Stock Warrant Agreement - Robert F. Young, Nancy R. Young, Marc Ewing, Lisa F. Sullivan and Red Hat Software Inc.
AGREEMENT
THIS AGREEMENT, made as of the 29th day of September 1998, by and between
ROBERT F. YOUNG, NANCY R. YOUNG and MARC EWING (individually and collectively,
the "Founders"); LISA F. SULLIVAN ("Employee," and collectively with the
Founders, the "Individual Parties"); and RED HAT SOFTWARE, INC., a Delaware
corporation with offices in Research Park, North Carolina (the "Corporation");
W I T N E S S E T H:
WHEREAS, as of the date of this Agreement the Founders own and hold of
record shares of the Corporation's common stock as follows:
Founder Number of Shares
------- ----------------
Robert F. Young 2,030,000
Nancy R. Young 1,820,913
Marc Ewing 4,044,238
WHEREAS, as of the date of this Agreement Employee has been granted
warrants (the "Warrants") to purchase shares of the Corporation's common stock
pursuant to an Employment Agreement by and between the Corporation and Employee
commencing May 1, 1995 and executed October 10, 1995 (the "Employment
Agreement") and desires to enter into this Agreement to bind Employee and the
Corporation to its terms for the Warrants and for any and all shares of the
Corporation issued to Employee upon exercise of the Warrants (the "Warrant
Shares") in accordance with the terms hereof; and
WHEREAS, pursuant to the Warrants, the Employee, if such Employee
exercises all Warrants available pursuant to such Employee's Employment
Agreement prior to the termination of such Warrants pursuant to the terms of
this Agreement, may own and hold of record, upon exercise of all Warrants, total
shares of the Corporation's common stock as follows:
Employee Number of Warrant
-------- Option Shares
-------------
Lisa F. Sullivan 550,000; and
WHEREAS, the Employee acknowledges that there are shares of the Corporation
issued and outstanding to other shareholders and stock options for shares of the
Corporation issued and outstanding to other employees of the Corporation which
are not subject to this Agreement and that the Corporation, in its sole
discretion, will issue shares of common and preferred stock from time to time to
other shareholders and pursuant to stock options which will not be subject to
this Agreement; and
WHEREAS, the Corporation also anticipates that it may in the future issue
additional stock options to employees, directors, consultants or other service
providers of the Corporation pursuant to a plan or plans established by the
Corporation's Board of Directors (the "Plan") and that the Corporation, in its
sole discretion, may, but shall not be obligated to, subject any such stock
options authorized under the Plan and any shares of the Corporation's stock
purchased pursuant to such stock options to terms and conditions similar to
those contained in this Agreement; and
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WHEREAS, the Individual Parties and the Corporation recognize that the
Warrants are granted to the Employee as an incentive to promote the success of
the business and to encourage the Employee to remain in the Corporation's
employ; and
WHEREAS, the Individual Parties and the Corporation desire to set forth and
confirm the terms and conditions upon which the Warrants may be exercised and
terminated and the terms and conditions under which they Warrant Shares will be
held; and
WHEREAS, the Individual Parties and the Corporation agree that it is in
their best interest to agree upon the terms and conditions set forth herein and
that such terms and conditions reflect the full understanding of the Individual
Parties and the Corporation.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, the Individual Parties and the
Corporation agree, for themselves, their successors and assigns, as follows:
ARTICLE I
WARRANTS
1.1 Warrant. The Corporation and the Employee hereby agree that the
Employee's rights to purchase Warrant Shares pursuant to the Employment
Agreement, and the exercise of the Warrants, shall be governed by the terms of
this Article I. Employee agrees that the provisions in this Agreement pertaining
to the exercise and termination of Warrants and the vesting and purchase of
Warrant Shares represents the understanding of the parties and shall control and
shall supersede over any provisions to the contrary in such Employee's
Employment Agreement. Employee acknowledges that the only options or warrants to
purchase or receive shares of the Corporation's stock to which the Employee is
entitled are the Warrants described in this Article I, that no profit sharing
plan has been implemented by the Corporation, and that the Employee waives any
rights under Section 3c of the Employment Agreement to demand "warrants"
pursuant to a profit sharing plan unless a profit sharing plan expressly
granting the right to Employee to "warrants" is hereinafter implemented by the
Corporation and authorized by its Board of Directors.
1.2 Vesting. Employee has the option to purchase the following number of
Warrant Shares on the dates (the "Vesting Dates") set forth on the following
schedule:
<TABLE>
<CAPTION>
Vesting Dates
-------------
Employee 5/1/96 5/1/97 5/1/98 5/1/99
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
137,500 137,500 137,500 137,500
</TABLE>
However, if the Employee does not purchase the full number of Warrant Shares to
which the Employee is entitled on or before the Vesting Dates, the Employee is
permitted to purchase those remaining Warrant Shares at a later period (unless
terminated) in addition to those Warrant Shares which the Employee may otherwise
be entitled to purchase. No partial exercise of such Warrant may be for less
than one hundred (100) full Warrant Shares. In no event shall the Corporation be
required to transfer fractional shares to the Employee. The Individual Parties
and the Corporation acknowledge and confirm that as of April 26, 1999, the
Employee has exercised 94,500 of her Warrants and that, after selling 49,500
Warrant Shares, Employee owns 45,000 Warrant Shares.
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1.3 Purchase Price. The purchase price for each Warrant Share shall be
$.0001 per Warrant Share.
1.4 Exercise of Warrants. The respective number of Warrants shall be
exercisable from time to time after the applicable Vesting Dates by ten (10)
days written notice to the Corporation and the payment in cash to the
Corporation of the purchase price of the Warrant Shares which the Employee may
and elects to purchase. The Corporation shall make immediate delivery of such
Warrant Shares, provided that if any law or regulation requires the Corporation
to take any action with respect to the Warrant Shares specified in such notice
before the issuance thereof, the date of delivery of such Warrant Shares shall
be extended for the period necessary to take such action.
1.5 Termination of Warrants. The Warrants, to the extent not heretofore
exercised, shall terminate on the first to occur of the following dates:
(a) If the Employee's employment with the Corporation terminates
because of her death, any Warrants held by the Employee on the date of her death
may be exercised only within thirty (30) days after her death and only to the
extent that the Warrants could have been exercised immediately before the
Employee's death;
(b) If the Employee's employment with the Corporation terminates
because of Total Disability (as hereinafter defined) after at least one (1) year
of continuous employment with the Corporation immediately following the date on
which Warrants were originally granted in the Employment Agreement, the Employee
may exercise the Warrant to the extent that it could be exercised upon such
termination of employment at any time within thirty (30) days after the
employment shall terminate;
(c) If the Employee's employment with the Corporation terminates
because of her retirement after at least one (1) year of continuous employment
with the Corporation immediately following the date on which the Warrants were
granted, the Employee may exercise the Warrant to the extent that the Warrants
can be exercised upon such termination of employment at any time within thirty
(30) days after retirement. Retirement means retirement from the Corporation
pursuant to the provisions of the Corporation's policy as may be implemented by
the Board of Directors from time to time.;
(d) If the Employee's employment with the Corporation is terminated by
the Corporation without cause, the Employee may exercise the Warrants to the
extent that the Warrants can be exercised upon such termination of employment at
any time within thirty (30) days after such termination; provided, however, that
any Option Shares so acquired shall be subject to the rights of the Corporation
or the Founders to purchase such shares in accordance with the provisions of
Section 2.6 of this Agreement;
(e) Termination of the Employee's employment with the Corporation for
any reason other than death, disability, retirement, or without cause;
(f) The happening of any event resulting in the termination of this
Agreement pursuant to Section 3.14 hereof;
(g) May 1, 2006.
1.6 Rights Prior to Exercise of Warrant. The Warrants granted to the
Employee are nontransferable by the Employee and are exercisable only by the
Employee. The Employee shall have no
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right as a shareholder with respect to the Warrant Shares until payment of the
warrrantprice and delivery to the Employee of such Warrant Shares as herein
provided.
1.7 Restrictions. All Warrant Shares acquired by Employee pursuant to the
Warrants shall be subject to the restrictions on sale, encumbrance, and other
dispositions contained in Article II of this Agreement.
1.8 Time is of the Essence. Time is of the essence in exercising the
Warrants under this Agreement.
ARTICLE II
RESTRICTIONS ON WARRANT SHARES
2.1 Restriction on Share Transfer. Employee shall not sell, assign,
transfer, pledge, or otherwise dispose of or in any way alienate any of her
respective Warrant Shares in the Corporation by operation of law or otherwise
except as provided in this Agreement.
2.2 Offer to Purchase All Warrant Shares. If any one or more of the
Founders receives a third party offer to purchase fifty percent (50%) or more of
all of the shares of the Corporation owned collectively by the Founders plus all
of the Warrant Shares and Warrants and the Founders desire to accept the third
party offer, then the Founders have the right to deliver a notice (the "Bring
Along Notice") with respect to such third party offer to the Corporation and the
Employee stating that the Founders propose to effect such transaction, the name
and address of the third party offeror, and the purchase price under the third
party offer, together with a copy of all writings, if any, between the Founders
and the third party offeror or such other person necessary to establish the
terms of such third party offer. Employee agrees that upon receipt of the Bring
Along Notice, Employee shall be obligated to sell all Warrants and Warrant
Shares held by her to the third party offeror upon the terms and conditions
(including, without limitation, purchase price) of the third party offeror (and
otherwise take all necessary action to cause the Corporation to consummate the
proposed transaction). The rights of first refusal in Section 2.3 of this
Agreement shall not apply to this Section 2.2. Notwithstanding anything in this
Section 2.2 to the contrary, Employee acknowledges and agrees that the rights
and obligations hereunder are subject to (and, where applicable, subordinate to
the rights of the Investor, as hereinafter defined) the terms and conditions of
a Co-Sale Agreement between the Founding Shareholders, the Corporation and the
Frank Batten, Jr. Trust, a copy of which is attached hereto as Exhibit A (the
"Co-Sale Agreement"), and that the number of Warrants and Warrant Shares sold by
the Employee to the third party offeror may be reduced by the participation
rights of the Investor as defined and provided in the Co-Sale Agreement. For
purposes of this Section 2.2, the term "Investor" shall have the same meaning as
set forth in the Co-Sale Agreement.
2.3 Transfers During Employee's Lifetime. Except as otherwise set forth in
this Agreement, no Warrant Shares owned by Employee shall be transferred, sold,
assigned, pledged or otherwise disposed of during Employee's lifetime except in
accordance with the following provisions:
(a) Offer to Corporation. Employee (hereinafter referred to as
"Offeror") intending to transfer any Warrant Shares (the "Offered Shares") shall
first submit to the Corporation a written offer to sell the Offered Shares to
the Corporation at the price offered by the proposed purchaser, on the terms of
such offer. Every written offer submitted to the Corporation in accordance with
the provisions of this Section 2.3(a) shall continue to be a binding offer to
sell until expressly rejected by an officer or director of the Corporation
acting pursuant to a resolution adopted in accordance with Section 2.7 of this
Agreement or until the expiration of a period of sixty (60) days after the
delivery of such offer to the Corporation, whichever time is earlier. Upon
delivery to the Corporation of any written offer submitted
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in accordance with the provisions of this Section 6(a), any officer or director
of the Corporation, acting before the termination of the offer and pursuant to a
resolution adopted in accordance with Section 2.7 of this Agreement may bind the
Corporation to purchase all or any part of the Offered Shares.
(b) Offer to Founders. Upon termination of the offer referred to in
subparagraph (a) above, the Offeror shall then submit to the Founders a written
offer to sell, at the price offered by the proposed purchaser, on the terms of
such offer, any of the Offered Shares not previously purchased by the
Corporation under the aforesaid offer to it (the "Excess Offered Shares"). Each
Founder shall then have the right to purchase up to her Founder Percentage of
the Excess Offered Shares. Each Founder's right to purchase the Excess Offered
Shares shall be exercisable by written notices to the Offeror, the Corporation
and the other Founders given within thirty (30) days of the Offeror's written
offer to the Founders. Each Founder has the right and may indicate in such
notice, her election to purchase the balance of such Excess Offered Shares if
any other Founder or Founders fail to exercise this right to purchase up to the
full amount of their Founder Percentage of the Excess Offered Shares. The
failure of a Founder to exercise her right to purchase Excess Offered Shares
within the thirty (30) day notice period shall be regarded as a waiver of her
right to participate in the purchase of the Excess Offered Shares. For purposes
of this Section, Founder Percentage for each Founder shall be determined by
dividing the total number of shares of the Corporation owned by the Founders
into the total number of shares owned by each Founder at the time of the
Offeror's written offer to the Founders.
(c) Contents of Offer and Subsequent Transfer. Every written offer
submitted in accordance with this Section 2.3 shall specifically name the person
or persons to whom the Offeror intends to transfer the shares, the number of
shares that he intends to so transfer to each person, and the price per share
and other terms upon which each intended transfer is to be made, and shall
include copies of the written offer and pertinent documentation. Upon the
termination of the written offer to the Founders, the Offeror shall, for a
period of thirty (30) days thereafter, be free to transfer any unpurchased
shares to the person or persons so named at the price per share and upon the
other terms so named as stated in the Offeror's written offer to the
Corporation; provided that any such transferee of those shares shall thereafter
be bound by and subject to all of the provisions and restrictions of this
Agreement and shall agree in writing to be so bound. However, if the Offeror
fails to make such transfer within such thirty (30) days, such shares shall
again be subject to all the restrictions and provisions of this Agreement.
(d) Consideration for Shares. If any consideration to be received by
the Offeror for the Warrant Shares offered is property other than cash, then the
price per share shall be measured to that extent by the fair market value of
such noncash consideration. Fair market value for the purposes of this Section
6(d) shall mean the sum of (i) the fair market value of any noncash
consideration offered for the shares as determined by the Board of Directors of
the Corporation (the "Board"), plus (ii) the value of any special benefits to
the Offeror of such noncash consideration to the extent they can be reasonably
identified and valued, plus (iii) the amount of any additional expense or cost
(including additional taxes) incurred by the Offeror in accepting cash instead
of such noncash consideration, in each case based upon a realistic appraisal of
such noncash consideration, special benefits, expense or cost agreed upon by the
Offeror and the Corporation or by two independent qualified appraisers, one
being selected and paid for by the Offeror and the other by the Corporation. If
the two appraisers are unable to agree, they shall select a third, and the
determination of the third appraiser shall be final and conclusive. The cost of
the third appraiser shall be divided equally between the Offeror and the
Corporation.
(e) Closing. The closing of the sale of the Warrant Shares shall be
sixty (60) days following the last timely delivery of notice of election to
purchase any of the shares.
(f) Involuntary Transfer. The provisions of this Section 2.3 shall
also be applicable to Involuntary Transfers of Warrant Shares. "Involuntary
Transfer" means any transfer, proceeding or
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action by or in which Employee shall be deprived or divested of any right, title
or interest in or to any of her Warrant Shares, including, without limitation,
any seizure under levy of attachment or execution, any transfer in connection
with bankruptcy or other court proceeding to a debtor-in-possession, trustee or
receiver or other officer or agency, or any transfer pursuant to a separation
agreement or entry of a final court order in a divorce proceeding. In such
event, the Corporation and the Founders shall have the right to purchase from
either the Employee or the transferee on the Stipulated Terms (as hereinafter
defined) all of the Warrant Shares of the Corporation owned by the Employee at
the lesser of (i) 80% of the book value of the Warrant Shares as determined by
the Board, (ii) 80% of the fair market value of the Warrant Shares based on the
Corporation as a going concern as determined by the Board, or (iii) the amount
of the indebtedness which resulted in the involuntary transfer of Warrant
Shares. Notice to the Corporation by any person or in any manner of an
Involuntary Transfer shall be deemed a written offer to sell the Warrant Shares
and the Corporation and the Founders shall have the right to purchase the
Warrant Shares in accordance with the procedures as set forth in this Section
2.2.
2.4 Option to Purchase Upon Permanent Disability. If Employee becomes
totally disabled for a period of three (3) months (the "Disabled Employee"), the
Corporation and the Founders shall each have the option to purchase all or any
of the Disabled Employee's Warrant Shares upon the following terms:
(a) Exercise of Option. Such option of the Corporation shall commence
on the date three (3) months after such disability commences and shall be
exercised by written notice by the Corporation within ninety (90) days after
such right commences. The purchase price of the Warrant Shares shall be the
Stipulated Price and shall be payable upon the Stipulated Term (as hereinafter
defined), which shall be paid in cash to the extent of proceeds of insurance
received by the Corporation as the result of such permanent disability, if any,
with the balance of the purchase price payable pursuant to the Stipulated Terms
(as hereinafter defined).
(b) Exercise of Option by Founders. In the event the Corporation does
not elect to exercise its option to purchase all or any of the Warrant Shares
under Section 2.4(a) above (the "Excess Warrant Shares"), then each Founder
shall have the option to purchase up to her Founder Percentage of the Excess
Warrant Shares. Each Founder's right to purchase the Excess Warrant Shares shall
be exercisable by written notice to the Disabled Employee, the Corporation and
the other Founders given within thirty (30) days of the termination of the
Corporation's option. Each Founder has the right and may indicate in such notice
her election to purchase the balance of such Excess Warrant Shares if any other
Founder or Founders fail to exercise this right to purchase up to the full
amount of their Founder Percentage of the Excess Warrant Shares. The failure of
a Founder to exercise her right to purchase Excess Warrant Shares within the
thirty (30) day notice period, shall be regarded as a waiver of her right to
participate in the purchase of the Excess Warrant Shares. For purposes of this
Section, Founder Percentage for each Founder shall be determined by dividing the
total number of shares of the Corporation owned by the Founders into the total
number of shares owned by each Founder at the time of the Disabled Employee's
Total Disability.
(c) Determination of Disability. "Totally Disabled" shall mean the
inability by reason of a physical or mental condition, or both, of the Disabled
Employee to perform satisfactorily her usual duties for the Corporation, as
determined by the Board. The Total Disability shall be deemed to have commenced
on the date of the determination by the Board.
(d) Closing. The closing of the sale of the Warrant Shares shall be
sixty (60) days after delivery of the Corporation's or the Founder's, as the
case may be, notice of election to purchase the Warrant Shares.
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2.5 Option to Purchase Upon Death. Upon the death of Employee (the
"Decedent"), all of the Warrant Shares of the Corporation which had been owned
by the Decedent and all Warrant Shares owned by the Decedent's representative if
Warrants are exercised within thirty (30) days after the Decedent's death and to
which he or her personal representatives shall be entitled shall be sold and
purchased as herein provided at the option of the Corporation.
(a) Option of the Corporation to Purchase. The Corporation has the
option to purchase from Decedent's estate, and, if the option is exercised,
Decedent's estate shall sell to the Corporation, all the Warrant Shares of the
Corporation owned by Decedent at the Stipulated Price and upon the Stipulated
Terms (as hereinafter defined). The Corporation shall exercise its option by
giving written notice to the Decedent's personal representative within one
hundred twenty (120) days after the Decedent's death.
(b) Option of the Founders to Purchase. In the event the Corporation
does not elect to exercise its option to purchase all or any of the Warrant
Shares under Section 2.5(a) above (the "Excess Warrant Shares"), then each
Founder shall have the option to purchase up to her Founder Percentage of the
Excess Warrant Shares at the Stipulated Price and upon the Stipulated Terms (as
hereinafter defined). Each Founder's right to purchase the Excess Warrant Shares
shall be exercisable by written notice to the Decedent's Estate, the Corporation
and the other Founders given within thirty (30) days of the termination of the
Corporation's option. Each Founder has the right and may indicate in such notice
her election to purchase the balance of such Excess Warrant Shares if nay other
Founder or Founders fail to exercise this right to purchase up to the full
amount of their Founder Percentage of the Excess Warrant Shares. The failure of
a Founder to exercise her right to purchase Excess Warrant Shares within the
thirty (30) day notice period, shall be regarded as a waiver of her right to
participate in the purchase of the Excess Warrant Shares. For purposes of this
Section, Founder Percentage for each Founder shall be determined by dividing the
total number of shares of the Corporation owned by the Founders into the total
number of shares owned by each Founder at the time of the Decedent's death.
(c) Insurance. The Corporation may, but is not obligated to, obtain
insurance on the life of Employee for a sum determined by the Corporation,
naming itself as beneficiary of the policies The Corporation shall pay all
premiums on the insurance policies. The Corporation shall be the sole owner of
the insurance policies and may apply to the payment of premiums any dividends
declared and paid on the policies.
(d) Closing. The Closing of the purchase of the Warrant Shares shall
be ninety (90) days after the Corporation or the Founders, as the case may be,
exercises their option to purchase the Warrant Shares.
2.6 Purchase Upon Termination of Employment. In the event that Employee's
employment with the Corporation is terminated by the Corporation or such
Employee for any reason whatsoever, with or without cause, or at any time (the
"Terminated Employee"), the Corporation and the Founders shall each have the
option to purchase all or any of the Warrant Shares owned by the Terminated
Employee upon the following terms:
(a) Option to Purchase by Corporation. The Corporation shall have the
option to purchase from the Terminated Employee all of the Warrant Shares owned
by the Terminated Employee at the Stipulated Price and upon the Stipulated Terms
(as hereinafter defined), which option the corporation may exercise by notice in
writing to the Terminated Employee within (90) days of the effective date of
termination; provided, however, in the event the Employee's terminated for
cause, then the option to purchase under this Section 2.6(a) and 2.6(b) shall be
at the lesser of eighty percent (80%) of book value of the Warrant
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Shares as determined by the Board or eighty percent (80%) of the value of the
Warrant Shares based on the Corporation as a going concern as determined by the
Board, and on the Stipulated Terms.
(b) Option to Purchase by Founders. In the event the Corporation does
not elect to exercise its option to purchase all or any of the Warrant Shares
under 2.6(a) above (the "Excess Warrant Shares"), then each Founder shall have
the option to purchase up to her Founder Percentage of the Excess Warrant Shares
at the price and under the terms provided in Section 2.6(a) above. Each
Founder's right to purchase the Excess Warrant Shares shall be exercisable by
written notice to the Terminated Employee, the corporation and the other
Founders given within thirty (30) days of the termination of the Corporation's
option. Each Founder has the right and may indicate in such notice her election
to purchase the balance of such Excess Warrant Shares if any other founder or
Founders fail to exercise this right to purchase up to the full amount of their
Founder Percentage of the Excess Warrant Shares. The failure of a Founder to
exercise her right to purchase Excess Warrant Shares within the thirty (30) day
notice period, shall be regarded as a waiver of her right to participate in the
purchase of the Excess Warrant Shares. For purpose of this Section, Founder
Percentage for each Founder shall be determined by dividing the total number of
shares of the Corporation owned by the Founders into the total number of shares
owned by each Founder at the time of the Employee's termination of employment.
(c) Closing. The closing of the purchase of the Warrant Shares shall
be ninety (90) days after the Corporation or the Founders, as the case may be,
exercise their option to purchase the Warrant Shares.
2.7 Vote on Option to Purchase. Whenever, under the terms of this
Agreement, the Corporation has an option to purchase Warrant Shares, action on
such option may be taken by the holders of a majority of the voting shares of
the Corporation (or such other percentage as may be required by the
Corporation's Articles of Incorporation as may be amended and/or restated from
time to time if such redemption of stock under this Agreement is not excluded
from such greater percentage), exclusive of the Warrant Shares held by the
Offeror, the Decedent, the Disabled Employee or the Terminated Employee, as the
case may be.
2.8 Non-Exercise of Option. Whenever, under the terms of this Agreement,
the Corporation and Founders have an option to purchase Warrant Shares and
elects not to exercise the option, said Warrant Shares shall nevertheless remain
subject to all of the terms of this Agreement.
2.9 Dates for Determination of Purchase Price. This Section sets the
various dates from which the purchase price for Warrant Shares purchased
pursuant to this Agreement shall be determined. The price shall be determined in
each case as of the following valuation dates: (a) upon the death of Employee,
as of the date of death; (b) upon the Total Disability of Employee, as of the
date of determination of Total Disability by the Board; (c) upon a termination
of employment of Employee, upon the effective date of the termination; and (d)
upon an Involuntary Transfer, upon the effective date of the Involuntary
Transfer.
2.10 Payment of Purchase Price. The manner of payment of the purchase price
for any Warrant Shares pursuant to this Agreement, with the exception of a
purchase upon the terms offered by a proposed third-party purchaser or as
otherwise provided in this Agreement, shall be determined by this Section.
(a) Stipulated Price. The "Stipulated Price" shall be that price per
share of the Corporation as a going concern equal to eighty percent (80%) of the
fair market value for such shares as determined by the Board.
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(b) Stipulated Terms. The purchase price for any Warrant Shares
purchased pursuant to this Agreement shall be paid either in cash or by a cash
down payment and the delivery of a secured promissory note, at the option of the
purchaser. If the purchase is made for any reason other than the death of the
Employee, the down payment shall equal at least twenty percent (20%) of the
purchase price. If the purchase is made because of the death of Employee, the
down payment shall equal not less than the greater of twenty percent (20%) of
the purchase price or the full amount of the net proceeds from any insurance
policies maintained by the Corporation on the life of the Employee. Any
promissory note shall provide for equal quarterly installments of principal over
a term not to exceed five (5) years, and shall bear interest at the rate of
seven (7%) percent. Accrued interest shall be payable quarterly commencing with
the first installment of principal. The note shall be subject to prepayment in
whole or in part at any time and without penalty. In the event of default in
payment of any installment when due, the whole sum of the principal and interest
shall become immediately due and payable at the option of the holder.
Notwithstanding anything herein to the contrary, if the purchase price is less
than $10,000.00 the entire purchase price shall be paid in cash at closing.
(c) Delivery of Warrant Shares. At such time as the cash and
promissory note, if applicable, have been delivered to the Employee or her
estate, the Warrant Shares of the Employee shall be transferred to the purchaser
or purchasers.
(d) Security. If part of the purchase price is paid by delivery of the
purchaser's promissory note, then, as security for payments due under the terms
of the note, the purchaser shall grant to the Employee a security interest in
the Shares by executing a pledge and escrow agreement and whatever additional
documents may be reasonably necessary to perfect the security interest of the
Employee or her estate. The security documents shall provide that the
Corporation or other purchaser shall deposit the shares it is purchasing with an
escrow agent and that, if the purchaser defaults under the terms of the
promissory note or the security documents, the Employee or her estate shall have
the right to receive possession of the shares and to exercise all other rights
of a secured party under the North Carolina Uniform Commercial Code.
(e) Insufficient Corporate Surplus. If, at the time the Corporation is
required to make payment of the purchase price for shares pursuant to this
Agreement and/or to issue its promissory notes therefor, its surplus is
insufficient for such purposes under applicable law, then the Corporation shall
promptly take all action necessary and proper under applicable law to increase,
to the extent possible, the surplus of the Corporation to permit such payment
and/or the issuance of such promissory note. Employee or her personal
representative shall perform such acts, execute such instruments, and vote the
respective shares in such a manner as may be required to increase the available
surplus to an amount sufficient to authorize the purchase of the shares,
including, but not limited to, a recapitalization to reduce the capital of the
Corporation and increase its surplus or a reappraisal of the assets of the
Corporation for the purpose of reflecting the market value.
ARTICLE III
GENERAL PROVISIONS
3.1 Corporate Action and Articles of Incorporation. The Corporation and the
Individual Parties shall take all action required pursuant to this Agreement to
effectuate the provisions herein. The Corporation shall become a party to this
Agreement.
3.2 Share Certificates. Every certificate representing Warrant Shares of
the Corporation shall bear the following legend prominently displayed:
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"The shares represented by this certificate, and the transfer thereof, are
subject to the provisions of that certain Agreement, dated as of September
29, 1998, among ROBERT F. YOUNG, NANCY R. YOUNG, MARC EWING, LISA F.
SULLIVAN and RED HAT SOFTWARE, INC., a Delaware corporation, a copy of
which is on file in, and may be examined at, the principal office of the
Corporation."
3.3 Warrant Shares. All references to Warrant Shares owned by Employee
shall mean any outstanding shares of the Corporation hereafter owned by Employee
and any shares distributed with respect to any such shares in a stock split,
stock dividend, recapitalization, reorganization or otherwise.
3.4 Necessary Acts. Each party hereto agrees that they will do any act or
thing and will execute any and all instruments necessary and/or proper to make
effective the provisions of this Agreement.
3.5 Severability. Should any provision of this Agreement be declared to be
invalid for any reason or to have ceased to be binding on the parties hereto,
such provision shall be severed, and all other provisions herein shall continue
to be effective and binding.
3.6 Governing Law. This Agreement shall be subject to and governed by the
laws of the State of Delaware.
3.7 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the subject matter hereof, and no change,
amendment or modification of this Agreement shall be valid unless the same be in
writing and signed by all the parties hereto. No waiver of any of the terms of
this Agreement shall be valid unless signed by the party against whom such
waiver is asserted. This Agreement supersedes and nullifies the terms of any
other agreement setting forth the rights of the Employee previously entered into
by Employee with respect to the subject matter hereof. The Employee acknowledges
that her ownership of Warrants and Warrant Shares in the Corporation gives her
no rights or expectations except those embodied in this Agreement.
3.8 Specific Performance. The parties acknowledge that the actual damage
which would be sustained upon the breach of this Agreement by any of the parties
or to a personal representative of a Decedent aggrieved by the breach or
threatened breach of any of its provisions shall be entitled to seek from any
court of competent jurisdiction an order for specific performance of all of the
terms and conditions of this agreement. This provision does not limit the
parties from seeking any other available remedies at law or equity.
3.9 Prohibited Transfers Void. Any purported transfer in violation of this
Agreement shall be void and shall not transfer any interest or title to the
purported transferee. The Corporation shall not be required to transfer on its
books any Warrant Shares sold or transferred in violation of any of the
provisions set forth in this Agreement or to treat as owner of those Warrant
Shares or to pay dividends to any transferee to whom any of those Warrant Shares
shall have been so sold or transferred.
3.10 Representation as to Attorney. The Individual Parties (and the
Corporation) acknowledge that a conflict may exist among their respective
interests, and that the Individual Parties should seek the advice of independent
counsel. The parties hereby waive any claim they may have as to any conflict
which may exist in connection with the preparation of this Agreement.
3.11 New Parties. The Corporation shall not record a transfer of Warrant
Shares from Employee to any person not a party hereto unless said person shall
execute an acknowledgment of the
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terms hereof and agreement to be bound hereby, except for a transfer of Warrant
Shares to a third party pursuant to Section 2.2 of this Agreement.
3.12 Agreement Binding. This Agreement shall insure to the benefit of and
be binding upon the parties hereto and their respective next-of-kin, legatees,
administrators, executors, legal representatives, successors and permitted
assigns (including remote, as well as immediate, successors to and assignees of
said parties), except this Agreement shall not be binding on a third-party
purchaser in the event of a transfer of Warrant Shares to such third party
pursuant to Section 2.2 of this Agreement.
3.13 Pronouns and Headings. In this Agreement the masculine shall include
the feminine and the singular shall include the plural as the context of this
Agreement shall clearly require. The article and section headings in this
Agreement are inserted for convenience only and are not part of the Agreement.
3.14. Termination. This Agreement shall commence as of the date hereof and
shall continue in full force and effect until terminated (i) by the mutual
agreement of the parties hereto, (ii) by the dissolution or bankruptcy of the
Corporation, (iii) upon the effectiveness of a merger, consolidation or other
acquisition of substantially all of the Corporation's assets, if the Corporation
is not the surviving corporation, except that a merger or consolidation with a
subsidiary which effects a mere change in the form or domicile of the
Corporation without changing the respective shareholdings of the Individual
Parties shall not terminate the agreement, even if the Corporation is not the
surviving corporation, (iv) upon the issuance of any of the Corporation's shares
sold by means of a public offering that is required to be registered under the
federal securities laws, or (v) upon the sale of all of the issued and
outstanding shares of the Corporation.
3.15 Transferability. Any rights or interests of the parties set forth in
this Agreement are personal and nontransferable.
3.16 Notices. Any notice or offer required hereunder shall be deemed to
have been validly given if delivered by certified mail, return receipt
requested, postage prepaid, addressed, or by federal express overnight delivery
(or other nationally recognized service) with receipt confirmed, in the case of
the Corporation, to its principal office, and in the case of the Individual
Parties, to their address appearing on the stock records of the Corporation or
to such other address as he may designate. Notices hereunder shall be deemed
given seven (7) business days after deposit in the United States Mail or the
next business day, if delivered by Federal Express overnight delivery (or other
nationally recognized service).
3.17 Jurisdiction and Venue. The parties agree that any action brought in
any court whether federal or state shall be brought within the State of North
Carolina in the judicial district of Durham, Durham County and do hereby waive
all questions of personal jurisdiction or venue for the purpose of carrying out
this provision.
3.18 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreements.
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IN WITNESS WHEREOF, the Corporation has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be affixed hereto, and
the Individual Parties have hereunto set their hands, all as of the day and year
first above written.
RED HAT SOFTWARE, INC.
By: /s/ Robert F. Young
----------------------
Title: CEO
ATTEST:
/s/ David Schumannfang
------------------------
Secretary
[CORPORATE SEAL]
/s/ Robert F. Young
--------------------------
Robert F. Young
/s/ Nancy R. Young
--------------------------
Nancy R. Young
/s/ Marc Ewing
--------------------------
Marc Ewing
EMPLOYEE
/s/ Lisa F. Sullivan
--------------------------
Lisa F. Sullivan
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AMENDMENT
AMENDMENT, made as of May 24, 1999, by and among Red Hat Software, Inc.
(the "Company"), Robert F. Young, Nancy R. Young and Marc Ewing (collectively,
the "Founders") and Lisa Sullivan (the "Warrantholder").
WHEREAS, the Company, the Founders and the Warrantholder are parties to
that certain Warrant, dated as of August 12, 1997 (the "Warrant"), which by its
terms, terminates on the issuance of any of the Company's shares sold by means
of a public offering that is required to be registered under the federal
securities laws; and
WHEREAS, the Company, the Founders and the Warrantholder wish to amend the
Warrant to prevent it from terminating under such circumstances and to remove
certain restrictions on exercised Warrant Shares upon the closing of the
Company's initial public offering.
NOW THEREFORE, the parties hereto agree as follows:
1. Capitalized terms not defined herein shall have the meaning set forth in the
Warrant.
2. Section 3.14 of the Warrant shall be amended and restated as follows:
"3.14. Termination. This Agreement shall commence as of the date hereof and
shall continue in full force and effect until terminated (i) by the mutual
agreement of the parties hereto, (ii) by the dissolution or bankruptcy of
the Corporation, (iii) upon the effectiveness of a merger, consolidation or
other acquisition of substantially all of the Corporation's assets, if the
Corporation is not the surviving corporation, except that a merger or
consolidation with a subsidiary which effects a mere change in the form or
domicile of the Corporation without changing the respective shareholdings
of the Individual Parties shall not terminate the agreement, even if the
Corporation is not the surviving corporation, or (iv) upon the sale of all
of the issued and outstanding shares of the Corporation. Notwithstanding
the foregoing, the provisions of Article II hereof shall cease and have no
further force or effect with respect to any Warrant Shares upon the
issuance of any of the Corporation's shares sold by means of a public
offering that is required to be registered under the federal securities
laws."
3. Continuing Effect. Except as otherwise set forth herein, all terms and
conditions of the Warrant shall remain in full force and effect, and this
Amendment shall not constitute a modification, acceptance or waiver of any other
provision of the Warrant.
4. Counterparts. This Amendment may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
RED HAT SOFTWARE, INC.
By: /s/ Robert F. Young
---------------------
Title: CEO
/s/ Marc Ewing
---------------------
Marc Ewing
/s/ Robert F. Young
---------------------
Robert F. Young
/s/ Nancy R. Young
---------------------
Nancy R. Young
/s/ Lisa Sullivan
---------------------
Lisa Sullivan