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EXHIBIT 10.34
RESTORATION HARDWARE, INC.
NON-STATUTORY STOCK OPTION
EARLY EXERCISE STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 18th day of March 2001, by and among
Restoration Hardware, Inc., a California corporation (the "Corporation"), and
Xxxx X. Xxxxxxxx, the holder of a stock option (the "Optionee") granted by the
Corporation. "). Optionee shall be entitled to exercise the option and purchase
the Purchased Shares under the terms set forth in this Early Exercise Stock
Purchase Agreement only if the exercise occurs before the third party financing
("Financing") referred to in the escrow agreement ("Escrow Agreement") attached
hereto as Exhibit A.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases 1,200,000 shares of Common
Stock (the "Purchased Shares") pursuant to that certain option (the "Option")
granted Optionee on March 18, 2001 (the "Grant Date") to purchase up to
1,200,000 shares of Common Stock at the exercise price of $1.75 per share (the
"Exercise Price).
2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Employee shall pay the Exercise Price for the Purchased Shares
as follows: Employee shall deliver by cash or check an amount equal to $2,710 of
the Exercise Price and shall deposit the balance of the Exercise Price
($2,097,290) in cash or by check into escrow ("Escrow") pursuant to the Escrow
Agreement attached hereto as Exhibit A. The Corporation shall have no rights to
the amounts deposited in the Escrow unless and until the Financing closes on or
before March 30, 2001.
3. STOCKHOLDER RIGHTS. Employee (or any successor in interest)
shall have all the rights of a stockholder (including voting, dividend and
liquidation rights) with respect to the Purchased Shares. However, the
certificates representing such shares shall be retained by the Corporation until
such shares are no longer potentially subject to the automatic repurchase right
described in Paragraph 4 below.
4. AUTOMATIC REPURCHASE. If the Corporation does not close the
Financing on or before March 30, 2001, the Purchased Shares shall automatically
and immediately be repurchased by the Corporation for the Exercise Price. The
Corporation's obligation to repay the Exercise to Employee shall be satisfied by
(i) the payment by the Corporation to Employee of the amount of the Exercise
Price paid directly to the Corporation in cash or by check and (ii) the return
to Employee from the Escrow of the amount to which he is entitled thereunder.
This Automatic Repurchase shall occur regardless of whether the Corporation
would otherwise have been entitled to exercise the Repurchase Right set forth in
D. below.
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B. SECURITIES LAW COMPLIANCE
1. REGISTRATION. If the Corporation is unable to register
Optionee's acquisition of the Purchased Shares on a Form S-8 registration
statement, Optionee shall have the same registration rights as are required to
be provided to the purchasers of Series B Preferred stock of the Corporation in
the sale of preferred stock scheduled to occur substantially contemporaneously
with the purchase of the Purchased Shares or, if such purchase of preferred
stock does not occur, similar registration rights.
2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee shall
make no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all of the following requirements:
(i) Optionee shall have provided the Corporation with a
written summary of the terms and conditions of the proposed disposition.
(ii) Optionee shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(iii) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration available
under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
2. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with the following restrictive legend:
(i) "The shares represented by this certificate are subject
to certain repurchase rights granted to the Corporation and accordingly
may not be sold, assigned, transferred, encumbered, or in any manner
disposed of except in conformity with the terms of a written agreement
dated March 18, 2001 between the Corporation and the registered holder of
the shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Corporation's principal corporate
offices."
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition, in no
event may the Purchased Shares be
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transferred (other than by will or the laws of descent and distribution
following death) unless and until such shares are no longer potentially subject
to the automatic repurchase right described in Paragraph A.4. above.
2. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
the Repurchase Right to the same extent such shares would be so subject if
retained by Optionee.
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price all or (at the discretion of the
Corporation and with the consent of Optionee) any portion of the Purchased
Shares in which Optionee is not, at the time of his or her cessation of Service,
vested in accordance with the Vesting Schedule (such shares to be hereinafter
referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation prior to the close of
business on the date specified for the repurchase. Concurrently with the receipt
of such stock certificates, the Corporation shall pay to Owner, in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness), an
amount equal to the Exercise Price previously paid for the Unvested Shares which
are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule and Option
Agreement, including pursuant to Paragraph 5(d) and 6(d) of the Option
Agreement.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
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5. RECAPITALIZATION. Any new, substituted or additional securities
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right, but only
to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of Purchased Shares subject to this Agreement and to the price per
share to be paid upon the exercise of the Repurchase Right in order to reflect
the effect of any such Recapitalization upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
same.
6. SPECIAL TERMINATION OF REPURCHASE RIGHT.
(i) The Repurchase Right shall automatically terminate in its
entirety, and all the Purchased Shares shall vest in full, immediately prior to
the consummation of a merger, consolidation or other transaction in which the
Corporation's Common Stock ceases to exist, except to the extent the Repurchase
Right is to be assigned to the successor entity in such transaction.
(ii) To the extent the Repurchase Right remains in effect
following a merger, consolidation or other transaction in which the
Corporation's Common Stock ceases to exist, such right shall apply to any new
securities or other property (including any cash payments) received in exchange
for the Purchased Shares in consummation of such transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the merger, consolidation or other
transaction in which the Corporation's Common Stock ceases to exist upon the
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same. The new securities or other property (including any
cash payments) issued or distributed with respect to the Purchased Shares in
consummation of such transaction shall be immediately deposited in escrow with
the Corporation (or the successor entity) and shall not be released from escrow
until Optionee vests in such securities or other property in accordance with the
same Vesting Schedule in effect for the Purchased Shares.
E. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS OR HER BEHALF.
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F. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right to
any person or entity selected by the Board, including (without limitation) one
or more shareholders of the Corporation.
2. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right shall not constitute a waiver of any other
repurchase rights that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Optionee. No waiver
of any breach or condition of this Agreement shall be deemed to be a waiver of
any other or subsequent breach or condition, whether of like or different
nature.
3. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
4. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
5. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
6. SUCCESSORS; BINDING AGREEMENT.
(i) This Agreement shall be binding upon and shall inure to the
benefit of the Corporation and its Successors and Assigns, and the Corporation
shall require any Successors and Assigns to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession or assignment
had taken place.
7. NOTICE. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
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8. GOVERNING LAW; ARBITRATION. Any and all disputes relating to
this Agreement shall be resolved by binding arbitration pursuant to the
procedures and terms of Optionee's Compensation and Severance Agreement. Company
and Optionee understand and agree that this Agreement and its validity,
construction and performance shall be governed by the laws of the State of
California without regard to conflict of law principles.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
RESTORATION HARDWARE, INC.
By: /s/ Xxxxxx Xxxxx
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Title:
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Address:
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OPTIONEE
/s/ Xxxx Xxxxxxxx
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EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _________ hereby sell(s), assign(s) and transfer(s)
unto, ___________ (____) shares of the Common Stock of the Restoration Hardware,
Inc. (the "Corporation") standing in his or her name on the books of the
Corporation represented by Certificate No._________ herewith and do(es) hereby
irrevocably constitute and appoint ____________________ Attorney to transfer the
said stock on the books of the Corporation with full power of substitution in
the premises.
Dated:_____________
Signature
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INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
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EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(b) ELECTION FOR
EXERCISE OF NON-STATUTORY OPTION. If the Purchased Shares are acquired pursuant
to the exercise of a Non-Statutory Option, as specified in the Grant Notice,
then under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code Section
83(b) to be taxed at the time the Purchased Shares are acquired, rather than
when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the Fair Market
Value of the Purchased Shares on the date of the Agreement equals the Exercise
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
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SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
____________ shares of the common stock of Restoration Hardware, Inc.
(3) The property was issued on _____________, 200_.
(4) The taxable year in which the election is being made is the calendar year
200_.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated and to an automatic repurchase at the original purchase price
in the event of the failure of a certain financing to occur by a
specified date. The issuer's repurchase right will lapse in a series of
annual installments over a three (3) year period ending on ________,
200_.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $ ___________ per share.
(7) The amount paid for such property is $ ____________ per share.
(8) A copy of this statement was furnished to Restoration Hardware, Inc. for
whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on ______________, 200__.
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
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APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall have the meaning specified in the
Compensation and Severance Agreement.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. COMPENSATION AND SEVERANCE AGREEMENT shall mean the
compensation and severance agreement attached to the Corporation's letter dated
March 15, 2001 offering employment to Optionee as Chief Executive Officer of the
Corporation, provided that such agreement has been executed by both parties and
become effective.
G. CORPORATION shall mean Restoration Hardware, Inc., a California
corporation.
I. EXERCISE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
J. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(a) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to the mean
between the high and the low selling price per share of Common Stock on the date
in question, as the price is reported by the National Association of Securities
Dealers on the Nasdaq National Market. If there is no selling price for the
Common Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
(b) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the mean between
the high and the low selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Board to be the primary market
for the Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
X. XXXXX DATE shall have the meaning assigned to such term in
Paragraph A.1.
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X. XXXXX NOTICE shall mean the Notice of Grant of Stock Option
pursuant to which Optionee has been informed of the basic terms of the Option.
N. 1933 ACT shall mean the Securities Act of 1933, as amended.
O. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
P. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
Q. OPTION shall have the meaning assigned to such term in
Paragraph A.1.
R. OPTION AGREEMENT shall mean all agreements and other documents
evidencing the Option.
S. OPTIONEE shall mean the person to whom the Option is granted
under the Plan.
T. OWNER shall mean Optionee and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Optionee.
U. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
W. PURCHASED SHARES shall have the meaning assigned to such term
in Paragraph A.1.
X. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
Z. REPURCHASE RIGHT shall mean the right granted to the
Corporation in accordance with Article D.
AA. SEC shall mean the Securities and Exchange Commission.
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BB. SERVICE shall mean the Optionee's performance of services for
the Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or a consultant.
CC. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
DD. SUCCESSORS AND ASSIGNS shall mean a corporation or other
entity acquiring all or substantially all the assets and business of the
Corporation (including this Agreement), whether by operation of law or
otherwise.
EE. VESTING SCHEDULE shall mean the vesting schedule specified in
the Grant Notice.
FF. UNVESTED SHARES shall have the meaning assigned to such term
in Xxxxxxxxx X.0.
