EXHIBIT 10.39
BREAKAWAY SOLUTIONS, INC.
STOCK RESTRICTION AGREEMENT
This Stock Restriction Agreement (this "AGREEMENT") is made as of May 14,
1999, by and between Breakaway Solutions, Inc., a Delaware corporation (the
"COMPANY"), and Xxxxxxx X. Xxxxxx (the "STOCKHOLDER").
WHEREAS, the Company, WPL Laboratories , Inc., a Pennsylvania corporation
("WPL") and Celtic Acquisition Corp., a Pennsylvania corporation ("MERGER SUB")
and the Stockholder, among others, have entered into an Agreement and Plan of
Reorganization (the "MERGER AGREEMENT") whereby WPL will merge with and into
Merger Sub (the "MERGER");
WHEREAS, the Stockholder will acquire an aggregate of 1,159,520 shares
of the Company's common stock at a price of $2.78 per share (the "ORIGINAL
PURCHASE PRICE") pursuant to the Merger;
WHEREAS, the Merger Agreement requires, as a condition to closing the
Merger, that the parties hereto enter into this Agreement;
WHEREAS, the Stockholder desires to induce the Company to close the
Merger and is willing to subject an aggregate of 445,968 shares ,
representing the total number of shares of the Company's common stock to be
acquired by the Stockholder in the Merger less the Stockholder's pro rata
proportion (based exclusively on the Outstanding Share Amount) of 50% of the
Aggregate Share Number (as defined in the Merger Agreement) (the "SHARES"), of
the Company's common stock to the repurchase option described herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1
REPURCHASE OPTION
1.1 In the event the Stockholder's employment ("CONTINUOUS STATUS") with
the Company is terminated by the Stockholder voluntarily or by the Company for
"CAUSE" (as defined below) before all of the Shares are released from the
Company's repurchase option (see Section 2), the Company shall, upon the date of
such termination, have an irrevocable, exclusive option for a period of sixty
(60) days from such date to repurchase up to that number of shares which
constitute the "UNRELEASED SHARES" (as defined in Section 2) at the Original
Purchase Price per share (the "REPURCHASE PRICE"). Such option shall be
exercised by the Company by delivering written notice to the Stockholder and, at
the Company's option, (i) by delivering to the Stockholder a check in the amount
of the aggregate Repurchase Price, or (ii) by the Company canceling an amount of
the Stockholder's indebtedness for borrowed money to the Company, if any, equal
to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so
that the
combined payment and cancellation of indebtedness equals such aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price in any of the ways described above, the Company shall become
the legal and beneficial owner of the Unreleased Shares being repurchased and
all rights and interests therein or relating thereto, and the Company shall have
the right to retain and transfer to its own name the number of Unreleased Shares
being repurchased by the Company. For the purpose of this Section 1, "CAUSE"
shall mean: (i) the substantial and continuing failure, after thirty (30) days'
notice thereof, to render services to the Company or any subsidiary of the
Company in accordance with the terms or requirements of the Stockholder's
position and duties; (ii) gross negligence or willful misconduct in the
performance of Stockholder's duties or a breach of fiduciary duty to the Company
or any subsidiary of the Company; (iii) the commission of an act of embezzlement
or fraud; (iv) deliberate disregard of the written rules or policies of the
Company or any subsidiary of the Company which results in direct or indirect
loss, damage or injury to the Company or any subsidiary of the Company; (v) the
intentional unauthorized disclosure of any trade secret or confidential
information of the Company or any subsidiary of the Company; or (vi) the
conviction of a felony.
1.2 Whenever the Company shall have the right to repurchase the
Unreleased Shares hereunder, the Company may designate and assign one or more
employees, officers, directors or stockholders of the Company or other persons
or organizations to exercise all or a part of the Company's repurchase rights
under this Agreement and purchase all or a part of such Unreleased Shares.
SECTION 2
RELEASE OF SHARES FROM REPURCHASE OPTION
2.1 Twenty-five percent (25%) of the Shares shall be released from the
Company's repurchase option on the first anniversary of the date hereof and the
remaining Shares shall be released from the Company's repurchase option ratably
every month over an aggregate period of thirty-six (36) months, provided in each
case that the Stockholder's Continuous Status with the Company has not
terminated prior to the date of any such release, subject to Section 2.2 below.
2.2 Upon the occurrence of a Change of Control, all Unreleased Shares (as
defined below) shall be released from the Company's repurchase option in full.
For purpose of this Section 2.2, "Change of Control" shall mean the occurrence
of any of the following events:
(i) the approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation;
(ii) any approval by the shareholders of the Company of a plan or
proposal for the liquidation or dissolution of the Company or an
agreement or agreements for the sale, lease, exchange, disposition
or other transfer (in one transaction or a series of transactions)
by the Company of all or substantially all of the assets of the
Company; or
(iii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing
50% or more of the total voting power represented by the Company's
then outstanding voting securities; PROVIDED HOWEVER, that this
section shall not apply to any person or persons who, either
individually or jointly, on the date of this Agreement
beneficially owned securities of the Company representing 50% or
more of the total voting power represented by the Company's then
outstanding voting securities.
2.3 In the event that the Company terminates Stockholder's employment
other than for Cause or materially reduces Stockholder's compensation and
benefits, then all of the Unreleased Shares (as defined below) shall immediately
be released from the Company's repurchase option.
2.4 Any of the Shares which have not yet been released from the Company's
repurchase option are referred to herein as "UNRELEASED SHARES".
SECTION 3
RESTRICTION ON TRANSFER
3.1 Except for the escrow described in Section 4 or the transfer of the
Shares to the Company or its assignees contemplated by this Agreement, none of
the Shares or any beneficial interest therein shall be transferred, encumbered
or otherwise disposed of in any way until the release of such Shares from the
Company's repurchase option in accordance with the provisions of this Agreement.
3.2 The Stockholder further agrees that, during the period of duration
(up to, but not exceeding, one hundred eighty (180) days) specified by the
Company and an underwriter of Common Stock or other securities of the Company,
following the date of the final prospectus which forms a part of a registration
statement of the Company filed under the Securities Act of 1933, as amended,
relating to the Company's initial public offering, the Stockholder shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, pledge, contract to sell (including, without limitation,
any short sale), grant any option, right or warrant, to purchase or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
(each a "Disposition") any of the Shares at any time during such period except
Common Stock included in such registration; provided that other officers of the
Company are prohibited from engaging in a Disposition to the same extent as
provided herein.
SECTION 4
ESCROW OF SHARES
4.1 To ensure the availability for delivery of the Stockholder's
Unreleased Shares upon repurchase by the Company pursuant to the Company's
repurchase option under Section 1 above, the Stockholder shall, upon execution
of this Agreement, deliver and deposit with the Company the share certificates
representing the Unreleased Shares, together with the stock assignment duly
endorsed in blank, attached hereto as EXHIBIT A. The Unreleased Shares and stock
assignment shall be held by the Company pursuant to the terms of this Agreement.
4.2 The Company shall not be liable for any act it may do or omit to do
with respect to holding the Unreleased Shares in escrow and while acting in good
faith and in the exercise of its good faith judgment.
4.3 If the Company or any assignee exercises its repurchase option
hereunder, the Company, upon receipt of written notice of such option exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
4.4 When the repurchase option has been exercised or expires unexercised
or a portion of the Shares has been released from such repurchase option, upon
Stockholder's request the Company shall promptly cause a new certificate to be
issued for such released Shares and shall deliver such certificate to the
Company or the Stockholder, as the case may be.
4.5 Subject to the terms hereof, the Stockholder shall have all the
rights of a stockholder with respect to such Unreleased Shares while they are
held in escrow, including without limitation, the right to vote the Unreleased
Shares and receive any cash dividends declared thereon. If, from time to time
during the term of the Company's repurchase option, there is (i) any stock
dividend, stock split or other change in the Unreleased Shares, or (ii) any
acquisition, merger or sale of assets of the Company which does not release all
of the Unreleased Shares from the Company's repurchase option, any and all new,
substituted or additional securities to which the Stockholder is entitled by
reason of the Stockholder's ownership of the Unreleased Shares shall be
immediately subject to this Agreement, deposited with the Company and included
thereafter as "Unreleased Shares" for purposes of this Agreement and the
Company's repurchase option.
4.6 THE STOCKHOLDER ACKNOWLEDGES AND AGREES THAT THE RELEASE OF SHARES
FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO SECTION 2 HEREOF IS EARNED
ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OF THE COMPANY (EXCEPT AS PROVIDED IN
SECTION 2.2). THE STOCKHOLDER FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE WITH THE STOCKHOLDER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE
THE STOCKHOLDER'S EMPLOYMENT RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
SECTION 5
MISCELLANEOUS
5.1 ENFORCEABILITY/SEVERABILITY. The parties hereto agree that each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law. If any provision of this Agreement
shall nonetheless be held to be prohibited by or invalid under applicable law,
such provision shall be effective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
5.2 STOCKHOLDER REPRESENTATIONS. In connection with this Agreement, the
Stockholder understands that he (and not the Company) shall be responsible for
his own federal, state, local or foreign tax liability and any of his other tax
consequences that may arise as a result of the transactions contemplated by this
Agreement. Stockholder shall rely solely on the determinations of his tax
advisors or his own determinations, and not on any statements or representations
by the Company or any of its agents, with regard to all such tax matters.
STOCKHOLDER HAS REVIEWED SECTION 83 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, WITH HIS TAX ADVISOR.
5.3 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement constitutes
the entire agreement between the parties relative to the subject matter hereof
and supersedes any previous agreement among the parties. Subject to the
exceptions specifically set forth in this Agreement, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and assigns of the parties.
5.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
entered into and wholly to be performed within the State of Delaware by Delaware
residents.
5.5 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
5.6 HEADINGS. The section headings of this Agreement are for convenience
and shall not by themselves determine the interpretation of this Agreement.
5.7 NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be conclusively deemed effectively given upon personal
delivery, or delivery by overnight courier, or five (5) days after deposit in
the United States mail, by registered or certified mail, postage prepaid,
addressed (i) if to the Company, as set forth below the Company's name on the
signature page of this Agreement and (ii) if to the Stockholder, to such address
as the Stockholder last provided the Company, or at such other address as the
parties may designate by ten (10) days' advance written notice to the other
parties.
5.8 AMENDMENT OF AGREEMENT. Any provision of this Agreement may be
amended by a written instrument signed by the Company and by the Stockholder.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date above set forth.
BREAKAWAY SOLUTIONS, INC.
00 Xxxxx Xxxxx
Xxxxxx, XX 00000
By: /s/ Xxxxxx Xxxxxx
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Name: Xxxxxx Xxxxxx
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Title: CEO
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"STOCKHOLDER"
/s/ Xxxxxxx X. Xxxxxx
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Name: Xxxxxxx X. Xxxxxx
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*STOCK RESTRICTION AGREEEMENT*
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, ____________________, hereby sell, assign and
transfer unto ________________________________________ shares of the Common
Stock of Breakaway Systems, Inc. standing in my name on the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint the Secretary of Breakaway Systems, Inc. or
his or her designee, to transfer the said stock on the books of the within named
corporation with full power of substitution in the premises.
This assignment may be used only in accordance with the Repurchase
Agreement between the corporation and the undersigned dated May ___, 1999.
Dated: ____________________, ______ _______________________________________
Name:__________________________________
