Stock Purchase Agreement (California)

CALIFORNIA STOCK PURCHASE AGREEMENT

For the Purchase and Sale of Shares of a California Corporation

CALIFORNIA-SPECIFIC PRACTITIONER NOTES

The following provisions distinguish California stock purchase transactions from those in other states:

1. Pseudo-Foreign ("Quasi-California") Corporations — Corp. Code § 2115. A corporation incorporated outside California may nevertheless be subject to virtually all provisions of the California General Corporation Law if it meets both the "majority business presence" test (more than 50% of property, payroll, and sales factors in California) and the "majority-shareholder" test (more than 50% of outstanding voting securities held by California residents). Counsel must apply § 2115 to determine whether a non-California target is nevertheless governed by California law.

2. Share Certificate Legend Requirements — Corp. Code § 418. Under § 418(a), any restriction on transfer of shares must be conspicuously noted on the share certificate (or in the initial transaction statement for uncertificated shares) to be enforceable against a transferee without actual knowledge.

3. Dissenters' Rights — Corp. Code §§ 1300–1313. Dissenting shareholders may demand cash payment of "fair market value" for their shares in certain reorganizations. "Fair market value" is determined under § 1300(a) as of the day before the first announcement of the transaction, excluding any appreciation or depreciation in consequence of the proposed action.

4. Fairness Opinion Requirement — Corp. Code § 1203. If an "interested party" (an officer or director) is involved in the acquisition on both sides of a reorganization, an affirmative fairness opinion from an independent third party is required and must be delivered to shareholders.

5. California Corporate Securities Law of 1968 — Corp. Code § 25000 et seq. Any issuance of shares to a buyer in connection with a California-nexus transaction triggers qualification or exemption requirements. Most private placements rely on the § 25102(f) limited offering exemption with a LOEN filing (Form 260.102.14) filed within 15 days of first sale with DFPI.

6. Sale-of-Business Non-Compete Exception — Cal. Bus. & Prof. Code § 16601. California generally voids non-competes under § 16600, but § 16601 permits a seller of all or substantially all of its equity or assets (including goodwill) to agree not to carry on a similar business within a specified geographic area where the business was conducted, so long as the buyer carries on a like business there.

7. No Contractual Fraud Waivers — Cal. Civ. Code § 1668. California Civil Code § 1668 renders unenforceable any contract provision purporting to exempt a party from liability for fraud, willful injury, or violation of law.

1. PARTIES AND EFFECTIVE DATE

This Stock Purchase Agreement (this "Agreement") is entered into as of [__/__/____] (the "Effective Date") by and among:

Seller: [________________________________], a [________________________________] ("Seller");

Buyer: [________________________________], a [________________________________] ("Buyer"); and

Company: [________________________________], a California corporation (the "Company"), formed under Cal. Corp. Code § 200.

2. RECITALS AND TRANSACTION OVERVIEW

2.1 Seller owns [____________] shares of [common / preferred] stock of the Company (the "Shares"), constituting [____]% of the issued and outstanding capital stock on a fully-diluted basis.

2.2 Buyer desires to acquire, and Seller desires to sell, the Shares on the terms set forth herein.

2.3 The parties acknowledge that, to the extent the Company is a "quasi-California corporation" under Cal. Corp. Code § 2115 or otherwise subject to California law, this transaction is subject to California General Corporation Law requirements.

3. PURCHASE AND SALE OF SHARES

3.1 Purchase Price. The aggregate purchase price for the Shares is $[____________] (the "Purchase Price"), payable at Closing as follows:

(a) $[____________] in cash by wire transfer of immediately available funds;
(b) $[____________] placed in escrow under the Escrow Agreement attached as Exhibit A;
(c) $[____________] payable under the promissory note attached as Exhibit B, bearing interest at a rate not exceeding the maximum non-usurious rate permitted by California Constitution Article XV, § 1.

3.2 Stock Legend Compliance (Corp. Code § 418). Seller shall deliver to Buyer stock certificates (or book-entry evidence) representing the Shares, endorsed in blank or accompanied by duly executed stock powers. Any certificate representing the Shares shall bear legends as required by Corp. Code § 418 and applicable securities laws, including:

"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968 AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION, OR AN EXEMPTION THEREFROM."

3.3 Purchase Price Adjustment. The Purchase Price shall be adjusted at Closing based on working capital, cash, and indebtedness consistent with Schedule 3.3.

4. CLOSING

4.1 Closing Date. The closing (the "Closing") shall occur on [__/__/____] at [________________________________], California, or remotely via electronic exchange of documents.

4.2 Closing Deliverables by Seller.

☐ (a) Certificates representing the Shares endorsed in blank, with California Corp. Code § 418 legends;
☐ (b) Secretary's certificate attaching charter documents and board/shareholder resolutions;
☐ (c) Certificate of Good Standing from the California Secretary of State and Tax Clearance from the California Franchise Tax Board;
☐ (d) Third-party consents listed on Schedule 4.2;
☐ (e) Resignation letters of officers and directors as Buyer requests;
☐ (f) IRS Form W-9 and FIRPTA affidavit (if applicable);
☐ (g) Any fairness opinion required under Cal. Corp. Code § 1203, if applicable.

4.3 Closing Deliverables by Buyer.

☐ (a) Wire transfer of the cash portion of the Purchase Price;
☐ (b) Executed Escrow Agreement and Promissory Note;
☐ (c) Certified resolutions of Buyer's board authorizing the transaction;
☐ (d) LOEN / Form 260.102.14 filing confirmation, if securities of Buyer are issued as consideration.

5. SELLER REPRESENTATIONS AND WARRANTIES

Seller represents and warrants to Buyer as follows, subject to the disclosures in the Disclosure Schedule:

5.1 Organization and Good Standing. The Company is a corporation duly incorporated, validly existing, and in good standing under Cal. Corp. Code § 200 et seq., with its California franchise tax obligations under Cal. Rev. & Tax. Code § 23153 current.

5.2 Capitalization. The authorized capital stock of the Company is as set forth in its Articles of Incorporation filed with the California Secretary of State under Corp. Code § 202. All issued and outstanding shares are duly authorized, validly issued, fully paid, and non-assessable. Any preemptive rights under Corp. Code § 406 have been waived or satisfied.

5.3 Title to Shares. Seller owns the Shares of record and beneficially, free and clear of all liens, encumbrances, voting agreements, and adverse claims. Any transfer restrictions under Corp. Code § 418 have been satisfied or waived.

5.4 Authority; No Conflicts. Seller has full corporate power and authority to execute and deliver this Agreement. Execution does not conflict with Seller's organizational documents, any material contract, or California law, including applicable provisions of the California General Corporation Law and any shareholder agreement.

5.5 Section 25102(f) Securities Compliance. The Company's prior issuances of securities have complied with Cal. Corp. Code § 25110 (qualification requirement) or relied on a valid exemption, including timely filing of any required LOEN (Form 260.102.14) with DFPI.

5.6 Financial Statements. Seller has delivered to Buyer the Company's financial statements for the periods specified on Schedule 5.6, which have been prepared in accordance with GAAP.

5.7 Taxes. The Company has timely filed all federal and California Franchise Tax Board returns (Form 100 or Form 100S), and has paid all taxes shown thereon, including the $800 minimum franchise tax under Cal. Rev. & Tax. Code § 23153. The Company has no pending California sales and use tax audits (CDTFA) or employment tax audits (EDD).

5.8 Compliance with Law. The Company is in material compliance with all California laws and regulations applicable to its business, including the California Consumer Privacy Act as amended by the CPRA (Cal. Civ. Code § 1798.100 et seq.) and any industry-specific California licensing requirements.

5.9 Litigation. Except as set forth on Schedule 5.9, there are no actions pending or threatened in any California state or federal court, before the California Labor Commissioner, the California Civil Rights Department (formerly DFEH), or any other California governmental authority.

5.10 Employment Matters. The Company has complied with California wage-and-hour laws under the California Labor Code and applicable IWC Wage Orders, has properly classified employees and independent contractors under AB 5/AB 2257 (Cal. Lab. Code §§ 2775–2787), and has complied with FEHA (Cal. Gov. Code § 12900 et seq.) and WARN Act (Cal. Lab. Code § 1400 et seq.).

5.11 Environmental. The Company is in compliance with California environmental laws, including CEQA (Cal. Pub. Res. Code § 21000 et seq.), Proposition 65 (Cal. Health & Safety Code § 25249.5 et seq.), and the Porter-Cologne Water Quality Control Act.

5.12 No Undisclosed Interested-Director Transactions. Except as disclosed, there are no transactions that would require fairness opinions or approvals under Cal. Corp. Code §§ 310 (interested-director transactions) or 1203 (fairness opinions in interested-party reorganizations).

6. BUYER REPRESENTATIONS AND WARRANTIES

6.1 Organization and Authority. Buyer is duly organized and has full power to execute and perform this Agreement.

6.2 Investment Representation. Buyer is an "accredited investor" within the meaning of 17 C.F.R. § 230.501(a) and is acquiring the Shares for investment, not with a view to distribution in violation of federal or California securities laws, and has the preexisting relationship or sophistication required for any applicable § 25102(f) exemption.

6.3 Funds Available. Buyer has sufficient cash on hand or financing commitments to pay the Purchase Price at Closing.

7. COVENANTS

7.1 Interim Conduct. From the Effective Date until Closing, Seller shall cause the Company to operate only in the ordinary course and refrain from actions requiring shareholder approval under Cal. Corp. Code § 152 et seq. without Buyer's written consent.

7.2 Sale-of-Business Non-Compete (Corp. Code § 16601 Exception). Pursuant to the exception to Cal. Bus. & Prof. Code § 16600 set forth in § 16601, Seller agrees not to carry on a business similar to that of the Company within [________________________________] (the geographic area in which the Company conducts business) for a period of [____] years following Closing. Seller acknowledges this covenant is enforceable only because § 16601 specifically permits covenants incident to the sale of the goodwill of a business and the sale of ownership interest, and that outside of § 16601 such a covenant would be void under § 16600.

7.3 No Post-Employment Non-Compete. Notwithstanding Section 7.2, no post-employment non-compete is imposed on any employee of the Company, as such covenants would violate Cal. Bus. & Prof. Code § 16600 as amended by AB 1076 and SB 699 (eff. Jan. 1, 2024).

7.4 Dissenters' Rights Notice. If dissenters' rights under Cal. Corp. Code §§ 1300–1313 apply, Seller shall cooperate to ensure timely and proper notice to any shareholders entitled to demand appraisal, including the notice required by § 1301 within ten (10) days of approval of a reorganization.

7.5 Tax Clearance Certificate. Seller shall obtain from the California Franchise Tax Board a tax clearance certificate (or a certificate confirming no taxes are due) prior to or at Closing.

7.6 California Civil Rights Department / EDD Clearances. If applicable, Seller shall obtain employment tax clearance from the California Employment Development Department (EDD) pursuant to Cal. Unemp. Ins. Code § 1732.

8. CLOSING CONDITIONS

8.1 Mutual Conditions.

(a) Absence of injunction prohibiting the transaction;
(b) Receipt of all required governmental approvals;
(c) No California state court, CDFPI, DOJ, or other state agency action challenging the transaction.

8.2 Buyer's Conditions.

(a) Seller's representations accurate in all material respects;
(b) Seller's performance of covenants;
(c) No Material Adverse Effect;
(d) Delivery of all closing deliverables in Section 4.2;
(e) Receipt of any Cal. Corp. Code § 1203 fairness opinion, if applicable.

8.3 Seller's Conditions.

(a) Buyer's representations accurate;
(b) Delivery of the Purchase Price and closing deliverables.

9. INDEMNIFICATION

9.1 Seller's Indemnification. Seller shall indemnify Buyer for all Losses arising out of:

(a) breach of Seller's representations and warranties;
(b) breach of Seller's covenants;
(c) any pre-Closing taxes of the Company, including California Franchise Tax, CDTFA sales/use tax, or EDD employment tax liabilities;
(d) any California wage-and-hour PAGA claims (Cal. Lab. Code § 2698 et seq.) accruing pre-Closing.

9.2 Survival.

(a) Fundamental representations (organization, capitalization, authority, title to shares) survive for the period specified in Cal. Code Civ. Proc. § 337 (four years for written contracts) or indefinitely, as agreed.
(b) Other representations survive for [18/24] months.
(c) Tax representations survive until sixty (60) days after the expiration of the applicable statute of limitations.

9.3 Basket. Seller has no indemnification obligation until aggregate Losses exceed $[____________] (the "Basket"), after which Seller is liable for [all Losses / Losses exceeding the Basket].

9.4 Cap. Seller's aggregate liability is capped at $[____________], except for (i) breaches of fundamental representations, (ii) tax indemnification, and (iii) claims based on fraud or intentional misrepresentation, which are not capped.

9.5 No Waiver of Fraud (Cal. Civ. Code § 1668). Consistent with Cal. Civ. Code § 1668, nothing in this Agreement shall limit or exempt Seller from liability for fraud, intentional misrepresentation, willful injury, or violation of law.

10. DISSENTERS' RIGHTS UNDER CORP. CODE §§ 1300–1313

10.1 Availability. If the transaction constitutes a "reorganization" within the meaning of Cal. Corp. Code § 181 and meets the thresholds of § 1300, any shareholder entitled to vote on the transaction may demand that the Company purchase dissenting shares at their "fair market value" as of the day before the first announcement of the proposed action.

10.2 Procedure. Dissenting shareholders must (a) vote against the transaction or abstain, (b) submit a written demand within thirty (30) days after the notice required by § 1301, and (c) submit stock certificates for endorsement as dissenting shares under § 1302.

10.3 Valuation. If the Company and the dissenting shareholder cannot agree on fair market value, either may petition the Superior Court under Cal. Corp. Code § 1304 for judicial determination.

10.4 Buyer Assumption. Buyer shall pay any amounts owed to dissenting shareholders under this Section 10 up to the Purchase Price cap in Schedule 10.4.

11. GOVERNING LAW, FORUM, AND REMEDIES

11.1 Governing Law. This Agreement is governed by California law, including the General Corporation Law and the Corporate Securities Law of 1968, without regard to conflict-of-laws principles.

11.2 Exclusive Forum. The parties submit to the exclusive jurisdiction of the Superior Court of California in and for the County of [________________________________], or the U.S. District Court for the [Northern/Central/Southern/Eastern] District of California.

11.3 No Jury Waiver in State Court. The parties acknowledge that pre-dispute jury waivers are unenforceable in California state court under Grafton Partners, L.P. v. Superior Court, 36 Cal. 4th 944 (2005). Any jury waiver therefore applies only in federal court or in arbitration.

11.4 Attorneys' Fees. The prevailing party in any action to enforce this Agreement shall recover reasonable attorneys' fees and costs under Cal. Civ. Code § 1717.

11.5 Specific Performance. Each party acknowledges that the Shares are unique and monetary damages may be inadequate, and that specific performance under Cal. Civ. Code § 3387 is an available remedy.

12. GENERAL PROVISIONS

12.1 Entire Agreement. This Agreement, including all Exhibits and Schedules, constitutes the entire agreement.

12.2 Amendment. Amendments must be in writing signed by all parties.

12.3 Assignment. No party may assign without the written consent of the other parties, except Buyer may assign to an affiliate for financing purposes, provided Buyer remains liable.

12.4 Severability. Invalid provisions shall be reformed to the minimum extent necessary.

12.5 Notices. Delivered as provided in Schedule 12.5.

12.6 Electronic Signatures. Binding pursuant to Cal. Civ. Code §§ 1633.1–1633.17 (UETA).

13. SIGNATURES

SELLER:

[________________________________]

By: [________________________________]

Title: [________________________________]

Date: [__/__/____]

BUYER:

[________________________________]

By: [________________________________]

Title: [________________________________]

Date: [__/__/____]

COMPANY:

[________________________________]

By: [________________________________]

Title: [________________________________]

Date: [__/__/____]

Sources and References

• California General Corporation Law, Cal. Corp. Code § 100 et seq.: https://leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=CORP&division=&title=1.
• Cal. Corp. Code § 418 (share certificate legends): https://codes.findlaw.com/ca/corporations-code/corp-sect-418/
• Cal. Corp. Code §§ 1300–1313 (dissenters' rights): https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=CORP&division=1.&title=1.&chapter=13.
• Cal. Corp. Code § 1203 (fairness opinion requirement)
• Cal. Corp. Code § 2115 (pseudo-foreign corporation)
• Cal. Corp. Code § 25102(f) (limited offering exemption)
• Cal. Bus. & Prof. Code § 16601 (sale-of-business non-compete exception)
• Cal. Civ. Code § 1668 (no exculpation for fraud)
• California Franchise Tax Board: https://www.ftb.ca.gov/
• California Department of Financial Protection and Innovation: https://dfpi.ca.gov/
• Grafton Partners, L.P. v. Superior Court, 36 Cal. 4th 944 (2005)