Exhibit 10.20
STOCK RESTRICTION AGREEMENT
This Stock Restriction Agreement dated as of May 19, 1993 (the "AGREEMENT")
by and among NEON Systems, Inc., a Delaware corporation (the "Company"), Xxxxx
Xxxxxxxxx (the "STOCKHOLDER"), and JMI Equity Fund, L.P., a Delaware limited
partnership
WITNESSETH:
WHEREAS, the Stockholder is the holder of an aggregate of
shares of Common Stock, par value $.01 per share of the Company (the
"COMMON STOCK");
WHEREAS, pursuant to the terms of a Series A Stock Purchase Agreement dated
the date hereof between the Company and JMI (the "PURCHASE AGREEMENT"), JMI is
acquiring an aggregate of 500,000 shares (the "PREFERRED SHARES") of Series A
Convertible Preferred Stock, par value $.01 per share (the "PREFERRED STOCK") of
the Company; and
WHEREAS, it is a condition to the obligations of JMI under the Purchase
Agreement that this Agreement be entered into by the parties hereto, and the
parties desire to enter into this Agreement and to be bound by the provisions
hereof;
NOW, THEREFORE, in consideration of these premises and the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "INVESTOR" or "INVESTORS" shall mean and include JMI, (ii) any
partner, shareholder or affiliate of JMI who is a subsequent owner of the
Preferred Shares and (iii) any other subsequent owner of the Preferred Shares to
whom JMI shall transfer its rights hereunder pursuant to Section 6;
(b) "OFFER" shall have the meaning set forth in Section 3(a).
(c) "OFFERED SHARES" shall have the meaning set forth in Section
3(a).
(d) "PRO RATA FRACTION" shall mean the amount of Offered Shares that
each Investor is entitled to purchase under Section 3(b).
(e) "PROPOSED TRANSFEREE" shall have the meaning set forth in Section
3(a).
(f) "PURCHASER" shall have the meaning set forth in Section 4.
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(g) "SHARES" shall mean and include all shares of Stock now owned or
hereafter acquired by either (i) the Stockholder or (ii) any Investor. For
purposes of Sections 3, 4 and 10, all of the Stock which an Investor has the
right to acquire from the Company upon the conversion, exercise or exchange of
any of the securities of the Company then owned by such Investor shall be deemed
to be Shares then owned by such Investor.
(h) "STOCK" shall mean and include all shares of Common Stock, and
all other securities of the Company which may be issued in exchange for or in
respect of shares of Common Stock (whether by way of stock split, stock
dividend, combination, reclassification, reorganization, or any other means).
2. PROHIBITED TRANSFERS. The Stockholder shall not sell, assign,
transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose of all or
any of his Shares except to the Company or as expressly provided in this
Agreement. Notwithstanding the foregoing, the Stockholder may transfer all or
any of his Shares (i) by way of gift to any member of his family or to any trust
for the benefit of any such family member or the Stockholder, provided that any
such transferee shall agree in writing with the Company and the Investor, as a
condition to such transfer, to be bound by all of the provisions of this
Agreement to the same extent as if such transferee were the Stockholder, or (ii)
by will or the laws of descent and distribution, in which event each such
transferee shall be bound by all of the provisions of this Agreement to the same
extent as if such transferee were the Stockholder. As used herein, the word
"family" shall include any spouse, lineal ancestor or descendant, brother or
sister.
3A. RIGHT OF FIRST REFUSAL ON DISPOSITIONS. (a) If at any time the
Stockholder desires to sell for cash all or any part of his Shares pursuant to a
bona fide offer from a third party (the "PROPOSED TRANSFEREE"), the Stockholder
shall submit a written offer (the "OFFER") to sell such Shares (the "OFFERED
SHARES") to the Investors on terms and conditions, including price not less
favorable to the Investors than those on which the Stockholder proposes to sell
such Offered Shares to the Proposed Transferee. The Offer shall disclose the
identity of the Proposed Transferee, the Offered Shares proposed to be sold, the
total number of Shares owned by the Stockholder, the terms and conditions,
including price, of the proposed sale, and any other material facts relating to
the proposed sale. The Offer shall further state that the Investors may
acquire, in accordance with the provisions of this Agreement, all or any portion
of the Offered Shares for the price and upon the other terms and conditions,
including deferred payment (if applicable), set forth therein.
(b) Each Investor shall have the absolute right to purchase that
number of Offered Shares as shall be equal to the number of Offered Shares
multiplied by a fraction (the "PRO RATA FRACTION"), the numerator of which shall
be the number of Shares then owned by such Investor and the denominator of which
shall be the aggregate number of Shares then owned by all of the Investors.
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(c) Each Investor shall have a right of oversubscription such that if
any Investor fails to accept the Offer as to its Pro Rata Fraction, the other
Investors shall, among them, have the right to purchase up to the balance of the
offered Shares not so purchased. Such right of oversubscription may be
exercised by an Investor by accepting the Offer as to more than its Pro Rata
Fraction. If, as a result thereof, such oversubscriptions exceed the total
number of Offered Shares available in respect of such oversubscription
privilege, the oversubscribing Investors shall be cut back with respect to their
oversubscriptions on a pro rata basis in accordance with their respective Pro
Rata Fractions or as they may otherwise agree among themselves.
(d) If an Investor desires to purchase all or any part of the Offered
Shares, said Investor shall communicate in writing its election to purchase to
the Stockholder, which communication shall state the number of Offered Shares
said Investor desires to purchase and shall be given to the Stockholder in
accordance with Section 10 below within thirty (30) days of the date the Offer
was made. Such communication shall, when taken in conjunction with the Offer,
be deemed to constitute a valid, legally binding and enforceable agreement for
the sale and purchase of such Offered Shares (subject to the aforesaid
limitations as to an Investor's right to purchase more than its Pro Rata
Fraction). Sales of the Offered Shares to be sold to purchasing Investor
pursuant to this Section 3A shall be made at the offices of the Company on the
45th day following the date the Offer was made (or if such 45th day is not a
business day, then on the next succeeding business day). Such sales shall be
effected by the Stockholder's delivery to each purchasing Investor of a
certificate or certificates evidencing the Offered Shares to be purchased by it,
duly endorsed for transfer to such purchasing Investor, against payment to the
Stockholder of the purchase price therefor by such purchasing Investor.
(e) If the Investors do not purchase all of the Offered Shares, the
Offered Shares not so purchased may be sold by the Stockholder at any time
within ninety (90) days after the date the Offer was made, subject to the
provisions of Section 4. Any such sale shall be to the Proposed Transferee, at
not less than the price and upon other terms and conditions, if any, not more
favorable to the Proposed Transferee than those specified in the Offer. Any
Offered Shares not sold within such 90-day period shall continue to be subject
to the requirements of a prior offer pursuant to this Section 3A. If Offered
Shares are sold pursuant to this Section 3A to any purchaser who is not a party
to this Agreement, the Offered Shares so sold shall no longer be subject to this
Agreement.
(f) The Investors' right of first refusal provided in this Section 3A
shall not apply with respect to sales of Shares to the Company.
3B. RIGHT OF FIRST REFUSAL ON DISPOSITIONS. (a) If at any time the
Investors desire to sell for cash all or any part of his Shares pursuant to a
bona fide offer from a third party (the "PROPOSED TRANSFEREE"), the Investors
shall submit a written offer (the "OFFER") to sell such
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Shares (the "OFFERED SHARES") to the Stockholder on terms and conditions,
including price, not less favorable to the Stockholder than those on which the
Investors propose to sell such Offered Shares to the Proposed Transferee. The
Offer shall disclose the identity of the Proposed Transferee, the Offered Shares
proposed to be sold, the total number of Shares owned by the Investors, the
terms and conditions, including price, of the proposed sale, and any other
material facts relating to the proposed sale. The Offer shall further state
that the Stockholder may acquire, in accordance with the provisions of this
Agreement, all or any portion of the Offered Shares for the price and upon the
other terms and conditions, including deferred payment (if applicable), set
forth therein.
(b) Each Stockholder shall have the absolute right to purchase that
number of Offered Shares as shall be equal to the number of Offered Shares
multiplied by a fraction (the "PRO RATA FRACTION"), the numerator of which shall
be the number of Shares then owned by such Stockholder and the denominator of
which shall be the aggregate number of Shares then owned by all of the
Stockholders.
(c) Each Stockholder shall have a right of oversubscription such that
if any Stockholder fails to accept the Offer as to its Pro Rata Fraction, the
other Stockholders shall, among them, have the right to purchase up to the
balance of the Offered Shares not so purchased. Such right of oversubscription
may be exercised by a Stockholder by accepting the Offer as to more than its Pro
Rata Fraction. If, as a result thereof, such oversubscriptions exceed the total
number of Offered Shares available in respect of such oversubscription
privilege, the oversubscribing Stockholders shall be cut back with respect to
their oversubscriptions on a pro rata basis in accordance with their respective
Pro Rata Fractions or as they may otherwise agree among themselves.
(d) If a Stockholder desires to purchase all or any part of the
Offered Shares, said Stockholder shall communicate in writing its election to
purchase to the Investors, which communication shall state the number of Offered
Shares said Stockholder desires to purchase and shall be given to the Investors
in accordance with Section 10 below within thirty (30) days of the date the
Offer was made. Such communication shall, when taken in conjunction with the
Offer, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale and purchase of such Offered Shares (subject to the
aforesaid limitations as to a Stockholder's right to purchase more than its Pro
Rata Fraction). Sales of the Offered Shares to be sold to purchasing
Stockholder pursuant to this Section 3B shall be made at the offices of the
Company on the 45th day following the date the Offer was made (or if such 45th
day is not a business day, then on the next succeeding business day). Such
sales shall be effected by the Investors, delivery to each purchasing
Stockholder of a certificate or certificates evidencing the Offered Shares to be
purchased by it, duly endorsed for transfer to such purchasing Stockholder,
against payment to the Investors of the purchase price therefor by such
purchasing Stockholder.
(e) If the Stockholder does not purchase all of the Offered Shares,
the Offered Shares not so purchased may be sold by the Investors at any time
within ninety (90) days after the date the Offer was made,
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subject to the provisions of Section 4. Any such sale shall be to the Proposed
Transferee, at not less than the price and upon other terms and conditions, if
any, not more favorable to the Proposed Transferee than those specified in the
Offer. Any Offered Shares not sold within such 90-day period shall continue to
be subject to the requirements of a prior offer pursuant to this Section 3B. If
offered Shares are sold pursuant to this Section 3B to any purchaser who is not
a party to this Agreement, the Offered Shares so sold shall no longer be subject
to this Agreement.
(f) The Stockholder's right of first refusal provided in this Section
3B shall not apply with respect to sales of Shares to the Company.
4. RIGHT OF PARTICIPATION IN SALES. (a) If at any time the Stockholder
desires to sell for cash all or any part of the Shares owned by him to any
person or entity other than one or more of the Investors (the "Non-
Investor Purchaser"), each of the Stockholders shall have the right to sell
to the Non-Investor Purchaser, as a condition to such sale by the Stockholder,
at the same price per share and on the same terms and conditions as involved in
such sale by the Stockholder, the same percentage as the Shares owned by such
Investor as the Shares to be sold by the Stockholder to the Non-Investor
Purchaser represents with respect to the Shares owned by the Stockholder
immediately prior to the sale of any of his Shares to the Non-Investor
Purchaser.
(b) Each Investor wishing to so participate in any sale under this
Section 4 shall notify the Stockholder in writing of such intention as soon as
practicable after such Investor's receipt of the Offer made pursuant to Section
3, and in any event within twenty (20) days after the date the Offer was made.
Such notification shall be given to such Stockholder in accordance with Section
10.
(c) The Stockholder and each participating Investor shall sell to the
Non-Investor Purchaser all, or at the option of the Non-Investor Purchaser, any
part of the Shares proposed to be sold by them at not less than the price and
upon other terms and conditions, if any, not more favorable to the Non-Investor
Purchaser than those in the Offer provided by the Stockholder under Section 3;
PROVIDED, HOWEVER, that any purchase of less than all of such Shares by the
Non-Investor Purchaser shall be made from the Stockholder and each participating
Investor pro rata based upon the relative amount of the Shares that the
Stockholder and each participating Investor is otherwise entitled to sell
pursuant to Section 4(a).
(d) Any Shares sold by the Stockholder or a participating Investor
pursuant to this Section 4 shall no longer be subject to this Agreement.
(e) The Investor's right to participate in sales pursuant to this
Section 4 shall not apply with respect to sales of Shares to the Company.
5. TERM. This Agreement shall terminate upon the earlier of (a) the date
of the consummation of the first firm commitment underwritten public offering
pursuant to an effective registration statement on Form S-1 (or its then
equivalent) under the Securities Act of 1933, as
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amended, pursuant to which the net proceeds to the Company amount to at least
$10,000,000 or (b) the seventh anniversary of the date of this Agreement.
6. FAILURE TO DELIVER SHARES. If the Stockholder becomes obligated to
sell any Shares to an Investor under this Agreement and fails to deliver such
Shares in accordance with the terms of this Agreement, such Investor may, at its
option, in addition to all other remedies it may have, send to the Stockholder
the purchase price for such Shares as is herein specified. Thereupon, the
Company upon written notice to the Stockholder, (a) shall cancel on its books
the certificate or certificates representing the Shares to be sold and (b) shall
issue, in lieu thereof, in the name of such Investor a new certificate or
certificates representing such Shares, and thereupon all of the Stockholder's
rights in and to such Shares shall terminate.
7. PUT RIGHT. In the event of any sale, transfer, assignment or other
disposition of any capital stock of the Company by a Stockholder in violation of
any provision of this Agreement, each Investor shall each have the right to
elect to cause such Stockholder to purchase, and such Stockholder shall be
obligated to purchase, from such Investor, at the same price per share and on
the same terms and conditions as involved in such sale by the Stockholder, such
number of shares of capital stock (calculated on a fully-diluted basis) equal to
the number of shares sold by such Stockholder multiplied by a fraction, the
numerator of which is the aggregate number of shares of capital stock owned by
any particular Investor desiring to sell shares to such Stockholder under this
Section 8 (calculated on a fully diluted basis) and the denominator of which is
the sum of all shares of capital stock owned by all Investors desiring to sell
shares to such Stockholder under this Section 8 (calculated on a fully-diluted
basis).
8. TRANSFER OF RIGHTS. Rights conferred herein on JMI shall only inure
to the benefit of a transferee of Preferred Shares if (a) the transferee is a
partner, shareholder or affiliate of JMI or (b) JMI assigns its rights hereunder
to any other transferee by a written instrument pursuant to which such
transferee agrees to be bound by the terms of this Agreement.
9. SPECIFIC ENFORCEMENT. The Stockholder expressly agrees that each
Investor and the Company will be irreparably damaged if this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by the Stockholder, any Investor
and the Company shall, in addition to all other remedies, each be entitled to a
temporary or permanent injunction, without showing any actual damage, and/or a
decree for specific performance, in accordance with the provisions hereof.
10. LEGEND. Each certificate evidencing any of the Shares shall bear a
legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER AND MAY NOT BE SOLD, EXCHANGED,-TRANSFERRED, PLEDGED,
HYPOTHECATED OR
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OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH AND SUBJECT TO ALL THE
TERMS AND CONDITIONS OF A CERTAIN STOCK RESTRICTION AGREEMENT BY AND
AMONG THE COMPANY, THE HOLDER OF THIS CERTIFICATE AND CERTAIN OTHER
STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH THE COMPANY WILL FURNISH
TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE.
11. NOTICES. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery, on the date of postmark if mailed by
certified or registered mail, return receipt requested, or on the date sent by
telecopier or telex to the party being notified at his or its address specified
on the applicable signature page hereto or such other address as the addressee
may subsequently notify the other parties of in writing.
12. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provision hereof may be waived, modified, amended
or terminated except by a written agreement signed by the parties hereto;
PROVIDED, HOWEVER, that Investors owning at least two-thirds of the Shares owned
by all Investors may effect any such waiver, modification, amendment or
termination on behalf of all of the Investors. To the extent any term or other
provision of any other indenture, agreement or instrument by which any party
hereto is bound conflicts with this Agreement, this Agreement shall have
precedence over such conflicting term or provision.
13. SUCCESSORS GOVERNING LAW AND ASSIGNS. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE AS TO MATTERS WITHIN THE SCOPE THEREOF
AND AS TO ALL OTHER MATTERS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
THE CONFLICTS OF LAWS THEREOF. THIS AGREEMENT SHALL BE BINDING UPON THE HEIRS,
PERSONAL REPRESENTATIVES, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS OF
THE PARTIES.
14. WAIVERS. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
15. SEVERABILITY. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other
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provision of this Agreement, and this Agreement shall be carried out as if any
such illegal, invalid or unenforceable provision were not contained herein.
16. CAPTIONS. Captions are for convenience only and are not deemed to be
part of this Agreement.
17. CONTINUATION OF EMPLOYMENT. Nothing in this Agreement shall create an
obligation on the Company or any Investor to continue the Stockholder's
employment with the Company.
18. 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.
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IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
NEON SYSTEMS, INC.
By: /s/ Xxxxx Xxxxxxxxx
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Xxxxx Xxxxxxxxx
President
: Address: 0000 Xxxxx Xxxxx Xxxxx 0000
Xxxxxxx, Xxxxx 00000
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P. Its General
Partner
By: /s/ Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxx
A General Partner
Address: 00000 Xxxxxxxxx Xxxxxxx,
Xxxxx 0000
Xxxxx Xxxx, Xxxxx 00000
/s/ Xxxxx Xxxxxxxxx
Xxxxx Xxxxxxxxx
