx,
Xxxxxxxxxx 00000 and Solana Venture Group (the "Purchaser") located at 000
Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx Xxxxx, Xxxxxxxxxx 00000.
1. ISSUANCE AND SALE OF SERIES A PREFERRED STOCK. Subject to the terms
of this Agreement, the Company will issue and sell to the Purchaser, and the
Purchaser will buy from the Company, a total of 2,000,000 shares of the
Company's Series A Preferred Stock (the "Shares"). The purchase price for the
Shares shall be $0.90 per share for a total purchase price of $1,800,000 (the
"Purchase Price"). The Purchaser shall purchase the Shares in increments
consisting of 111,112 shares on the last day of each month until all of the
Shares are purchased; PROVIDED, HOWEVER, that within 45 business days from the
date that the Company's Common Stock is listed for trading on the
over-the-counter bulletin board, the Purchaser shall purchase any Shares
remaining to be purchased by transferring to the Company the entire unpaid
portion of the Purchase Price. At the option of the Purchaser, the Shares may be
converted into the Company's Common Stock as described in Section 3 below. The
Shares shall have the respective rights, restrictions, privileges and
preferences as set forth in the form of the Certificate of Determination of the
Rights, Preferences, Privileges and Restrictions of the Series A Preferred Stock
of US-Sino Gateway, Inc., a California corporation, attached hereto as Exhibit
A.
2. ACKNOWLEDGMENT OF MONEY PAID. The Company acknowledges that the
Purchaser has, as of the date of this Agreement, transferred $100,000 of the
Purchase Price to the Company, as set forth on the schedule attached to this
Agreement as Exhibit B. Upon receipt of this Agreement executed by the
Purchaser, the Company will issue a certificate representing 112,111 shares of
Series A Preferred Stock, in accordance with paragraph 4 below.
3. OPTIONAL CONVERSION. Each share of Series A Preferred Stock may be
converted into fully paid and non-assessable shares of Common Stock at the
option of the Purchaser. The total number of shares of Common Stock into which
Series A Preferred Stock may be converted will be determined by dividing the
original purchase price of $0.90 per share by the conversion price of $0.90 (the
"Conversion Price").
4. CLOSING, DELIVERY. The closing (the "Closing") of each purchase and
sale of the Shares shall be on the last day of each calendar month
(respectively, the "Closing Dates"), or at such other time as the Company and
the Purchaser shall agree. Upon the Closing of every sale of the Shares to the
Purchaser, the Purchaser shall deliver to the Company either cash, a check, a
wire transfer, or combination thereof, payable to the Company for the
appropriate aggregate purchase price of the Shares. Upon receipt of Purchaser's
payment on each respective Closing Date, the Company will prepare a stock
certificate representing the Shares purchased by the Purchaser and promptly
transmit such stock certificate to the Purchaser at the address first written
above.
5. THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants to the Purchaser as follows:
5.1 ORGANIZATION AND STANDING. 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 carry
on its businesses as now conducted and as proposed to be conducted. The Company
is qualified or licensed to do business as a foreign corporation in all
jurisdictions where such qualification or licensing is required, except where
the failure to so qualify would not have a material adverse effect upon the
Company.
5.2 CORPORATE POWER. The Company has now, or will have at the
date of each of the respective Closing Dates, all requisite corporate power
necessary for the authorization, execution and delivery of this Agreement and to
sell and issue the Shares, and to carry out and perform all of its obligations
hereunder. This Agreement is or will be valid and binding obligations of the
Company upon acceptance by the Company enforceable in accordance with their
terms, except as the same may be limited by bankruptcy, insolvency, moratorium,
and other laws of general application affecting the enforcement of creditors'
rights.
5.3 AUTHORIZATION. This Agreement, including the issuance of
the Shares to be issued hereunder, when executed and delivered by the Company,
will constitute a valid and legally binding obligation of the Company,
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
The Company has duly authorized the execution, delivery and performance of this
Agreement, including the issuance of the Shares by the Company.
5.4 NO CONSENT. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority or other
outside third party on the part of the Company is required in connection with
the valid execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby and thereby, other than any
applicable filings in connection with exemptions for purposes of federal and/or
state securities laws.
5.5 CAPITALIZATION. As of the date of this Agreement, the
authorized capital stock of the Company will consist of 50,000,000 shares of
Common Stock, and 10,000,000 shares of Preferred Stock, of which 2,000,000 will
be designated as Series A Preferred Stock. Prior to the acceptance of this
Agreement, there were no shares of Series A Preferred Stock issued and
outstanding. The maximum aggregate number of shares of Series A Preferred Stock
to be issued and sold by the Company will not exceed 2,000,000 shares. All such
issued and outstanding shares of Series A Preferred Stock will be duly
authorized and validly issued and, once the Purchase Price is paid, will be
fully paid and nonassessable, and will be issued in compliance with all
applicable state and federal laws concerning the issuance of securities. In
addition, immediately prior to the initial Closing Date, the Company will have
reserved an aggregate of 2,000,000 shares of Common Stock for issuance upon
conversion of the Shares into Common Stock, at the option of the Purchaser.
5.6 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC.
The Company is not in violation of any term of its Articles of Incorporation or
Bylaws, as amended, or any mortgage, indenture, contract, agreement, instrument,
judgment, decree or order by which the Company is bound or to which its
properties are subject or, to its knowledge any statute, rule or regulation
applicable to the Company which would materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company. The execution, delivery and performance of and compliance with this
Agreement and the transactions contemplated hereby will not result in any such
violation and will not be in conflict with or constitute a default under any of
the foregoing and will not 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 of the foregoing.
5.7 VALID ISSUANCE. The Shares, when issued in compliance with
the provisions of this Agreement, will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances created by or
imposed upon the Purchaser through action of the Company except as set forth in
this Agreement; provided, however, that all such shares may be subject to
restrictions on transfer under state and/or federal securities laws. Subject to
the accuracy of the Purchaser's representations in Section 6 hereof, the Shares
will be issued in compliance with all applicable federal and state securities
laws.
6. REPRESENTATIONS, WARRANTIES OF THE PURCHASER AND RESTRICTIONS ON
TRANSFER IMPOSED BY THE SECURITIES ACT OF 1933 AND THE CALIFORNIA CORPORATE
SECURITIES LAW OF 1968. The Purchaser represents and warrants to the Company
with respect to this purchase as follows:
6.1 ACCREDITED INVESTOR. The Purchaser is an "accredited
investor" as that term is defined in Securities and Exchange Commission Rule 501
of Regulation D of the Securities Act of 1933, as amended, as presently in
effect.
6.2 INVESTMENT EXPERIENCE. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that the Purchaser is capable
of evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser and its representatives
have been solely responsible for the Purchaser's own "due diligence"
investigation of the Company and its management and business, for its own
analysis of the merits and risks of this investment, and for its own analysis of
the fairness and desirability of the terms of the investment.
6.3 QUALIFIED INVESTOR. The Purchaser has a preexisting
personal or business relationship with an officer of the Company or any of its
directors or controlling persons, or by reason of the Purchaser's business or
financial experience or the business or financial experience of the Purchaser's
professional advisors who are unaffiliated with and who are not compensated by
the Company, directly or indirectly could be reasonably assumed to have the
capacity to evaluate the merits and risks of an investment in the Company and to
protect the Purchaser's own interests in connection with such an investment.
6.4 ACCESS TO DATA. The Purchaser has had an opportunity to
discuss the Company's business, management and financial affairs with its
management. The Purchaser also has had an opportunity to ask questions of
officers of the Company, which questions were answered to its satisfaction. The
Purchaser understands that such discussions, as well as any written information
issued by the Company, were intended to describe certain aspects of the
Company's business and prospects but were not necessarily a thorough or
exhaustive description. The Purchaser and its representatives and legal counsel
have been afforded full and free access to corporate books, financial
statements, records, contracts, documents, and other information concerning the
Company and to its offices and facilities, have been afforded an opportunity to
ask such questions of the Company's officers, employees, agents, accountants and
representatives concerning the Company's business, operations, financial
condition, assets, liabilities and other relevant matters as they have deemed
necessary or desirable, and have been given all such information as has been
requested. The Purchaser's decision to enter into the transactions contemplated
hereby is based on its own evaluation of the risks and merits of the purchase
and the Company's proposed business activities.
6.5 INVESTMENT. The Purchaser is acquiring the Shares for
investment for its own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof. The Purchaser
understands that the Shares to be purchased have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") by reason of a
specific exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein.
6.6 RULE 144. The Purchaser acknowledges that the Shares must
be held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. The Purchaser 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, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring not less than one year after
a party has purchased and paid for the security to be sold, the sale being
effected through a "broker's transaction" or in transactions directly with a
"market maker" and the number of shares being sold during any three month period
not exceeding specified limitations.
6.7 NO PUBLIC MARKET. The Purchaser 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 securities issued by the Company.
6.8 AUTHORIZATION. This Agreement, when executed and delivered
by the Purchaser, will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
6.9 NO CONSENT. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of Purchaser is required in connection with the valid execution and delivery of
this Agreement.
6.10 TAX LIABILITY. The Purchaser has reviewed with its own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. With respect to
such tax consequences, the Purchaser relies solely on such advisors and not on
any statements or representations of the Company or any of its agents. The
Purchaser understands and agrees that it (and not the Company) shall be
responsible for any of its own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
6.11 HIGH RISK. The Purchaser realizes that an investment in
the Shares involves a high degree of risk. The Purchaser is able to bear the
risk of the investment, to hold the Shares for an indefinite period of time and
to suffer a complete loss of the Purchaser's investment.
6.12 LEGENDS. Each certificate or instrument representing the
Shares and shares of Common Stock issuable upon conversion thereof will be
endorsed with the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT THERETO UNDER SUCH ACT UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT OR UNLESS SUCH SALE, PLEDGE, HYPOTHECATION OR TRANSFER
IS OTHERWISE EXEMPT FROM REGISTRATION. THE COMPANY MAY REQUEST A
WRITTEN OPINION OF COUNSEL (FROM COUNSEL ACCEPTABLE TO THE COMPANY)
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED IN CONNECTION WITH SUCH SALE, PLEDGE OR HYPOTHECATION, OR
OTHER TRANSFER. THIS CERTIFICATE MUST BE SURRENDERED TO THE CORPORATION
OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, PLEDGE,
HYPOTHECATION OR ANY OTHER TRANSFER OF ANY INTEREST IN ANY OF THE
SHARES REPRESENTED BY THIS CERTIFICATE."
Any other legends required by California law or other applicable state blue sky
laws.
The Company need not register a transfer of any Shares and/or any shares of
Common Stock issuable upon conversion thereof, and may also instruct its
transfer agent not to register the transfer of such shares, unless the
conditions specified in this Agreement are satisfied.
6.13 REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. Any legend
endorsed on a certificate pursuant to this Agreement and any stop transfer
instructions applicable to such certificate regarding the restrictions set forth
in such legend will be removed and the Company will issue a certificate without
such legend to the holder thereof if such shares are registered under the
Securities Act and a prospectus meeting the requirements of Section 10 of the
Securities Act is available, if such legend may be properly removed under the
terms of Rule 144 promulgated under the Securities Act, or if the Purchaser
provides the Company with an opinion of counsel for the Purchaser which counsel
is reasonably satisfactory to legal counsel for the Company, to the effect that
a public sale, transfer or assignment of such shares may be made without
registration. Any legend endorsed on a certificate pursuant to subsection
6.12(b) and the stop transfer instructions with respect to such shares will be
removed upon receipt by the Company of an order of the California Department of
Corporations or other appropriate blue sky authority authorizing such removal.
6.14 NOTICE OF PROPOSED TRANSFERS. Purchaser agrees that prior
to any proposed transfer of any Shares and/or any shares of Common Stock
issuable upon conversion thereof, unless there is in effect a registration
statement under the Securities Act covering the proposed transfer, the Purchaser
will give written notice to the Company of such intention to effect such
transfer. Such notice will describe the manner and circumstances of the proposed
transfer in a manner satisfactory to the Company. Unless in the opinion of
counsel to the Company the transaction is in compliance with Rule 144 or
otherwise exempt from registration, such required notice will be accompanied by
either (i) a written opinion of legal counsel addressed to the Company and
reasonably satisfactory in form and content to the Company's counsel to the
effect that the proposed transfer may be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Securities and Exchange
Commission (the "Commission") to the effect that the distribution of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California without regard to the conflict
of laws provisions. The parties hereto agree to submit to the exclusive
jurisdiction of the federal and state courts of the State of California with
respect to the interpretation of this Agreement or for the purposes of any
action arising out of or relating to this Agreement.
7.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the Closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by on
behalf of the Company pursuant hereto or in connection with any of the
transactions contemplated hereby shall be deemed to be representations and
warranties of the Company hereunder solely as of the date of such certificate or
instrument.
7.3 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; PROVIDED, HOWEVER, that the rights of the Purchaser to purchase the
Shares shall not be assignable without the prior written consent of the Company.
7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, including any
agreements contemplated hereunder, constitutes the full and entire understanding
and agreement between the parties with regard to the subject matter hereof, and
no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein. Except as expressly provided herein, 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; provided, however, that
the record holders of a majority of the outstanding Shares issued pursuant to
this Agreement (voting on an as-converted basis) may, with the written consent
of the Company, waive, modify or amend any provision of this Agreement on behalf
of all such holders of the Company's Series A Preferred Stock.
7.5 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, or otherwise delivered by hand or
by messenger, addressed (a) if to the Purchaser, at such address as set forth on
the signature page of this Agreement or at other such address as the Purchaser
shall have properly furnished in writing to the Company, attention of the
President or (b) if to the Company, at 0000 Xxxx Xxxxxxxx Xxxxxxx, Xxxxx 000,
Xxxx, Xxxxxxxxxx 00000 or at other such address as the Company shall have
properly furnished to the Purchasers in writing. Such notices shall be deemed
effective upon (i) personal delivery to the party to be notified; (ii) upon the
next business day if sent by confirmed telex or facsimile; (iii) one business
day after deposit with a nationally recognized overnight carrier, specifying
next day delivery; or (iv) five business days after having been sent by
registered or certified mail, return receipt requested, postage prepaid.
7.6 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 SUCH QUALIFICATION BY APPLICABLE PROVISIONS OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING
AVAILABLE.
7.7 EXPENSES. The Company and the Purchaser shall each bear
its own expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.
7.8 RULES OF CONSTRUCTION. The parties hereto agree that they
have been adequately represented by counsel during the negotiation and execution
of this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
7.9 SEVERABILITY. In the event that any provision of this
Agreement or the application thereof becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as to
reasonably affect the intent of the parties hereto. To the extent possible, the
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve the economic,
business and other purposes of such void or unenforceable provision as closely
as possible.
7.10 MARKET STANDOFF. The Purchaser agrees that in connection
with the Company's initial public offering of the Company's securities that,
upon request of the Company or the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any shares of the
Series A Preferred Stock or the Common Stock of the Company into which it is
converted without the prior written consent of the Company or such underwriters,
as the case may be, for such period of time from the effective date of such
registration as may be requested by the underwriters.
7.11 BROKER'S FEES. Each party hereto represents and warrants
that no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any broker's
or finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation of this section being untrue.
7.12 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
PURCHASER:
SOLANA VENTURE GROUP, L.P. by its General Partner
SOLANA CAPITAL PARTNERS, INC.
a California corporation
By:
---------------------------------------------------------
Xxxxx Xxxxxxxx
Address: 000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
COMPANY:
US-SINO GATEWAY, INC.
a California corporation
By:
---------------------------------------------------------
Xx. Xxxxxxx Xxxx, President
EXHIBIT A
CERTIFICATE OF DETERMINATION OF THE
RIGHTS, PREFERENCES, PRIVILEGES, AND RESTRICTIONS
OF THE SERIES A PREFERRED STOCK OF
US-SINO GATEWAY, INC.,
A CALIFORNIA CORPORATION
CERTIFICATE OF DETERMINATION
OF THE RIGHTS, PREFERENCES, PRIVILEGES, AND RESTRICTIONS OF
THE SERIES A PREFERRED STOCK
OF
US-SINO GATEWAY, INC.,
A CALIFORNIA CORPORATION
--------------------------------------------------------------------------------
XXXXXXX X. XXXX does hereby certify that:
1. He is the duly elected and acting President and Secretary of US-SINO
GATEWAY, INC. (the "Corporation").
2. Pursuant to the Unanimous Written Consent of the board of directors
of the Corporation (the "Board of Directors") executed on November 1, 2002, the
Board of Directors duly adopted that certain document titled "Restated Articles
of Incorporation" that included the following provision:
This corporation is authorized to issue two classes of shares
which shall be designated "Preferred Stock" and "Common Stock"
respectively. The number of shares of Preferred Stock
authorized to be issued is ten million (10,000,000) shares.
The number of shares of Common Stock authorized to be issued
is fifty million (50,000,000) shares. The Preferred Stock may
be issued from time to time in one or more series. The Board
of Directors is authorized to fix the number of shares of any
series of Preferred Stock and to determine the designation of
any such series. The Board of Directors is also authorized to
determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the
Board of Directors originally fixing the number of shares
constituting any series, to increase or decrease (but not
below the number of shares of such series then outstanding)
the number of shares of any such series subsequent to the
issue of shares of the series.
3. As of the date of this Certificate of Determination, no shares of
the Preferred Stock have been issued.
4. On January 29, 2003, the Board of Directors adopted the following
resolutions, fixing the number of shares constituting the Series A Preferred
Stock and determining the rights, preferences, privileges and restrictions
relating to the Series A Preferred Stock:
NOW, THEREFORE, BE IT RESOLVED, the Board of Directors hereby fixes and
determines the designation of, the number of shares constituting, and the
rights, preferences, privileges, and restrictions relating to, the Series A
Preferred Stock as follows:
(a) The number of shares constituting Series A Preferred Stock
shall be two million (2,000,000) shares.
(b) No dividend shall be paid to holders of the outstanding common
stock (the "Common Stock") of the Corporation at an annual rate greater than the
annual rate at which dividends are paid to holders of the outstanding Series A
Preferred Stock (based on the number of Series A Preferred Stock convertible
into Common Stock on the date any such dividend is declared by the Board of
Directors). Before any dividends shall be paid to holders of Common Stock of the
Corporation, such dividends shall first be paid to the holders of the
outstanding Series A Preferred Stock. Nothing in this provision shall require
the Board of Directors to declare a dividend, which determination shall stay
within the discretion of the Board of Directors, unless otherwise modified by
the Bylaws of the Corporation.
I In the event of a voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation, the holders of Series A Preferred Stock shall
be entitled to receive out of the assets of the Corporation, whether those
assets are capital or surplus of any nature, an amount equal to ninety cents
($0.90) per share of Series A Preferred Stock, and a further amount equal to any
dividends accrued and unpaid thereon, as provided in paragraph (b) above, before
any payment shall be made or any assets distributed to the holders of
outstanding Common Stock of the Corporation.
If upon any liquidation, dissolution, or winding up, the assets thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to those shareholders of the full
preferential amounts, then the entire assets of the Corporation to be
distributed shall be distributed ratably among the holders of Series A Preferred
Stock.
A merger or sale of substantially all of the assets of the Corporation
shall be deemed a liquidation for purposes of this paragraph I.
(d) The holders of Series A Preferred Stock shall have conversion
rights as follows:
(1) OPTIONAL CONVERSION. Each share of Series A Preferred
Stock shall be convertible into fully paid and non-assessable shares of
Common Stock, at the option of the holder. The total number of shares
of Common Stock into which Series A Preferred Stock may be converted
will be determined by dividing the original purchase price of ninety
cents ($0.90) per share by the Conversion Price. The initial Conversion
Price will be ninety cents ($0.90). The Conversion Price shall be
subject to adjustment from time to time as set forth in subparagraph 9,
below.
(2) OTHER CONVERSION. The Series A Preferred Stock shall be
converted into Common Stock at the conversion price then in effect upon
an affirmative vote by holders of at least two-thirds (2/3) of the
shares of Series A Preferred Stock then outstanding.
(3) MECHANICS OF OPTIONAL CONVERSION. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into
full shares of Common Stock as provided by paragraph (d)(1), such
holder shall surrender the certificate or certificates therefore, duly
endorsed, at the office of the Corporation or of any transfer agent for
the Series A Preferred Stock and shall give written notice to the
Corporation that such holder elects to convert the same.
(4) MECHANICS OF OTHER CONVERSION. In the event of a
conversion pursuant to paragraph (d)(2) above, the outstanding shares
of Series A Preferred Stock shall be converted automatically without
any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to this
Corporation or its transfer agent, and provided further that this
Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series A Preferred Stock are
either delivered to this Corporation or its transfer agent as provided
above, or the holder notifies this Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes
an agreement satisfactory to this Corporation to indemnify this
Corporation from any loss incurred by it in connection with such
certificates.
(5) EFFECTIVE DATE OF CONVERSION. Any conversion made pursuant
to paragraph (d)(1) shall be deemed to have been made immediately prior
to close of business on the date of the surrender of the shares to be
converted, or in the case of a conversion pursuant to paragraph (d)(2)
on the date of the affirmative vote, and the person entitled to receive
the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(6) FRACTIONAL SHARES ON CONVERSION. No fractional shares of
Common Stock shall be issued upon conversion of any Series A Preferred
Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled (as determined on a certificate by certificate
basis), the Corporation shall pay cash equal to such fraction
multiplied by the then effective Conversion Price.
(7) ISSUANCE OF CERTIFICATES. The Corporation shall, as soon
as practical after delivery of the converted Series A Preferred Stock
certificate(s), or such agreement and indemnification set forth above
applicable in the case of a lost, stolen or destroyed certificate,
issue and deliver at such office to such holder a certificate for the
number of shares of Common Stock to which such holder shall be entitled
and a check made payable to the holder in the amount of any cash
amounts payable as the result of conversion into fractional shares of
Common Stock.
(8) ADDITIONAL SHAREHOLDER RIGHTS. From and after the date of
conversion pursuant to paragraph (d)(2), notwithstanding that any
certificates for the shares of Series A Preferred Stock shall not have
been surrendered for conversion, the shares of Series A Preferred
evidenced thereby shall be deemed to be no longer outstanding, and all
rights with respect thereto shall cease, except for the rights of the
holder (i) to receive the shares of Common Stock to which such holder
shall be entitled upon conversion thereof, (ii) to receive the amount
of cash payable in respect of any fractional share of Common Stock to
which such holder shall be entitled, and (iii) with respect to
dividends declared but unpaid on the Series A Preferred prior to such
conversion date.
(9) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price of
Series A Preferred Stock shall be subject to adjustment from time to
time as follows:
(A) STOCK SPLIT. If the number of shares of Common
Stock outstanding at any time after the date hereof is
increased by a stock dividend payable in shares of Common
Stock, or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change
is effective, the Conversion Price of the Series A Preferred
Stock shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of any shares of
Series A Preferred Stock shall be increased in proportion to
such increase of outstanding shares.
(B) REVERSE STOCK SPLIT. If the number of shares of
Common Stock outstanding at any time after the date hereof is
decreased by a combination (e.g., reverse stock-split) of the
outstanding shares of Common Stock, then, on the effective
date of such combination, the Conversion Price of the Series A
Preferred Stock shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of any
shares of Series A Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
I REORGANIZATION. In case, at any time after the date
hereof, of any capital reorganization, or any reclassification
of the stock of this Corporation (other than as a result of a
stock dividend or subdivision, split-up or combination of
shares), or the consolidation or merger of this Corporation
with or into another person (other than a consolidation or
merger in which this Corporation is the continuing entity and
which does not result in any change in the Common Stock), the
shares of Series A Preferred Stock shall, after such
reorganization, reclassification, consolidation, merger, sale
or other disposition, be convertible into the kind and number
of shares of stock or other securities or property of the
Corporation or otherwise to which such holder would have been
entitled if immediately prior to such reorganization,
reclassification, consolidation, merger, sale or other
disposition such holder had converted its shares of Series A
Preferred Stock into Common Stock. The provisions of this
paragraph shall similarly apply to successive reorganizations,
reclassification, consolidations, mergers, sales or other
dispositions.
(D) CERTIFICATE AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the
Conversion Price for the Series A Preferred Stock, this
Corporation at its expense shall compute such adjustment or
readjustment in accordance with the terms hereof and prepare
and furnish to each holder of Series A Preferred Stock a
certificate setting forth such adjustment or readjustment and
showing the facts upon which such adjustment or readjustment
is based. This Corporation shall, upon written request of any
holder of Series A Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i)
all such adjustments and readjustments and (ii) the number of
shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the
conversion of such holder's shares of Series A Preferred
Stock.
(e) VOTING RIGHTS. The holder of each share of Series A Preferred Stock
shall have all the voting rights of holders of shares of Common Stock. The
holders of Common Stock and Preferred Stock shall vote together as a single
class, except as otherwise required by law, the Articles, or the Bylaws. A
holder of outstanding share(s) of Series A Preferred Stock will have the number
of votes equal to, for each outstanding share of Series A Preferred Stock so
held, the number of shares of Common Stock issuable upon conversion based upon
the then existing Conversion Price, provided however that no fractional shares
of stock may be voted, but instead all shares of Series A Preferred Stock for
each holder shall be added and then rounded to the nearest whole share.
(f) RESIDUAL RIGHTS. All rights accruing to the outstanding shares of
the Corporation not otherwise expressly provided for shall be vested in the
Common Stock.
(g) NOTICES. Any notice to be given to any holder of Series A Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at such holder's address
appearing on this corporation's books.
RESOLVED, FURTHER, that the President and the Secretary are each hereby
authorized to execute, verify, and file a Certificate of Determination of
Preferences in accordance with California law.
The undersigned declares under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of his own knowledge, and that this certificate was executed on January
29, 2003 at Brea, California.
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Xxxxxxx X. Xxxx, President and Secretary
EXHIBIT B
PAYMENT OF PORTION OF PURCHASE PRICE BY PURCHASER
Date of Payment Amount Paid
January 24, 2003 $50,000
February 13, 2003 $50,000
