EXHIBIT 10.18
STOCK PURCHASE AND RESTRICTION AGREEMENT
This Stock Purchase and Restriction Agreement is made as of the 28th
day of January, 1994, by and among M. Xxxxxxxx Xxxxxxx ("Xxxxxxx"), Pilot
Network Services, Inc., a California Company (the "Company") and the undersigned
holders of the Company's Preferred Stock (the "Investors"). Xxxxxxx is an
employee, officer and director of the Company.
In consideration of the mutual covenants set forth herein, intending
to be legally bound, the parties hereto agree as follows:
1. Certain Definitions.
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a. "Common Stock" shall mean the Company's Common Stock and shares
of Common Stock issued or issuable upon conversion of the Company's Preferred
Stock.
b. "Preferred Stock" shall mean the Company's outstanding Series A,
Series B and Series C Preferred Stock.
c. "Purchased Shares" shall mean the Common Stock purchased by
Xxxxxxx pursuant to Section 2 of this Agreement.
d. "Xxxxxxx Shares" shall mean shares of the Company's Common Stock
now owned or subsequently acquired by Xxxxxxx.
e. "Unvested Shares" shall mean the Common Stock owned by Xxxxxxx
subject to the Company's Repurchase Right as set forth in Section 3 of this
Agreement.
2. Purchase by Xxxxxxx.
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a. Purchase. Xxxxxxx hereby agrees to purchase from the Company, and
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the Company hereby agrees to sell to Xxxxxxx, 200,000 shares of Common Stock
(the "Purchased Shares") at a purchase price of $.001 per share for a total
purchase price of $200 (the "Purchase Price").
b. Payment. Concurrently with the execution of this Agreement,
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Xxxxxxx shall pay the Purchase Price to the Company either in cash or by check
or wire transfer. Xxxxxxx shall also deliver to the Secretary of the Company a
duly executed blank Assignment Separate from Certificate (in the form attached
hereto as Exhibit A) and any additional
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documents required by the Company as a condition for the purchase.
c. Delivery of Certificate. The certificate representing the
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Purchased Shares shall be held in escrow by the Company as provided in Section 5
of this Agreement.
d. Exemption from Registration. The Purchased Shares have not been
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registered under the Securities Act of 1933, as amended (the "Securities Act"),
and are being issued to Xxxxxxx in reliance upon the exemption from such
registration.
e. Restricted Securities. Xxxxxxx hereby confirms that Xxxxxxx has
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been informed that the Purchased Shares are restricted securities under the
Securities Act and may not be resold or transferred unless the Purchased Shares
are first registered under the federal securities laws or unless an exemption
form such registration is available. Accordingly, Xxxxxxx hereby acknowledges
that Xxxxxxx is prepared to hold the Purchased Shares for an indefinite period
and that Xxxxxxx is aware that Rule 144 of the SEC issued under the Securities
Act is not presently available to exempt the sale of the Purchased Shares from
the registration requirements of the Securities Act. Xxxxxxx is aware of the
adoption of Rule 144, which permits limited public resale of securities acquired
in a nonpublic offering, subject to the satisfaction of certain conditions.
Xxxxxxx understands that under Rule 144, the conditions include, among other
things: the availability of certain current public information about the issuer,
the resale occurring not fewer than two years after the party has purchased and
paid for the securities to be sold, the sale being through a broker in an
unsolicited "broker's transaction" and the amount of the securities being sold
during any three-month period not exceeding specified limitations. Prior to her
acquisition of the Purchased Shares, Xxxxxxx acquired sufficient knowledge of
the Company to reach an informed decision to acquire the Purchased Shares.
Xxxxxxx has such knowledge and experience in financial and business matters as
to make her capable of utilizing such information to evaluate the risks of the
prospective investments and to make an informed investment decision. Xxxxxxx is
able to bear the economic risk of her investment in the Purchased Shares.
Xxxxxxx agrees not to make, without the prior written consent of the Company,
any public offering or sale of the Purchased Shares although permitted to do so
under Rule 144(k), until the earlier of the effective date of the Company's
initial registered public offering pursuant to the Securities Act or the date
the Company becomes a registered company pursuant to Section 12(g) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act").
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f. Restrictive Legends. In order to reflect the restrictions on
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disposition of the Purchased Shares pursuant to this Section, the Company shall
endorse the stock certificate for the Purchased Shares with the appropriate
restrictive legends.
g. Shareholder Rights. Unless and until the Company actually
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exercises its repurchase rights under Section 3 of this Agreement, Xxxxxxx (or
any permitted successor in interest) shall have all the rights of a shareholder
(including voting and dividend rights) with respect to the Purchased Shares,
subject to the transfer restrictions set forth below.
h. Section 83(b) Election. Xxxxxxx understands that under Section 83
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of the Internal Revenue Code of 1986, as amended (the "Code"), the difference
between the Purchase Price paid for the Purchased Shares and their fair market
value on the date any forfeiture restrictions applicable to such shares lapse
will be reportable as ordinary income at that time. For this purpose, the term
"forfeiture restrictions" includes the right of the Company to repurchase the
Purchased Shares pursuant to the Repurchase Right set forth in Section 3 below.
Xxxxxxx understands that she may elect to be taxed at the time the Purchased
Shares are acquired hereunder to the extent the fair market value of the
Purchased Shares differs from the Purchase Price rather than when and as such
Purchased Shares cease to be subject to such forfeiture restrictions, by filing
an election under Section 83(b) of the Code with the I.R.S. within thirty (30)
days after the date of purchase hereunder. If the fair market value of the
Purchased Shares at the date of purchase equals the Purchase Price paid (and
therefore no tax is payable), the election must be made to avoid adverse tax
consequences in the future. Xxxxxxx understands that failure to make this filing
within the thirty (30) day period will result in the recognition of ordinary
income by Xxxxxxx (in the event the fair market value of the Purchased Shares
increases after the date of purchase) as the forfeiture restrictions lapse.
XXXXXXX ACKNOWLEDGES THAT IT IS XXXXXXX'X SOLE RESPONSIBILITY, AND NOT THE
COMPANY'S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN IF XXXXXXX
REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HER BEHALF.
XXXXXXX IS RELYING SOLELY ON HER ADVISOR'S WITH RESPECT TO THE DECISION AS TO
WHETHER OR NOT TO FILE AN 83(b) ELECTION.
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i. Transfer Restrictions.
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(i) Xxxxxxx shall not transfer, assign, encumber, or otherwise
dispose of any of the Purchased Shares that are subject to the Company's
Repurchase Right set forth in Section 3 below, in contravention to any rights of
first refusal set forth in Section 4 below, or without first complying with the
co-sale provisions set forth in Section 6 below. Such restrictions on transfer,
however, shall not apply to a transfer to Xxxxxxx'x spouse or issue or to a
trust for the exclusive benefit of Xxxxxxx or her spouse or issue.
(ii) Each person (other than the Company) to whom Purchased
Shares are transferred by one of the permitted means in Subsection i(i) above,
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Company that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to the Company's
Repurchase Right, the rights of first refusal and the co-sale rights contained
in this Agreement to the same extent such shares would be subject if retained by
Xxxxxxx.
j. Consent to Issuance. Each party to this Agreement hereby agrees
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and consents to the terms set forth in Section 2 of this Agreement, including,
without limitation, the issuance of the Purchased Shares to Xxxxxxx on the terms
and for the Purchase Price set forth herein.
3. Repurchase Right.
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x. Xxxxx. The Company is hereby granted the right (the "Repurchase
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Right"), exercisable at any time during the sixty (60) day period following the
date Xxxxxxx ceases for any reason to be an Employee (as defined below) to the
Company to repurchase, at $.001 per share (the "Repurchase Price"), up to
275,000 shares of Common Stock (consisting of the Purchased Shares and 75,000
additional shares of Common Stock owned by Xxxxxxx prior to the date hereof (the
"Other Shares") which Xxxxxxx agrees will be subject to the vesting provisions
of Subsection 3(c) (the Purchased Shares and the Other shares to be hereinafter
called the "Unvested Shares"). For purposes of this Agreement, Xxxxxxx shall be
deemed to be an "Employee" of the Company for so long as Xxxxxxx renders
services to the Company, whether as an officer or employee of the Company.
b. Exercise of the Repurchase Right. The Repurchase Right shall be
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exercisable in regard to the Unvested Shares by written notice delivered to
Xxxxxxx prior to the expiration of the applicable sixty (60) day period
specified in Subsection 3(a). The notice shall indicate the number of Unvested
Shares to be repurchased and the date on which the repurchase is to be effected,
such date to be not
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more than thirty (30) days after the date of notice. To the extent one or more
certificates representing Unvested Shares are not in escrow, then Xxxxxxx shall,
prior to the close of business on the date specified for the repurchase, deliver
to the Company the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The Company
shall, concurrently with the receipt of such stock certificates (either from
escrow in accordance with Section 5 or from Xxxxxxx as herein provided), pay to
Xxxxxxx in cash or cash equivalents (including the cancellation of any purchase-
money indebtedness), an amount equal to the Repurchase Price for the Unvested
Shares that are to be repurchased.
c. Termination of the Repurchase Right.
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(i) The Repurchase Right shall terminate with respect to any
Unvested Shares for which it is not timely exercised under Subsection 3(b). In
addition, the Repurchase Right shall terminate, and cease to be exercisable,
with respect to any and all Unvested Shares in which Xxxxxxx vests in accordance
with the schedule below. Accordingly, provided Xxxxxxx continues to be a
Employee to the Company, Xxxxxxx shall acquire a vested interest in, and the
Repurchase Right shall lapse with respect to, the Unvested Shares in accordance
with the following provisions:
(x) Xxxxxxx shall not acquire any vested interest in, nor
shall the Repurchase Right lapse with respect to, any Unvested Shares during the
initial twelve (12) month period measured from January 1, 1994 (the "Vesting
Measurement Date").
(y) Upon the expiration of the initial twelve (12) month
period measured from the Vesting Measurement Date, Xxxxxxx shall acquire a
vested interest in, and the Repurchase Right shall lapse with respect to, that
number of Unvested Shares equal to twenty-five percent (25%) of the Unvested
Shares.
(z) From and after the expiration of the initial twelve
(12) month period measured from the Vesting Measurement Date, Xxxxxxx shall
acquire a vested interest in, and the Repurchase Right shall lapse with respect
to, the remaining Unvested Shares in a series of successive monthly installments
each equal to two and eight one-hundreds percent (2.08%) of the Unvested Shares.
(ii) All Unvested Shares as to which the Repurchase Right lapses
shall, however, continue to be subject to (i) the rights of refusal of the
Company, its assignees and
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the Investors under Section 4 hereof and (ii) the co-sale provisions contained
in Section 5 hereof.
d. Fractional Shares. No fractional shares shall be repurchased by
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the Company. Accordingly, should the Repurchase Right extend to a fractional
share (in accordance with the vesting computation provisions of Subsection 3(c))
at the time Xxxxxxx ceases to be a Employee, then such fractional share shall be
added to any fractional share in which Xxxxxxx is at such time vested in order
to make one whole vested share no longer subject to the Repurchase Right.
e. Additional Shares or Substituted Securities. In the event of any
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stock dividend, stock split, recapitalization or other change affecting the
Company's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Unvested
Shares shall be immediately subject to the Repurchase Right, but only to the
extent the Unvested Shares are at the time covered by such right. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number of Unvested Shares hereunder and to the price per share to be
paid upon the exercise of the Repurchase Right in order to reflect the effect of
any such transaction upon the Company's capital structure; provided, however,
that the aggregate Repurchase Price shall remain the same.
f. Legend. In addition to the legends which may be required by
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Sections 2, 4 and 6 of this Agreement, all certificates representing Unvested
Shares subject to the Company's Right of Repurchase may be endorsed with the
following legend (or a similar legend):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED
OF EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN
AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF
THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES).
SUCH AGREEMENT GRANTS CERTAIN REPURCHASE RIGHTS TO THE
COMPANY UPON TERMINATION OF EMPLOYMENT WITH THE COMPANY. THE
SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A
COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."
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4. Right of First Refusal.
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x. Xxxxx. The Company is hereby granted the right of first refusal
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(the "First Refusal Right"), exercisable in connection with any proposed sale or
other transfer of any of the Xxxxxxx Shares (as defined in Section 1) in which
Xxxxxxx has vested in accordance with the vesting provisions of Section 3, or to
which the provisions of Section 3 are inapplicable. For purposes of this Section
4, the term "transfer" shall include any encumbrance or other disposition for
value of the Xxxxxxx Shares intended to be made by Xxxxxxx, except transfers
permitted under Section 2(i) above.
b. Notice. In the event Xxxxxxx desires to accept a bona fide
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third-party offer for any or all of the Xxxxxxx Shares (the shares subject to
such offer to be hereinafter called, solely for the purposes of this Section 4,
the "Target Shares"), Xxxxxxx shall promptly (i) deliver to the Company and each
of the Investors written notice (the "Disposition Notice") of the offer and the
basic terms and conditions thereof, including the proposed purchase price, and
(ii) provide satisfactory proof that the disposition of the Target Shares to the
third-party offerer would not be in contravention of the provisions set forth
elsewhere in this Agreement(including the provisions regarding compliance with
federal and state securities laws).
c. Exercise of First Refusal Right. The Company (or its assignees)
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shall, for a period of thirty (30) days following receipt of the Disposition
Notice, have the right to repurchase all of the Target Shares specified in the
Disposition Notice upon substantially the same terms and conditions specified
therein. Such right shall be exercisable by written notice (the "Exercise
Notice") delivered to Xxxxxxx prior to expiration of the thirty (30) day
exercise period. If such right is exercised with respect to all of the Target
Shares specified in the Disposition Notice, then the Company (or its assignees)
shall effect the repurchase of such Target Shares, including payment of the
purchase price, not more than ten (10) days after delivery of the Exercise
Notice; and at such time Xxxxxxx shall deliver to the Company the certificates
representing the Target Shares to be repurchased, each certificate to be
properly endorsed for transfer. To the extent any of the Target Shares are at
the time held in escrow under Section 5, the certificates for such shares shall
automatically be released from escrow and surrendered to the Company for
cancellation. The Target Shares so purchased shall thereupon be canceled and
cease to be issued and outstanding shares of the Company's Common Stock.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or
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evidence of indebtedness, the Company (or its assignees) shall have the right to
pay the purchase price in the form of cash equal in amount to the value of such
property. If Xxxxxxx and the Company (or its assignees) cannot agree on such
cash value within ten (10) days after the Company's receipt of the Disposition
Notice, the valuation shall be made by an appraiser of recognized standing
selected by Xxxxxxx and the Company (or its assignees), or, if they cannot agree
on an appraiser within twenty (20) days after the Company's receipt of the
Disposition Notice, each shall select an appraiser or recognized standing and
the two appraisers shall designate a third appraiser of recognized standing,
whose appraisal shall be determinative of such value. The cost of such appraisal
shall be shared equally by the Company and Xxxxxxx. The closing shall then be
held on the latter of (i) the fifth (5th) business day following delivery of the
Exercise Notice or (ii) the fifteenth (15th) day after such cash valuation shall
have been made.
d. Second Refusal Right. In the event the Company's Exercise Notice
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is not given to Xxxxxxx within thirty (30) days following the date of the
Company's receipt of the Disposition Notice, Xxxxxxx, or upon expiration of the
thirty (30) day period above, shall promptly deliver to each Investor notice of
the availability of the Target Shares for purchase (the "Second Disposition
Notice"). Each Investor shall, for a period of fifteen (15) days following
receipt of the Second Disposition Notice, have the right to purchase a pro rata
portion of the remaining Target Shares specified in the Second Disposition
Notice upon substantially the same terms and conditions specified therein. Such
right shall be exercisable by a notice (the "Second Exercise Notice") delivered
to Xxxxxxx prior to expiration of the fifteen (15) day exercise period. If such
right is exercised by any Investor with respect to its pro rata portion of the
Target Shares specified in the Second Disposition Notice, then each such
Investor shall effect the repurchase of such Target Shares, including payment of
its pro rata portion of the purchase price, not more than ten (10) days after
delivery of the Second Exercise Notice; and at such time Xxxxxxx shall deliver
to the Investors the certificates representing the Target Shares to be
repurchased, each certificate to be properly endorsed for transfer. To the
extent any of the Target Shares are at the time held in escrow under Section 5,
the certificates for such shares shall automatically be released from escrow and
surrendered to Xxxxxxx for transfer. If necessary, the Company agrees to
promptly assist Xxxxxxx in the exchange of Xxxxxxx'x existing certificates for
new certificates representing different numbers of shares; provided that the
total number of shares represented by such surrendered certificates shall not
change.
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Should the purchase price specified in the Second Disposition Notice
be payable in property other than cash or evidence of indebtedness, the terms
set forth in the second paragraph of Subsection 4(c) above shall govern the
procedure to be followed by the Investors and Xxxxxxx.
e. Non-Exercise by Company and Investors. In the event the
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Exercise Notice is not given to Xxxxxxx within thirty (30) days following the
date of the Company's receipt of the Disposition Notice, and the Second Exercise
Notice is not given within fifteen (15) days after receipt by the Investors of
the Second Disposition Notice, Xxxxxxx shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the remaining Target Shares
upon terms and conditions (including the purchase price) no more favorable to
the third-party purchaser than those specified in the Disposition Notices;
provided, however, that any such sale or disposition must not be effected in
contravention of any state or federal securities laws. To the extent any of the
Target Shares are at the time held in escrow under Section 5, the certificates
for such shares shall automatically be released from escrow and surrendered to
Xxxxxxx. The third-party purchaser shall acquire such Target Shares free and
clear of all the terms and provisions of this Agreement (including the Company's
Repurchase Right under Section 3, the co-sale provisions of Section 6, and the
Company's and Investors' refusal rights hereunder). In the event Xxxxxxx does
not sell or otherwise dispose of the Target Shares within the specified thirty
(30) day period, the refusal rights of the Company and the Investors hereunder
shall continue to be applicable to any subsequent disposition of the Target
Shares by Xxxxxxx until such rights terminate in accordance with Subsection
4(f).
f. Recapitalization. In the event of any stock dividend, stock
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split, recapitalization or other transaction affecting the Company's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Xxxxxxx Shares shall be
immediately subject to the Company's and the Investors' refusal rights
hereunder, but only to the extent the Xxxxxxx Shares are at a time covered by
such rights.
g. Legend. All certificates representing Xxxxxxx Shares subject to
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the refusal rights of this Section may be endorsed with the following legend (or
similar legend):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR
IN ANY MANNER DISPOSED OF, EXCEPT IN
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COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT
BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF
THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE
SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY AND
OTHER INVESTORS CERTAIN RIGHTS OF FIRST REFUSAL
UPON AN ATTEMPTED TRANSFER OF THE SHARES. THE
SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST
FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER
HEREOF WITHOUT CHARGE."
5. Escrow.
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a. Deposit. The certificates for the Unvested Shares shall be
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deposited in escrow with the Company to be held in accordance with the
provisions of this Section 5. Each deposited certificate shall be accompanied by
a duly executed Assignment Separate from Certificate in the form of Exhibit A.
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The deposited certificates, together with any other assets or securities from
time to time deposited with the Company pursuant to the requirements of this
Agreement, shall remain in escrow until such time or times as the certificates
(or other assets and securities) are to be released or otherwise surrendered for
cancellation in accordance with Subsection 5(c). Upon delivery of the
certificates (or other assets and securities) to the Company, Xxxxxxx shall be
issued an instrument of deposit acknowledging the number of shares (or other
assets and securities) delivered in escrow to the Company.
b. Recapitalization. All regular cash dividends on Xxxxxxx'x shares
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held in escrow (or other securities at the time held in escrow) shall be paid
directly to Xxxxxxx and shall not be held in escrow. However, in the event of
any stock dividend, stock split, recapitalization or other change affecting the
Company's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the escrow shares shall be immediately
delivered to the Company to be held in escrow under this Section 5, but only to
the extent such shares are at the time subject to the escrow requirements of
Subsection 5(a).
c. Release/Surrender. The escrowed shares, together with any other
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assets or securities held in escrow hereunder, shall be subject to the following
terms and conditions relating to their release from escrow or their surrender to
the Company for repurchase and cancellation:
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(i) Should the Company elect to exercise the Repurchase Right under
Section 3 with respect to any Unvested Shares, then the escrowed certificates
for such Unvested Shares (together with any other assets or securities issued
with respect thereto) shall be delivered to the Company for cancellation,
concurrently with the payment to Xxxxxxx, in cash or cash equivalent (including
the cancellation of any purchase-money indebtedness), of an amount equal to the
aggregate Repurchase Price for such Unvested Shares, and Xxxxxxx shall cease to
have any further rights or claims with respect to such Unvested Shares (or other
assets or securities).
(ii) Should the Company or the Investors elect to exercise their
refusal rights under Section 4 with respect to any Target Shares held at the
time in escrow hereunder, then the escrowed certificates for such Target Shares
(together with any other assets or securities issued with respect thereto)
shall, concurrently with the payment of the purchase price for such Target
Shares to Xxxxxxx, either (x) be surrendered to the Company for cancellation or
(y) surrendered to Xxxxxxx for delivery to the appropriate Investors, as the
case may be, and in either case Xxxxxxx shall cease to have any further rights
or claims with respect to such Target Shares (or other assets or securities).
(iii) Should the Company and the Investors elect not to exercise their
refusal rights under Section 4 with respect to any Target Shares held at the
time in escrow hereunder, then the escrowed certificates for such Target Shares
(together with any other assets or securities issued with respect thereto) shall
be surrendered to Xxxxxxx for disposition according to the provisions of Section
4.
(iv) As the interest of Xxxxxxx in the Unvested Shares (or any other
assets or securities issued with respect thereto) vests in accordance with the
provisions of Section 3, the certificates for such vested shares (as well as all
other vested assets and securities) shall be released from escrow and delivered
to Xxxxxxx in accordance with the following schedule:
(w) The initial release of vested shares (or other vested assets
and securities) from escrow shall be effected within thirty (30) days following
the expiration of the initial twelve (12) month period measured from the Vesting
Measurement Date.
(X) Subsequent releases of vested shares (or other vested assets
and securities) from escrow shall be effected at annual intervals thereafter,
with the first such
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annual release to occur twenty-four (24) months after the Vesting Measurement
Date.
(y) Upon Xxxxxxx'x cessation of Employee status, any escrowed
Unvested Shares (or other assets or securities) in which Xxxxxxx is at the time
vested shall be promptly released from escrow.
(z) Upon any earlier termination of the Company's Repurchase
Right in accordance with the applicable provisions of Section 3, the Unvested
Shares (or other assets or securities) at the time held in escrow hereunder
shall promptly be released to Xxxxxxx as fully vested shares or other property.
(V) All Unvested Shares (or other assets or securities) released from
escrow in accordance with the provisions of Subsection 5(c) (iv) above shall
nevertheless remain subject to (x) the Company's and Investors' refusal rights
set forth in Section 4 above, and (y) the co-sale provisions set forth in
Section 6 below.
6. Co-Sale Agreement.
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a. Notice. If Xxxxxxx proposes to sell or transfer any Xxxxxxx
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Shares (as defined in Section 1) in one or more related transactions, then
Xxxxxxx shall promptly give written notice (the "Co-Sale Notice") to the Company
and to each of the Investors at least thirty (30) days prior to the closing of
such sale or transfer. The Co-Sale Notice shall describe in reasonable detail
the proposed sale or transfer including, without limitation, the number of
Xxxxxxx Shares to be sold or transferred, the nature of such sale or transfer,
the consideration to be paid, and the name and address of each prospective
purchaser or transferee. In the event that the sale or transfer is being made
pursuant to the provisions of Subsection 6(i), the Co-Sale Notice shall state
under which Subsection of this Agreement the sale or transfer is being made.
b. Participation. Each Investor shall have the right, exercisable
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upon written notice to Xxxxxxx within fifteen (15) days after receipt of the Co-
Sale Notice, to participate in such sale on the same terms and conditions
specified in the Co-Sale Notice. To the extent one or more of the Investors
exercise such right of participation in accordance with the terms and conditions
set forth below, the number of Xxxxxxx Shares that Xxxxxxx may sell in the
transaction shall be correspondingly reduced.
c. Pro Rata Calculation. Each Investor may sell all or any part of
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that number of shares of Common Stock equal
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to the product obtained by multiplying the aggregate number of Xxxxxxx Shares
covered by the Co-Sale Notice by a fraction (i) the numerator of which is the
number of shares of Common Stock (on an as-converted basis for all Preferred
Stock) owned by the Investor at the time of the sale or transfer and (ii) the
denominator of which is the total number of shares of Common Stock owned by
Xxxxxxx and the Investors (on an as-converted basis for all Preferred Stock) at
the time of the sale or transfer.
d. Additional Participation. If any Investor fails to elect to fully
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participate in Xxxxxxx'x sale pursuant to this Section 6, Xxxxxxx shall give
notice of such failure to the Investors who did so elect (the "Participants").
Such notice may be made by telephone if confirmed in writing within two (2)
days. The Participants shall have five (5) days from the date such notice was
given to agree to sell their pro rata share of the unsold portion. For purposes
of this Subsection, a Participant's pro rata share shall be equal to the product
obtained by multiplying the number of shares in the unsold portion by a fraction
(i) the numerator of which is the number of shares of Common Stock (on an as-
converted basis for all Preferred Stock) held by such Participant and (ii) the
denominator of which is the total number of shares of Common Stock held by the
Participants (on an as-converted basis for all Preferred Stock) and by Xxxxxxx.
e. Delivery. Each Participant shall effect its participation in the sale
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by promptly delivering to Xxxxxxx for transfer to the prospective purchaser one
or more certificates, properly endorsed for transfer, which represent:
(i) the type and number of shares of Common Stock which such
Participant elects to sell; or
(ii) that number of shares of Preferred Stock which is at such time
convertible into the number of shares of Common Stock which such Participant
elects to sell; provided, however, that if the prospective purchaser objects to
the delivery of Preferred Stock in lieu of Common Stock, such Participant shall
convert such Preferred Stock into Common Stock and deliver Common Stock as
provided in Subsection 6(e)(i) above. The Company agrees to make any such
conversion concurrent with the actual transfer of such shares to the purchaser.
f. Proceeds. The stock certificate or certificates that the Participant
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delivers to Xxxxxxx pursuant to Subsection 6(e) shall be transferred to the
prospective purchaser in consummation of the sale of the stock pursuant to the
terms and conditions specified in the Co-Sale Notice, and Xxxxxxx shall
concurrently therewith remit to such participant
13
that portion of the sale proceeds to which such participant is entitled by
reason of its participation in such sale. To the extent that any prospective
purchaser or purchasers prohibits such assignment or otherwise refuses to
purchase shares or other securities from a Participant exercising its rights of
co-sale hereunder, Xxxxxxx shall not sell to such prospective purchaser or
purchasers any Xxxxxxx Shares unless and until, simultaneously with such sale,
Xxxxxxx shall purchase such shares or other securities from such Participant.
g. Non-Exclusive Rights. The exercise or non-exercise of the right of the
--------------------
Participants hereunder to participate in one or more sales of Xxxxxxx Shares
made by Xxxxxxx shall not adversely affect their rights to participate in
subsequent sales of Xxxxxxx Shares subject to Subsection 6(a).
h. Sales by Xxxxxxx. If none of the Investors elects to participate in
----------------
the sale of the Xxxxxxx Shares subject to the Co-Sale Notice, Xxxxxxx may, not
later than sixty (60) days following delivery to the Company and each of the
Investors of the Co-Sale Notice, enter into an agreement providing for the
closing of the transfer of the Xxxxxxx Shares covered by the Co-Sale Notice
within thirty (30) days of such agreement on terms and conditions not more
favorable to the transferor than those described in the Co-Sale Notice. Any
proposed transfer on terms and conditions more favorable than those described in
the Co-Sale Notice, as well as any subsequent proposed transfer of any of the
Xxxxxxx Shares by Xxxxxxx, shall again be subject to the co-sale rights of the
Investors and shall require compliance by Xxxxxxx with the procedures described
in this Section 6.
i. Exempt Transfers.
----------------
(i) The provisions of Subsections 6(b) through 6(h) shall not apply
to (x) any pledge of Xxxxxxx Shares made pursuant to a bona fide loan
transaction that creates a mere security interest; (y) any transfer to the
ancestors, descendants or spouse or to trusts for the benefit of such persons or
Xxxxxxx; or (z) any bona fide gift; provided that (A) Xxxxxxx shall inform the
Investors of such pledgee, transfer or gift prior to effecting it and (B) the
pledgee, transferee or donee shall furnish the Investors with a written
agreement to be bound by and comply with all provisions of this Agreement. Such
transferred Xxxxxxx Shares shall remain "Xxxxxxx Shares" hereunder, and such
pledgee, transferee or donee shall be treated as "Xxxxxxx" for purposes of this
Agreement.
(ii) The provisions of Subsections 6(b) to 6(h) shall not apply to
the sale of any Xxxxxxx Shares (x) to the
14
public pursuant to a registration statement filed with, and declared effective
by, the SEC under the Securities Act of 1933, as amended, or (y) to the Company.
j. Prohibited Transfers.
--------------------
(i) In the event Xxxxxxx should sell any Xxxxxxx Shares in
contravention of the co-sale rights of the Investors under this Agreement (a
"Prohibited Transfer"), each Investor, in addition to such other remedies as may
be available at law, in equity or hereunder, shall have the put option provided
below, and Xxxxxxx shall be bound by the applicable provisions of such option.
(ii) In the event of a Prohibited Transfer, each Investor shall have
the right to sell to Xxxxxxx the type and number of shares of Common Stock equal
to the number of shares each Investor would have been entitled to transfer to
the purchaser under Subsection 6(c) had the Prohibited Transfer hereof been
effected pursuant to and in compliance with the terms hereof. Such sale shall be
made on the following terms and conditions:
(w) The price per share at which the shares are to be sold to
Xxxxxxx shall be equal to the price per share paid by the purchaser to Xxxxxxx
in the Prohibited Transfer. Xxxxxxx shall also reimburse each Investor for any
and all fees and expenses, including legal fees and expenses, incurred pursuant
to the exercise or the attempted exercise of the Investor's rights under
Section 6.
(x) Within ninety (90) days after the later of the dates on
which the Investor (A) received notice of the Prohibited Transfer or (B)
otherwise became aware of the Prohibited Transfer, each Investor shall, if
exercising the option created hereby, deliver to Xxxxxxx the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(y) Xxxxxxx shall, upon receipt of the certificate or
certificates for the shares to be sold by an Investor, pursuant to this
Subsection 6(j)(ii), pay the aggregate purchase price therefor and the amount
of reimbursable fees and expenses, as specified in Subsection 6(j)(ii)(w), in
cash or by other means acceptable to the Investor.
(z) Notwithstanding the foregoing, any attempt by Xxxxxxx to
transfer Xxxxxxx Shares in violation of Section 6 hereof shall be void and the
Company agrees it will not effect such a transfer nor will it treat any alleged
15
transferee as the holder of such shares without the written consent of a
majority in interest of the Investors.
k. Legend. Each certificate representing shares of Common Stock now
------
or hereafter owned by Xxxxxxx or issued to any person in connection with a
transfer pursuant to Section 6(i) hereof may be endorsed with the following
legend (or similar legend):
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN STOCK PURCHASE AND RESTRICTION AGREEMENT BY AND BETWEEN THE COMPANY AND
CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
Xxxxxxx agrees that the Company may instruct its transfer agent to
impose transfer restrictions on the shares represented by certificates bearing
the legend referred to in Subsection 6(k) above to enforce the provisions of
this Agreement. The legend shall be removed upon termination of this Agreement.
1. Termination. The co-sale rights under this Section 6 shall
-----------
terminate upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended.
7. Holdback. Xxxxxxx agrees that if the Company files a registration
--------
statement in connection with an underwritten public offering, she will not
effect any sale or distribution of any Xxxxxxx Shares (except pursuant to such
registration statement) of the capital stock of the Company during the period
requested by the underwriters commencing with the effective date of such
registration statement and ending on the close of business on a date not to
exceed one hundred and eighty (180) days thereafter or such time as the
registration statement is withdrawn, whichever is earlier.
16
8. Miscellaneous.
-------------
a. Conditions to Exercise of Rights. Exercise of the Investors'
--------------------------------
rights under this Agreement shall be subject to and conditioned upon, and
Xxxxxxx and the Company shall use their best efforts to assist each Investor in,
compliance with all applicable laws.
b. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California.
c. Amendment. Any provision may be amended and the observance
---------
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (i) as to the
Company, only by the Company, (ii) as to the Investors, by persons holding more
than fifty percent (50%) in interest of the Common Stock (on an as-converted
basis) held by the Investors and their assignees, and (iii) as to Xxxxxxx, only
by Xxxxxxx; provided that, each Investor may waive any of its rights hereunder
without obtaining the consent of any other Investor. Any amendment or waiver
effected in accordance with clauses (i), (ii) and (iii) of this Subsection 8(c)
shall be binding upon each Investor, its successors and assigns, the Company and
Xxxxxxx.
d. Assignment of Rights. This Agreement and the rights and
--------------------
obligations of the parties hereunder shall inure to benefit of, and be binding
upon, their respective permitted successors, assigns and legal representatives.
e. Ownership. Xxxxxxx represents and warrants that she is the sole
---------
legal and beneficial owner of the shares of Common Stock subject to this
Agreement and that no other person has any interest (other than a community
property interest) in such shares.
f. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed effectively given upon personal delivery to the
party to be notified or three (3) days after deposit in the United States mail,
by registered or certified mail, postage prepaid and properly addressed to the
party to be notified as set forth on the signature page hereof or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties hereto. Notwithstanding the foregoing, the telephone notice
permitted by Section 6(d) shall be effective at the time it is given.
g. Severability. In the event one or more of the provisions of this
------------
Agreement should, for any reason, be held
17
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
h. Attorneys' Fees. In the event that any dispute among the parties
---------------
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover form the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys, which shall include, without limitation, all fees, costs
and expenses of appeals.
i. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
j. Entire Agreement. This Agreement, the Exhibits hereto, and the
----------------
other documents required to be delivered pursuant hereto constitute the entire
understanding and agreement between the parties with regard to the specific
subject matter hereof and no party shall be liable or bound by any
representation, warranty, covenant or agreement except as specifically set forth
herein. Any previous agreement (whether written, oral or implied) among the
parties relative to the specific subject matter hereof is superseded by this
Agreement.
The foregoing Agreement is hereby executed as of the date first above
written.
XXXXXXX:
/s/ M. Xxxxxxxx Xxxxxxx
-------------------------
M. Xxxxxxxx Xxxxxxx
Address: 00 Xxxxxx Xxxx
Xxxxxx, Xxxxxxxxxx 00000
18
THE COMPANY:
PILOT NETWORK SERVICES, INC.,
a CaLifornia corporation
By: /s/ M. Xxxxxxxx Xxxxxxx
--------------------------
M. Xxxxxxxx Xxxxxxx
President
Address: 0000 Xxxxxx Xxxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attn: M. Xxxxxxxx Xxxxxxx
THE INVESTORS:
EL DORADO VENTURES III, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: ________________________
Xxxxxx Xxxxxx,
General Partner
Address: 00000 Xxxxxxx Xxxxx Xxxx.
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx
EL DORADO TECHNOLOGY IV, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: ________________________
Xxxxxx Xxxxxx,
General Partner
Address: 00000 Xxxxxxx Xxxxx Xxxx.
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx
19
THE COMPANY:
PILOT NETWORK SERVICES, INC.,
a California corporation
By: _________________________
M. Xxxxxxxx Xxxxxxx
President
Address: 0000 Xxxxxx Xxxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attn: M. Xxxxxxxx Xxxxxxx
THE INVESTORS:
EL DORADO VENTURES III, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: /s/ Xxxxxx Xxxxxx
------------------------
Xxxxxx Xxxxxx,
General Partner
Address: 00000 Xxxxxxx Xxxxx Xxxx.
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx
EL DORADO TECHNOLOGY IV, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: /s/ Xxxxxx Xxxxxx
------------------------
Xxxxxx Xxxxxx,
General Partner
Address: 00000 Xxxxxxx Xxxxx Xxxx.
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx
19
EL DORADO C&L FUND, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: /s/ Xxxxxx Xxxxxx
--------------------------
Xxxxxx Xxxxxx,
General Partner
Address: 00000 Xxxxxxx Xxxxx Xxxx.
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx
_____________________________
Xxxxxxx X. Xxxxxx
Address: 0 Xxxxx Xxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
_____________________________
Xxxxxxx X. Xxxxxx
Address: X.X. Xxxxxx & Company
0000 Xxxxxxxxxxx Xxxx
Xxxxx 0000
Xxxx Xxxx, Xxxxxxxxxx 00000
Consent of Spouse:
------------------
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions, including that if I and/or my
spouse agree to sell all or part of the shares of the Company held of record by
either of us or both of us, including my community property interest in such
shares, if any, co-sale rights (as described in the Agreement) must be granted
to the Investors by the seller. In addition, I am aware of the Repurchase Right
held by the Company and the Company's and Investors' refusal rights in the
Agreement. I hereby agree that those shares and my interest in them, if any, are
subject to the provisions of the Agreement and that I will take no action at any
time to hinder the operation of, or violate, the Agreement.
_____________________________
[Xxxxxxx'x spouse]
20
EL DORADO C&L FUND, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: _________________________
Xxxxxx Xxxxxx,
General Partner
Address: 00000 Xxxxxxx Xxxxx Xxxx.
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx
/s/ Xxxxxxx X. Xxxxxx
-----------------------------
Xxxxxxx X. Xxxxxx
Address: 0 Xxxxx Xxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
_____________________________
Xxxxxxx X. Xxxxxx
Address: X.X. Xxxxxx & Company
0000 Xxxxxxxxxxx Xxxx
Xxxxx 0000
Xxxx Xxxx, Xxxxxxxxxx 00000
Consent of Spouse:
------------------
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions, including that if I and/or my
spouse agree to sell all or part of the shares of the Company held of record by
either of us or both of us, including my community property interest in such
shares, if any, co-sale rights (as described in the Agreement) must be granted
to the Investors by the seller. In addition, I am aware of the Repurchase Right
held by the Company and the Company's and Investors' refusal rights in the
Agreement. I hereby agree that those shares and my interest in them, if any, are
subject to the provisions of the Agreement and that I will take no action at any
time to hinder the operation of, or violate, the Agreement.
_____________________________
[Xxxxxxx'x spouse]
20
EL DORADO C&L FUND, L.P.,
a California limited partnership
By: E1 Dorado Venture Partners III,
a California general partnership
By: _________________________
Xxxxxx Xxxxxx,
General Partner
Address: 00000 Xxxxxxx Xxxxx Xxxx.
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx
_____________________________
Xxxxxxx X. Xxxxxx
Address: 0 Xxxxx Xxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
/s/ Xxxxxxx X. Xxxxxx
-----------------------------
Xxxxxxx X. Xxxxxx
Address: X.X. Xxxxxx & Company
0000 Xxxxxxxxxxx Xxxx
Xxxxx 0000
Xxxx Xxxx, Xxxxxxxxxx 00000
Consent of Spouse:
------------------
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions, including that if I and/or my
spouse agree to sell all or part of the shares of the Company held of record by
either of us or both of us, including my community property interest in such
shares, if any, co-sale rights (as described in the Agreement) must be granted
to the Investors by the seller. In addition, I am aware of the Repurchase Right
held by the Company and the Company's and Investors' refusal rights in the
Agreement. I hereby agree that those shares and my interest in them, if any, are
subject to the provisions of the Agreement and that I will take no action at any
time to hinder the operation of, or violate, the Agreement.
_____________________________
[Xxxxxxx'x spouse]
20
EL DORADO C&L FUND, L.P.,
a California limited partnership
By: El Dorado Venture Partners III,
a California general partnership
By: _________________________
Xxxxxx Xxxxxx,
General Partner
Address: 00000 Xxxxxxx Xxxxx Xxxx.
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx
_____________________________
Xxxxxxx X. Xxxxxx
Address: 0 Xxxxx Xxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
_____________________________
Xxxxxxx X. Xxxxxx
Address: X.X. Xxxxxx & Company
0000 Xxxxxxxxxxx Xxxx
Xxxxx 0000
Xxxx Xxxx, Xxxxxxxxxx 00000
Consent of Spouse:
-----------------
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions, including that if I and/or my
spouse agree to sell all or part of the shares of the Company held of record by
either of us or both of us, including my community property interest in such
shares, if any, co-sale rights (as described in the Agreement) must be granted
to the Investors by the seller. In addition, I am aware of the Repurchase Right
held by the Company and the Company,s and Investors, refusal rights in the
Agreement. I hereby agree that those shares and my interest in them, if any, are
subject to the provisions of the Agreement and that I will take no action at any
time to hinder the operation of, or violate, the Agreement.
/s/ L. Xxxxxx Xxxxxxx
-----------------------------
[Xxxxxxx'x spouse]
20
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I hereby sell, assign and transfer unto Pilot
Network Services, Inc., a California corporation (the "Company"), ______________
(______) shares of the Common Stock of the Company standing in my name on the
books of the Company represented by Certificate No. _________ herewith and do
hereby irrevocably constitute and appoint _________ to transfer such stock on
the books of the within named Company with full power of substitution in the
premises.
Dated:_______________________
Signature:______________________________
Signature:______________________________
21
EXHIBIT B
REPURCHASE RIGHTS
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The person who performed the services is:
Name: M Xxxxxxxx Xxxxxxx
Address:
Taxpayer Ident. No.:
Taxable Year: Calendar Year 199_
(2) The property with respect to which the election is being made is
200,000 shares of the common stock of Pilot Network Services, Inc.
(3) The property was issued on January __, 1994.
(4) The property is subject to a repurchase right pursuant to which
the issuer has the right to acquire the property at the original purchase price
if for any reason shareholder's employment with the issuer is terminated. The
issuer's repurchase right lapses on ___________, 19__.
(5) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms will never
lapse) is $.001 per share.
(6) The amount paid for such property is $.001 per share.
(7) A copy of this statement was furnished to _________, for whom
Employee rendered the service underlying the transfer of property.
(8) This statement is executed as of January __, 1994.
__________________________________ ___________________________________
Spouse (if any) Employee
22
