1
EXHIBIT 10.4
INTERACTIVE KNOWLEDGE, INC.
FOUNDER'S STOCK PURCHASE AGREEMENT
THIS FOUNDER'S STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made by
and between Interactive Knowledge, Inc., a Delaware corporation (the "COMPANY"),
and Xxxxxxx X. Xxxxxxx and Xxxx Xxxxxxxx Xxxxxxx, joint tenants with rights of
survivorship (the "PURCHASER"), as of the 1st day of August, 1998.
WHEREAS the Purchaser is an employee, director or consultant of the
Company and the Purchaser's continued service to the Company is considered by
the Company to be important for the Company's continued growth;
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Company is willing to sell to the Purchaser
and the Purchaser desires to purchase shares of the Company's $.001 par value
common stock ("the Common Stock") according to the terms and conditions
contained herein; and
WHEREAS, the issuance of Common Stock hereunder is in connection with
and in furtherance of the Company's compensatory benefit plan for participation
of the Company's employees, directors, officers, consultants and advisors and is
intended to comply with the provisions of Rule 701 promulgated by the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act").
NOW THEREFORE, in consideration of the premises set forth herein, and
for other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. SALE OF STOCK. The Company hereby agrees to sell to the
Purchaser and the Purchaser hereby agrees to purchase an aggregate of One
Million Four Hundred Eighty-Five Thousand One Hundred Forty-Eight (1,485,148)
shares of the Company's Common Stock (the "Shares") in consideration of the
transfer of assets to, and/or the performance of services for, the Company, such
assets and/or services having a value in the aggregate amount of One Hundred
Forty-Eight Thousand Five Hundred Fourteen Dollars and Eighty Cents
($148,514.80).
2. PAYMENT OF PURCHASE PRICE. The purchase price for the Shares
has been paid by assignment to or performance for the Company, at the time of
execution of this Agreement, of the specified assets and/or services.
2
3. REPURCHASE OPTION.
(a) In the event of any voluntary or involuntary termination
of Purchaser's employment by or services to the Company for any or no reason
(including death or disability) before all of the Shares are released from the
Company's repurchase option (the "Repurchase Option") (see Section 4), the
Company shall, upon the date of such termination (as reasonably fixed and
determined by the Company) have an irrevocable, exclusive option for a period of
90 days (or such longer period of time mutually agreed to by Purchaser and the
Company) from such date to repurchase some or all of the Unreleased Shares (as
defined in Section 4) at such time at the original purchase price per share (the
"REPURCHASE PRICE").
(b) Said option shall be exercised by the Company by written
notice as provided in Section 12(a) to the Purchaser or the Purchaser's executor
and, at the Company's option, (i) by delivery to the Purchaser or the
Purchaser's executor with such notice of a check in the amount of the purchase
price for the Shares being repurchased, or (ii) by cancellation by the Company
of as amount of the Purchaser's indebtedness to the Company in an amount equal
to the purchase price for the Shares being repurchased, or (iii) by a
combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals such Repurchase Price. Upon delivery of such notice and the
payment of the purchase price by any method described above, the Company shall
become the legal and beneficial owner of the Shares being repurchased and all
rights and interests therein or relating thereto, and the Company shall have the
full right and authority to transfer on its books to its own name the number of
Shares being repurchased by the Company.
(c) Nothing in this Agreement shall affect in any manner
whatsoever the right or power of the Company, or a parent or subsidiary of the
Company, to terminate Purchaser's employment or consulting relationship, for any
reason, with or without cause.
(d) The Company may assign its rights under this Section 3.
4. RELEASE OF SHARES FROM REPURCHASE OPTION.
(a) The number of Shares to be released from the Company's
Repurchase Option is set forth in a schedule attached hereto as Exhibit A,
provided, that, in the case of a termination without cause (as defined below)
and subject to Purchaser releasing the Company of all claims of Purchaser
arising from the employment relationship (other than claims arising from wilful
misconduct by the Company), the date of cessation of employment used to
calculate the number of Shares released from the Company's Repurchase Option
shall be deemed to be a date six months after the actual date of termination,
and provided further, that, as to each incremental period resulting in the
release of Shares from such Repurchase Option, that the Purchaser's employment
or services have not been terminated prior to the date of any such release.
2
3
(b) Any of the Shares which have not yet been released from
the Company's Repurchase Option are referred to herein as "UNRELEASED SHARES."
(c) For purposes of Section 4(a), a termination without cause
shall mean (i) any action by the officers, or Board of Directors of the Company
to terminate or not to renew Purchaser's employment by the Company, other than
as a result of [A] Purchaser's refusal or failure to perform his duties as
reasonably prescribed by the officers or the Board of Directors (if such failure
or refusal is not cured within 30 days after notice thereof by the Company), [B]
a material breach by Purchaser of the Company's written policies and procedures,
or of any agreement between Purchaser and the Company, or [C] conviction of
Purchaser of a felony, or (ii) the resignation by Purchaser, or other action by
Purchaser to terminate his employment, under circumstances where there has been
a material reduction in his duties, responsibilities or position with the
Company, or where there have been actions by the Company or its officers to
create a working environment that materially impedes Purchaser's ability to
satisfy his employment obligations to the Company.
5. RESTRICTIONS ON TRANSFER.
(a) Except for the escrow described in Xxxxxxx 0, xxxx of the
Shares or any beneficial interest therein shall be transferred, encumbered or
otherwise disposed of until the release of such Shares from the Company's
Repurchase Option in accordance with the provisions of this Agreement. Any sale
or transfer, or purported sale or transfer, of securities of the Company shall
be null and void unless the terms, conditions and provisions of this Agreement
are strictly observed.
(b) The Shares may not be sold, offered for sale, pledged,
hypothecated or otherwise transferred in the absence of an effective
registration statement under the Securities Act with respect to such Shares or
an opinion of counsel reasonably acceptable to the Company that such
registration is not required. The Company shall not be required to transfer on
its books any portion of such Shares purchased hereunder which shall have been
sold or transferred in violation of any of the provisions set forth in this
Agreement, or to treat as the owner of such shares or to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
shall have been so transferred.
(c) The Purchaser hereby agrees that during the one hundred
eighty (180) day period following the effective date of a registration statement
of the Company filed under the Securities Act, the Purchaser shall not, to the
extent requested by the Company and the managing underwriter, sell or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any Shares or other securities of the Company held by Purchaser at any time
during such period except Shares included in such registration; provided, that,
all officers and directors of the Company enter into similar agreements. In
order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such one hundred eighty (180) day period.
3
4
6. ESCROW. As security for Purchaser's faithful performance of
the terms of this Agreement and to insure that the Shares will be available for
delivery upon exercise of the Repurchase Option as herein provided, Purchaser
agrees to deliver to and deposit with the Secretary of the Corporation (the
"ESCROW AGENT"), as escrow agent in this transaction, a Stock Assignment duly
endorsed (with date and number of shares blank) substantially in the form of
Exhibit B attached hereto, together with the certificate or certificates
evidencing the Shares; said documents are to be held by the Escrow Agent and
delivered by the Escrow Agent pursuant to the Joint Escrow Instructions of the
Company and Purchaser substantially in the form of Exhibit C attached hereto,
which instructions shall also be delivered to the Escrow Agent at the closing
hereunder.
7. CHANGES IN CAPITALIZATION; CONSOLIDATION; MERGER; SALE OF
ASSETS
(a) If during the term of the Repurchase Option, there is any
stock dividend or liquidating dividend of cash and/or property, stock split or
other change in the character or amount of any of the outstanding securities of
the Company, then any and all new, substituted or additional securities or other
property to which Purchaser is entitled by reason of Purchaser's ownership of
the Shares shall be immediately subject to the Repurchase Option and be included
in the word "Shares" for all purposes of the Repurchase Option with the same
force and effect under the terms of Sections 2 hereof, as the Shares subject to
the Repurchase Option. With respect to the Repurchase Option, while the total
Repurchase Price shall remain the same after each such event, the Repurchase
Price per Share upon exercise of the Repurchase Option shall be appropriately
adjusted.
(b) If during the term of the Repurchase Option there is a
Corporate Transaction (as defined below), then immediately prior to the
occurrence of such event, the Repurchase Option shall automatically lapse in its
entirety, except to the extent the Repurchase Option is to be assigned to the
successor corporation (or its parent company) in connection with such Corporate
Transaction. To the extent the Repurchase Option remains in effect following a
Corporate Transaction, the right shall apply to the new capital stock or other
property (including cash paid other than as a regular cash dividend) received in
exchange for the Shares in consummation of the Corporate Transaction, but only
to the extent the Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Option to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate price
shall remain the same.
A "CORPORATE TRANSACTION" shall mean one or more of the following
events: (i) (A) any consolidation or merger of the Company with or into any
other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the Company's
voting power immediately after such consolidation, merger or reorganization;
provided, that, the foregoing shall only be deemed a Corporate Transaction if
the stockholders of the Company or its successor immediately prior to such
consolidation, merger or reorganization;
4
5
(1) hold less than 50% of the outstanding securities of the surviving company
following the merger or consolidation or, (2) in the event that the securities
of an affiliated entity of the surviving corporation are issued to the
stockholders of the Company in the transaction, hold less than 50% of the
outstanding securities of such affiliated entity, or (B) any transaction or
series of related transactions in which in excess of fifty percent (50%) of the
Company's voting power is transferred; or (ii) a sale, lease or other
disposition of all or substantially all of the assets of the Company.
8. TAX CONSEQUENCES. The Purchaser has reviewed with the
Purchaser's own tax advisors the federal, state, local and foreign tax
consequences of this investment and the transactions contemplated by this
Agreement. The Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. The Purchaser
understands that the Purchaser (and not the Company) shall be responsible for
the Purchaser's own tax liability that may arise as a result of this investment
or the transactions contemplated by this Agreement. The Purchaser understands
that Section 83 of the Internal Revenue Code of 1986, as amended (the "CODE"),
taxes as ordinary income the difference between the amount paid for the Shares
and the fair market value of the Shares as of the date any restrictions on the
Shares lapse. In this context, "restriction" includes the right of the Company
to buy back the Shares pursuant to its Repurchase Option. Purchaser understands
that Purchaser may elect to be taxed at ordinary income rates on the difference,
if any, between the amount paid for the Shares and the fair market value of the
Shares at the time the Shares are purchased, rather than when and as the
Repurchase Option lapses, by filing an election under Section 83(b) of the Code
with the Internal Revenue Service within thirty (30) days from the date of
purchase. Even if the fair market value of the Shares equals the amount paid for
the Shares, the election must be made to avoid taxation as the restrictions
expire. After Purchaser files an election under Section 83(b), any subsequent
increase in the fair market value of the Shares will not be taxed as the
restrictions expire, and any gain thereafter realized on the sale of the Share
will be taxed as capital gain. Purchaser further understands that if Purchaser
files such an election under Section 83(b) of the Code, and the Company
subsequently exercises the Repurchase Option with regard to all or part of the
Shares, Purchaser might not be eligible to claim a loss deduction in the amount
of taxable income which was previously recognized, or the amount of tax paid, as
a consequence of the election under Section 83(b) with regard to the Shares
repurchased. PURCHASER UNDERSTANDS THAT FAILURE TO MAKE THIS FILING IN A TIMELY
MANNER WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME BY PURCHASER, AS THE
REPURCHASE OPTION LAPSES, ON ANY DIFFERENCE BETWEEN THE PURCHASE PRICE AND THE
FAIR MARKET VALUE OF THE STOCK AT THE TIME SUCH RESTRICTIONS LAPSE.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S OR THE COMPANY'S COUNSEL TO FILE TIMELY THE
ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF.
9. PURCHASER REPRESENTATIONS. In connection with the purchase of
the Shares, Purchaser represents to the Company the following:
5
6
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for Purchaser's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act. Purchaser also represents that the
entire legal and beneficial interest of the Shares is being purchased, and will
be held, for Purchaser's own account.
(b) Purchaser understands that the Shares have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
Shares must be held indefinitely unless the Shares are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser further acknowledges and understands that the Company is under no
obligation to register the Shares. Purchaser understands that the certificate
evidencing the Shares will be imprinted with a legend which prohibits the
transfer of the Shares unless the Shares are registered or such registration is
not required in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and
701 under the Securities act, as in effect from time to time, which, in
substance, permit limited public resale of "restricted securities" acquired,
directly or indirectly, from the issuer thereof (or from an affiliate of such
issuer), in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of issuance of the securities, such issuance will be exempt from
registration under the Securities Act. In the event the Company becomes subject
to the reporting requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the securities exempt under Rule 701 may be sold by
Purchaser ninety (90) days thereafter.
In the event that the sale of the Shares does not
qualify under Rule 701 at the time of purchase, then the Shares may be resold by
Purchaser in certain limited circumstances subject to the provisions of Rule
144, which requires, among other things: (i) the availability of certain public
information about the Company and (ii) the resale occurring following the
required holding period under Rule 144 after the Purchaser has purchased, and
made full payment of (within the meaning of Rule 144), the securities to be
sold.
(e) Purchaser further understands that at the time Purchaser
wishes to sell the Shares there may be no public market upon which to make such
a sale, and that, even if such a public market then exists, the Company may not
be satisfying the current public current information requirements of Rule 144 or
701, and that, in such event, Purchaser would be precluded from selling the
Shares under Rule 144 or 701 even if the minimum holding period requirement had
been satisfied.
6
7
10. RESTRICTIVE LEGENDS. All certificates representing the Shares
shall have endorsed thereon legends in substantially the following forms:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A REPURCHASE OPTION SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER, OR ITS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THE CORPORATION. ANY TRANSFER OR ATTEMPTED TRANSFER OF
ANY SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN
CONSENT OF THE CORPORATION."
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS
ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.
(d) Any legend required to be placed thereon by appropriate
Blue Sky officials.
11. STOCKHOLDER RIGHTS. Subject to the provisions of Section 5
above, Purchaser (but not any unapproved transferee) shall, during the term of
this Agreement, exercise all rights and privileges of a stockholder of the
Company with respect to the Company deposited in said escrow.
12. MISCELLANEOUS.
(a) NOTICES. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal delivery
or sent by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at his address hereinafter shown below or at such other
address as such party may designate by ten (10) days' advance written notice to
the other party hereto.
(b) SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns,
7
8
heirs, executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the Shares
from time to time.
(c) GOVERNING LAW; VENUE. This Agreement shall be governed by
and construed in accordance with the laws of the State of Colorado. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
(d) ENTIRE AGREEMENT; AMENDMENT; FURTHER EXECUTION. This
Agreement constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes and merges all prior agreements or
understandings, whether written or oral. This Agreement may not be amended,
modified or revoked, in whole or in part, except by an agreement in writing
signed by each of the parties hereto. The parties agree to take all such further
action as may reasonably be necessary to carry out the intent of this Agreement.
(e) SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, portions of such provisions,
or such provisions in their entirety, to the extent necessary, shall be severed
from the Agreement, and the balance of the Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms.
(f) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) REVIEW OF AGREEMENT. Purchaser has reviewed this Agreement
in its entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Agreement and fully understands all provisions of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
9
IN WITNESS WHEREOF, the parties have duly executed this Founder's Stock
Purchase Agreement as of the day and year first set forth above.
INTERACTIVE KNOWLEDGE, INC. PURCHASER:
By: /s/ XXXXXXX X. XXXXXXX Xxxxxxx X. Xxxxxxx and Xxxx Gulfstrom
----------------------------------- Xxxxxxx, joint tenants with rights
Xxxxxxx X. Xxxxxxx, President of survivorship
Address: 0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
/s/ XXXXXXX X. XXXXXXX
-------------------------------------
Xxxxxxx X. Xxxxxxx
/s/ XXXX XXXXXXXX XXXXXXX
-------------------------------------
Xxxx Gulfstrom Xxxxxxx
10
EXHIBIT A
SCHEDULE OF RELEASE OF SHARES FROM REPURCHASE OPTION
PERCENT OF SHARES RELEASED
IF CESSATION OF EMPLOYMENT OCCURS BEFORE: FROM REPURCHASE OPTION:
September 1, 1998 33.3333% of the Shares
October 1, 1998 36.1111% of the Shares
November 1, 1998 38.8889% of the Shares
December 1, 1998 41.6667% of the Shares
January 1, 1999 44.4445% of the Shares
February 1, 1999 47.2223% of the Shares
March 1, 1999 50.0001% of the Shares
April 1, 1999 52.7778% of the Shares
May 1, 1999 55.5557% of the Shares
June 1, 1999 58.3335% of the Shares
July 1, 1999 61.1113% of the Shares
August 1, 1999 63.8891% of the Shares
September 1, 1999 66.6667% of the Shares
October 1, 1999 69.4445% of the Shares
November 1, 1999 72.2223% of the Shares
December 1, 1999 75.0001% of the Shares
January 1, 2000 77.7777% of the Shares
February 1, 2000 80.5555% of the Shares
March 1, 2000 83.3335% of the Shares
April 1, 2000 86.1113% of the Shares
May 1, 2000 88.8891% of the Shares
June 1, 2000 91.6669% of the Shares
July 1, 2000 94.4447% of the Shares
August 1, 2000 97.2225% of the Shares
September 1, 2000 100% of the Shares
A-1
