EXHIBIT 10.1
PATRON SYSTEMS, INC.
STOCK OPTION AGREEMENT
Patron Systems, Inc., a Delaware corporation (the "Company"), hereby grants
to Xxxxxxx Xxxxxxx (the "Optionee") as of May 1, 2002 (the "Option Date"), a
non-qualified option to purchase from the Company (the "Option") 1,000,000
shares of its common stock, $.01 par value ("Stock"), at the price of $.01 per
share, upon and subject to the terms and conditions set forth in this agreement
(the "Agreement").
1. Option Subject to Acceptance of Agreement. The Option shall be null
and void unless the Optionee shall accept this Agreement by executing it in the
space provided below and returning an original execution copy of the Agreement
to the Company.
2. Time and Manner of Exercise of Option.
2.1. Maximum Term of Option. In no event may the Option be exercised, in
whole or in part, after May 1, 2012 (the "Expiration Date").
2.2. Exercise of Option. (a) In General. Except as otherwise provided in
Sections 2.2(b) through 2.2(g) and Section 3.11 hereof, the Option shall become
exercisable (i) on the Option Date with respect to 76,923 of the shares of Stock
subject to the Option on the Option Date and (ii) on the first day of each
August, November, February and May after the Option Date with respect to an
additional 76,923 of the shares of Stock subject to the Option on the Option
Date; provided, however, that the Option shall become exercisable on May 1, 2005
with respect to the remaining 76,924 of the shares of Stock subject to the
Option on the Option Date.
(b) Incapacity. If the Optionee's employment with the Company terminates
by reason of Incapacity, the Option shall be exercisable with respect to all of
the shares of Stock subject to the Option on the effective date of the
Optionee's termination of employment and may thereafter be exercised by the
Optionee or the Optionee's Legal Representative or Permitted Transferee, as the
case may be, until and including the earlier to occur of (i) the date which is 3
years after the effective date of the Optionee's termination of employment and
(ii) the Expiration Date.
(c) Death. If the Optionee's employment with the Company terminates by
reason of the Optionee's death, the Option shall be exercisable with respect to
all of the shares of Stock subject to the Option on the date of the Optionee's
death and may thereafter be exercised by the Optionee's Legal Representative or
Permitted Transferee, as the case may be, until and including the earlier to
occur of (i) the date which is 3 years after the date of the Optionee's death
and (ii) the Expiration Date.
(d) Termination without Cause or for Good Reason. If the Optionee's
employment with the Company is terminated either by the Company without Cause or
by the Optionee for Good Reason, the Option shall be exercisable with respect to
all of the shares of Stock subject to the Option on the effective date of the
Optionee's termination of employment and may thereafter be exercised by the
Optionee or the Optionee's Legal Representative or Permitted Transferee, as the
case may be, until and including the earlier to occur of (i) the date
which is 3 years after the effective date of the Optionee's termination of
employment and (ii) the Expiration Date.
(e) Termination for Cause. If the Optionee's employment with the Company
is terminated by the Company for Cause, the Option shall terminate automatically
on the effective date of the Optionee's termination of employment.
(f) Termination without Good Reason. If the Optionee's employment with the
Company is terminated by the Optionee without Good Reason, the Option shall be
exercisable only to the extent it is exercisable on the effective date of the
Optionee's termination of employment and may thereafter be exercised by the
Optionee or the Optionee's Legal Representative or Permitted Transferee, as the
case may be, until and including the earlier to occur of (i) the date which is 3
months after the effective date of the Optionee's termination of employment and
(ii) the Expiration Date.
(g) Termination as a Result of the Expiration of the Term. If the
Optionee's employment with the Company is terminated as a result of the
expiration of the employment term as set forth in the Employment Agreement
(without written agreement of the Company and the Optionee to renew such term),
the Option shall be exercisable only to the extent it is exercisable on the date
the term expires and may thereafter be exercised by the Optionee or the
Optionee's Legal Representative or Permitted Transferee, as the case may be,
until and including the earlier to occur of (i) the date which is 3 years after
the date the term expires and (ii) the Expiration Date.
(h) Death following Termination. If the Optionee dies following a
termination of employment described in Sections 2.2(b), (d), (f) and (g), and
during the period for exercise of the Option set forth in such sections, the
Option shall be exercisable only to the extent it is exercisable on the date of
the Optionee's death and may thereafter be exercised by the Optionee's Legal
Representative or Permitted Transferee, as the case may be, until and including
the earlier to occur of (i) the date which is 6 months after the last day of the
period for exercise of the Option set forth in Section 2.2(b), (d), (f) or (g),
as applicable and (ii) the Expiration Date.
2.3. Method of Exercise. The Option may be exercised only with respect to
whole shares of Stock. Subject to the limitations set forth in this Agreement,
the Option may be exercised (1) by delivering to the Company an Exercise Notice
and Share Repurchase Agreement in the form attached hereto as Exhibit A
specifying the number of whole shares of Stock to be purchased and by
accompanying such notice with payment therefor in full (or by arranging for such
payment to the Company's satisfaction) (i) in cash or (ii) if the Stock has been
registered under the Securities Act and is publicly traded, (A) in cash, (B) by
delivery (either actual delivery or by attestation procedures established by the
Company) of previously owned whole shares of Stock (which the Optionee has held
for at least six months prior to the delivery of such shares or which the
Optionee purchased on the open market and in each case for which the Optionee
has good title, free and clear of all liens and encumbrances) having an
aggregate Fair Market Value, determined as of the date of exercise, equal to the
aggregate purchase price payable pursuant to the Option by reason of such
exercise, (C) if legally permissible, in cash by a broker-dealer acceptable to
the Company to whom the Optionee has submitted an irrevocable notice of exercise
or (D) by a combination of (A) and (B), and (2) by executing such documents as
the Company may reasonably request. Any fraction of a share of Stock which would
be required to pay such purchase price shall be disregarded and the remaining
amount due shall be
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paid in cash. No certificate representing a share of Stock shall be issued or
delivered until the full purchase price therefor and any withholding taxes
thereon, as described in Section 3.3, have been paid (or arrangement made for
such payment to the Company's satisfaction). If shares of Stock have not been
registered under the Securities Act at the time the Option is exercised, if
requested by the Company the Optionee shall concurrently with the exercise of
the Option deliver to the Company an executed Investment Representation
Statement in the form attached hereto as Exhibit B.
2.4. Termination of Option. (a) In no event may the Option be exercised
after it terminates as set forth in this Section 2.4. The Option shall
terminate, to the extent not earlier terminated pursuant to Section 2.2 or
earlier exercised pursuant to Section 2.3, at 5:00 p.m. Central time on the
Expiration Date.
(b) In the event that rights to purchase all or a portion of the shares of
Stock subject to the Option expire or are exercised, cancelled or forfeited, the
Optionee shall, upon the Company's request, promptly return this Agreement to
the Company for full or partial cancellation, as the case may be. Such
cancellation shall be effective regardless of whether the Optionee returns this
Agreement. If the Optionee continues to have rights to purchase shares of Stock
hereunder, the Company shall, within 10 days of the Optionee's delivery of this
Agreement to the Company, either (i) xxxx this Agreement to indicate the extent
to which the Option has expired or been exercised, cancelled or forfeited or
(ii) issue to the Optionee a substitute stock option agreement applicable to
such rights, which agreement shall otherwise be substantially similar to this
Agreement in form and substance.
3. Additional Terms and Conditions of Option.
3.1. Transferability of Option; Transferability of Stock. (a) The Option
may not be transferred other than (i) by will or the laws of descent and
distribution, (ii) pursuant to the beneficiary designation procedures set forth
in Section 4.4 or (iii) by gift to a Permitted Transferee. During the Optionee's
lifetime the Option is exercisable only by the Optionee (or the Optionee's Legal
Representative) or a Permitted Transferee (or a Permitted Transferee's Legal
Representative). Except to the extent permitted by the second preceding
sentence, the Option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of the Option, the Option and all rights hereunder shall
immediately become null and void.
(b) The shares of Stock purchased pursuant to the exercise of the Option
shall be subject to transfer restrictions and repurchase by the Company upon
such terms and conditions as set forth in the Exercise Notice and Share
Repurchase Agreement.
3.2. Investment Representation. The Optionee hereby represents and
covenants that (a) any share of Stock purchased upon exercise of the Option will
be purchased for investment and not with a view to the distribution thereof
within the meaning of the Securities Act, unless such purchase has been
registered under the Securities Act and any applicable state securities laws;
(b) any subsequent sale of any such share shall be made either pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or pursuant to an exemption from registration under the
Securities Act and such
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state securities laws; and (c) if requested by the Company, the Optionee shall
submit a written statement, in a form satisfactory to the Company, to the effect
that such representation (x) is true and correct as of the date of purchase of
any shares hereunder or (y) is true and correct as of the date of any sale of
any such shares, as applicable. As a further condition precedent to any exercise
of the Option, the Optionee shall comply with all regulations and requirements
of any regulatory authority having control of or supervision over the issuance
or delivery of the shares and, in connection therewith, shall execute any
documents which the Board shall in its sole discretion deem necessary or
advisable.
3.3. Withholding Taxes. (a) As a condition precedent to the issuance or
delivery of Stock upon exercise of the Option, the Optionee shall, upon request
by the Company, pay to the Company in addition to the purchase price of the
shares, such amount as the Company may be required, under all applicable
Federal, state, local or other laws or regulations, to withhold and pay over as
income or other withholding taxes (the "Required Tax Payments") with respect to
such exercise of the Option. If the Optionee shall fail to advance the Required
Tax Payments after request by the Company, the Company may, in its discretion,
deduct any Required Tax Payments from any amount then or thereafter payable by
the Company to the Optionee.
(b) The Optionee shall satisfy his or her obligation to advance the
Required Tax Payments by means of (i) a cash payment to the Company or (ii) if
the Stock has been registered under the Securities Act and is publicly traded,
(A) a cash payment to the Company, (B) delivery to the Company (either actual
delivery or by attestation procedures established by the Company) of whole
shares of Stock having an aggregate Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Option (the "Tax Date"), equal to the Required Tax Payments, (C) authorizing the
Company to withhold whole shares of Stock which would otherwise be delivered
upon exercise of the Option having an aggregate Fair Market Value, determined as
of the Tax Date, equal to the Required Tax Payments, (D) if legally permissible,
a cash payment by a broker-dealer acceptable to the Company to whom the Optionee
has submitted an irrevocable notice of exercise or (E) any combination of (A),
(B) and (C). Shares of Stock to be delivered or withheld may not have a Fair
Market Value in excess of the amount determined by applying the minimum
statutory withholding rate. Any fraction of a share of Stock which would be
required to satisfy any such obligation shall be disregarded and the remaining
amount due shall be paid in cash. No certificate representing a share of Stock
shall be issued or delivered until the Required Tax Payments have been paid (or
arrangement made for such payment to the Company's satisfaction).
3.4. Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Option and the
purchase price per security shall be appropriately adjusted by the Board
(including pursuant to a substitution), such adjustment to be made without an
increase in the aggregate purchase price. If any adjustment would result in a
fractional security being subject to the Option, the Company shall pay the
Optionee, in connection with the first exercise of the Option in whole or in
part occurring after such adjustment, an amount in cash determined by
multiplying (i) the fraction of such security (rounded to the nearest hundredth)
by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date
over (B) the exercise price of the
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Option. The decision of the Board regarding any such adjustment shall be final,
binding and conclusive.
3.5. Compliance with Applicable Law. The Option is subject to the
condition that if the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, the Option may not be exercised, in whole or in
part, and such shares shall not be delivered, unless such listing, registration,
qualification, consent, approval or other action shall have been effected or
obtained, free of any conditions not acceptable to the Company. The Company may
require that certificates evidencing shares of Stock delivered pursuant to the
exercise of the Option bear a legend indicating (i) that the sale, transfer or
other disposition thereof by the holder is prohibited except in compliance with
the Securities Act and the rules and regulations thereunder and (ii) such other
restrictions, if any, specified in the Exercise Notice and Share Repurchase
Agreement.
3.6. Delivery of Certificates. Upon the exercise of the Option, in whole
or in part, the Company shall deliver or cause to be delivered, subject to the
conditions of this Agreement, one or more certificates representing the number
of shares purchased against full payment therefor. The Company shall pay all
original issue or transfer taxes and all fees and expenses incident to such
delivery, except as otherwise provided in Section 3.3.
3.7. Option Confers No Right as Stockholder. The Optionee shall not be
entitled to any privileges of ownership with respect to any shares of Stock or
other equity security subject to the Option unless and until such shares are
purchased and delivered upon the exercise of the Option, in whole or in part,
and the Optionee becomes a stockholder of record with respect to such delivered
shares. The Optionee shall be subject to and bound by all of the terms and
conditions of any other agreement between the Company and the Optionee regarding
the shares of Stock purchased hereunder, including without limitation the
Exercise Notice and Share Repurchase Agreement.
3.8. Option Confers No Right to Continued Employment. In no event shall
the granting of the Option or its acceptance by the Optionee, or any provision
of this Agreement, give or be deemed to give the Optionee any right to continued
employment by the Company or any subsidiary or affiliate of the Company.
3.9. Decisions of Board. The Board shall have the right to resolve all
questions which may arise in connection with the Option or its exercise. Any
interpretation, determination or other action made or taken by the Board
regarding this Agreement shall be final, binding and conclusive.
3.10. Company to Reserve Shares. The Company shall at all times prior to
the expiration or termination of the Option reserve and keep available, either
in its treasury or out of its authorized but unissued shares of Stock, the full
number of shares subject to the Option from time to time.
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3.11. Change in Control.
(a) (1) Notwithstanding any provision in this Agreement, in the event of a
Change in Control pursuant to Section (b)(3) or (4) below in connection with
which the holders of Stock receive shares of common stock that are registered
under Section 12 of the Exchange Act, the Option shall immediately become
exercisable in full and there shall be substituted for each share of Stock
subject to the Option, the number and class of shares into which each
outstanding share of Stock shall be converted pursuant to such Change in
Control. In the event of any such substitution, the purchase price per share
shall be appropriately adjusted by the Board (whose determination shall be
final, binding and conclusive), such adjustment to be made without an increase
in the aggregate purchase price.
(2) Notwithstanding any provision in this Agreement, in the event of a
Change in Control pursuant to Section (b)(1) or (2) below, or in the event of a
Change in Control pursuant to Section (b)(3) or (4) below in connection with
which the holders of Stock receive consideration other than shares of common
stock that are registered under Section 12 of the Exchange Act, the Option shall
be surrendered to the Company and immediately canceled by the Company, and the
Optionee shall receive, within ten days of the occurrence of a Change in
Control, a cash payment from the Company in an amount equal to (i) the number of
shares of Stock then subject to the Option, multiplied by the excess, if any, of
the greater of (A) the highest per share price offered to stockholders of the
Company in any transaction whereby the Change in Control takes place or (B) the
Fair Market Value of a share of Stock on the date of occurrence of the Change in
Control, over the purchase price per share of Stock subject to the Option.
(b) "Change in Control" shall mean the occurrence of any of the following
on or after December 31, 2002:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act, of beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 40% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Common
Stock") or (ii) the combined voting power of the then outstanding securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the following: (A) any
acquisition directly from the Company (excluding any acquisition resulting from
the exercise of an exercise, conversion or exchange privilege unless the
security being so exercised, converted or exchanged was acquired directly from
the Company), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (D) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (3) of this Section 3.11(b); provided further, that for
purposes of clause (B), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 40%
or more of the Outstanding Common Stock or 40% or more of the Outstanding Voting
Securities by reason of an acquisition by the Company, and such Person shall,
after such acquisition by the Company, become the beneficial owner of any
additional shares of the Outstanding Common Stock or any additional Outstanding
Voting Securities and such beneficial ownership is publicly announced, such
additional beneficial ownership shall constitute a Change in Control;
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(2) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; provided that any individual who becomes a director of the Company
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall be deemed a member of the
Incumbent Board; and provided further, that any individual who was initially
elected as a director of the Company as a result of an actual or threatened
solicitation by a Person other than the Board for the purpose of opposing a
solicitation by any other Person with respect to the election or removal of
directors, or any other actual or threatened solicitation of proxies or consents
by or on behalf of any Person other than the Board shall not be deemed a member
of the Incumbent Board;
(3) the consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Corporate Transaction"); excluding, however, a Corporate Transaction pursuant
to which (i) all or substantially all of the individuals or entities who are the
beneficial owners, respectively, of the Outstanding Common Stock and the
Outstanding Voting Securities immediately prior to such Corporate Transaction
will beneficially own, directly or indirectly, more than 60% of, respectively,
the outstanding shares of common stock, and the combined voting power of the
outstanding securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's assets
either directly or indirectly) in substantially the same proportions relative to
each other as their ownership, immediately prior to such Corporate Transaction,
of the Outstanding Common Stock and the Outstanding Voting Securities, as the
case may be, (ii) no Person (other than: the Company; any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; the corporation resulting from such Corporate
Transaction; and any Person which beneficially owned, immediately prior to such
Corporate Transaction, directly or indirectly, 40% or more of the Outstanding
Common Stock or the Outstanding Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 40% or more of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the outstanding securities
of such corporation entitled to vote generally in the election of directors and
(iii) individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(4) the consummation of a plan of complete liquidation or dissolution of
the Company.
4. Miscellaneous Provisions.
4.1. Designation as Non-Qualified Stock Option. The Option hereby is
designated as not constituting an "incentive stock option" within the meaning of
section 422 of the Code; this Agreement shall be interpreted and treated
consistently with such designation.
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4.2. Meaning of Certain Terms. (a) References in this Agreement to
employment shall also mean an agency or independent contractor relationship and
references in this Agreement to employment by the Company shall also mean
employment by a subsidiary of the Company.
(b) As used herein, the following terms shall have the meanings set forth
below:
"Board" shall mean the Board of Directors of the Company.
"Cause" shall have the meaning set forth in the Employment Agreement.
"Change in Control" shall have the meaning set forth in Section 3.11(b).
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor internal revenue law.
"Corporate Transaction" shall have the meaning set forth in Section
3.11(b)(3).
"Employment Agreement" shall mean the Founders' Employment Agreement by and
between the Company and the Optionee, or any successor employment agreement
thereto.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean, as of any date, the value of a share of
Stock determined as follows:
(i) if the Stock is listed on any established stock exchange or a national
market system, Fair Market Value shall be the closing transaction price of
a share of Stock as quoted on such exchange or system on the date as of
which such value is being determined, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or if there shall
be no reported transaction for such date, on the next preceding date for
which a transaction was reported; or
(ii) if Fair Market Value for any date cannot be so determined, Fair Market
Value shall be determined by the Board by whatever means or method as the
Board, in the good faith exercise of its discretion, shall at such time
deem appropriate.
"Good Reason" shall have the meaning set forth in the Employment Agreement.
"Incapacity" shall have the meaning set forth in the Employment Agreement.
"Incumbent Board" shall have the meaning set forth in Section 3.11(b)(2).
"Legal Representative" shall mean an executor, administrator, legal
representative, guardian or similar person.
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"Outstanding Common Stock" shall have the meaning set forth in Section
3.11(b)(1).
"Outstanding Voting Securities" shall have the meaning set forth in Section
3.11(b)(1).
"Permitted Transferee" shall mean (i) the Optionee's spouse or former
spouse, (ii) any of the Optionee's lineal descendants, lineal ancestors or
siblings, (iii) the Optionee's mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, (iv) a trust of which one
or more of the persons described in clauses (i)-(iii) hereof are the only
beneficiaries, (v) a partnership in which no person is a partner other than
the Optionee or one or more of the persons described in clauses (i)-(vi)
hereof or (vi) a limited liability company in which no person is a member
other than the Optionee or one or more of the persons described in clauses
(i)-(vi) hereof, provided that any person described in clauses (i)-(vi)
hereof has entered into a written agreement with the Company to withhold
whole shares of Stock which would otherwise be delivered to such person to
pay any Federal, state, local or other taxes that may be required to be
withheld or paid in connection with the exercise of the Option in the event
that the Optionee does not provide for an arrangement satisfactory to the
Company to assure that such taxes will be paid.
"Person" shall have the meaning set forth in Section 3.11(b)(1).
"Securities Act" shall mean the Securities Act of 1933, as amended.
4.3. Successors. This Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Company and any Permitted
Transferees or persons who shall, upon the death of the Optionee, acquire any
rights hereunder in accordance with Section 4.4 hereof.
4.4. Designation of Beneficiary. The Optionee may file with the Board a
written designation of one or more persons as the Optionee's beneficiary or
beneficiaries (both primary and contingent) in the event of the Optionee's
death. To the extent the Option is exercisable, such beneficiary or
beneficiaries shall be entitled to exercise such Option. Each beneficiary
designation shall become effective only when filed in writing with the Board
during the Optionee's lifetime on a form prescribed by the Board. The filing
with the Board of a new beneficiary designation shall cancel all previously
filed beneficiary designations. If the Optionee fails to designate a
beneficiary, or if all designated beneficiaries of the Optionee predecease the
Optionee, then the Option, to the extent exercisable, may be exercised by the
Optionee's Legal Representative.
4.5. Notices. All notices, requests or other communications provided for in
this Agreement shall be made, if to the Company, to Patron Systems, Inc., 000
Xxxx Xxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000 (facsimile number: (000) 000-0000),
Attention: Xx. Xxxxxxx X. Xxxxx, Chief Executive Officer; and if to the
Optionee, to Xxxxxxx Xxxxxxx, 0000 Xxxxx Xxxxxxxxx, Xxxx X, Xxxxxxx, Xxxxxxxx
00000 (facsimile number: (000) 000-0000). All notices, requests or other
communications provided for in this Agreement shall be made in writing either
(a) by personal delivery, (b) by facsimile with confirmation of receipt, (c) by
mailing in the
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United States mail, return receipt requested or (d) by express courier service,
with a signature of the recipient required. The notice, request or other
communication shall be deemed to be received upon personal delivery, upon
confirmation of receipt of facsimile transmission or upon receipt by the party
entitled thereto if by United States mail or express courier service; provided,
however, that if a notice, request or other communication sent to the Company is
not received during regular business hours, it shall be deemed to be received on
the next succeeding business day of the Company.
4.6. Amendment and Waiver. The provisions of this Agreement may be amended
or waived only by the written agreement of the Company and the Optionee, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
4.7. Governing Law. This Agreement and the Option and all determinations
made and actions taken pursuant hereto and thereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of Delaware and construed in accordance therewith without giving effect to
principles of conflicts of laws.
4.8. Entire Agreement. This Agreement, the Exercise Notice and Share
Repurchase Agreement and the Investment Representation Statement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and the Optionee with respect to the subject matter hereof.
4.9. Counterparts. This Agreement may be executed in two counterparts each
of which shall be deemed an original and both of which together shall constitute
one and the same instrument.
PATRON SYSTEMS, INC.
By:
___________________________________________
Name:______________________________________
Title:_____________________________________
Accepted this ___ day of _______, 200__.
________________________________________
Optionee
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Exhibit A
Patron Systems, Inc. Stock Option Agreement
Exercise Notice and Share Repurchase Agreement
Patron Systems, Inc.
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Chief Executive Officer
1. Exercise of Option. Effective as of today, ___________, 20___, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_____ shares of the common stock, $.01 par value per share (the "Shares") of
Patron Systems, Inc. (the "Company") under and pursuant to the Patron Systems,
Inc. Stock Option Agreement dated ________, 20___ (the "Option Agreement").
2. Delivery of Payment. Optionee herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understands this Exercise Notice and Share Repurchase
Agreement (this "Agreement") and the Option Agreement and agrees to abide by and
be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Shares subject to
the Option, notwithstanding the exercise of the Option. The Shares shall be
issued to the Optionee as soon as practicable after the Option is exercised. No
adjustment shall be made for a dividend or other right for which the record date
is prior to the date of issuance.
5. Right of First Refusal. Before any Option Shares held by the Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Option Shares on the terms and conditions set forth in this Section
(the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Option Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Option Shares; (ii) the
name of each proposed purchaser or other transferee (the "Proposed Transferee");
(iii) the number of Option Shares to be transferred to each Proposed Transferee;
and (iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Option Shares (the "Offered Price"), and the Holder
shall offer the Option Shares at the Offered Price to the Company or its
assignee(s).
(b) Exercise of Right of First Refusal. At any time within ninety (90)
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase some or all of the Option
Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price (the "Purchase Price") for the
Option Shares purchased by the Company or its assignee(s) under this Section
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option of
the Company or its assignee(s), in cash (by check), by cancellation of all or a
portion of any outstanding indebtedness of the Holder to the Company (or, in the
case of repurchase by an assignee, to the assignee), or by any combination
thereof within 90 days after receipt of the Notice or in such other manner and
at such other time mutually agreeable to the parties.
(e) Holder's Right to Transfer. If all of the Option Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the Holder
may sell or otherwise transfer such Option Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice, that any
such sale or other transfer is effected in accordance with any applicable
securities laws and that the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Option Shares in the
hands of such Proposed Transferee. If the Option Shares described in the Notice
are not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Option Shares held by the
Holder may be sold or otherwise transferred.
6. Share Repurchase. (a) If the Optionee's employment with the Company
terminates for any reason or if the Optionee breaches any covenant set forth in
any employment, noncompetition, nonsolicitation, confidentiality, inventions or
similar agreement between the Company and the Optionee (an "Employment
Agreement") at any time, the Company or its assignee shall have the right (but
not the obligation) in its sole discretion to repurchase any or all of the
Option Shares held by such Optionee (the "Share Repurchase Option"). If the
Company or its assignee repurchases any Option Shares pursuant to this Section,
it shall pay to the Optionee or his or her Legal Representative a purchase price
equal to: (i) in the case of the Optionee's termination of employment for any
reason other than Cause, the Fair Market Value of such Option Shares as of the
date the Company or its assignee elects to repurchase such Option Shares; and
(ii) in the case of the Optionee's termination of employment for Cause or the
Optionee's breach of an Employment Agreement, the lesser of the exercise price,
as adjusted pursuant to Section 3.4 of the Option Agreement, and the Fair Market
Value of the Option Shares as of the date the Company or its assignee elects to
repurchase such Option Shares.
(a) The right of the Company or its assignee to repurchase such Option
Shares shall expire 90 days after the date of the Optionee's termination of
employment or breach, as
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applicable, or, if later, 90 days after the date the Option is exercised. The
repurchase rights shall be in addition to any other rights or remedies that the
Company or its assignee may have under this Agreement or otherwise. If the
Company or its assignee elects to repurchase any Option Shares pursuant to this
Section, (i) the Company or its assignee shall deliver to the Optionee, within
the 90-day period described in this Section, a notice setting forth the number
of Option Shares which it has elected to repurchase and (ii) the Optionee shall
deliver to the Company a certificate or certificates for the Option Shares being
repurchased, duly endorsed or otherwise in proper form for transfer, against
payment of the required repurchase price in cash (by check).
7. Termination of Right of First Refusal and Share Repurchase Option. The
Right of First Refusal and Share Repurchase Option, as set forth in Sections 5
and 6 hereof, shall terminate as to any Option Shares upon the first sale of
shares of common stock of the Company to the general public pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission under the Securities Act.
8. Tax Consultation. Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
9. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall cause
the legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by the Company or by federal, state or
foreign securities laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
THEREOF OR UNLESS THE TRANSFER IS OTHERWISE EXEMPT FROM REGISTRATION.
THE COMPANY MAY REQUIRE A WRITTEN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED IN CONNECTION WITH ANY PROPOSED SALE, PLEDGE, HYPOTHECATION
OR OTHER TRANSFER OF THE SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER HELD BY THE ISSUER OR ITS ASSIGNEE(S) AND
CERTAIN PURCHASE RIGHTS IN FAVOR OF THE ISSUER OR ITS ASSIGNEE(S) AS
SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THE OPTION RELATING TO THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
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RESTRICTIONS AND PURCHASE RIGHTS ARE BINDING ON TRANSFEREES OF THESE
SHARES.
(b) Stop-Transfer Orders. Optionee agrees that in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to transfer
any Shares that have been sold or otherwise transferred in violation of any of
the provisions of this Agreement or (ii) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee
to whom such Shares shall have been so transferred.
10. Successors and Assigns. The Company may assign any of its rights under
this Agreement to single or multiple assigns, and this Agreement shall inure to
the benefit of the successors and assigns of the Company. This Agreement shall
be binding upon Optionee and, subject to the restrictions on transfer set forth
herein, his or her heirs, executors, administrators, successors and assigns.
11. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted to the Board which shall review such dispute at its
next regular meeting. The resolution of such a dispute by the Board shall be
final, binding and conclusive on all parties.
12. Governing Law. This Agreement, the Option and all determinations made
and actions taken pursuant hereto and thereto, to the extent not governed by the
laws of the United States, shall be governed by the laws of the State of
Delaware and construed in accordance therewith without giving effect to
principles of conflicts of laws.
13. Entire Agreement. The Option Agreement is incorporated herein by
reference. Capitalized terms not defined herein shall have the meanings
specified in the Option Agreement. This Agreement, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof. This Agreement may not be modified except
by means of a writing signed by the Company and Optionee.
Submitted by: Accepted by:
Optionee: PATRON SYSTEMS, INC.
____________________________ ____________________________
Signature By:
____________________________ ____________________________
Print Name Its:
____________________________
Date Received
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Exhibit B
Patron Systems, Inc. Stock Option Agreement
Investment Representation Statement
Optionee: Xxxxxxx Xxxxxxx
Company: Patron Systems, Inc.
Security: Common Stock, $.01 par value
Number of Shares: _____________________
Aggregate Exercise Price: _____________________
Date: _____________________
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee 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 Securities. Optionee is
acquiring these Securities for investment for Optionee'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 of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that: (i) the Securities must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available; (ii) the Company is under no obligation to
register the Securities; and (iii) the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities
unless they are registered or such registration is not required in the opinion
of counsel satisfactory to the Company, and any other legend required under
applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, 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 the grant of the Option to the Optionee, the exercise 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, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, (3) the amount of Securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e)
and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of the grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than one year, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and other than pursuant to Rules
144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
___________________________________
Date: _____________________________
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