CLASS A PREFERRED SHARE PURCHASE AGREEMENT
This document is based on the NVCA document entitled “SeriesA Preferred Stock Purchase Agreement”. The CVCA gratefully acknowledges the NVCA for granting permission to use this document in Canada.
A blackline of this document to the NVCA document and a conversion guide describing the general drafting changes that have been made are also available from the CVCA website.
The Canadian version of this document was created by the CVCA Model Documents Working Group comprised of Gary Solway and Jesslyn Maurier of Bennet Jones LLP, Mireille Fontaine of Gowling Lafleur Henderson LLP, Ed Vandenberg of Osler, Hoskin & Harcourt LLP, Pascal de Guise of Borden Ladner Gervais LLP, and Brian Lenihan of Choate Hall & StewartLLP. The lead author on this document is Mireille Fontaine () with the collaboration of KarenAguilar ().
Disclaimer: This model document is for informational purposes only and is not to be construed as legal advice for any particular facts or circumstances. This document is provided "as is", without any warranty, either express or implied, and without liability. This document is intended to serve as a starting point only, and must be tailored to meet your specific requirements.
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LIBC/5000827.6
Preliminary Note
The Share Purchase Agreement sets forth the basic terms of the purchase and sale of the preferred shares to the investors (such as the purchase price, closing date, conditions to closing) and identifies the other financing documents. Generally this agreement does not set forth either (1)the characteristics of the shares being sold (which are defined in the Articles of Incorporation) or (2)the relationship among the parties after the closing, such as registration rights, rights of first refusal and co-sale, voting arrangements (these matters often implicate other persons than just the Corporation[1] and the investors in this round of financing, and are usually embodied in separate agreements to which those others persons are parties, or in some cases by the Articles of Incorporation). The main items of negotiation in the Share Purchase Agreement are therefore the price and number of shares being sold, and the representations and warranties that the Corporation, and sometimes the Founders as well, must make to the investors.
TABLE OF CONTENTS
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TABLE OF CONTENTS
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1.Purchase and Sale of Preferred Shares.
1.1.Sale and Issuance of ClassA Preferred Shares.
1.2.Closing; Delivery.
1.3.Sale of Additional Preferred Shares.
1.4.[Use of Proceeds
1.5.Defined Terms Used in this Agreement
2.Representations and Warranties of the Corporation
2.1.Organization, Good Standing, Corporate Power and Qualification
2.2.Capitalization.
2.3.Subsidiaries
2.4.Authorization
2.5.Valid Issuance of Shares
2.6.Governmental Consents and Filings
2.7.[Competition Act.
2.8.Litigation
2.9.Intellectual Property
2.10.Compliance with Other Instruments
2.11.Agreements; Actions
2.12.Certain Transactions
2.13.Rights of Registration and Voting Rights
2.14.Property
2.15.Financial Statements
2.16.Changes
2.17.Employee Matters
2.18.Tax Returns and Payments
2.19.Insurance
2.20.Employee Agreements
2.21.Permits
2.22.Corporate Documents
2.23.Environmental and Safety Laws
2.24.Canadian-Controlled Private Corporation.
2.25.Disclosure
2.26.[Corruption of Foreign Public Officials Act
2.27.[Data Privacy
3.Representations and Warranties of the Purchasers
3.1.Authorization
3.2.Purchase Entirely for Own Account, as principal
3.3.Investment Canada Act.
3.4.Disclosure of Information
3.5.Restricted Securities.
3.6.Risks of Investment.
3.7.Foreign Investors
3.8.No General Solicitation
3.9.Exculpation Among Purchasers
3.10.Residence
3.11.[Consent to Promissory Note Conversion and Termination
4.Conditions to the Purchasers’ Obligations at Closing
4.1.Representations and Warranties
4.2.Performance
4.3.Compliance Certificate
4.4.Qualifications
4.5.Opinion of Corporation Counsel
4.6.Board of Directors
4.7.Indemnification Agreement
4.8.Investors’ Rights Agreement
4.9.Right of First Refusal and CoSale Agreement
4.10.Voting Agreement
4.11.Restated Articles
4.12.Secretary’s Certificate
4.13.Proceedings and Documents
4.14.Minimum Number of Shares at Initial Closing
4.15.Management Rights
4.16.[Preemptive Rights
5.Conditions of the Corporation’s Obligations at Closing
5.1.Representations and Warranties
5.2.Performance
5.3.Qualifications
5.4.Investors’ Rights Agreement
5.5.Right of First Refusal and CoSale Agreement
5.6.Voting Agreement
5.7.[Minimum Number of Shares at Initial Closing
6.Miscellaneous.
6.1.Survival of Warranties
6.2.Successors and Assigns
6.3.Governing Law
6.4.Counterparts
6.5.Titles and Subtitles
6.6.Notices
6.7.No Finder’s Fees
6.8.Fees and Expenses
6.9.[Attorneys’ Fees
6.10.Amendments and Waivers
6.11.Severability
6.12.Delays or Omissions
6.13.Entire Agreement
6.14.Dispute Resolution
6.15.[No Commitment for Additional Financing
6.16.[Waiver of Conflicts
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ADDENDUM TO SHARE PURCHASE AGREEMENT: SAMPLE FOUNDER REPRESENTATIONS AND WARRANTIES
1
CLASS A PREFERRED SHARE PURCHASE AGREEMENT
THIS CLASSA PREFERRED SHARE PURCHASE AGREEMENT (this“Agreement”), is made as of the [__] day of [______, 20_] among [______], a corporation incorporated under the [Canada Business Corporations Act][NTD: To be adjusted if a provincial act is the governing law of the Corporation.] (the “Corporation”), the investors listed on ExhibitA attached to this Agreement (each a “Purchaser” and together the “Purchasers”) [and the persons listed as “Founders” on the signature pages to this Agreement (each a “Founder” and together the “Founders”)].
The parties hereby agree as follows:
1.Purchase and Sale of Preferred Shares.
1.1.Sale and Issuance of ClassA Preferred Shares.
(a)The Corporation shall adopt and file with the [director of Industry Canada] on or before the Initial Closing[2] (as defined below) the Amended and Restated Articles of Incorporation in the form of ExhibitB attached to this Agreement (the“RestatedArticles”).[3]
(b)Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Closing and the Corporation agrees to sell and issue to each Purchaser at the Closing that number of ClassA Preferred Shares, $ [__] per share (the“Class A Preferred Shares”), set forth opposite each Purchaser’s name on ExhibitA, at a purchase price of $[__] per share. The ClassA Preferred Shares issued to the Purchasers pursuant to this Agreement (including any shares issued at the Initial Closing and any [Milestone Shares or] Additional Shares, as defined below) are referred to in this Agreement as the “Shares.”
1.2.Closing; Delivery.
(a)Theinitial purchase and sale of the Shares shall take place remotely via the exchange of documents and signatures, at [____] [_].m., on [______, 20_], or at such other time and place as the Corporation and the Purchasers mutually agree upon, orally or in writing (which time and place are designated as the “Initial Closing”).[4] If there is more than one closing, the term “Closing” applies to each such closing unless otherwise specified.
(b)At each Closing, the Corporation shall deliver to each Purchaser a certificate representing the Shares being purchased[5] by such Purchaser at such Closing against payment of the purchase price therefor by cheque payable to the Corporation, by wire transfer to a bank account designated by the Corporation, by cancellation or conversion of indebtedness of the Corporation to Purchaser[, including interest[6]], or by any combination of such methods.
1.3.Sale of Additional Preferred Shares.
(a)After the Initial Closing, the Corporation may sell, on the same terms and conditions as those contained in this Agreement[7], up to [______] additional shares (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or similar recapitalization affecting such shares) of ClassA Preferred Shares (the “Additional Shares”), to one or more purchasers (the “Additional Purchasers”) [reasonably acceptable to Purchasers holding a [specify percentage] of the then outstanding Shares[8]], provided that (i)such subsequent sale is consummated prior to [90] days after the Initial Closing (ii)each Additional Purchaser shall become a party to the Transaction Agreements (as defined below) (other than the Management Rights Letter), by executing and delivering a counterpart signature page to each of the Transaction Agreements[; and (iii)[______], counsel for the Corporation, provides an opinion dated as of the date of such Closing that the offer, issuance, sale and delivery of the Additional Shares to the Additional Purchasers is exempt from the prospectus requirements under the [______][9], as amended, or any other Securities Laws]. ExhibitAto this Agreement shall be updated to reflect the number of Additional Shares purchased at each such Closing and the parties purchasing such Additional Shares.
(b)[After the Initial Closing, the Corporation shall sell, and the Purchasers shall purchase, on the same terms and conditions as those contained in this Agreement, up to [______] additional ClassA Preferred Shares (the“Milestone Shares”),in proportion to the number of Shares being purchased by each such Purchaser at all prior Closings, on the certification by the [Board] [Purchasers] that the events specified in ExhibitJ attached to this Agreement have occurred (the “Milestone Events”). The date of the purchase and sale of the Milestone Shares are referred to in this Agreement as the “Milestone Closing.”[10]]
1.4.[Use of Proceeds
. In accordance with the directions of the Corporation’s Board of Directors, as constituted in accordance with the Voting Agreement, the Corporation will use the proceeds from the sale of the Shares for product development and other general corporate purposes.]
1.5.Defined Terms Used in this Agreement
. In addition to the terms defined above, the following terms used in this Agreement have the meanings set forth or referenced below.
(a)“Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including, without limitation, any general partner, managing member, officer or director of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person.
(b)“Corporation Intellectual Property” means all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, tradenames, copyrights, trade secrets, domain names, mask works, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, licenses in, to and under any of the foregoing, and any and all such cases [that are owned or used by] [as are necessary to] the Corporation in the conduct of the Corporation’s business as now conducted and as presently proposed to be conducted.
(c)“Indemnification Agreement” means the agreement between the Corporation and the director [and Purchaser Affiliates][11] designated by any Purchaser entitled to designate a member of the Board of Directors pursuant to the Voting Agreement, dated as of the date of the Initial Closing, in the form of ExhibitD attached to this Agreement.
(d)“Investors’ Rights Agreement” means the agreement among the Corporation and the Purchasers[12] [and certain other shareholders of the Corporation] dated as of the date of the Initial Closing, in the form of ExhibitE attached to this Agreement.
(e)“Key Employee” means any executive-level employee (including division director and vice president-level positions) as well as any employee or consultant who either alone or in concert with others develops, invents, programs or designs any Corporation Intellectual Property.[13]
(f)“Knowledge” including the phrase “to the Corporation’s knowledge” means the actual knowledge [after reasonable investigation] of the following officers: [specify names].[14]
(g)“Management Rights Letter” means the agreement between the Corporation and [Purchaser], dated as of the date of the Initial Closing, in the form of ExhibitF attached to this Agreement.
(h)“Material Adverse Effect” means a material adverse effect on the business, assets (including intangible assets), liabilities, financial condition, property, prospects[15]or results of operations of the Corporation.
(i)“Person” means any individual, corporation, partnership, trust, limited liability company, association or other entity.
(j)“Purchaser” means each of the Purchasers who is initially a party to this Agreement and any Additional Purchaser who becomes a party to this Agreement at a subsequent Closing under Subsection1.2(b).
(k)“Right of First Refusal and Co-Sale Agreement” means the agreement among the Corporation, the Purchasers, and certain other shareholders of the Corporation, dated as of the date of the Initial Closing, in the form of ExhibitG attached to this Agreement.
(l)“Securities Laws” means the [______][16], as amended, and the policies, orders, instructions, rules and regulations promulgated thereunder.
(m)“Shares” means the Class A Preferred Shares issued at the Initial Closing and any [Milestone Shares or] Additional Shares issued at a subsequent Closing under Subsection1.2(b).
(n)“Tax Act” means the Income Tax Act (Canada), as amended.
(o)“Transaction Agreements” means this Agreement, the Investors’ Rights Agreement, the Management Rights Letter, the Right of First Refusal and Co-Sale Agreement, the Voting Agreement and [list any other agreements, instruments or documents entered into in connection with this Agreement].
(p)“Voting Agreement” means the agreement among the Corporation, the Purchasers and certain other shareholders of the Corporation, dated as of the date of the Initial Closing, in the form of ExhibitH attached to this Agreement.
2.Representations and Warranties of the Corporation
. The Corporation hereby represents and warrants to each Purchaser that, except as set forth on the Disclosure Schedule attached as ExhibitC to this Agreement, which exceptions are deemed to be part of the representations and warranties made hereunder, the following representations are true and complete as of the date of the Initial Closing, except as otherwise indicated. The Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections and subsections contained in this Section2, and the disclosures in any section or subsection of the Disclosure Schedule shall qualify other sections and subsections in this Section2 only if it is readily apparent from a reading of the disclosure that such disclosure is applicable to such other sections and subsections.[17]
For purposes of these representations and warranties (other than those in Subsections2.2, 2.3, 2.4, 2.5, and 2.6, the term the “Corporation” includes any subsidiaries of the Corporation, unless otherwise noted.
2.1.Organization, Good Standing, Corporate Power and Qualification
.[18] The Corporation is a corporation duly organized, validly existing and in good standing under the [Canada Business Corporations Act] and has all requisite corporate power and authority to carry on its business as presently conducted and as proposed to be conducted. The Corporation 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.
2.2.Capitalization.[19]
(a)The authorized capital of the Corporation consists, immediately prior to the Initial Closing, of:
(i)[______] common shares, $[____] per share (the“Common Shares”), [______] shares of which are issued and outstanding immediately prior to the Initial Closing. All of the outstanding Common Shares have been duly authorized, are fully paid and nonassessable and were issued in compliance with all Securities Laws.
(ii)[______] Preferred Shares, of which [______] shares have been designated ClassA Preferred Shares, noneof which are issued and outstanding immediately prior to the Initial Closing. The rights, privileges and preferences of the Preferred Shares are as stated in the Restated Articles and as provided by the [Canada Business Corporations Act] [NTD: To be adjusted if a provincial act is the governing law of the Corporation.].
(b)The Corporation has reserved [______] Common Shares for issuance to officers, directors, employees and consultants of the Corporation pursuant to its [Plan Year] Stock [Option] Plan duly adopted by the Board of Directors and approved by the Corporation shareholders (the “Stock Plan”). Of such reserved Common Shares, [______] shares have been issued pursuant to restricted share purchase agreements, options to purchase [______] shares have been granted and are currently outstanding, and [______] Common Shares remain available for issuance to officers, directors, employees and consultants pursuant to the Stock Plan. The Corporation has furnished to the Purchasers complete and accurate copies of the Stock Plan and forms of agreements used thereunder.
(c)Subsection2.2(b) of the Disclosure Schedule sets forth the capitalization of the Corporation immediately following the Initial Closing including the number of shares of the following: (i)issued and outstanding Common Shares, including, with respect to restricted Common Shares, vesting schedule and repurchase price; (ii)granted share options, including vesting schedule and exercise price; (iii)Common Shares reserved for future award grants under the Stock Plan; (iv)each class of Preferred Shares; and (v)warrants or share purchase rights, if any.[20] Except for (A) the conversion privileges of the Shares to be issued under this Agreement, (B) the rights provided in Section4 of the Investors’ Rights Agreement, and (C) the securities and rights described in Subsection2.2(a)(ii) of this Agreement and Subsection2.2(b) of the Disclosure Schedule, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from the Corporation any Common Shares or ClassA Preferred Shares, or any securities convertible into or exchangeable for Common Shares or ClassA Preferred Shares. All outstanding shares of the Corporation’s Common Shares and all shares of the Corporation’s Common Shares underlying outstanding options are subject to (i)a right of first refusal in favour of the Corporation upon any proposed transfer (other than transfers for estate planning purposes); and (ii)a lock-up or market standoff agreement of not less than 180days following the Corporation’s initial public offering pursuant to a prospectus receipt issued by a Canadian securities regulator under the Securities Laws.