EXHIBIT 10.20
PILOT NETWORK SERVICES, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement ("Agreement") is made as of June
15, 1996, by and between Pilot Network Services, Inc., a California corporation
(the "Company"), and M. Xxxxxxxx Xxxxxxx ("Purchaser") pursuant to the Company's
1994 Restricted Stock Purchase Plan.
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
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on the Closing Date the Company will issue and sell to Purchaser, and Purchaser
agrees to purchase from the Company, 30,000 shares of the Company's Common Stock
(the "Shares") at a purchase price of $0.40 per Share for a total purchase price
of $12,000. The term "Shares" refers to the purchased Shares and all securities
received in replacement of Shares or as stock dividends or splits, all
securities received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. Closing; Security Interest.
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(a) The closing of the purchase and sale of the Shares under this
Agreement (the "Closing") shall be held at the principal office of the Company
simultaneously with the execution of this Agreement by the parties or on such
other date as they agree (the "Closing Date").
(b) At the Closing, the Company will deliver to Purchaser a
certificate representing the Shares to be purchased by him or her (which shall
be issued in Purchaser's name) against payment of the purchase price therefor.
The purchase price for the Shares shall be paid to the Company by delivery to
the Company of Purchaser's full recourse promissory note (the "Note") for the
balance of the purchase price, if any, in the form attached to this Agreement as
EXHIBIT A.
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(c) With respect to the Note, the parties agree to the following:
(1) The Note shall become payable in full upon the earlier of;
(i) four years from the date of purchase, or (ii) the voluntary or involuntary
termination or cessation of Purchaser's services rendered to Company or
subsequent employment of Purchaser with the Company, for any reason, with or
without cause (including death or disability).
(2) Purchaser shall deliver to the Secretary of the Company, or
his or her designee (hereinafter referred to as the "Pledge Holder"), all
certificates representing the Shares, together with (i) an Assignment Separate
from Certificate in the form attached to this Agreement as EXHIBIT B executed by
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Purchaser and by Purchaser's spouse (if required for transfer), in blank, for
use in transferring all or a portion of said Shares to the Company if, as and
when required under this Section 2(c) or under any other provision of this
Agreement including, without limitation, Section 3. In addition, Purchaser's
spouse, if any, shall execute and deliver to the Company the Consent of Spouse
attached to this Agreement as EXHIBIT C.
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(3) As security for the payment of the Note and any renewal,
extension or modification of the Note, Purchaser hereby grants to the Company a
security interest in and pledges with and delivers to the Company Purchaser's
Shares (sometimes referred to herein as the "Collateral").
In the event that Purchaser prepays all or a portion of the Note,
in accordance with the provisions thereof, Purchaser intends, unless written
notice to the contrary is delivered to the Pledge Holder, that the Shares
represented by the portion of the Note so repaid, including annual interest
thereon, shall continue to be so held by the Pledge Holder, to serve as
independent collateral for the outstanding portion of the Note for the purpose
of commencing the holding period set forth in Rule 144(d) promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
(4) In the event of any foreclosure of the security interest,
the Company may sell the Shares at a private sale or may repurchase the Shares
itself. The parties agree that, prior to the establishment of a public market
for the Shares of the Company, the securities laws affecting sale of the Shares
make a public sale of the Shares commercially unreasonable. The parties further
agree that the repurchasing of such Shares by the Company, or by any person to
whom the Company may have assigned its rights under this Agreement is
commercially reasonable if made at a price determined by the Board of Directors
in its discretion, fairly exercised, representing what would be the fair market
value of the Shares reduced by any limitation on transferability, whether due to
the size of the block of Shares or the restrictions of applicable securities
laws.
(5) In the event of default in payment when due of any
indebtedness under Purchaser's Note, the Company may elect then, or at any time
thereafter, to exercise all rights available to a Secured Party under the
California Commercial Code including the right to sell the Collateral at a
private or public sale or repurchase the Shares as provided above. The proceeds
of any sale shall be applied in the following order:
(i) To the extent necessary, proceeds shall be used
to pay all reasonable expenses of the Company in
enforcing this Agreement, including, without
limitation, reasonable attorney's fees and legal
expenses incurred by the Company.
(ii) To the extent necessary, proceeds shall be used
to satisfy any remaining indebtedness under
Purchaser's Note.
(iii) Any remaining proceeds shall be delivered to
Purchaser.
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(6) Upon full payment by Purchaser of all amounts due on the
Note, Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
that Pledge Holder shall nevertheless retain said Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to
restrictions under Section 3 of this Agreement.
3. Limitations on Transfer.
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In addition to any other limitation on transfer created by applicable
securities laws, Purchaser shall not assign, encumber or dispose of any interest
in the Shares while the Shares are subject to the Company's repurchase option,
except as provided in Section 3(h) below. After any Shares have been released
from such repurchase option, Purchaser shall not assign, encumber or dispose of
any interest in such Shares except in compliance with Sections 3(b) and 3(c)
below and applicable securities laws:
(a) Repurchase Option. In the event Purchaser ceases to be "employed
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by the Company" (as defined herein) for any reason, with or without cause
(including death, disability or voluntary resignation), the Company shall, upon
the date of such termination, have an irrevocable, exclusive option for a period
of 90 days from such termination date to repurchase all or any portion of the
Shares held by Purchaser as of such date which have not yet been released from
the Company's repurchase option at the original purchase price per Share
specified in Section 1. For purposes of this Agreement, Purchaser will be
considered to be "employed by the Company" if the Board of Directors of the
Company determines that Purchaser is rendering substantial services as an
officer, employee, consultant or independent contractor to the Company. In case
of any dispute as to whether Purchaser is employed by the Company, the Board of
Directors of the Company will have discretion to determine whether Purchaser has
ceased to be employed by the Company and the effective date on which Purchaser's
employment terminated. The option shall be exercised by the Company by written
notice to Purchaser or his executor and, at the Company's option, (i) by
delivery to the Purchaser or his executor with such notice of a check in the
amount of the purchase price for the Shares being purchased, or (ii) in the
event the Purchaser is indebted to the Company, by cancellation by the Company
of an amount of such indebtedness equal to the purchase price for the Shares
being repurchased, or (iii) by a combination of (i) and (ii) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
One hundred percent (100%) of the Shares purchased by Purchaser shall
initially be subject to the Company's repurchase option as set forth above.
Thereafter, the Shares held by Purchaser shall be released from the Company's
repurchase option under this Section 3(a) as follows (provided in each case that
Purchaser's employment has not been terminated prior to the date of any such
release): 1/4th of the total number of Shares shall be released from the
repurchase option on the first anniversary of the Vesting Commencement Date (as
set forth on the
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signature page of this Agreement), and 1/48th of the Shares originally purchased
shall be released from the repurchase option each month thereafter on the
Monthly Vesting Date (as set forth on the signature page of this Agreement),
until all Shares are released from the repurchase option. Fractional shares
shall be rounded to the nearest whole share.
(b) Right of First Refusal. In the event, at any time after the date
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of this Agreement, the Purchaser or his transferee desires to sell or transfer
in any manner the Shares as to which the option provided in Section 3(a) above
is not applicable or has not been exercised, he shall first offer such Shares
for sale to the Company at the same price, and upon the same terms (or terms as
similar as reasonably possible) upon which he is proposing or is to dispose of
said Shares. Said right of first refusal shall be provided to the Company for a
period of thirty (30) days following receipt by the Company of written notice by
the Purchaser of the terms and conditions of said proposed sale or transfer and
the name, address and phone number of each proposed buyer or transferee. If the
Company desires to exercise such right of first refusal as to all but not less
than all of the Shares proposed to be transferred, it shall notify Purchaser in
writing within such thirty day period. In the event the Shares are not disposed
of on such terms within thirty (30) days following lapse of the period of the
right of first refusal provided to the Company, or if the Purchaser proposes to
change the price or other terms to make them more favorable to the buyer, they
shall once again be subject to the right of first refusal herein provided.
(c) Involuntary Transfer. In the event, at any time after the date of
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this Agreement, of any transfer by operation of law or other involuntary
transfer (including death or divorce) of all or a portion of the Shares by the
record holder thereof, the Company shall have an option to purchase all of the
Shares transferred at the greater of the purchase price paid by Purchaser
pursuant to this Agreement or the fair market value of the Shares on the date of
transfer. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company for a period of thirty (30) days
following receipt by the Company of written notice by the person acquiring the
Shares.
(d) Price for Involuntary Transfer. With respect to any stock to be
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transferred pursuant to Section 3(c), the price per Share shall be a price set
by the Board of Directors of the Company that will reflect the current value of
the stock in terms of present earnings and future prospects of the Company. The
Company shall notify Purchaser or his or her executor of the price so determined
within thirty (30) days after receipt by it of written notice of the transfer or
proposed transfer of Shares. The decision of the Board of Directors as to the
purchase price shall be final.
(e) Assignment. The right of the Company to purchase any part of the
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Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations.
(f) Restrictions Binding on Transferees. All transferees of Shares or
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any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Company's option to repurchase or other rights
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under Section 3. Any sale or transfer of the Company's Shares shall be void
unless the provisions of this Agreement are met.
(g) Termination of Rights. The right of first refusal granted the
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Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate at such time as a public market exists for the Company's capital stock
(or any other stock issued to purchasers in exchange for the Shares purchased
under this Agreement). For the purpose of this Agreement, a "Public Market"
shall be deemed to exist if (i) such stock is listed on a national securities
exchange (as that term is used in the Securities Exchange Act of 1934) or (ii)
such stock is traded on the over-the-counter market and prices are published
daily on business days in a recognized financial journal.
Upon termination of the right of first refusal imposed by this
Agreement and the expiration or exercise of the Company's repurchase option
described in Section 3(a) above, a new certificate or certificates representing
the Shares not repurchased shall be issued, on request, without the legend
referred to in Section 6(b) herein and delivered to Purchaser.
(h) Exempt Transfers. The restrictions on transfer of this Section 3
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shall not apply to a transfer to Purchaser's ancestors or descendants or spouse
or to a trustee for their benefit, provided that such transferee shall agree in
writing to take such Shares subject to all the terms of this Agreement,
including restrictions on further transfer.
4. Escrow. For purposes of facilitating the enforcement of the provisions
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of Section 3 above, Purchaser agrees, immediately upon receipt of the
certificate(s) for his Shares, to deliver such certificate(s), together with an
Assignment Separate from Certificate in the form attached to this Agreement as
EXHIBIT B executed by Purchaser and by Purchaser's spouse (if required for
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transfer), in blank, to the Secretary of the Company, or his designee, to hold
such certificate(s) and Assignment Separate from Certificate in escrow and to
take all such actions and to effectuate all such transfers and/or releases as
are in accordance with the terms hereof. Purchaser hereby acknowledges that the
Secretary of the Company, or his or her designee, is so appointed as the escrow
holder with the foregoing authorities as a material inducement to make this
Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party) for any actions or omissions
unless such escrow holder is grossly negligent relative thereto. The escrow
holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine and may resign at any time. Purchaser agrees
that if the Secretary of the Company, or his or her designee, resigns as escrow
holder for any or no reason, the Board of Directors of the Company shall have
the power to appoint a successor to serve as escrow holder pursuant to the terms
of this Agreement.
5. Investment Representations.
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In connection with the purchase of the Shares, Purchaser represents to
the Company the following:
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(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for in vestment for his or her 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.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser further acknowledges and understands that the Company is under no
obligation to register the securities. Purchaser understands that 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 for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and 701,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions. In the event the
Company becomes subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the securities exempt under Rule 701 may be
resold by the Purchaser ninety (90) days thereafter, subject to the satisfaction
of certain of the conditions specified by Rule 144, including, among other
things: (1) the sale 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 (2) in the case of an
affiliate, the availability of certain public information about the Company,
and the amount of securities being sold during any three month period not
exceeding the limitations specified in Rule 144(e), if applicable.
If the Company does not qualify under Rule 701 at the time of
purchase, then the securities may be resold by the Purchaser in certain limited
circumstances subject to the provisions of Rule 144, which requires, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than two years after the party has purchased,
and made full payment of (within the meaning of Rule 144), the securities to be
sold; and (3) in the case of an affiliate, or of a non-affiliate who has held
the securities less than three years, the sale 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
the amount of securities being sold during any three month period not exceeding
the specified limitations stated therein, if applicable. PURCHASER UNDERSTANDS
THAT PAYMENT BY NOTE IS NOT DEEMED TO BE FULL PAYMENT UNDER RULE 144 UNLESS IT
IS SECURED BY ASSETS OTHER THAN THE SHARES.
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(e) Purchaser further understands that at the time he or she wishes
to sell the securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 or 701, and
that, in such event, Purchaser would be precluded from selling the securities
under Rule 144 or 701 even if the two-year minimum holding period had been
satisfied.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 144 or 701 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 SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 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.
6. Legends.
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The certificate or certificates representing the Shares shall bear the
following legends (as well as any legends required by applicable state and
federal corporate and securities laws):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND
THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY."
Purchaser understands that transfer of the Shares may be restricted by
the blue sky laws of the State of California.
7. No Employment Rights.
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Nothing in this Agreement shall affect in any manner whatsoever the
right or power of the Company, or a parent or subsidiary of the Company, to
terminate Purchaser's employment, for any reason, with or without cause.
8. Section 83(b) Election.
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Purchaser understands that Section 83(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), taxes as ordinary income the difference
between the amount paid for the Shares and the fair market value of the Shares
as of the date any restrictions on the Shares lapse. In this context,
"restriction" means the right of the Company to buy back the Shares pursuant to
the repurchase option set forth in Section 3(a) of this Agreement. Purchaser
understands that Purchaser may elect to be taxed at the time the Shares are
purchased, rather than when and as the repurchase option expires, by filing an
election under Section 83(b) of the Code with the Internal Revenue Service
within 30 days from the date of purchase. Even if the fair market value of the
Shares at the time of the execution of this Agreement equals the amount paid for
the Shares, the election must be made to avoid tax treatment under Section 83(a)
in the future. The form for making Purchaser's election is attached to this
Agreement. Purchaser understands that his or her failure to file such an
election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls.
9. Stand-off Agreement. In connection with the initial public offering of
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the Company's securities and upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, Purchaser agrees
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Shares (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
year) from the effective date of such registration as may be requested by the
Company or such managing underwriters; provided, however, that Purchaser need
not so agree unless a majority of the Company's officers and directors and a
majority of the holders of at least 5% of the Company's outstanding securities
also agree to be similarly bound.
10. Miscellaneous.
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(a) This Agreement may be amended by written agreement between the
Company and Purchaser.
(b) Any notice, demand or request required or permitted to be given
under this Agreement shall be in writing and shall be deemed sufficient when
delivered personally or sent by telecopy or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed, if to the Company, at its principal place of business,
attention the President, and if to Purchaser, at Purchaser's address as shown on
the stock records of the Company.
(c) The rights and benefits of this Agreement shall inure to the
benefit of, and be enforceable by the Company's successors and assigns. The
rights and obligations of Purchaser under this Agreement may only be assigned
with the prior written consent of the Company.
(d) Both parties agree to execute any additional documents necessary
to carry out the purposes of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
PILOT NETWORK SERVICES, INC.
By: /s/ M.Xxxxxxxx Xxxxxxx
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Title: President & CEO
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PURCHASER:
M. Xxxxxxxx Xxxxxxx
/s/ M. Xxxxxxxx Xxxxxxx
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(Signature)
Address: 00 Xxxxxx Xxxx
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Orinda
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Xxxxxxxxxx 00000
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Vesting Commencement
Date: April 1, 1996
Monthly Vesting
Date: April 1, 1997
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EXHIBIT A
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FULL RECOURSE
PROMISSORY NOTE
$12,000.00 Alameda, California
June 15, 1996
For value received, the undersigned ("Borrower") promises to pay to Pilot
Network Services, Inc., a California corporation (the "Company"), or its order,
at its principal office, the principal sum of $12,000.00 with interest from the
date hereof at a rate of 5.88% per annum, compounded annually, on the unpaid
balance of such principal sum. Such unpaid principal and interest shall be due
and payable on June 15, 2000.
Principal and interest are payable in lawful money of the United States of
America. Borrower may prepay interest and principal at any time with out
penalty.
Upon termination of the employment between the undersigned and the Company,
this Note shall be immediately due and payable.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Restricted Stock
Purchase Agreement between the undersigned and the Company of even date
herewith. Should suit be commenced to collect this Note or any portion thereof,
such sum as the court or arbitrator may deem reasonable shall be added hereto as
attorneys' fees. The makers and endorsers have severally waived presentment for
payment, protest, notice of protest, and notice of non-payment of this Note.
This Note shall be construed in accordance with the laws of the State of
California, without regard to the conflicts of law provisions of the State of
California or of any other state.
/s/ M. Xxxxxxxx Xxxxxxx
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M. Xxxxxxxx Xxxxxxx
EXHIBIT B
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ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement between the undersigned ("Purchaser") and Pilot Network
Services, Inc., a California corporation, dated _________, 19__ (the
"Agreement"), Purchaser hereby sells, assigns and transfers unto _______________
________ (_______) shares of the Common Stock of Pilot Network Services, Inc.
standing in Purchaser's name on the books of said corporation represented by
Certificate No. ________ herewith and does hereby irrevocably constitute and
appoint ____________________________ to transfer said stock on the books of the
within-named corporation with full power of substitution in the premises. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS
THERETO.
Dated: _____________, 19__
Signature:
/s/ M. Xxxxxxxx Xxxxxxx
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M. Xxxxxxxx Xxxxxxx
/s/ L. Xxxxxx Xxxxxxx
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Purchaser's Spouse
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option and other rights set forth in the Agreement without requiring
additional signatures on the part of Purchaser.
EXHIBIT C
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CONSENT OF SPOUSE
I, L. Xxxxxx Xxxxxxx, spouse of M. Xxxxxxxx Xxxxxxx, have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or other such interest shall be similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
/s/ L. Xxxxxx Xxxxxxx
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(Signature)
