Sample Business Contracts

Founder Stock Purchase Agreement - NetiPhone Inc. and Michael Vargo

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                                NETIPHONE, INC.


          THIS AGREEMENT is made as of the July 2, 1996 by and between
NetiPhone, Inc., a California corporation (the "Corporation"), and Michael Vargo
(the "Purchaser").

          WHEREAS, pursuant to Section 408 of the California General Corporation
Law, the Corporation desires to issue, and the Purchaser desires to acquire,
stock of the Corporation as herein described, on the terms and conditions
hereinafter set forth;

          WHEREAS, the issuance of common stock hereby is in connection with a
compensatory benefit plan for the employees, directors, officers, advisers or
consultants of the Corporation and is intended to comply with the provisions of
Rule 701 promulgated by the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "Act").

          NOW, THEREFORE, IT IS AGREED between the parties as follows:

          1.   The Purchaser hereby agrees to purchase from the Corporation, and
the Corporation hereby agrees to sell to the Purchaser, an aggregate of one
million three hundred fifty thousand (1,350,000) shares of the Common Stock of
the Corporation (the "Stock") at $0.01 per share, for an aggregate purchase
price of $13,500.00, payable as follows:

          Promissory Note.................................................  $8,500.00

          Technology transferred to the Corporation, listed in Exhibit C..  $5,000.00

          2.   In accordance with Section 408(b) of the California General
Corporation Law, the shares to be purchased by the Purchaser pursuant to this
Agreement (hereinafter sometimes collectively referred to as the "Stock") shall
be subject to the repurchase options of the Corporation set forth in
subparagraphs (a) and (b) below ("Purchase Option"):

          (A)  In the event the Purchaser ceases to be an employee of the
Corporation for any reason (including death), or no reason, with or without
cause, then the Corporation shall have the right at any time within ninety (90)
business days after said cessation or such longer period as may be determined by
the Company if such later repurchase is deemed necessary by the Company for
treatment of its stock as Qualified Small Business Stock under Section 1202 of
the Internal Revenue Code of 1986, as amended and regulations promulgated
thereunder, to exercise its option to repurchase from the Purchaser or his
personal representative, as the case may be, at the total price per share
indicated above as paid by the Purchaser for such Stock ("Option Price"), up to
but not exceeding the number of shares of stock which have not vested under the
provisions of paragraph (6) below. As used herein, employment with the
Corporation shall include employment with a "parent" or "subsidiary" of the
Corporation as those terms are defined in Sections 425(e) and (f) of the
Internal Revenue Code of 1986, as amended.

          (B)  The Corporation may exercise its purchase option as to the
maximum portion of the stock specified in the table below:

                                                    PORTION OF STOCK           
     Within 12 months after                                                    
     the Employment Start Date                      100%                       
     Thereafter,                                    The percentage             
                                                    given by the following     
                                                    (48 - Number of full       
                                                    months since the Employment
                                                    Start Date) divided by 48

     Your Employment Start Date is July 15, 1996.

          (C)  The Corporation shall be entitled to pay for any shares purchased
pursuant to its Purchase Option at the Corporation's option in cash or by offset
against any indebtedness

owing to the Corporation by Purchaser (including without limitation any Note
given in payment for the Stock).

          (D)  Nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Corporation (or a parent or subsidiary of the
Corporation) to terminate Purchaser's employment for any reason, with or without

     3.   The Purchase Option shall be exercised by written notice signed by an
officer of the Corporation or by any assignee or assignees of the Corporation
and delivered or mailed as provided in paragraph 14. Such notice shall identify
the number of shares to be purchased and shall notify the Purchaser of the time,
place and date for settlement of such purchase, which shall be scheduled by the
Corporation within one hundred fifty (150) business days from the date of
cessation of employment.

     4.   If, from time to time during the term of the Purchase Option:

               (I)  There is any stock dividend or other distribution of cash
and/or property, stock split or other change in the character or amount of any
of the outstanding securities of the Corporation; or

               (II) There is any consolidation, merger or sale of all, or
substantially all of the assets of the Corporation; then, in such event, any and
all new, substituted or additional securities or other property to which the
Purchaser is entitled by reason of its ownership of Stock shall be immediately
subject to the Purchase Option and be included in the word "Stock" for all
purposes of the Purchase Option with the same force and effect as the shares of
the Stock presently subject to the Purchase Option. While the total Option Price
shall remain the same after each such event, the Option Price per share of Stock
upon exercise of the Purchase Option shall be appropriately adjusted.

     Upon the occurrence of any event specified in clause (ii) above, the
Purchase Option may be assigned to any successor to the Corporation, and the
Purchase Option shall apply if the Purchaser does not become or shall cease for
any reason to be employed by such successor (or its parent or subsidiaries). In
such case, the references herein to the "Corporation" shall be deemed to refer
to such successor.

     5.   All certificates representing any shares of Stock of the Corporation
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following forms (in addition to any other legend which may
be required by other agreements between the parties hereto):

               (I)    "The shares represented by this certificate are subject to
an option set forth in an agreement between the Corporation and the registered
holder, or his predecessor in interest, a copy of which is on file at the
principal office of this Corporation. Any transfer or attempted transfer of any
shares subject to such option is void without the prior express written consent
of the issuer of these shares."

               (II)   "The securities represented by this Certificate have not
been registered under the Securities Act of 1933. They may not be sold, offered
for sale, pledged or hypothecated in the absence of an effective registration
statement as to the securities under said Act or an opinion of counsel
satisfactory to the Company that such registration is not required."

               (III)  Any legend required by the California Commissioner of
Corporations or other state securities laws.

     6.   Purchaser acknowledges that he is aware that the Stock to be issued to
him by the Corporation pursuant to this Agreement has not been registered under
the Act, and that the Stock is deemed to constitute "restricted securities"
under Rule 701 and Rule 144 promulgated under

the Act. In this connection, Purchaser warrants and represents to the
Corporation that Purchaser is purchasing the Stock for Purchaser's own account
and Purchaser has no present intention of distributing or selling said stock
except as permitted under the Act and Section 25102(f) of the California
Corporations Code. Purchaser further warrants and represents that Purchaser has
either (i) preexisting personal or business relationships with the Corporation
or any of its officers, directors or controlling persons, or (ii) the capacity
to protect his own interests in connection with the purchase of the Stock by
virtue of the business or financial expertise of any professional advisors to
the Purchaser who are unaffiliated with and who are not compensated by the
Corporation or any of its affiliates, directly or indirectly. Purchaser further
acknowledges that the exemption from registration under Rule 144 will not be
available for at least three years from the date of sale of the Stock unless at
least two years from the date of sale (i) a public trading market then exists
for the Common Stock of the Corporation, (ii) adequate information concerning
the Corporation is then available to the public, and (iii) other terms and
conditions of Rule 144 are complied with; and that any sale of the Stock may be
made only in limited amounts in accordance with such terms and conditions and
that exemption from registration under Rule 701 will not be available until
ninety days after the Corporation becomes subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934 and that after
such date the Stock may be resold by persons other than affiliates in reliance
on Rule 144 without compliance with paragraphs (c),(d),(e) and (h) thereof, and
by affiliates without compliance with paragraph (d) thereof.

     7.   The Purchaser agrees that during the one hundred eighty (180) day
period following the effective date of a registration statement of the
Corporation filed under the Act the Purchaser shall not, to the extent requested
by the Corporation and any underwriter, sell or

otherwise transfer or dispose of (other than to donees who agree to be similarly
bound), or enter into any hedging or similar transaction with the same economic
effect as a sale, any Common Stock of the Corporation held by the Purchaser at
any time during such period (the "Purchaser's Registrable Securities") except
Common Stock included in such registration; provided, however, that:

          (A)  such agreement shall be applicable only to the first such
registration statement of the Corporation which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;

          (B)  all officers and directors of the Corporation enter into similar

     In order to enforce the foregoing covenant, the Corporation may impose
stop-transfer instructions with respect to the Purchaser's Registrable
Securities (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.

     8.   The Purchaser shall not transfer by sale, assignment, hypothecation,
donation or otherwise any of the Stock or any interest therein subject to the
Purchase Option without the prior express written consent of the issuer of the
shares. As security for his faithful performance of the terms of this Agreement
and to insure the availability for delivery of Purchaser's Stock upon exercise
of the Purchase Option herein provided for, the Purchaser agrees, at the closing
hereunder, to deliver to and deposit with Cooley Godward Castro Huddleson &
Tatum ("Escrow Agent"), as Escrow Agent in this transaction, three stock
assignments duly endorsed (with date and number of shares blank) in the form
attached hereto as Exhibit B, together with a certificate or certificates
evidencing all of the Stock subject to the Purchase Option; said documents are
to be held by the Escrow Agent and delivered by said Escrow Agent pursuant to
the Joint Escrow Instructions of the Corporation and the Purchaser set forth in
Exhibit A attached hereto and

incorporated by this reference, which instructions shall also be delivered to
the Escrow Agent at the closing hereunder.

     9.   The Purchaser shall be entitled to "piggy-back" registration rights on
all registrations of the Corporation subject to the right, however, of the
Corporation and its underwriters, to reduce the number of shares proposed to be

     10.  The Corporation shall not be required (i) to transfer on its books any
shares of Stock of the Corporation which shall have been transferred in
violation of any of the provisions set forth in this Agreement or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.

     11.  Subject to the provisions of paragraphs 7, 8 and 10 above, the
Purchaser (but not any unapproved transferee) shall exercise all rights and
privileges of a shareholder of the Corporation with respect to the Stock.

     12.  Paragraphs 2, 3 and 4 of this Agreement shall terminate upon the
exercise in full or expiration of the Purchase Option, whichever first occurs.

     13.  The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this

     14.  Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to the other party hereto at his address hereinafter
shown below its signature or at such other address as such party may designate
by ten (10) days advance written notice to the other party hereto.

     15.  This Agreement shall inure to the benefit of the successors and
assigns of the Corporation and, subject to the restrictions on transfer herein
set forth, be binding upon the Purchaser, its successors, and assigns. The
Purchase Option of the Corporation hereunder shall be assignable by the
Corporation at any time or from time to time, in whole or in part.

     16.  The Purchaser shall reimburse the Corporation for all costs incurred
by the Corporation in enforcing the performance of, or protecting its rights
under, any part of this Agreement, including reasonable costs of investigation
and attorneys' fees. It is the intention of the parties that the Corporation,
upon exercise of the Purchase Option and payment of the Option Price, pursuant
to the terms of this Agreement, shall be entitled to receive the Stock, in
specie, in order to have such Stock available for future issuance without
dilution of the holdings of other shareholders. Furthermore, it is expressly
agreed between the parties that money damages are inadequate to compensate the
Corporation for the Stock and that the Corporation shall, upon proper exercise
of the Purchase Option, be entitled to specific enforcement of its rights to
purchase and receive said Stock.

     17.  This Agreement shall be governed by and construed in accordance with
the laws of the State of California. The parties agree that any action brought
by either party to interpret or enforce any provision of this Agreement shall be
brought in, and each party agrees to, and does hereby, submit to the
jurisdiction and venue of, the appropriate state or federal court for the
district encompassing the Corporation's principal place of business.

     18.  The parties agree to take all such further action(s) as may reasonably
be necessary to carry out and consummate this Agreement as soon as practicable,
and to take whatever steps may be necessary to obtain any governmental approval
in connection with or otherwise qualify the issuance of the securities that are
the subject of this Agreement. The closing hereunder,

including payment for and delivery of the Stock, shall occur at the offices of
the Corporation on July 2, 1996 or at such other time and place as the parties
may mutually agree.

     19.  This Agreement is not an employment contract and nothing in this
Agreement shall be deemed to create in any way whatsoever any obligations on the
part of the Purchaser to continue in the employ of the Corporation or of the
Corporation to continue the Purchaser in the employ of the Corporation.

     20.  Purchaser acknowledges that this Agreement has been prepared on behalf
of the Company by Cooley Godward Castro Huddleson & Tatum, counsel to the
Company and that Cooley Godward does not represent, and is not acting on behalf
of, Purchaser. Purchaser has been provided with an opportunity to consult with
its own counsel with respect to this Agreement.

     21.  This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof. This Agreement may not be amended,
modified or revoked, in whole or in part, except by an agreement in writing
signed by each of the parties hereto.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

                                   NETIPHONE, INC.

                                   By:  /s/ Jerry Chang

                                   Title  President

                                   Address:  828 Nash Road
                                             Los Altos, California 94024


                                   /s/ Michael F. Vargo
                                   Michael Vargo

                                   Address:   1133 Orange Avenue
                                              San Carlos, CA 94070


EXHIBIT A      -    Joint Escrow Instructions
EXHIBIT B      -    Stock Assignment Separate from Certificate
EXHIBIT C      -    Technology Transferred by Certain Founders into Corporation
EXHIBIT D      -    Promissory Note