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EXHIBIT 10.8
OPTION AGREEMENT
This Option Agreement, made and entered into on this 27th day of
November, 1996, by and between CMP Media Inc., a Delaware corporation (the
"Company"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇").
OPTION AGREEMENT
TABLE OF CONTENTS
OPTION AGREEMENT.................................................................................................. 1
ARTICLE I -OPTIONS................................................................................................ 1
SECTION 1.1. GRANT OF OPTIONS............................................................................ 1
SECTION 1.2 OPTION PRICE................................................................................ 1
ARTICLE II -CONFIDENTIALITY; NON-COMPETITION...................................................................... 2
SECTION 2.1. PROTECTION OF COMPANY'S BUSINESS INTERESTS.................................................. 2
SECTION 2.2. NON-DISCLOSURE AND NON-USE OF CONFIDENTIAL INFORMATION...................................... 2
SECTION 2.3. PROTECTION FROM UNFAIR COMPETITION.......................................................... 3
SECTION 2.4. PRIOR NOTICE; OPPORTUNITY TO CURE........................................................... 4
SECTION 2.5. OTHER COVENANTS............................................................................. 5
SECTION 2.6. CONFIDENTIALITY OF AGREEMENT................................................................ 6
SECTION 2.7. RELIEF FOR BREACH........................................................................... 6
SECTION 2.8. SEPARATE COVENANTS.......................................................................... 6
ARTICLE III -VESTING OF OPTIONS................................................................................... 7
SECTION 3.1. VESTING ON DECEMBER 31, 2005................................................................ 7
SECTION 3.2. ACCELERATION OF VESTING: FIRST SERIES....................................................... 7
SECTION 3.3. ACCELERATION OF VESTING: SECOND SERIES..................................................... 7
SECTION 3.4. ACCELERATION OF VESTING: THIRD SERIES...................................................... 8
SECTION 3.5. ACCELERATION OF VESTING: FOURTH SERIES..................................................... 8
SECTION 3.6. SATISFACTION OF CONDITIONS.................................................................. 9
SECTION 4.1. EXERCISE OF OPTIONS......................................................................... 10
SECTION 4.2. WITHHOLDING TAXES........................................................................... 11
SECTION 4.3. DETERMINATION OF FAIR MARKET VALUE.......................................................... 12
SECTION 4.4. NON-TRANSFERABILITY OF OPTIONS.............................................................. 12
SECTION 4.5. DAN'S REPRESENTATIVE........................................................................ 12
ARTICLE V - EXPIRATION OF OPTIONS ............................................................................... 13
SECTION 5.1. EXPIRATION OF OPTIONS...................................................................... 13
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SECTION 5.2. EXPIRATION UPON DEATH, PERMANENT DISABILITY, DISMISSAL WITHOUT CAUSE OR
RESIGNATION FOR GOOD REASON.................................................................... 13
SECTION 5.3. EXPIRATION UPON VOLUNTARY RESIGNATION, DISMISSAL FOR CAUSE OR COMPETITION................. 14
SECTION 5.4. CHANGE IN CONTROL......................................................................... 14
ARTICLE VI - TRANSFERABILITY OF SHARES AT TIME WHEN COMPANY IS PRIVATELY HELD AND THERE IS NOT PUBLIC MARKET..... 15
SECTION 6.1. GENERAL RESTRICTION ON TRANSFER........................................................... 15
SECTION 6.2. SALE TO SATISFY INCOME TAX LIABILITIES.................................................... 15
SECTION 6.3. SALE AFTER DECEMBER 31, 2003.............................................................. 16
SECTION 6.4. SALE AFTER DEATH OR PERMANENT DISABILITY.................................................. 16
(a) Rights of ▇▇▇ to Sell..................................................................... 16
(b) Rights of Company to Purchase............................................................. 16
SECTION 6.5. SALE AFTER DISMISSAL WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON......................... 16
(a) Rights of ▇▇▇ to Sell..................................................................... 16
(b) Rights of Company to Purchase............................................................. 17
SECTION 6.6. SALE AFTER VOLUNTARY RESIGNATION, DISMISSAL FOR CAUSE, OR COMPETITION...................... 17
(a) Price to be Paid for Option Shares........................................................ 17
(b) Determination of Fair Market Value........................................................ 17
(c) Payment of Purchase Price................................................................. 18
(i) Lump Sum or Installments......................................................... 18
(ii) Initial Installment............................................................. 18
(iii) Cash Flow Limitations......................................................... 19
(d) Closing of Transaction.................................................................... 19
SECTION 6.8. ASSIGNMENT AND DELEGATION BY THE COMPANY TO CLASS B STOCKHOLDERS.......................... 20
SECTION 6.9. TAG-ALONG RIGHTS -- DRAG-ALONG RIGHTS..................................................... 20
ARTICLE VII - TRANSFERABILITY OF SHARES AT TIME COMPANY SHARES ARE PUBLICLY TRADED .............................. 21
SECTION 7.1. GENERAL RESTRICTION ON TRANSFER........................................................... 21
SECTION 7.2. SALE TO SATISFY INCOME TAX LIABILITIES.................................................... 21
SECTION 7.3. SALE ON OR BEFORE DECEMBER 31, 2003....................................................... 22
(a) Minimum Market Capitalization............................................................. 22
(b) Maximum Number of Shares. .............................................................. 22
SECTION 7.4. SALE AFTER DECEMBER 31, 2003.............................................................. 22
SECTION 7.6. TENDER, MERGER, CONSOLIDATION. .......................................................... 23
SECTION 7.7. COMPLIANCE WITH SECURITIES LAWS........................................................... 23
ARTICLE VIII - FUTURE CHANGES IN CAPITAL STRUCTURE AND REDEMPTION OF
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SHARES.................................................................................................. 24
SECTION 8.1. CHANGES IN CAPITAL STRUCTURE.............................................................. 24
SECTION 8.2. REDEMPTION OF CLASS B STOCK............................................................... 24
ARTICLE IX - PROCEDURE TO BE FOLLOWED IN CASE OF RESIGNATION FOR GOOD REASONS.................................... 25
SECTION 9.1. RESIGNATION FOR GOOD REASON............................................................... 25
SECTION 9.2. DISMISSAL FOR CAUSE....................................................................... 25
ARTICLE X - RESOLUTION OF DISPUTES............................................................................... 26
SECTION 10.1. ARBITRATION............................................................................... 26
SECTION 10.2. EQUITABLE RELIEF.......................................................................... 26
ARTICLE XI - REPRESENTATIONS AND WARRANTIES...................................................................... 26
SECTION 11.1. REPRESENTATIONS OF THE COMPANY............................................................ 26
SECTION 11.2. REPRESENTATIONS OF ▇▇▇.................................................................... 27
ARTICLE XII - DEFINITIONS........................................................................................ 27
HYPOTHETICAL ILLUSTRATION OF
CALCULATION OF OPTIONS VESTING UNDER SECTION 5.2(b)..................................................... 38
HYPOTHETICAL ILLUSTRATION OF
CALCULATION OF FREE CASH FLOW........................................................................... 39
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W I T N E S S E T H:
WHEREAS, ▇▇▇ is a key senior executive of the Company; and
WHEREAS, the Company desires to create substantial incentives for ▇▇▇
to (i) cause the Company to grow continuously and successfully in sales, profits
and profitability, (ii) take a long-term view of the Company's future, (iii)
help the Company attain its long-term goals, including its diversity goals as
set forth in its corporate Principles, and (iv) remain with the Company for the
long term; and
WHEREAS, to create such incentives, the Company desires to provide ▇▇▇
with the opportunity to purchase shares of the Company's Class A Common Stock,
and ▇▇▇ desires to have the opportunity to purchase shares of such Class A
Common Stock;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties, the parties
hereto hereby covenant and agree, as follows:
ARTICLE I
OPTIONS
SECTION 1.1. GRANT OF OPTIONS.
Subject to the terms and conditions of this Agreement, the Company
hereby grants ▇▇▇ the right to purchase from the Company up to two thousand
six-hundred forty (2,640) shares of the Class A Stock (which number of shares
equals approximately five percent (5%) of the number of shares of the Company's
Common Stock issued and outstanding as of the date hereof).
SECTION 1.2 OPTION PRICE.
The Option Price shall be the fair market value of a share of the
Company's Common Stock on the date hereof. Such fair market value shall be
calculated by dividing the aggregate fair market value of all the Common Stock,
as determined by an independent appraisal conducted by ▇▇▇▇▇▇ ▇▇▇▇ L.L.C., by
the total number of shares of the Common Stock issued and outstanding as of the
date hereof.
ARTICLE II
CONFIDENTIALITY; NON-COMPETITION
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In consideration of the grant of the Options by the Company hereunder,
and as a specific inducement to the Company to enter into this Agreement, ▇▇▇
hereby accepts and agrees to the provisions of this Article II and acknowledges
that such provisions are necessary and appropriate for the reasonable protection
of the Company's property, investments, business relationships, economic
advantages and goodwill.
SECTION 2.1. PROTECTION OF COMPANY'S BUSINESS INTERESTS.
As a Key Senior Executive, ▇▇▇ has been intimately involved in the
management of all aspects of the business of the Company and its Affiliates and
has been a major strategist in planning and implementing its business expansion.
In the course of his long employment with the Company, ▇▇▇ has developed special
skills, knowledge and abilities in the publishing field which are of a uniquely
personal nature. He has also acquired detailed knowledge of the internal
operations of the Company and its Affiliates and highly confidential information
concerning the national and international business of the Company and its
Affiliates. In addition, he has been afforded the opportunity to develop special
relationships of confidence and trust with the customers, suppliers,
consultants, employees, officers, directors and stockholders of the Company and
its Affiliates. Because of his continuing responsibilities with the Company and
its Affiliates, including his involvement in strategic planning and the
evaluation of proposed investments, it is expected that ▇▇▇ will continue to be
entrusted with confidential information and will continue to have the
opportunity to develop such special relationships. The parties acknowledge and
agree that the Company would be unfairly and irreparably damaged if ▇▇▇ were to
take any of such skills, knowledge, information or relationships, which he has
acquired and developed during the course of his employment with the Company, and
use them to the detriment of the Company and its Affiliates.
SECTION 2.2. NON-DISCLOSURE AND NON-USE OF CONFIDENTIAL INFORMATION.
(a) ▇▇▇ represents, warrants, covenants and agrees that, without the
Company's express or implied consent while employed or, after termination,
without the prior written consent of the Board of Directors, he will not
willfully or knowingly at any time directly or indirectly disclose, communicate
or divulge, or use for the benefit of himself or of any third party, any of the
business or trade secrets or other confidential information of the CMP Group
including, solely by way of illustration but not of limitation, their business
strategies, business plans, budgets, pricing, selling techniques, marketing
techniques, operating systems, financial systems, financial data, procedures,
manuals, confidential reports, personnel records, potential acquisitions,
potential business expansions, credit and financial data of their suppliers and
of their present and prospective customers, data about competitors, new
product-development initiatives, custom research and new product or service
concepts and marketing strategy.
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(b) Any and all materials of or concerning the CMP Group or their
business or affairs, including without limitation files, memoranda, notes,
correspondence, lists, records, video reproductions, computer tapes and disks,
design and other documents, and data storage and retrieval materials (and all
copies, compilations and summaries thereof), and any and all property of the CMP
Group, including without limitation equipment, software, keys, business cards
and credit cards, that are in Dan's custody or control shall be delivered to the
Company at the time Dan's employment with the Company terminates for any reason.
▇▇▇ shall not destroy any such materials or property, shall not retain any
copies thereof and shall certify in writing to the Company upon request that all
such materials and property have been delivered to the Company.
SECTION 2.3. PROTECTION FROM UNFAIR COMPETITION.
(a) For as long as ▇▇▇ is employed by the CMP Group and for the greater
of (i) a period of two (2) years after termination of his employment or (ii) as
long as ▇▇▇ or any Permitted Transferee owns any Option Shares, ▇▇▇ shall not
engage in competition with the CMP Group. For the purposes of this Agreement,
▇▇▇ shall be deemed to engage in competition with the CMP Group if ▇▇▇ does any
of the following, whether or not in exchange for consideration, without the
Company's express or implied consent while employed or without the Company's
prior written consent after termination:
(A) On his own behalf or on behalf of any other person or
entity, (1) participates or is involved in or has direct responsibility for the
day-to-day management or operation of a Directly Competitive Business, an
Indirectly Competitive Business or any material function thereof (e.g.,
advertising, circulation, production and the like); (2) owns, in whole or in
part, beneficially or of record, directly or indirectly, an equity interest (or
an interest convertible into equity) in a Directly Competitive Business or a
Direct Competitor; (3) renders services as a director, officer, employee,
consultant, advisor, agent or independent sales representative to a Direct
Competitor; or (4) renders services as a director, officer, employee,
consultant, advisor, agent or independent sales representative to an Indirect
Competitor unless ▇▇▇ has no responsibility for or participation or involvement
in any Indirectly Competitive Business of such Indirect Competitor, provided,
however, that ▇▇▇ ▇▇▇ have supervisory, advisory, consulting or
sales-representative responsibility over an Indirectly Competitive Business if
the revenue of all Indirectly Competitive Businesses of such Indirect Competitor
over which ▇▇▇ has such responsibility represents no more than fifteen percent
(15%) of the total revenue over which ▇▇▇ has such responsibility.
(B) Solicits the service of any employee of the CMP Group for
Dan's own benefit or for the benefit of any person or entity other than the CMP
Group, or induces or helps to induce any such employee to leave employment with
the CMP Group.
(C) Assists, induces or helps any employee or former employee
of the CMP Group or any other person or entity to engage in competition with the
CMP Group or any of its business activities, provided that the giving of a
favorable reference by ▇▇▇ on behalf of such
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former employee shall not be prohibited by this clause (C).
(D) Employs or causes any person or entity other than the CMP
Group to employ any former employee of the CMP Group within one (1) year after
the resignation of such former employee from the CMP Group.
(E) Willfully induces or attempts to induce any customer,
supplier or contractor of the Company to terminate any agreement or arrangement
with the Company, or willfully induces or attempts to induce any customer,
supplier or contractor, or any potential customer, supplier or contractor, of
the Company not to enter into any agreement or arrangement with the Company.
(F) Communicates publicly (other than pursuant to subpoena in
a legal proceeding) or to the press, or writes or produces for publication in
any medium, on the subject of, or with express or implied reference to, the CMP
Group or any of their former, current or future stockholders, directors,
officers or employees in their capacities as such. For the purpose hereof,
"implied reference shall mean a reference that does not expressly name the CMP
Group or any of their former, current or future stockholders, directors,
officers or employees but that nevertheless would be understood by the average
reader or audience-member to refer thereto. It shall not be deemed a violation
of this clause (F) if, after the termination of his employment with the Company,
▇▇▇ responds to inquiries from the public or the press solely by stating, in
form or substance, "I do not discuss any matters relating to CMP; please address
your inquiries directly to the company" or ▇▇▇ communicates the fact that he was
formerly employed by the Company and identifies the positions he held and the
dates thereof.
(b) Notwithstanding the provisions of paragraph (a) of this Section
2.3, ▇▇▇ shall not be deemed to be engaged in competition with the CMP Group
solely by reason of Dan's ownership of (i) an equity interest of less than
one-half of one percent (0.5%) in the securities of a Direct Competitor or
Indirect Competitor listed for trading on a national securities exchange or
quoted in the National Market List of NASDAQ or (ii) an interest in a mutual or
other investment fund which owns an interest in a Direct Competitor or Indirect
Competitor, provided that ▇▇▇ has no influence or control over the selection of
such fund's investment decisions.
SECTION 2.4. PRIOR NOTICE; OPPORTUNITY TO CURE.
(a) ▇▇▇ shall give the Company written notice at least twenty (20)
Business Days before entering into any relationship or transaction, or engaging
in any activity, or taking or omitting to take any action, which might
reasonably be deemed a breach of any provision of Section 2.2 or Section 2.3,
such notice to include full and complete particulars as to the proposed
relationship, transaction, activity, action or omission, the services or duties
contemplated and such other facts and circumstances as are reasonably necessary
for the Company to make an informed decision. The Company shall advise ▇▇▇ in
writing, within ten (10) Business Days after such notice is given, of the Board
of Directors' determination as to whether such relationship, transaction,
activity, action or omission would materially breach any of the provisions of
Section 2.2 or
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Section 2.3. In the event that, for reasons not within his control, ▇▇▇ gives
the Company less than twenty (20) Business Days' prior written notice, the
Company will endeavor in good faith to advise ▇▇▇ of the Board of Directors'
determination in less than ten (10) Business Days after such notice is given,
provided that the Company's failure to advise ▇▇▇ in less than ten (10) Business
Days shall not be deemed to constitute consent to such relationship,
transaction, activity, action or omission and shall not give rise to any
liability of the Company to ▇▇▇ or to any third party.
(b) Once the Company has advised ▇▇▇ in writing that the Board of
Directors has determined that a proposed relationship, transaction, activity,
action or omission would not materially breach any of the provisions of Section
2.2 or Section 2.3, and ▇▇▇ has thereupon entered into such relationship or
transaction or has begun to engage in such activity or to take or omit to take
such action, the Board of Directors shall have no right to reverse or otherwise
modify its determination; provided, however, that if the nature, scope or terms
of such relationship, transaction, activity, action or omission are to be
modified after such determination is made, then in accordance with paragraph (a)
hereof ▇▇▇ shall give the Company prior written notice of such modification and
the Company shall advise him in writing, within ten (10) Business Days after
such notice is given, of the Board of Directors' determination as to whether
such relationship, transaction, activity, action or omission, as so modified,
would materially breach any of the provisions of Section 2.2 or Section 2.3.
(c) In the event that, without having given the Company prior notice
pursuant to paragraphs (a) or (b) hereof, ▇▇▇ enters into any relationship or
transaction or begins to engage in any activity or to take or omit to take any
action that the Board of Directors determines is a material breach of any of the
provisions of Section 2.2 or Section 2.3, the Company shall give ▇▇▇ written
notice of such determination and, if such breach is continuing, an opportunity
to cure such breach before the Company seeks remedy or relief by judicial
process or arbitration or exercises its rights under Section 6.6(b) hereof. The
opportunity to cure shall be sixty (60) days to the extent such continuing
breach consists of holding an ownership interest in a competitive business and
fifteen (15) days with respect to any other continuing breach.
SECTION 2.5. OTHER COVENANTS.
(a) For as long as ▇▇▇ or any Permitted Transferee owns any Option
Shares, ▇▇▇ shall, if requested by the Company, provide information, testimony
and assistance in connection with the prosecution or defense of any claims by or
against the Company arising out of matters of which he acquired knowledge while
an employee of the Company. The Company shall reimburse ▇▇▇ for all reasonable
out-of-pocket expenses he incurs in rendering such assistance.
(b) For as long as ▇▇▇ or any Permitted Transferee owns any Option
Shares, ▇▇▇ shall not willfully make any oral or written statement which
reflects adversely upon the character, honesty, credit, efficiency or business
practices of the CMP Group or its former, current or future stockholders,
directors, officers or employees in their capacities as such.
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SECTION 2.6. CONFIDENTIALITY OF AGREEMENT.
The terms and conditions of this Agreement shall be kept confidential
by the parties, and none of the parties shall disclose them to any non-party
unless such disclosure is necessitated by (a) legal and/or financial
requirements of the Company, in which case the form of such disclosure shall
first be mutually agreed upon by the Company and ▇▇▇, or (b) any arbitration or
other legal proceeding contesting or seeking to enforce any provision or
interpretation of this Agreement (including any deposition or testimony that
either party provides in connection therewith), regardless of whether such
proceeding is initiated by ▇▇▇ or the Company. Except as provided in the
preceding sentence, and without limiting the generality of the foregoing, ▇▇▇
shall not respond to or in any way participate in or contribute to any public
discussion, notice or other publicity concerning or in any way relating to
execution of this Agreement or the events (including any negotiations) which led
to its execution, and ▇▇▇ specifically agrees that he shall not disclose
information regarding this Agreement to any current or former employees of the
Company other than those expressly authorized by the Company to have knowledge
hereof. Without limiting the comprehensive confidentiality agreed to, ▇▇▇ ▇▇▇
disclose this Agreement to his attorneys, financial advisors and members of his
and his spouse's immediate families, provided he informs them of this
confidentiality provision and they agree to abide by it. ▇▇▇ hereby agrees that
any disclosure by him of any of the terms and conditions of this Agreement in
violation of the foregoing shall constitute and be treated as a material breach
of this Agreement and ▇▇▇ shall be responsible for damages occasioned thereby,
including but not limited to reasonable attorneys' fees incurred by the Company
to enforce this Section 2.6.
SECTION 2.7. RELIEF FOR BREACH.
▇▇▇ acknowledges and agrees that any breach or anticipatory breach by
him of any of the provisions of this Article II would cause the Company
irreparable injury not compensable by monetary damages alone and that,
accordingly, in any such event, the Company shall be entitled to injunctions,
both preliminary and permanent, enjoining or restraining such breach or
anticipatory breach (and ▇▇▇ hereby consents to the issuance thereof without
bond by any court of competent jurisdiction), in addition to monetary damages in
such amount as the evidence may show and such other remedies as may be available
at law or in equity.
SECTION 2.8. SEPARATE COVENANTS.
▇▇▇ understands and agrees that the covenants contained in this Article
II constitute a series of separate covenants, one for each applicable state in
the United States and the District of Columbia, and one for each applicable
foreign country. If in any judicial proceeding a court shall hold unenforceable
any of the separate covenants included in this Article II, then such
unenforceable covenant or covenants shall be deemed limited as necessary or
eliminated from the provisions of this Article II for the purpose of such
proceeding to the extent necessary to permit the remaining separate covenants of
this Article II to be enforced in such proceeding, and to permit such
unenforceable covenant or covenants to be enforced as limited.
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ARTICLE III
VESTING OF OPTIONS
SECTION 3.1. VESTING ON DECEMBER 31, 2005.
All Options granted under this Agreement shall vest and become fully
exercisable on December 31, 2005, provided only that ▇▇▇ is a Key Senior
Executive on such date.
SECTION 3.2. ACCELERATION OF VESTING: FIRST SERIES.
Notwithstanding the provisions of Section 3.1, if on December 31 of any
year from 1997 to and including 2004 (a) ▇▇▇ is a Key Senior Executive, (b) the
Company's annual Pre-Tax Income was not less than five percent (5%) of its Net
Sales Revenue for both the year ending on such December 31 and the entire
preceding year, and (c) at least one (1) of the full-time female employees of
the CMP Group has held an international senior-level executive position (such as
chief financial officer of the Company's international business, a country
manager, or a manager with profit-and-loss responsibility for a significant
international business unit of the CMP Group) or a higher level position for the
entire year ending on such December 31, then and in that event Options with
respect to one hundred thirty-two (132) Unexercised Shares (which number equals
approximately one quarter of one percent (0.25%) of the number of shares of the
Company's Common Stock issued and outstanding as of the date hereof) shall vest
and become exercisable as of the first such December 31 on which all of the
three (3) aforementioned conditions (the "Conditions") are satisfied.
SECTION 3.3. ACCELERATION OF VESTING: SECOND SERIES.
(a) Notwithstanding the provisions of Section 3.1, if on December 31 of
any year from 1999 to and including 2004 the Conditions are satisfied, then and
in that event Options with respect to two hundred sixty-four (264) Unexercised
Shares (which number equals approximately one half of one percent (0.5%) of the
number of shares of the Company's Common Stock issued and outstanding as of the
date hereof) shall vest and become exercisable as of the first such December 31
on which the Conditions are satisfied.
(b) Notwithstanding the provisions of Section 3.1 and paragraph (a) of
this Section 3.3, if on December 31, 1997 or December 31, 1998 the Conditions
are satisfied and, in addition, (i) the Net Sales Revenue of the Company for the
year then ending exceeds $600 million and (ii) the Company's annual Pre-Tax
Income was not less than ten percent (10%) of its Net Sales Revenue for both the
year then ending and the entire preceding year, then and in that event fifty
percent (50%) of the Unexercised Shares referred to in paragraph (a) of this
Section 3.3, or one hundred thirty-two (132) Unexercised Shares, shall
accelerate and shall vest and become exercisable as of the first such December
31 on which all the aforementioned conditions are satisfied.
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SECTION 3.4. ACCELERATION OF VESTING: THIRD SERIES.
(a) Notwithstanding the provisions of Section 3.1, if on December 31,
2001 or December 31, 2004 the Conditions are satisfied, then and in that event
Options with respect to five hundred twenty eight (528) Unexercised Shares
(which number equals approximately one percent (1.0%) of the number of shares of
the Company's Common Stock issued and outstanding as of the date hereof) shall
vest and become exercisable as of the first such December 31 on which the
Conditions are satisfied.
(b) Notwithstanding the provisions of Section 3.1 and paragraph (a) of
this Section 3.4, if on December 31 of any year from 1997 to and including 2000
the Conditions are satisfied and, in addition, (i) the Net Sales Revenue of the
Company for the year then ending exceeds $800 million and (ii) the Company's
annual Pre-Tax Income was not less than ten percent (10%) of its Net Sales
Revenue for both the year then ending and the entire preceding year, then and in
that event Options with respect to twenty-five percent (25%) of the Unexercised
Shares referred to in paragraph (a) of this Section 3.4, or two hundred
sixty-four (264) Unexercised Shares, shall accelerate and shall vest and become
exercisable as of the first such December 31 on which all the aforementioned
conditions are satisfied.
(c) Notwithstanding the provisions of Section 3.1 and paragraph (a) of
this Section 3.4, if on December 31 of any year from 1997 to and including 2000
all the conditions set forth in paragraph (a) of this Section 3.4 are satisfied
and, in addition, (i) the Net International Sales Revenue of the Company for the
year ending exceeds $60 million and (ii) the Company's annual International
Pre-Tax Income for such year was not less than the greater of (A) $3 million or
(B) five percent (5%) of its Net International Sales Revenue, then and in that
event Options with respect to twenty-five percent (25%) of the Unexercised
Shares referred to in paragraph (a) of this Section 3.4, or two hundred
sixty-four (264) Unexercised Shares, shall accelerate and shall vest and become
exercisable as of the first such December 31 on which all the aforementioned
conditions are satisfied.
SECTION 3.5. ACCELERATION OF VESTING: FOURTH SERIES.
(a) Notwithstanding the provisions of Section 3.1, if on December 31 of
any year from 1997 to and including 2004 the Conditions are satisfied, the
conditions set forth in Section 3.4(c) are satisfied and, in addition then and
in that event Options with respect six hundred sixty (660) Unexercised Shares
(which number equals approximately one and one quarter percent (1.25%) of the
number of shares of the Company's Common Stock issued and outstanding as of the
date hereof) shall vest and become exercisable as of the first such December 31
on which all the aforementioned conditions are satisfied.
(b) Notwithstanding the provisions of Section 3.1, if on December 31 of
any year from 1997 to and including 2002 the Conditions are satisfied, the
conditions set forth in Section 3.4(c) are satisfied and, in addition, (i) the
Net Sales Revenue of the Company for the year then ending
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exceeds $1 billion and (ii) the Company's annual Pre-Tax Income was not less
than ten percent (10%) of its Net Sales Revenue for both the year then ending
and the entire preceding year, then and in that event Options with respect to
forty percent (40%) of the Unexercised Shares referred to in paragraph (a) of
this Section 3.5, or two hundred sixty-four (264) Unexercised Shares, shall
accelerate and shall vest and become exercisable as of the first such December
31 on which all the aforementioned conditions are satisfied.
(c) Notwithstanding the provisions of paragraph (a) of this Section
3.5, if on December 31 of any year from 1997 to and including 2002 the
Conditions are satisfied, the conditions set forth in paragraph (a) of Section
3.4(c) are satisfied and, in addition, (i) the Net Sales Revenue of the Company
for the year then ending exceeds $1.25 billion and (ii) the Company's annual
Pre-Tax Income was not less than ten percent (10%) of its Net Sales Revenue for
both the year then ending and the entire preceding year, then and in that event
Options with respect to two hundred sixty-four (264) Unexercised Shares (which
number equals approximately one half of one percent (0.5%) of the number of
shares of the Company's Common Stock issued and outstanding as of the date
hereof) shall vest and become exercisable as of the first such December 31 on
which all the aforementioned conditions are satisfied.
(d) Notwithstanding the provisions of Section 3.1, if on December 31 of
any year from 1997 to and including 2004 the Conditions are satisfied and, in
addition, (i) at least thirty-one percent (31%) of the full-time United States
employees of the Company holding the position of Vice President or a higher
level position are female or Minority Group Members and (ii) at least
forty-three percent (43%) of the most highly compensated five percent (5%) of
all full-time United States employees of the Company (as measured by projected
total income for such year) are female or Minority Group Members, then and in
that event Options with respect to one hundred thirty-two (132) Unexercised
Shares (which number equals approximately one quarter of one percent (0.25%) of
the number of shares of the Company's Common Stock issued and outstanding as of
the date hereof) shall vest and become exercisable as of the first such December
31 on which all the aforementioned conditions are satisfied.
SECTION 3.6. SATISFACTION OF CONDITIONS.
(a) Notwithstanding anything to the contrary contained in this Article
III, in the event that any of the Conditions set forth in Section 3.2, or any of
the conditions with respect to Net Sales Revenue or Pre-Tax Income set forth in
paragraph (b) of Section 3.3, Section 3.4 or Section 3.5, is not satisfied on
December 31 of any year from 1997 through 2002 by reason of the fact that the
Company took or omitted to take an action for the purpose of preventing or
delaying the accelerated vesting of Options on such December 31 or by reason of
the fact that the Company willfully engaged in one or more transactions for the
direct benefit of any of the holders of the Class B Stock or any affiliate
thereof, which transaction was not on an arms-length basis, commercially
reasonable and in the ordinary course of business or consistent with the
Company's past practice, then and in that event such Condition or condition
shall nevertheless be deemed satisfied as of such December 31 for all purposes
of this Agreement.
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(b) Notwithstanding anything to the contrary contained in this Article
III, in the event that the Condition set forth in Section 3.2(a) is not
satisfied on December 31 of any year from 1997 through 2002 by reason of the
fact that the Company demoted ▇▇▇ to a position lower than that of a Key Senior
Executive at the Company's initiative and without a bona fide business reason to
do so, then and in that event such Condition shall nevertheless be deemed
satisfied as of such December 31 for all purposes of this Agreement. As used
herein, a "bona fide business reason shall include but not be limited to
material deficiencies in Dan's performance of his duties, and actions or
omissions by ▇▇▇ that would constitute grounds for Dismissal For Cause.
(c) Notwithstanding anything to the contrary contained in this Article
III, (i) in the event that the Condition set forth in Section 3.2(c) is not
satisfied on December 31 of any year from 1997 through 2002 by reason of the
fact that, during the year ending on such December 31, the Company, over Dan's
protest, removed a qualified female executive from a position reporting directly
to ▇▇▇ or, during the final three (3) months of the preceding year, the Company,
over Dan's protest, refused to allow the appointment of a qualified female to
such position, or (ii) in the event that either of the additional conditions set
forth in clauses (i) and (ii) of Section 3.4(c) is not satisfied on December 31
of any year from 1997 through 2000, or either of the additional conditions set
forth in clauses (i) and (ii) of Section 3.5(d) is not satisfied on December 31
of any year from 1997 through 2002, by reason of the fact that, during the year
ending on such December 31, the Company, over Dan's protest, removed a qualified
female or Minority Group Member from a position of Vice President or a higher
level position or, during the final three (3) months of the preceding year, the
Company, over Dan's protest, refused to allow the appointment of a qualified
female or Minority Group Member to such position, then and in that event such
Condition or condition shall nevertheless be deemed satisfied as of such
December 31 for all purposes of this Agreement. As used herein, a "qualified
female or Minority Group Member shall mean a female or a Minority Group Member
reasonably qualified to perform the duties and discharge the responsibilities of
such position based on her or his abilities, experience and past performance.
ARTICLE IV
EXERCISE OF OPTIONS
SECTION 4.1. EXERCISE OF OPTIONS.
▇▇▇ ▇▇▇ exercise a vested Option by giving the Company written notice
of exercise specifying the number of Unexercised Shares to be acquired together
with payment of the full Option Price for such Unexercised Shares. ▇▇▇ ▇▇▇
exercise fewer than all the Options which are then exercisable, but ▇▇▇ ▇▇▇ not
exercise a partial Option for less than a full Unexercised Share. ▇▇▇ ▇▇▇ pay
the Option Price for Unexercised Shares to be acquired:
(a) by delivering to the Company United States dollars in cash
or by check,
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bank draft or wire transfer payable to the order of the Company;
(b) by transferring and delivering to the Company shares of
Class A Stock (to the extent their transfer is not otherwise restricted) having
an aggregate Fair Market Value as of the date of exercise equal to the aggregate
Option Price to be paid; provided that if ▇▇▇ originally acquired such shares of
Class A Stock pursuant to this Agreement or the Share Purchase Agreement, he may
use such shares to pay the Option Price for Unexercised Shares only if he has
then owned and been entitled to sell such shares of Class A Stock (subject only
to limitations set forth in such Agreements as to the maximum aggregate number
of such shares saleable in any single calendar year and to pre-conditions to
sale set forth in such Agreements as to the market capitalization of the
Company) for at least six (6) months; or
(c) by any combination of the above methods of payment.
Upon receipt of payment for such Unexercised Shares, the Company shall
duly issue such Unexercised Shares to ▇▇▇ (whereupon such Unexercised Shares
shall become Option Shares), and the Company shall deliver to ▇▇▇ stock
certificates representing such Option Shares and bearing the legends
contemplated in Section 13.1.
SECTION 4.2. WITHHOLDING TAXES.
The Company may, in its discretion, require ▇▇▇ to pay to the Company
upon the exercise of any Option the amount that the Company reasonably deems to
be the minimum amount of tax that the Company is required by federal, state or
local statute to withhold (including FICA) in connection with such exercise,
using the method of calculating tax withholdings that results in the least
amount withheld. ▇▇▇ ▇▇▇ pay the amount of his withholding tax liability by
using any of the methods set forth in Section 4.1. In addition, he may pay up to
the minimum amount of such required tax withholdings (but no more than such
minimum amount):
(a) by transferring and delivering to the Company shares of Class A
Stock (to the extent their transfer is not otherwise restricted) having an
aggregate Fair Market Value as of the date of exercise equal to the amount of
such minimum required tax withholdings, regardless of how ▇▇▇▇ ▇▇▇ has then
owned or been entitled to sell such shares of Class A Stock or how he acquired
such shares of Class A Stock;
(b) with the prior approval of the Board of Directors, by authorizing
the Company in writing to deduct and retain, from the Unexercised Shares
otherwise to be issued to ▇▇▇, Unexercised Shares having an aggregate Fair
Market Value as of the date of exercise equal to such minimum amount of required
tax withholdings; or
(c) by any combination of the above methods of payment.
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SECTION 4.3. DETERMINATION OF FAIR MARKET VALUE.
In the event that, at a time when the Company is privately held and
there is no public market for the Class A Stock, ▇▇▇ elects to pay the Option
Price for any Unexercised Shares or to pay his withholding tax liability thereon
by transferring and delivering shares of Class A Stock to the Company, or to pay
such withholding tax liability by authorizing the Company to deduct and retain
Unexercised Shares, he shall so advise the Company in his notice of exercise and
the parties shall promptly determine the Fair Market Value of such shares of
Class A Stock pursuant to the procedure set forth in Section 6.7(b).
SECTION 4.4. NON-TRANSFERABILITY OF OPTIONS.
Each vested Option shall be exercisable only by ▇▇▇ or, in the event of
Dan's death or incapacity, by the representative of ▇▇▇ duly authorized pursuant
to Section 4.4. No Option or any rights thereunder shall be transferable other
than by will, by the laws of descent and distribution, or for tax withholding
purposes pursuant to Section 4.2, or be subject to attachment, execution or
other similar process. Any attempt by ▇▇▇ to alienate, assign, pledge,
hypothecate or otherwise dispose of an Option or any right thereunder, except as
provided for herein, and any levy or attachment, execution or similar process
upon the rights or interest conferred under any Option, shall be null and void.
SECTION 4.5. DAN'S REPRESENTATIVE.
Promptly following execution of this Agreement, ▇▇▇ shall give the
Company written notice designating one or more representatives who shall be
entitled, following Dan's death or incapacity, to exercise his rights under this
Agreement. ▇▇▇ ▇▇▇, from time to time, revoke or change his designation of
representatives, without the consent of any prior representative, by giving the
Company notice of revocation or change. The last notice duly given to the
Company prior to Dan's death or incapacity shall be controlling. If, at the time
of his death or incapacity, ▇▇▇ has not properly designated a representative or
if the designated representative does not survive such event, then the following
persons or entity, in the following order, shall be deemed Dan's representative
hereunder: (a) Dan's surviving spouse; (b) if there is no surviving spouse, then
Dan's children, per stirpes; (c) if there are no children, then Dan's estate.
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ARTICLE V
EXPIRATION OF OPTIONS
SECTION 5.1. EXPIRATION OF OPTIONS.
Except as provided otherwise in this Article V, every vested but
unexercised Option shall expire and all rights thereunder shall be extinguished
upon the expiration of the later of (a) five (5) years after the date on which
such Option vested or (b) eighteen (18) months after the date on which the
Company makes an initial public offering of shares of the Class A Stock (unless
such Option has already expired by the date of such offering); provided that all
unexercised Options shall expire and be extinguished no later than the close of
business on December 31, 2008.
SECTION 5.2. EXPIRATION UPON DEATH, PERMANENT DISABILITY, DISMISSAL
WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON.
In the event Dan's employment with the Company terminates as a result
of his death, Permanent Disability, Dismissal Without Cause or Resignation For
Good Reason, then and in that event:
(a) Every vested but unexercised Option shall remain exercisable for
one (1) year from the date of such termination of employment. Upon the
expiration of such 1-year period, any such Options that have not then been
exercised shall expire and all rights thereunder shall be extinguished.
(b) On the date of such termination of Dan's employment, such number of
unvested Options shall vest and become exercisable as shall equal the number of
Options that, but for such termination of employment, would have vested within
twenty-four (24) months after the date of such termination assuming the
Conditions were satisfied at all times during such 24-month period, multiplied
by a fraction the numerator of which shall equal the number of full months that,
on the date of such termination, have elapsed since the nearest preceding
December 31 on which Options vested under paragraph (a) of Section 3.2, Section
3.3, Section 3.4 or Section 3.5, as the case may be (or could have vested under
such paragraphs if the Conditions had been satisfied on such preceding December
31), and the denominator of which shall be twenty-four (24). (A hypothetical
illustration of the calculation of such number of Options is set forth on
Schedule 5.2(b) hereto.) All Options which vest pursuant to this paragraph (b)
shall remain exercisable for one (1) year from the date of such termination of
Dan's employment. Upon the expiration of such 1-year period, any such Options
that have not then been exercised shall expire and all rights thereunder shall
be extinguished.
(c) Every Option which neither vested prior to such termination of
Dan's employment nor vests pursuant to paragraph (b) of this Section 5.2 shall
expire and all rights thereunder shall be extinguished as of the date of such
termination of employment.
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SECTION 5.3. EXPIRATION UPON VOLUNTARY RESIGNATION, DISMISSAL FOR
CAUSE OR COMPETITION.
In the event that Dan's employment with the Company terminates as a
result of his Voluntary Resignation or Dismissal For Cause, or in the event that
▇▇▇ materially breaches any of the provisions of Section 2.2 or Section 2.3,
then and in that event all unvested Options and all vested Options that have not
yet been duly exercised shall expire and all rights thereunder shall be
extinguished as of the earlier of the date of such termination of employment or
the date of such breach of Section 2.2 or Section 2.3. In the event that ▇▇▇
exercises any Option at a time when he has breached any of the provisions of
Section 2.2 or Section 2.3, such purported exercise shall be null and void, and
▇▇▇ shall return to the Company immediately upon demand any and all stock
certificates representing Option Shares issued to him upon exercise of such
Option, in exchange for which the Company shall return to ▇▇▇ any consideration
he paid for such Option Shares.
SECTION 5.4. CHANGE IN CONTROL.
Notwithstanding anything to the contrary contained in Article III or
this Article V, in the event that there is a Change in Control and, in
connection therewith or subsequently, Dan's employment with the Company
terminates as a result of his Dismissal Without Cause or Resignation For Good
Reason, then and in that event:
(a) Every vested but unexercised Option shall remain exercisable in
accordance with the provisions of Section 5.1 as if Dan's employment had not so
terminated.
(b) Every unvested Option shall vest in accordance with the provisions
of Article III except that the requirement that ▇▇▇ be a Key Senior Executive on
December 31, 2003 and any requirement that the Conditions or the conditions set
forth in Section 3.4(c) or Section 3.5(d) be satisfied on any December 31 shall
be deemed eliminated from this Agreement as conditions to vesting, and such
unvested Options shall vest in accordance with the provisions of Article III as
if Dan's employment as a Key Senior Executive had not so terminated and as if
the Conditions and the conditions set forth in Section 3.4(c) and Section 3.5(d)
were fully satisfied at all times through December 31, 2003; provided, however,
that in the event of Dan's death following such termination of employment,
Options then unvested shall vest and become exercisable in accordance with the
provisions of Section 5.2(b) as if ▇▇▇ had been employed as a Key Senior
Executive on the date of his death.
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ARTICLE VI
TRANSFERABILITY OF SHARES AT TIME WHEN
COMPANY IS PRIVATELY HELD AND THERE IS NOT PUBLIC MARKET
SECTION 6.1. GENERAL RESTRICTION ON TRANSFER.
(a) At any time when the Company is privately held and there is no
public market for the Class A Stock, ▇▇▇ shall not, voluntarily or
involuntarily, by operation of law or otherwise, sell, mortgage, pledge,
hypothecate, assign as a security, grant or permit to exist or continue a
security interest in, or in any way transfer by gift, will, trust or intestate
succession any of the Option Shares, except to a Permitted Transferee as
provided in Section 13.2(a) or except as specifically provided in this Article
VI. Any attempt by ▇▇▇ to do any of the aforementioned acts or otherwise to
alienate or dispose of any Option Shares, except in accordance with this
Agreement, shall be null and void.
(b) Notwithstanding anything to the contrary contained in this Article
VI, ▇▇▇ shall not have the right to require the Company to purchase any Option
Shares hereunder unless and until ▇▇▇ has owned and been entitled to sell such
Option Shares (subject only to limitations set forth in this Agreement as to the
maximum aggregate number of such shares saleable in any single calendar year and
to pre-conditions to sale set forth in this Agreement as to the market
capitalization of the Company) for at least six (6) months prior to such
purchase, and the Company shall have the right, in purchasing Option Shares from
▇▇▇ hereunder, to defer the purchase of any such Option Shares until such time
as ▇▇▇ has so owned and been entitled to sell them for six (6) months.
SECTION 6.2. SALE TO SATISFY INCOME TAX LIABILITIES.
Subject to the provisions of Section 6.1(b), but notwithstanding the
limitations set forth in any other Section of this Article VI, ▇▇▇ shall have
the right, exercisable upon notice to the Company given no later than twelve
(12) months after the exercise of any Option, to require the Company to purchase
a number of Option Shares (and/or, to the extent their sale is not otherwise
restricted, Restricted Shares) at the price provided in Section 6.7, such that
the proceeds of such purchase shall equal the amount, if any, of Dan's
additional income tax liability (federal, state and local) actually occasioned
as a result of the exercise of such Option. Such notice shall include a written
certification of such amount by Dan's tax accountant. Any shares of Class A
Stock sold under this Section 6.2 shall be taken into account when calculating
the aggregate number of shares of Class A Stock that ▇▇▇ shall be entitled to
sell in any single calendar year under any other Section of this Article VI, it
being the intent of the parties that shares of Class A Stock sold under this
Section 6.2 shall be included in, and shall not be in addition to, such
aggregate number of shares permitted to be sold in any single calendar year
under any such other Section of this Article VI.
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SECTION 6.3. SALE AFTER DECEMBER 31, 2003.
Subject to the provisions of Section 6.1(b), during each and any
calendar year beginning with the calendar year 2004, ▇▇▇ shall have the right,
exercisable upon notice to the Company given during the first three (3) months
of such calendar year, to require the Company to purchase up to five hundred
twenty-eight (528) shares of his Class A Stock (which number of shares equals
approximately one percent (1%) of the number of shares of the Company's Common
Stock issued and outstanding as of the date hereof), including both Option
Shares and Restricted Shares, at the price provided in Section 6.7(a).
SECTION 6.4. SALE AFTER DEATH OR PERMANENT DISABILITY.
Subject to the provisions of Section 6.1(b), in the event that Dan's
employment with the Company terminates as a result of his death or the Company
terminates his employment by reason of his Permanent Disability (whether before
or after December 31, 2003), then and in that event, notwithstanding the
provisions of Section 6.2 and Section 6.3, the parties shall have the following
rights:
(a) Rights of ▇▇▇ to Sell. ▇▇▇ or his representative and/or successors
in interest shall have the right, exercisable upon notice to the Company given
no later than one hundred eighty (180) days after such termination of employment
occurs, or during the first three (3) months of any succeeding calendar year, to
require the Company to purchase any or all of the Option Shares then owned by
▇▇▇ or his successors in interest, at the price provided in Section 6.7(a).
(b) Rights of Company to Purchase. The Company shall have the right,
exercisable upon notice to ▇▇▇ or his representative and/or successors in
interest given during the first three (3) months of the third calendar year
after the year in which such termination of employment occurs and/or during the
first three (3) months of any succeeding calendar year, to require ▇▇▇ or his
representative and/or successors in interest to sell to the Company any or all
of the Option Shares then owned by ▇▇▇ or any successor in interest, at the
price provided in Section 6.7(a).
SECTION 6.5. SALE AFTER DISMISSAL WITHOUT CAUSE OR RESIGNATION FOR
GOOD REASON.
Subject to the provisions of Section 6.1(b), in the event that Dan's
employment with the Company terminates as a result of his Dismissal Without
Cause or Resignation For Good Reason, then and in that event the parties shall
have the following rights:
(a) Rights of ▇▇▇ to Sell. In addition to his rights under Section 6.3
with respect to sales after December 31, 2003, ▇▇▇ shall also have the right
prior to December 31, 2003, exercisable upon notice to the Company given during
the first three (3) months of the calendar year after which such Dismissal
Without Cause or Resignation For Good Reason occurs and/or during the first
three (3) months of any succeeding calendar year, to require the Company to
purchase up to
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five hundred twenty-eight (528) of his Option Shares (which number of shares
equals approximately one percent (1%) of the number of shares of the Company's
Common Stock issued and outstanding as of the date hereof), at the price
provided in Section 6.7(a).
(b) Rights of Company to Purchase. The Company shall have the right,
exercisable upon notice to ▇▇▇ given during the first three (3) months of the
third calendar year after the year in which such Dismissal Without Cause or
Resignation For Good Reason occurs and/or during the first three (3) months of
any succeeding calendar year, to require ▇▇▇ to sell to the Company any or all
of the Option Shares then owned by ▇▇▇, at the price provided in Section 6.7(a).
The death or Permanent Disability of ▇▇▇ occurring subsequent to his Dismissal
Without Cause or Resignation For Good Reason shall not modify or affect the
rights and obligations of the parties as set forth in this Section 6.5.
SECTION 6.6. SALE AFTER VOLUNTARY RESIGNATION, DISMISSAL FOR CAUSE,
OR COMPETITION.
Subject to the provisions of Section 6.1(b), in the event that (a)
Dan's employment with the Company terminates as a result of his Voluntary
Resignation or Dismissal For Cause or (b) ▇▇▇ materially breaches any of the
provisions of Section 2.2 or Section 2.3 (whether before or after the
termination of his employment for any reason) and, if the Company has given him
notice to cure, fails to cure such breach on a timely basis, then and in that
event, in addition to any rights that ▇▇▇ has under Section 6.2 and Section 6.3,
the Company shall have the right, exercisable upon notice to ▇▇▇ given at any
time or times after such event occurs (whether before or after December 31,
2003), to require ▇▇▇ to sell to the Company any or all of the Option Shares
then owned by ▇▇▇, at the price provided in Section 6.7(a). The death or
Permanent Disability of ▇▇▇ occurring subsequent to his Voluntary Resignation,
Dismissal For Cause or material breach of any of the provisions of Section 2.2
or Section 2.3 shall not modify or affect the rights and obligations of the
parties as set forth in this Section 6.6.
SECTION 6.7. PURCHASE PRICE OF OPTION SHARES.
(a) Price to be Paid for Option Shares.
(i) The purchase price for any Option Shares to be purchased
pursuant to this Article VI shall be the Fair Market Value of such Option
Shares.
(b) Determination of Fair Market Value.
(i) Within the sixty (60) days after ▇▇▇ has given the Company
notice of intent to sell Option Shares or the Company has given ▇▇▇ notice of
intent to purchase Option Shares pursuant to this Article VI, the Company and
▇▇▇ shall negotiate in good faith in an effort to reach mutual agreement as to
the Fair Market Value of such Option Shares. If the Company and ▇▇▇ are unable
to reach agreement as to the Fair Market Value of such Option Shares within
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such 60-day period, the Fair Market Value of such Option Shares shall be
determined by an appraisal process as follows. Each of the Company and ▇▇▇ shall
designate, within thirty (30) days after the conclusion of the 60-day
negotiation period referred to above, an independent and experienced appraiser
familiar with the business in which the Company is then engaged (each
individually an "Appraiser" and collectively the "Appraisers"). The Appraisers
shall be instructed to complete their respective determinations of the Fair
Market Value of such Option Shares and deliver their written reports on such
determinations no later than sixty (60) days after both of such Appraisers have
been appointed. If the determination of one of the Appraisers does not exceed
the determination of the other Appraiser by more than fifteen percent (15%) of
the lower of the two determinations, the Fair Market Value of such Option Shares
shall be equal to the average of the two determinations. If the higher
determination exceeds the lower determination by more than fifteen percent (15%)
of the lower determination, then the two Appraisers shall jointly appoint a
third, independent and similarly experienced Appraiser within fifteen (15) days
after both of such two Appraisers have delivered their reports. Such third
Appraiser shall deliver his report on his determination of the Fair Market Value
of such Option Shares within sixty (60) days after his appointment, and his
determination of Fair Market Value shall be conclusive and binding on the
parties for all purposes hereof. The cost of all such appraisals shall be borne
one-half by the Company and one-half by ▇▇▇.
(c) Payment of Purchase Price.
(i) Lump Sum or Installments. The purchase price for Option
Shares shall be paid by the Company in full at the closing or, at the election
of the Company, in equal annual installments, together with interest payable
quarterly at the rate of interest announced publicly on the first day of each
calendar quarter by a major United States money market bank, selected by the
Company, as such bank's base rate, over a number of years to be determined by
the Company but in no event exceeding five (5) years if the purchase is pursuant
to Section 6.3 or Section 6.5, or ten (10) years if the purchase is pursuant to
Section 6.4 or Section 6.6; provided, however, that the purchase price for any
Option Shares purchased by the Company pursuant to Section 6.2 shall be paid in
full at the closing.
(ii) Initial Installment. In the event the Company elects to
pay for Option Shares hereunder on an installment basis, all annual installments
shall be equal in principal amount except as follows:
(A) The initial installment for any such sale of
Option Shares, other than a sale occurring by reason of Dan's death, Dismissal
For Cause or breach of any of the provisions of Section 2.2 or Section 2.3,
shall be not less than the amount, if any, of Dan's additional income tax
liability (federal, state and local) actually occasioned as a result of such
sale, provided that such amount shall have been certified to the Company in
writing by Dan's tax accountant.
(B) The initial installment for the first sale of
shares of Class A Stock that ▇▇▇ makes under this Agreement or the Stockholders'
Agreement, other than a sale occurring by
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reason of Dan's death, Dismissal For Cause or breach of any of the provisions of
Section 2.2 or Section 2.3, shall be at least (1) the amount due under clause
(A) above plus the amount of one million dollars ($1,000,000) or (2) if less,
the total purchase price for such Option Shares.
(C) The initial installment for any sale of Option
Shares occurring by reason of Dan's death shall be not less than the amount of
the estate and succession tax liability (federal and state) occasioned as a
result of the inclusion of the Option Shares in Dan's estate (giving effect to
any deferral permitted by law or regulation in the payment thereof) together
with any and all costs and expenses of administration of Dan's estate as
reasonably estimated by Dan's representative, all as certified to the Company in
writing by Dan's representative.
(iii) Cash Flow Limitations. Notwithstanding any other
provision of this Article VI, in the event that the amount due from the Company
in payment for Option Shares purchased hereunder (including both principal and
interest) in any one fiscal year of the Company (other than a purchase occurring
by reason of Dan's death) exceeds fifty percent (50%) of the Company's Free Cash
Flow for the preceding year, then and in that event the Company in its sole
discretion may elect to defer payment of any portion of such principal and/or
interest to the extent that payment would require the Company to pay more than
fifty percent (50%) of its Free Cash Flow for such preceding year, provided that
any such deferred amounts shall continue to earn interest as described in
Section 6.7 (c)(i) until paid; and provided further that in any event all
principal and interest shall be paid in full no later than five (5) years or ten
(10) years, as the case may be, after the date of the closing. If, in the same
fiscal year, the Company is also required to pay any persons or entities other
than ▇▇▇ for shares of Class A Stock that such persons or entities originally
acquired from other stockholders of the Company as of the date hereof or
pursuant to options granted by the Company and/or is required to make payment to
▇▇▇ and/or any other persons under any comparable long-term senior executive
compensation plan in effect from time to time, the amounts due to such other
persons or entities in such fiscal year shall be aggregated with the amount due
with respect to the Option Shares in such fiscal year and, if the aggregate
amount due exceeds fifty percent (50%) of the Company's Free Cash Flow for the
preceding fiscal year, then and in that event the Company in its sole discretion
may elect to defer payment of any portion of such aggregate amount (principal
and/or interest) to the extent that it would exceed fifty (50%) of the Company's
Free Cash Flow for the preceding year, and payments and deferments shall be
effected among ▇▇▇ and such other persons in proportion to the amounts (both
principal and interest) then due and owing to each, subject to any provisions in
such plans as to priority of payment.
(d) Closing of Transaction. The closing of any purchase of Option
Shares hereunder shall be held no later than ninety (90) days after the final
determination of the Fair Market Value of such Option Shares, at such time and
place as the Company may reasonably designate. At the closing, ▇▇▇ shall deliver
or cause to be delivered to the Company the stock certificates representing such
Option Shares, duly endorsed for transfer in blank or with duly executed stock
powers attached, and with signature guaranteed, in exchange for which the
Company shall deliver to ▇▇▇ the amount of the purchase price then due, together
with the Company's
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promissory note evidencing the Company's obligation to pay the balance, if any,
of the purchase price in accordance with the terms of Section 6.7(c). All
payments to ▇▇▇ hereunder shall be made in cash or by Company check, bank draft
or wire transfer.
SECTION 6.8. ASSIGNMENT AND DELEGATION BY THE COMPANY TO CLASS B
STOCKHOLDERS.
The Company shall have the right, exercisable upon notice to ▇▇▇, to
assign any or all of its rights and/or delegate any or all of its obligations
under this Article VI to the holders of the Class B Stock, in proportion to
their respective ownership interests or as they may otherwise unanimously agree,
provided that the Company shall not be relieved of its obligation to purchase
from ▇▇▇ in accordance herewith any Option Shares duly tendered and not
purchased and paid for by such holders of Class B Stock.
SECTION 6.9. TAG-ALONG RIGHTS -- DRAG-ALONG RIGHTS.
(a) In the event the Controlling Stockholders of the Company determine
to dispose of all or a portion of their shares of Common Stock, with the result
that they will no longer control the Company, then and in that event the Company
shall give ▇▇▇ a notice (a "Tag-Along Notice") of such proposed sale (a
"Tag-Along Sale") and the material terms of the Tag-Along Sale (the "Material
Terms") no later than thirty (30) days prior to the consummation of the
Tag-Along Sale. If, within twenty (20) days after a Tag-Along Notice is given to
▇▇▇ (or within ten (10) days after any notice of a change in the Material Terms
is given to ▇▇▇), the Company receives from ▇▇▇ a written request (a "Tag-Along
Request") to include in the Tag-Along Sale any of the Option Shares held by him,
such Option Shares (in the same proportion as the total number of shares of
Common Stock held by the Controlling Stockholders bears to the number of shares
being sold by the Controlling Stockholders) shall be included in the Tag-Along
Sale on the same terms and conditions and subject to the same obligations as the
sale by the Controlling Stockholders, taking into account the proportionate
ownership of the Controlling Stockholders and ▇▇▇. The Company shall give ▇▇▇
prompt notice of any change in the Material Terms and, in such event, ▇▇▇ shall
have the opportunity, for a period of ten (10) days after such notice has been
given, to submit a Tag-Along Request if ▇▇▇ did not previously submit a
Tag-Along Request or to withdraw or modify a Tag-Along Request previously made.
(b) Dan's rights hereunder to participate in a Tag-Along Sale shall be
contingent on Dan's compliance with each of the provisions hereof, Dan's
acceptance of a proportionate delegation of any duties or obligations related to
the Tag-Along Sale, including any indemnification obligations, and Dan's
execution of such documents in connection with the Tag-Along Sale as may be
reasonably requested by the Controlling Stockholders.
(c) In connection with any proposed sale of shares of Common Stock by
the Controlling Stockholders to a non-affiliated person or entity in an
arms-length transaction, if ▇▇▇ has not exercised his rights to sell Option
Shares as contemplated under paragraph (a) of this Section 6.9,
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the Company shall have the right, exercisable upon notice to ▇▇▇, to require
that ▇▇▇ sell to the purchaser of the shares of the Controlling Stockholders the
same proportion of Option Shares owned by ▇▇▇ as are being sold by the
Controlling Stockholders, on the same terms and conditions and subject to the
same obligations including any indemnification obligations, as the sale by the
Controlling Stockholders, taking into account the proportionate ownership of the
Controlling Stockholders and ▇▇▇. ▇▇▇ agrees that he will cooperate with the
Company and the Controlling Stockholders in taking all such actions, including
executing all such documentation, as the Company and /or the Controlling
Stockholders may reasonably request.
ARTICLE VII
TRANSFERABILITY OF SHARES AT TIME
COMPANY SHARES ARE PUBLICLY TRADED
SECTION 7.1. GENERAL RESTRICTION ON TRANSFER.
In the event that shares of the Class A Stock become listed on a
national securities exchange or quoted in the National Market List of NASDAQ,
then and in that event the provisions of Article VI shall cease to be operative,
and ▇▇▇ shall not, voluntarily or involuntarily, by operation of law or
otherwise, sell, mortgage, pledge, hypothecate, assign as a security, grant or
permit to exist or continue a security interest in, or in any way transfer by
gift, will, trust or intestate succession any of the Option Shares, except to a
Permitted Transferee as provided in Section 12.2(a) or except as specifically
provided in this Article VII. Any attempt by ▇▇▇ to do any of the aforementioned
acts or otherwise to alienate or dispose of any Option Shares, except in
accordance with this Agreement, shall be null and void.
SECTION 7.2. SALE TO SATISFY INCOME TAX LIABILITIES.
Notwithstanding the limitations set forth in any other Section of this
Article VII, ▇▇▇ shall have the right, exercisable upon notice to the Company
given no later than twelve (12) months after the exercise of any Option, to sell
a number of Option Shares (and/or, to the extent their sale is not otherwise
restricted, Restricted Shares) on the public market, such that the proceeds of
such sale shall equal the amount, if any, of Dan's additional income tax
liability (federal, state and local) actually occasioned as a result of the
exercise of such Option. Such notice shall include a written certification of
such amount by Dan's tax accountant. Any shares of Class A Stock sold under this
Section 7.2 shall be taken into account when calculating the aggregate number of
shares of Class A Stock that ▇▇▇ shall be entitled to sell in any single
calendar year under any other Section of this Article VII, it being the intent
of the parties that shares of Class A Stock sold under this Section 7.2 shall be
included in, and shall not be in addition to, such aggregate number of shares
permitted to be sold in any single calendar year under any such other Section of
this Article VII.
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SECTION 7.3. SALE ON OR BEFORE DECEMBER 31, 2003.
Except as otherwise provided in Section 7.5 and Section 7.6, from
January 1, 1998 through December 31, 2003, ▇▇▇ shall have the right to sell
Option Shares on the public market, subject to the following conditions:
(a) Minimum Market Capitalization. ▇▇▇ ▇▇▇ not sell any Option Shares
under this Section 7.3 unless the market capitalization of the Company as of the
Business Day immediately preceding the date of sale is greater than three
hundred forty million dollars ($340,000,000). The market capitalization of the
Company shall be determined by multiplying the Fair Market Value of a share of
Class A Stock by the total number of shares of the Common Stock then issued and
outstanding.
(b) Maximum Number of Shares.
(i) the maximum number of shares of Class A Stock (including
both Option Shares and Restricted Shares) that ▇▇▇ ▇▇▇ sell in any single
calendar year shall be five hundred twenty-eight (528) shares of Class A Stock,
(which number of shares equals approximately one percent (1%) of the number of
shares of the Company's Common Stock issued and outstanding as of the date
hereof); and
(ii) the maximum number of Restricted Shares that may be
included in such shares of Class A Stock sold in any single calendar year shall
be the smaller of (A) the number of Restricted Shares whose Fair Market Value as
of the Business Day immediately preceding the date of sale does not exceed
$500,000 or (B) fifty-three (53) Restricted Shares (which number equals
approximately 1/10 of one percent (0.1%) of the number of shares of the
Company's Common Stock issued and outstanding as of the date hereof).
SECTION 7.4. SALE AFTER DECEMBER 31, 2003.
Except as otherwise provided in Section 7.5, after December 31, 2003,
▇▇▇ shall have the right to sell Option Shares on the public market, provided
only that the maximum number of shares of Class A Stock (including both Option
Shares and Restricted Shares) that ▇▇▇ ▇▇▇ sell in any single calendar year
shall be five hundred twenty-eight (528) shares of Class A Stock (which number
of shares equals approximately one percent (1%) of the number of shares of the
Company's Common Stock issued and outstanding as of the date hereof).
SECTION 7.5. SALE AFTER DEATH OR PERMANENT DISABILITY.
(a) Notwithstanding the provisions of Section 7.3, in the event that
Dan's employment terminates as a result of his death or the Company terminates
his employment by reason of his Permanent Disability, then and in that event (i)
the pre-condition to sales on or before December 31, 2003, which is set forth in
Section 7.3(a) with respect to the Company's minimum market
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capitalization, shall not apply, and ▇▇▇ and/or his representative and/or his
successors in interest shall have the right to sell Option Shares pursuant to
Section 7.3 on or before December 31, 2003 irrespective of the market
capitalization of the Company; and (ii) the limitation set forth in Section
7.3(b)(ii) shall not apply and, instead, the maximum number of Restricted Shares
that may be included in the shares of Class A Stock sold in any calendar year by
▇▇▇ and/or his representative and/or successors in interest, as a group, shall
be three hundred ninety-six (396) Restricted Shares.
(b) Notwithstanding the provisions of Section 7.3, Section 7.4 and
Section 7.5(a)(ii), in the event that Dan's employment terminates as a result of
his death, Dan's representative and/or successors in interest shall have the
right to sell in any calendar year up to such number of shares of Class A Stock
(including both Option Shares and Restricted Shares) as shall equal the greater
of (i) the number of such shares that is permitted to be sold under Section 7.3
or Section 7.4, as applicable, or (ii) the number of such shares that is
necessary in order for the proceeds of such sale to equal the amount of the
estate and succession tax liability (federal and state), including any interest
thereon, due in such year as a result of the inclusion of such shares of Class A
Stock in Dan's estate (giving effect to any deferral permitted by law or
regulation in the payment thereof), together with any and all costs and expenses
of administration of Dan's estate for such year as reasonably estimated by Dan's
representative, all as certified to the Company in writing by Dan's
representative.
SECTION 7.6. TENDER, MERGER, CONSOLIDATION.
In the event the Controlling Stockholders of the Company determine to
dispose all or a portion of their shares of Common Stock in a tender, merger,
consolidation or similar type of transaction, with the result that they no
longer control the Company, then and in that event, ▇▇▇ shall have the right,
but not the obligation, to dispose of a proportionate number of shares of his
Class A Stock in any such transaction.
SECTION 7.7. COMPLIANCE WITH SECURITIES LAWS.
Neither ▇▇▇ nor his representative will sell or attempt to sell any
shares of Class A Stock under this Article VII except in accordance with all
applicable federal and state securities laws, all applicable rules and
regulations of the Securities and Exchange Commission, and any applicable
underwriters' limitations and restrictions.
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ARTICLE VIII
FUTURE CHANGES IN CAPITAL STRUCTURE AND REDEMPTION OF SHARES
SECTION 8.1. CHANGES IN CAPITAL STRUCTURE.
If the Company hereafter declares a dividend payable in, or subdivides
or combines, shares of the Class A Stock, or if the Company engages in a
recapitalization, reorganization, merger, consolidation, split-up, transfer of
assets, combination or exchange of shares of Common Stock, or if any other event
shall occur which in the judgment of the Board of Directors calls for action by
way of adjusting the terms of the unexercised Options hereunder or the number of
Option Shares, the Board of Directors shall forthwith take such action as in its
judgment shall be necessary or appropriate to preserve Dan's rights with respect
to such Options and Option Shares substantially proportionate to his rights
existing prior to such event, and to the extent that such action shall include
an increase or decrease in the number of Unexercised Shares hereunder, the
Option Price shall be adjusted inversely to the change in the number of
Unexercised Shares in order that the total amount payable by ▇▇▇ upon exercise
of all the Options granted under this Agreement shall remain unchanged. The
decision of the Board of Directors with respect to any matter referred to in
this Section 8.1 shall be conclusive and binding upon ▇▇▇. Nothing in this
Agreement is intended to preserve Dan's equity interest in the Company against
dilution resulting from the issuance of securities by the Company in the future.
SECTION 8.2. REDEMPTION OF CLASS B STOCK.
If and when any shares of the Class B Stock owned by any member of the
Leeds Family are redeemed by the Company in accordance with the terms and
provisions of the Shareholders' Agreement, then, in order to ensure that Dan's
percentage interest in the Company will remain the same as his interest would
have been but for such redemption (the "Class B Stock Redemption"), the Company
shall, promptly following the Class B Stock Redemption, adjust the number of the
Unexercised Shares and, if ▇▇▇ then owns any Option Shares, redeem at a price
equal to their par value (currently $.10 per share) a number of such Option
Shares such that the adjustment of the number of the Unexercised Shares (the
"Option Adjustment") and the redemption of Option Shares (the "Class A Stock
Redemption") shall result in (a) the ratio of (i) the sum of the number of
Unexercised Shares and the number of Option Shares outstanding immediately after
the Option Adjustment and the Class A Stock Redemption to (ii) the total number
of shares of Common Stock outstanding immediately after the Class A Stock
Redemption being the same as (b) the ratio of (i) the sum of the number of
Unexercised Shares and the number of Option Shares outstanding immediately prior
to the Class B Stock Redemption to (ii) the total number of shares of Common
Stock outstanding immediately prior to the Class B Stock Redemption. In such
event, the Option Price shall also be adjusted so that the total amount payable
upon exercise of all the Options granted under this Agreement shall remain
unchanged.
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ARTICLE IX
PROCEDURE TO BE FOLLOWED IN CASE OF
RESIGNATION FOR GOOD REASON OR DISMISSAL FOR CAUSE
SECTION 9.1. RESIGNATION FOR GOOD REASON.
In the event ▇▇▇ terminates his employment with the Company as a
Resignation For Good Reason, ▇▇▇ shall give the Company at least ten (10)
Business Days' prior written notice specifying in reasonable detail the specific
conduct of the Company that he considers grounds for Resignation For Good Reason
and the specific provision of the definition of "Resignation For Good Reason"
upon which he relies. Dan's employment with the Company shall terminate as of
the tenth Business Day after such notice is given, or such other date as the
parties mutually agree. Should the Company dispute the basis for such
resignation in a written notice given to ▇▇▇ on or before his termination date,
the parties shall meet and endeavor to resolve the dispute amicably within the
twenty (20) Business Days after the Company's notice is given. If they cannot so
resolve the dispute within such twenty (20) Business Days after the Company's
notice is given, ▇▇▇ and the Company shall submit the dispute to binding
arbitration in accordance with Section 10.1. The decision rendered in such
arbitration shall be final and binding on both ▇▇▇ and the Company for all
purposes. If the arbitrators determine that ▇▇▇ did not have a proper basis on
which to terminate his employment as Resignation For Good Reason within the
meaning of this Agreement, the termination of Dan's employment shall be treated
for all purposes of this Agreement as a Voluntary Resignation. In addition to
any other rights which a party may have, the party prevailing in such
arbitration proceeding shall be entitled to recover from the losing party any
and all of the expenses incurred by the prevailing party in such proceeding,
including reasonable attorney's fees.
SECTION 9.2. DISMISSAL FOR CAUSE.
In the event the Company terminates Dan's employment as a Dismissal For
Cause, the Company shall give ▇▇▇ at least ten (10) Business Days' prior written
notice specifying in reasonable detail the specific conduct of ▇▇▇ that it
considers grounds for Dismissal For Cause and the specific provision of the
definition of "Dismissal For Cause upon which it relies. Dan's employment with
the Company shall terminate as of the tenth Business Day after such notice is
given, or such other date as the parties mutually agree. Should ▇▇▇ dispute the
basis for such termination in a written notice given to the Company on or before
his termination date, the parties shall meet and endeavor to resolve the dispute
amicably within twenty (20) Business Days after Dan's notice is given. If they
cannot so resolve the dispute within such twenty (20) Business Days after Dan's
notice is given, ▇▇▇ and the Company shall submit the dispute to binding
arbitration in accordance with Section 10.1. The decision rendered in such
arbitration shall be final and binding on both ▇▇▇ and the Company for all
purposes. If the arbitrators determine that the Company did not have a proper
basis on which to terminate Dan's employment as a Dismissal For Cause within the
meaning of this Agreement, the termination of
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Dan's employment shall be treated for all purposes of this Agreement as a
Dismissal Without Cause. In addition to any other rights which a party may have,
the party prevailing in such arbitration proceeding shall be entitled to recover
from the losing party any and all of the expenses incurred by the prevailing
party in such proceeding, including reasonable attorney's fees.
ARTICLE X
RESOLUTION OF DISPUTES
SECTION 10.1. ARBITRATION.
Except as provided in Section 10.2, all controversies arising out of or
relating to this Agreement or the breach hereof shall be settled by arbitration
in the County of Nassau, State of New York, in accordance with the rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. Any
arbitration hereunder shall be before three (3) arbitrators.
SECTION 10.2. EQUITABLE RELIEF.
Notwithstanding the provisions of Section 10.1, any proceeding for
injunctive relief or specific performance in connection with this Agreement
shall be commenced in Supreme Court of the State of New York, County of Nassau,
and each of the parties hereby accepts the exclusive jurisdiction of such Court
for such purpose; provided, however, that the petitioner may commence such
proceeding in such other court as may be necessary, in the petitioner's
judgment, in order to more effectively or expeditiously obtain personal
jurisdiction over the respondent.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
SECTION 11.1. REPRESENTATIONS OF THE COMPANY.
The Company hereby represents and warrants to ▇▇▇ that (a) it has full
legal right, power and authority to enter into this Agreement and to consummate
the transactions herein contemplated; (b) the execution and delivery of this
Agreement has been duly authorized by all necessary corporate action; (c) this
Agreement constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity; and
(d) neither this Agreement nor the
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consummation of the transactions herein contemplated will conflict with, violate
or infringe any legal restriction, contract or instrument to which the Company
is subject or by which it is bound.
SECTION 11.2. REPRESENTATIONS OF ▇▇▇.
▇▇▇ hereby represents and warrants to the Company that (a) he has full
legal right, power and authority to enter into this Agreement and to consummate
the transactions herein contemplated; (b) this Agreement constitutes the valid
and binding obligation of ▇▇▇, enforceable in accordance with its terms, except
to the extent that such enforcement may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally and by general
principles of equity; and (c) neither this Agreement nor the consummation of the
transactions herein contemplated will conflict with, violate or infringe any
legal restriction, contract or instrument to which ▇▇▇ is subject or by which he
is bound.
ARTICLE XII
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliates" shall mean all entities controlling, controlled by or
under common control with the Company.
"Appraiser" or "Appraisers" shall have the meaning specified in Section
6.7(b).
"Board of Directors" shall mean the Board of Directors of the Company.
"Business Day" shall mean any day on which the Company is scheduled to
be open for business.
"Change in Control" shall mean a direct or indirect transfer of fifty
percent (50%) or more of the voting control of the Company or the sale of
substantially all of the assets of the Company, in one or more transactions, to
(a) one or more persons who are not (i) members of the Leeds Family or (ii)
spouses, children or grandchildren of members of the Leeds Family and/or (b) one
or more entities which are not controlled by (i) one or more members of the
Leeds Family or (ii) one or more of the spouses, children or grandchildren of
members of the Leeds Family.
"Class A Stock" shall mean the Class A Common Stock of the Company.
"Class A Stock Redemption" shall have the meaning specified in Section
8.2.
"Class B Stock" shall mean the Class B Common Stock of the Company.
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"Class B Stock Redemption" shall have the meaning specified in Section
8.2.
"Closing Price" shall mean the last-quoted price at which shares of
Class A Stock were traded at the close of business on a national securities
exchange or NASDAQ on any day on which shares of the Class A Stock were publicly
held.
"CMP Business" shall mean any publication, product, service or business
(a) which the CMP Group publishes, produces, provides or engages in or (b) which
the CMP Group has a bona fide plan or intention to publish, produce, provide or
engage in within the succeeding 12-month period, the research and development of
which the CMP Group has devoted substantive time and attention to, and which
plan or intention ▇▇▇ has actual knowledge of before he engages in any activity
competitive with such CMP Business as contemplated by clause (A) of Section
2.3(a).
"CMP Group" shall mean the Company or any of its Affiliates.
"Common Stock" shall mean all the classes of the Common Stock of the
Company collectively.
"Conditions" shall have the meaning specified in Section 3.2.
"Controlling Stockholders" shall mean the members of the Leeds Family
who hold shares of capital stock of the Company collectively representing a
majority of the votes that may be cast on any matter on which stockholders of
the Company shall be entitled to vote.
"Direct Competitor" shall mean a business enterprise that produces or
operates, or owns directly or indirectly an interest of twenty percent (20%) or
more in, one or more Directly Competitive Businesses.
"Directly Competitive Business" shall mean any competitive publication,
product, service or business (a) the target audience of which is substantially
the same as the target audience of a CMP Business or (b) forty percent (40%) or
more of the annual revenue of which is derived from substantially the same
customers as a CMP Business derives twenty percent (20%) or more of its annual
revenue.
"Dismissal For Cause" shall mean the termination of Dan's employment
with the Company by the Board of Directors for (i) the willful and continued
failure of ▇▇▇ substantially to perform his duties as an officer and employee of
the Company or comply with the written policies of the Company after the Company
has delivered to ▇▇▇ a written demand for substantial performance or compliance
that specifies such failure in reasonable detail; (ii) illegal conduct or gross
misconduct by ▇▇▇, in either case that is willful and results (or is reasonably
likely to result) in material damage to the business or reputation of the
Company; or (iii) the resignation by ▇▇▇ from his employment following his act
or omission which would constitute grounds for Dismissal For Cause hereunder. No
act or failure to act on the part of ▇▇▇ (other
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than non-compliance with lawful instructions given to ▇▇▇ by the Company) shall
be considered "willful unless it is done or omitted to be done by him in bad
faith or without reasonable belief that his action or omission was in the best
interests of the Company. Any act or failure to act that is pursuant to
resolution duly adopted by the Board of Directors shall be conclusively presumed
to be done or omitted to be done by ▇▇▇ in good faith and in the best interests
of the Company.
"Dismissal Without Cause" shall mean the termination of Dan's
employment by the Company on any grounds other than Dismissal For Cause or as a
result of his Permanent Disability.
"Fair Market Value" shall mean the fair market value of a share of
Class A Stock, which shall be the Closing Price on the trading day immediately
preceding the date of determination of fair market value or, if the Company is
privately held, the best estimate of the fair market value of a share of Class A
Stock as of the last day of the month immediately preceding the month in which
notice to buy or sell a share of Class A Stock or exercise an Option is given,
as determined with reference to publicly held companies comparable to the
Company.
"Financial Statements" shall mean the combined or consolidated
financial statements of the Company and its Affiliates prepared in accordance
with generally accepted accounting principles and audited by the Company's
independent certified public accountants.
"Free Cash Flow" of the Company with respect to any fiscal year shall
mean the combined or consolidated net income of the Company for such year as
reflected in the Financial Statements, adjusted so as (a) to exclude the amount,
if any, that, in determining such combined or consolidated net income,
represented (i) an expense for depreciation and/or amortization or (ii) a
provision or credit for federal, state, local or foreign income taxes; and (b)
to include the amount, if any, of cash payments that the Company actually made
in such fiscal year (i) for federal, state, local and foreign income taxes owed
by the Company (and, if the Company is an S Corporation, in distributions to its
stockholders for the payment of federal, state, local and foreign taxes owed by
such stockholders with respect to the Company's income), (ii) for capital
expenditures, (iii) pursuant to the Company's 1988 Equity Appreciation Plan or
(iv) as required under the terms of the Company's then-existing financing
arrangements to reduce the principal amount of indebtedness. The Company's
determination of Free Cash Flow shall be conclusive and binding for all purposes
of this Agreement provided that the Company's certified public accountants
render a written opinion that such determination presents fairly, in all
material respects, the Free Cash Flow of the Company as herein defined. (A
hypothetical illustration of the calculation of Free Cash Flow is set forth on
Schedule XI hereto.)
"Indirect Competitor" shall mean a business enterprise that does not
produce or operate, or own directly or indirectly an interest in, any Directly
Competitive Businesses but produces or operates, or owns directly or indirectly
an interest of twenty percent (20%) or more in, one or more Indirectly
Competitive Businesses.
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"Indirectly Competitive Business" shall mean any competitive or
potentially competitive publication, product, service or business which derives
from twenty percent (20%) to but not including forty percent (40%) of its annual
revenue from substantially the same customers as a CMP Business derives twenty
percent (20%) or more of its annual revenue.
"Key Senior Executive" shall mean a Company employee holding a position
of responsibility no lower than that currently titled President of the Company.
"Leeds Family" shall mean ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇,
▇▇▇▇▇▇▇ ▇. Leeds, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-Leeds and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇▇▇▇.
"Minority Group Members" shall mean individuals who are black, Native
American or of Hispanic, Asian or Pacific Island origin.
"Negative Pledge Agreement" shall mean that certain Negative Pledge
Agreement originally dated as of July 15, 1993 by and among ▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇ and Fleet National Bank (f/k/a/ Shawmut Bank Connecticut, National
Association), as most recently amended and confirmed by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇ to Fleet National Bank and The Chase Manhattan
Bank on November 14, 1996.
"Net Sales Revenue" of the Company with respect to any fiscal year
shall mean the combined or consolidated net sales of the Company and its
Affiliates as reflected in the Financial Statements for such year.
"Option shall mean the right of ▇▇▇ to purchase any Option Share
hereunder.
"Option Adjustment" shall have the meaning specified in Section 8.2.
"Option Price" shall mean the price at which ▇▇▇ ▇▇▇ purchase an Option
Share hereunder.
"Option Shares" shall mean the shares of Class A Stock issued to ▇▇▇
pursuant to this Agreement, plus any additional shares of Class A Stock that may
be issued from time to time with respect to such Option Shares as a result of
any changes in the Company's capital structure as contemplated in Section 8.1,
and less any Option Shares that may be canceled or redeemed from time to time as
a result of any such changes in the Company's capital structure or of any stock
redemptions as contemplated in Section 8.2.
"Permanent Disability" shall mean a physical or mental impairment, as a
result of which ▇▇▇ shall have been unable, with or without reasonable
accommodation, to perform the essential functions of his employment position for
a period of at least sixteen (16) weeks during any 12-month period.
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"Permitted Transferee" shall mean a spouse, child or grandchild of ▇▇▇,
or an entity (e.g., a trust, corporation or partnership) in which ▇▇▇ has the
majority voting interest and of which the beneficiaries are a spouse and/or one
or more children or grandchildren of ▇▇▇.
"Pre-Tax Income" of the Company with respect to any fiscal year shall
mean the combined or consolidated net income of the Company and its Affiliates
as reflected in the Financial Statements for such year plus the sum of all
federal, state, local and foreign income taxes that were deducted in determining
such combined or consolidated net income.
"Resignation For Good Reason" shall mean Dan's resignation from his
employment with the Company after the Company has, without his consent, (i)
materially reduced his package of compensation and benefits, (ii) materially
diminished his position, authority, duties or responsibilities, or (iii)
required him to report regularly to an office located more than fifty (50) miles
from Manhasset, New York. Any reduction in Dan's compensation package made
pursuant to the written compensation plan between ▇▇▇ and the Company dated as
of the date hereof shall not be deemed grounds for Resignation For Good Reason.
"Restricted Shares" shall mean the shares of Class A Stock owned by ▇▇▇
that are subject to restrictions under the Stockholders' Agreement.
"Share Purchase Agreement" shall mean that certain Share Purchase
Agreement entered into as of the date hereof by and among ▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇.
"Shareholders' Agreement" shall mean that certain Shareholders'
Agreement entered into as of June 30, 1991 by and among the Company, certain of
the Affiliates and the members of the Leeds Family.
"Stockholders' Agreement" shall mean that certain Stockholders'
Agreement entered into as of the date hereof by and among the Company, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇.
"Unexercised Shares" shall mean the authorized but unissued shares of
Class A Stock with respect to which ▇▇▇ is granted an Option under this
Agreement but with respect to which such Option has not yet been exercised.
"Voluntary Resignation" shall mean Dan's resignation from his
employment with the Company on any grounds other than grounds for Resignation
For Good Reason or as a result of his Permanent Disability.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
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SECTION 13.1. LEGEND ON CERTIFICATES.
Upon the execution of this Agreement, each certificate evidencing any
of the Option Shares held by ▇▇▇ shall be endorsed as follows:
The shares of stock evidenced by this certificate are subject to the
restrictions of and are transferable only upon compliance with the provisions of
a certain Option Agreement entered into by and between ▇▇▇ ▇. ▇▇▇▇▇ and the
Company. A copy of such Agreement is on file in the office of the Company.
In addition, all such certificates shall bear such other legends as, in
the opinion of the Company's counsel, are necessary or appropriate to ensure
compliance with all applicable federal and state securities laws.
SECTION 13.2. PERMITTED TRANSFEREES; REPRESENTATIVE AND SUCCESSORS
IN INTEREST.
(a) Permitted Transferees. Subject to Section 12.4 but notwithstanding
any other provision of this Agreement, ▇▇▇ shall be permitted to sell, give or
bequeath all or any portion of the Option Shares or interest therein, or pass
such Option Shares or interest by means of intestate succession or otherwise,
either outright or in trust, to a Permitted Transferee, provided that such
transfer shall be implemented in a manner acceptable to legal counsel for the
Company. In case of any such transfer by ▇▇▇, each Permitted Transferee shall
receive and hold the transferred Option Shares subject to all the terms and
conditions of this Agreement, and there shall be no further transfer of such
Option Shares except by such Permitted Transferee to another Permitted
Transferee in accordance with the terms of this Agreement. Before ▇▇▇ transfers
any Option Shares to a Permitted Transferee, and before any Permitted Transferee
transfers any Option Shares to another Permitted Transferee, ▇▇▇ or the
transferring Permitted Transferee, as the case may be, shall give the Company
written notice of such intended transfer. Any Permitted Transferee shall, to the
extent of the Option Shares transferred, succeed to all the rights and
obligations of the transferor under this Agreement and shall become bound by all
the terms and conditions hereof; provided that, as a condition precedent to a
Permitted Transferee's exercising any rights under this Agreement and to the
Company's obligation to change its records to reflect the record ownership of
such Option Shares in the name of such Permitted Transferee, the Permitted
Transferee shall execute such documents and instruments as may reasonably be
required by legal counsel to the Company. Unless otherwise expressly provided in
this Agreement, any reference herein to a right or obligation of ▇▇▇ to sell or
receive payment for any shares of Class A Stock shall be deemed to refer equally
to any Permitted Transferee, and any limitations herein with respect to the
number or category of shares of Class A Stock which ▇▇▇ shall have a right or
obligation to sell in any calendar year shall apply to ▇▇▇ and all Permitted
Transferees as a group.
(b) Representative and Successors in Interest. Except as may be
otherwise specifically provided in this Agreement, in the event of Dan's death
or incapacity his representative and/or
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successors in interest shall succeed to all his rights and obligations under
this Agreement and be bound by all the terms and conditions hereof, and they
shall be entitled to exercise such rights, and shall be required to fulfill such
obligations, in the same manner and to the same extent that ▇▇▇ would have been
so entitled or required but for his death or incapacity.
SECTION 13.3. FURTHER ASSURANCES.
Each of the parties hereto, upon request of another party, shall take
all such actions and execute and deliver all such further instruments of sale,
assignment, conveyance, transfer and exchange, and all such other documents and
agreements, as may be necessary or appropriate to assure, complete and evidence
the full and effective sale, assignment, transfer, conveyance and exchange of
the Option Shares as herein required and as may otherwise be necessary or
appropriate to comply with the terms and conditions of this Agreement. In the
event a party shall not take all such actions or execute or deliver all such
further instruments, then and in that event each such party hereby appoints the
Company such party's agent and attorney-in-fact for the purpose of executing and
delivering (a) any and all documents necessary to convey and/or exchange the
Option Shares pursuant to the provisions of this Agreement, any conveyance or
exchange so made fully divesting the party whose interest is so conveyed of all
right, title or equity in or to the Option Shares formerly owned by such party,
and (b) any and all other documents, instruments, agreements and other writings
necessary to effectuate the terms of this Agreement. The powers of attorney
herein granted, being coupled with an interest, are irrevocable and shall not be
revoked by the death, dissolution or incapacity of any party hereto or for any
other reason. Each party hereto hereby releases any other party who conveys or
exchanges the Option Shares formerly owned by such party as provided in this
Section 13.3 from any and all claims and liabilities for or resulting from the
conveying or exchanging of such Option Shares.
SECTION 13.4. S CORPORATION.
It is intended that for federal income tax purposes the Company will
continue to qualify as an "S Corporation" as defined in Section 1361 of the
Internal Revenue Code or any successor provision of the federal income tax laws.
Accordingly, the Company and ▇▇▇ shall execute and keep in full force and effect
the consent described in Section 1362(a)(2) of the Internal Revenue Code or any
successor provision until such time as the Company and the Controlling
Stockholders determine not to continue to qualify the Company as an S
Corporation. In addition, notwithstanding the provisions of any other Section of
this Agreement, no transfer of any shares of Class A Stock shall be made to any
person or entity, nor shall ▇▇▇ by action or inaction cause any circumstances to
exist, which would disqualify the Company as an S Corporation.
SECTION 13.5. CREDIT FACILITIES.
It is understood and acknowledged that one or more banks or lending
institutions of the Company may from time to time require, as a condition to
extending or continuing to extend
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credit to the Company, that persons who are both stockholders and members of
management of the Company execute and deliver to such banks or lending
institutions certain assurances and agreements such as the Negative Pledge
Agreement. For as long as he is a Key Senior Executive, ▇▇▇ shall, if requested
by the Company, promptly take all such actions and execute and deliver all such
documents containing such assurances and agreements (other than personal
guarantees) as may be reasonably required by such banks or lending institutions,
on the same basis and in substantially the same form and manner as other persons
who are both stockholders and members of management of the Company.
SECTION 13.6. ACCELERATED VESTING CHART.
For convenience of reference, a chart summarizing the accelerated
vesting provisions set forth in Article III of this Agreement is set forth on
Schedule 13.6 hereto.
SECTION 13.7. ENTIRE AGREEMENT; BINDING EFFECT.
This Agreement contains all of the terms agreed upon by the parties
with respect to the subject matter hereof and replaces and supersedes any and
all prior agreements, written or oral, between the parties relating to the
Option Shares (except for the Stockholders' Agreement to the extent its terms
are not inconsistent herewith). No promises, agreements or representations with
respect to the matters herein contained shall be binding upon any of the parties
unless set forth herein. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective heirs, representatives, successors
and permitted assigns.
SECTION 13.8. AMENDMENT.
No provision of this Agreement may be amended or waived except by a
writing making reference to this Agreement and signed by the party against whom
the enforcement of such amendment or waiver is sought.
SECTION 13.9. APPLICABLE LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to its
principles regarding choice or conflicts of law, and in accordance with and
consistent with the Company's election to be treated as an S Corporation.
SECTION 13.10 SEVERABILITY.
Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law and
the Company's S Corporation election, but if any provisions hereof shall be
prohibited by or invalid under any such law or the Company's S Corporation
election, such provision shall be ineffective to the extent of such prohibition
or
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invalidity, without invalidating or nullifying the remainder of such provision
or any other provision of this Agreement.
SECTION 13.11. NO WAIVER.
No delay or omission by any party in exercising or enforcing any right
hereunder shall operate as a waiver of such right, and a waiver on one occasion
shall not be construed as a waiver of any right or remedy on any future
occasion.
SECTION 13.12. NOTICES.
All notices, requests, consents, designations and demands required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when personally delivered to ▇▇▇ or to an
authorized officer of the Company, whether by messenger, courier or other
person, (b) on the second Business Day after the date it is sent by certified or
registered mail, return receipt requested, or (c) on the next Business Day after
the date it is sent via telefacsimile (provided it is actually received and is
not materially illegible), as follows:
If to the Company:
CMP Media Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Co-Chairpersons
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
CMP Media Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to ▇▇▇:
▇▇▇ ▇. ▇▇▇▇▇
c/o CMP Media Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇)▇▇▇-▇▇▇▇
with a copy to ▇▇▇ at his last known address as reflected on the records of the
Company or to such other mail or facsimile address as the recipient party shall
have last designated by notice given to the other in accordance herewith.
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SECTION 13.13. ASSIGNMENT.
Except as expressly provided in this Agreement, no party may assign any
rights or delegate any obligations or liabilities hereunder without the prior
written consent of the other parties, except that the Company may assign any of
its rights and delegate any of its duties to an entity that controls, is
controlled by or is under common control with the Company; provided, however,
that no such assignment or delegation shall relieve the Company from its
obligations or liabilities hereunder.
SECTION 13.14. SURVIVAL.
This Agreement shall survive any merger, sale or other disposition of
the Company.
SECTION 13.15. GENDER AND NUMBER.
Except when otherwise indicated by the context, references herein to
one gender shall include the other genders, and references herein to the plural
shall include the singular.
SECTION 13.16. DATES.
If any date referred to in any provision of this Agreement falls on a
day that is not a Business Day, such provision shall be deemed to refer to the
next succeeding Business Day.
SECTION 13.17. HEADINGS.
The headings herein are for convenience of reference only and shall not
be considered in construing this Agreement.
SECTION 13.18. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which shall together constitute one
and the same instrument.
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IN WITNESS WHEREOF, ▇▇▇ has executed this Agreement and the Company has
caused this Agreement to be executed by an officer thereunto duly authorized on
the day and year first above written.
CMP MEDIA INC.
By /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------
Name: Lilo J. Leeds
Title: Co-Chairperson
Attest:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------
[CORPORATE SEAL]
/s/ ▇▇▇ ▇. ▇▇▇▇▇
---------------------
▇▇▇ ▇. ▇▇▇▇▇
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Schedule 5.2(b)
HYPOTHETICAL ILLUSTRATION OF
CALCULATION OF OPTIONS VESTING
UNDER SECTION 5.2(b)
Assume Dan's employment with the Company terminates on May 10, 2001 and that all
shares that could have vested under Section 3.2 and Section 3.3 have vested.
The number of Options that would have vested within 24 months after such
termination date (i.e., on or before May 9, 2003) assuming the Conditions were
satisfied is 528 Options, pursuant to Section 3.4(a).
The nearest preceding December 31 on which Options vested or could have vested
under paragraph (a) of Sections 3.2, 3.3, 3.4 or 3.5 was December 31, 1999,
pursuant to Section 3.3(a).
The number of full months that, as of the date of termination, have elapsed
since December 31, 1999 is 16 (January 2000 through April 2001).
The numerator of the fraction is therefore 16 and the denominator is 24.
16/24 X 528 = 352 Options.
Therefore, 352 Options would vest and become exercisable on the date of
termination.
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Schedule XI
HYPOTHETICAL ILLUSTRATION OF
CALCULATION OF FREE CASH FLOW
CMP Media Inc.
Calculation of Free Cash Flow
For the year ended December 31, XXXX
(Dollars in Thousands)
Combined (or Consolidated) net income $25,000
Depreciation and amortization expense 7,500
Federal, foreign, state and local income tax expense
of the Company 650
Cash payments for federal, foreign, state and local
income taxes of the Company (750)
Cash distributions to the S Corporation stockholders
for payment of federal, foreign, state and local income
taxes owed by such stockholders on Company income (10,200)
Capital expenditures (8,500)
Cash payments under the Company's 1988 Equity
Appreciation Plan (250)
Debt payments to reduce principal (500)
---
Free cash flow $12,950
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Note: Illustration assumes Company is an S Corporation.