NONQUALIFIED PERFORMANCE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of November 30, 1998, is made by
and between Mossimo, Inc., a Delaware corporation, hereinafter referred to as
"Company," and Xxxxx Xxxxx, hereinafter referred to as "Optionee":
WHEREAS, the Company has adopted the Mossimo, Inc. Stock
Option Plan for Xxxxx Xxxxx (the terms of which are hereby incorporated by
reference and made a part of this Agreement);
WHEREAS, pursuant to that certain Nonqualified Stock Option
Agreement, dated as of November 30, 1998 and that certain Incentive Stock
Option Agreement, dated as of November 30, 1998, the Company has granted to
Optionee the options to purchase, in the aggregate, 5,186,111 shares of the
Company's Common Stock;
WHEREAS, the Company desires to grant to Optionee an
additional option to purchase 966,667 shares of the Company's Common Stock
which shall become vested and exercisable upon the satisfaction of the
performance goals described herein;
WHEREAS, the Committee has determined that it would be to
the advantage and best interest of the Company and its shareholders to grant
the nonqualified option provided for herein to the Optionee as an inducement
to accept employment with the Company and accept appointment as Chief
Executive Officer and as an incentive for increased efforts during such
service, and has advised the Company thereof and instructed the undersigned
officers to issue said Option; and
WHEREAS, the Committee intends that this Option qualify as
performance based compensation as described in Section 162(m)(4)(C) of the
Code.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement,
they shall have the meanings specified below unless the context clearly
indicates to the contrary. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
1.1. ADMINISTRATOR
"Administrator" shall mean the Committee.
1.2. CLOSING TRADING PRICE
"Closing Trading Price" for any Trading Day shall mean the
closing trading price of a share of Common Stock on the New York Stock
Exchange (composite quotations, rounded
to the nearest whole cent) (or any other principal exchange or quotation
system through which the Common Stock is traded) for the Trading Day.
1.3. BOARD
"Board" shall mean the Board of Directors of the Company.
1.4. CODE
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.5. COMMITTEE
"Committee" shall mean the Compensation Committee of the
Board, or such other committee appointed as provided in the Plan.
1.6. COMMON STOCK
"Common Stock" shall mean the Company's Common Stock, par
value $.001 per share.
1.7. COMPANY
"Company" shall mean Mossimo, Inc., a Delaware corporation.
1.8. EMPLOYEE
"Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company.
1.9. EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.10. OFFICER
"Officer" shall mean an officer of the Company, as defined
in Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in the
future.
1.11. OPTION
"Option" shall mean the nonqualified option to purchase
Common Stock of the Company granted under this Agreement.
1.12. PLAN
"Plan" shall mean the Mossimo, Inc. Stock Option Plan for
Xxxxx Xxxxx.
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1.13. RULE 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended in the future.
1.14. SECRETARY
"Secretary" shall mean the Secretary of the Company.
1.15. SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as
amended.
1.16. SHARE PRICE THRESHOLD
"Share Price Threshold" shall mean the Closing Trading
Price thresholds set forth in the schedule at Section 3.1(c) of this
Agreement; provided, however, that in the event that the Closing Trading
Price for any Trading Day equals or exceeds any Share Price Threshold, such
amount shall not be a Share Price Threshold for purposes of any Trading Day
following such Trading Day.
1.17. TRADING DAY
"Trading Day" shall mean any day after November 30, 1998 on
which shares of Common Stock are traded on the New York Stock Exchange (or
any other principal exchange or quotation system through which the Common
Stock is traded).
ARTICLE II.
GRANT OF OPTION
2.1. GRANT OF OPTION
Subject to Section 5.5, in consideration of the Optionee's
agreement to accept employment with the Company on the date hereof and accept
appointment as Chief Executive Officer of the Company on December 1, 1998, on
the date hereof the Company irrevocably grants to the Optionee the option to
purchase any part or all of an aggregate of 966,667 shares of Common Stock,
upon the terms and conditions set forth in this Agreement.
2.2. PURCHASE PRICE
The purchase price of the shares of Common Stock covered by
the Option shall be $3.00 per share without commission or other charge.
2.3. CONSIDERATION TO COMPANY
In consideration of the granting of this Option by the
Company, the Optionee agrees to accept employment with the Company on the
date hereof and accept appointment as Chief Executive Officer of the Company
on December 1, 1998. Nothing in this Agreement or in the Plan shall confer
upon the Optionee any right to continue in a business relationship with the
3
Company or shall interfere with or restrict in any way the rights of the
Company which are hereby expressly reserved, to terminate such employment
relationship at any time for any reason whatsoever, with or without cause.
2.4. ADJUSTMENTS IN OPTION
(a) Subject to Section 2.4(c), if the outstanding shares of
Common Stock are changed into or exchanged for cash or a different number or
kind of shares or securities of the Company or of another issuer, or if
additional shares or new or different securities are distributed with respect
to the outstanding shares of Common Stock, through a reorganization or merger
to which the Company is a party, or through a combination, consolidation,
recapitalization, reclassification, stock split, stock dividend, reverse
stock split, stock consolidation or other capital change or adjustment, an
appropriate adjustment shall be made in the number and kind of shares or
other consideration that is subject to or may be delivered under the Plan and
pursuant to this Option. A corresponding adjustment to the vesting price and
share amounts and other applicable provisions as well as to the consideration
payable with respect to this Option to the extent granted prior to any such
change shall also be made. Any such adjustment, however, shall be made
without change in the total payment, if any, applicable to the portion of the
Option not exercised but with a corresponding adjustment in the price for
each share.
(b) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the Company is not the surviving
corporation, the Plan shall terminate. Notwithstanding the foregoing
sentence, the Committee shall provide in writing in connection with, or in
contemplation of, any such transaction for any or all of the following
alternatives (separately or in combinations): (i) for the assumption by the
successor corporation of the Option or the substitution by such corporation
for such Option of options covering the stock of the successor corporation,
or a parent or subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices and to the vesting price and share
amounts and other applicable terms and conditions; (ii) for the continuance
of this Plan by such successor corporation in which event the Plan and this
Option shall continue in the manner and under the terms so provided, or
(iii) for the payment in cash in an amount equal to the amount that could
have been obtained upon the exercise of the vested portion of this Option in
lieu of and in complete satisfaction of this Option.
(c) To the extent this Option is intended to qualify as
performance-based compensation under Section 162(m), no adjustment or action
described in this Section 2.4 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause this
Option to fail to so qualify under Section 162(m), or any successor
provisions thereto; PROVIDED, HOWEVER, that the failure to make any such
adjustment or action shall not materially adversely affect Optionee's rights
under this Option. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 of the Exchange Act or violate
the exemptive conditions of Rule 16b-3 unless the Committee determines that
the Option is not to comply with such exemptive conditions. The number of
shares of Common Stock subject to the Option shall always be rounded to the
next whole number.
4
ARTICLE III.
VESTING; PERIOD OF EXERCISABILITY
3.1. VESTING SCHEDULE
(a) Upon the date of grant of the Option, the number of
shares of Common Stock with respect to which the Option shall be vested and
exercisable shall be zero.
(b) The number of shares of Common Stock with respect to
which the Option is vested and exercisable on any date (prior to reduction in
an amount equal to the number of shares of Common Stock for which the Option
has previously been exercised) is referred to herein as "Vested Performance
Shares."
(c) Subject to Sections 3.1(e) and 5.5, and except as otherwise provided
in Section 3.1(d), in the event that the Optionee is an Employee on any
Trading Day for which the Closing Trading Price equals or exceeds any Share
Price Threshold set forth in the following schedule (each a "Vesting Date"),
the Option shall be vested and exercisable with respect to the number of
shares of Common Stock determined in accordance with the following schedule.
------------------- --------------------------
SHARE PRICE VESTED PERFORMANCE
THRESHOLD SHARES
------------------- --------------------------
$10.00 216,667
------------------- --------------------------
$15.00 466,667
------------------- --------------------------
$20.00 716,667
------------------- --------------------------
$25.00 966,667
------------------- --------------------------
(d) Upon each Vesting Date, the number of Vested
Performance Shares shall not exceed the number of Vested Performance Shares
determined as of such Vesting Date in accordance with the formulas set forth
on Exhibit "A" hereto; provided, however, that the number of Vested
Performance Shares on such Vesting Date shall not be less than the number of
Vested Performance Shares immediately prior to such Vesting Date.
(e) Subject to Section 5.5, in the event that Optionee is
then an Employee, the Option shall become 100% vested and exercisable on
November 30, 2005.
3.2. EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone
after, and shall expire upon, the earlier of (i) November 30, 2018 or (ii) the
expiration of one (1) year from the date of the Optionee's death.
5
ARTICLE IV.
EXERCISE OF OPTION
4.1. PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise
the Option or any portion thereof. After the death of the Optionee, any
exercisable portion of the Option may, prior to the time when the Option
becomes unexercisable under Section 3.2, be exercised by his personal
representative or by any person empowered to do so under the Optionee's will
or under the then applicable laws of descent and distribution.
4.2. PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option,
if then wholly exercisable, may be exercised in whole or in part at any time
prior to the time when the Option or portion thereof becomes unexercisable
under Section 3.2; provided, however, that each partial exercise shall be for
whole shares only.
4.3. MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when the Option or such portion becomes
unexercisable under Section 3.2:
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof,
is exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) A bona fide written representation and agreement, in a
form satisfactory to the Committee, signed by the Optionee or other person
then entitled to exercise such Option or portion, stating that the shares of
stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them
except as may be permitted under the Securities Act and then applicable rules
and regulations thereunder, and that the Optionee or other person then
entitled to exercise such Option or portion will indemnify the Company
against and hold it free and harmless from any loss, damage, expense or
liability resulting to the Company if any sale or distribution of the shares
by such person is contrary to the representation and agreement referred to
above. The Committee may, in its reasonable discretion, take whatever
additional actions it deems appropriate to insure the observance and
performance of such representation and agreement and to effect compliance
with the Securities Act and any other federal or state securities laws or
regulations. Without limiting the generality of the foregoing, the
Administrator may require an opinion of counsel acceptable to it to the
effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders
covering such shares. Share certificates evidencing stock issued on exercise
of this Option shall bear an appropriate legend referring to the provisions
of this subsection (b) and the agreements herein. The written representation
and agreement referred to in the first sentence of this subsection (b) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
6
(c) In the event that the Option shall be exercised by any
person or persons other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option; and
(d) Full payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised,
(i) through cash payment; (ii) through the delivery of shares of Common Stock
which have been owned by Optionee for at least six months, duly endorsed for
transfer to the Company with a fair market value (as determined by the
Committee acting in good faith) on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof; or
(iii) through a combination of either of the foregoing; and
(e) Full cash payment to the Secretary of the Company of
any applicable withholding tax.
4.4. TIMING OF ISSUANCE OF SHARES
Notwithstanding anything in the Plan or this Agreement to
the contrary, the shares of Common Stock issuable upon exercise of the Option
shall be issued no later than the earlier of (i) the date of receipt by the
Company from Xxxxxxx Xxxxxxxxx of a number of shares of Common Stock equal to
the number of shares of Common Stock for which the Option is being exercised,
which shall be contributed by Xxxxxxx Xxxxxxxxx to the Company without any
consideration therefor from the Company and (ii) the expiration of 120 days
from the date on which the Optionee has satisfied the conditions under
Section 4.3 in all material respects. The Company shall instruct the
Custodian (as such term is defined in that certain Escrow Agreement dated as
of even date herewith between Xxxxxxx Xxxxxxxxx, the Company and the
Custodian (the "Escrow Agreement")), to release the appropriate number of
shares from the Escrow Account (as defined in the Escrow Agreement") within
two business days of the date on which Optionee has satisfied the conditions
under Section 4.3 in all material respects. Should the appropriate number of
shares from the Escrow Account not be released to the Company within four
business days of the date on which Optionee has satisfied the conditions
under Section 4.3 in all material respects, the Company shall immediately
return to Optionee the payments previously tendered to the Company by
Optionee under Sections 4.3(d) and (e) in connection with such exercise. Upon
the occurrence of either (i) or (ii) above, the Company shall have an
unconditional obligation to issue the requisite shares of Common Stock to
Optionee, subject to Optionee's satisfaction of the conditions under
Section 4.3.
4.5. RIGHTS AS STOCKHOLDERS
Optionee shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until such
shares have been issued by the Company to Optionee.
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ARTICLE V.
OTHER PROVISIONS
5.1. ADMINISTRATION
The Administrator shall have the power to interpret the
Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules. All actions taken and all interpretations
and determinations made by the Administrator in good faith shall be final and
binding upon the Optionee, the Company and all other interested persons. No
member of the Administrator shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan
or the Option.
5.2. OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or
part thereof shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any other
legal or equitable proceedings (including bankruptcy), and any attempted
disposition thereof shall be null and void and of no effect; provided,
however, that this Section 5.2 shall not prevent transfers by will or by the
applicable laws of descent and distribution.
5.3. NOTICES
Any notice to be given under the terms of this Agreement to
the Company shall be addressed to the Company in care of its Secretary, and
any notice to be given to the Optionee shall be addressed to him at the
address given beneath his signature hereto. By a notice given pursuant to
this Section 5.3, either party may hereafter designate a different address
for notices to be given to him. Any notice which is required to be given to
the Optionee shall, if the Optionee is then deceased, be given to the
Optionee's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 5.3. Any notice shall be deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office or branch post office regularly maintained
by the United States Postal Service.
5.4. TITLES
Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Agreement.
5.5. SHAREHOLDER APPROVAL
The Plan will be submitted for approval by the Company's
shareholders within twelve (12) months after the date the Plan was initially
adopted by the Board. This Option may not be exercised to any extent by
anyone prior to the time when the Plan is approved by the shareholders, and
if such approval has not been obtained by the end of said twelve-month
period,
8
this Option shall thereupon be canceled and become null and void. The Company
shall take such actions as may be necessary to satisfy the requirements of
Rule 16b-3(b).
5.6. CONSTRUCTION
This Agreement shall be administered, interpreted and
enforced under the laws of the State of Delaware.
9
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
By: /s/ Xxxxxxx Xxxxxxxxx
-------------------------------
Chairman
By: /s/ Xxxxx Xxxxxxxxxx
-------------------------------
Secretary
/s/ Xxxxx X. Xxxxx
-------------------------------
Optionee
-------------------------------
-------------------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
-------------------------------
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EXHIBIT A
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Exhibit A or
in Exhibit B, they shall have the meanings specified below unless the context
clearly indicates to the contrary. The masculine pronoun shall include the
feminine and neuter, and the singular the plural, where the context so
indicates. Capitalized terms in this Exhibit A or in Exhibit B which are not
defined herein, shall have the meanings attributable to such terms as defined
in the Agreement or the Plan, as applicable, unless the context clearly
indicates to the contrary.
1.1. BASIC STOCK OPTIONS
"Basic Stock Options" shall mean the option to purchase
shares of Common Stock granted by the Company to Optionee under (i) the
Nonqualified Stock Option Agreement, dated as of November 30, 1998; (ii) the
Incentive Stock Option Agreement, dated as of November 30, 1998; and (iii)
the Performance Incentive Stock Option Agreement, dated as of November 30,
1998 .
1.2. BASIC OPTION SHARES
"Basic Option Shares" shall mean the number of shares of
Common Stock subject to the Basic Stock Options.
1.3. OPTIONEE TAX RATE
"Optionee Tax Rate" on any Trading Day shall mean the
effective Federal income tax rate that would apply to the income that
Optionee would have recognized with respect to the Basic Stock Options and
this Option if Optionee had purchased the Basic Option Shares upon the
exercise of the Basic Stock Options in full, and purchased the Vested
Performance Shares upon the exercise of this Option, on such Trading Day.
1.4. SHAREHOLDER TAX RATE
"Shareholder Tax Rate" on any Trading Day shall mean the
effective Federal income tax rate that would apply to the income that Xxxxxxx
Xxxxxxxxx would have recognized with respect to the sale of the number of
shares of Common Stock equal to the Residual Shares, reduced by the Vested
Performance Shares, if such shares of Common Stock were sold by Xxxxxxx
Xxxxxxxxx on such Trading Day.
1.6. RESIDUAL SHARES
"Residual Shares" shall mean 10,372,222 shares of Common Stock, reduced
by the Basic Option Shares.
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ARTICLE II.
VESTED PERFORMANCE SHARES
2.1. CALCULATION OF VESTED PERFORMANCE SHARES
Notwithstanding Section 3.1(c) of the Agreement, the Vested
Performance Shares on a Vesting Date shall be the number of shares of Common
Stock that results in the Optionee After Tax Value on such Trading Day
equaling the Shareholder After Tax Value on such Trading Day.
2.2 OPTIONEE AFTER TAX VALUE
The "Optionee After Tax Value" on any Trading Day shall mean:
(a) the factor equal to 1.000, less the "Optionee Tax Rate" on
such Trading Day, multiplied by
(b) the amount equal to the Closing Trading Price for such
Trading Day, less the Exercise Price, multiplied by
(c) the sum of (i) the number of Basic Option Shares, and (ii)
the number of Vested Performance Shares.
2.3. OPTIONEE AFTER TAX VALUE EXAMPLE
The following example demonstrates the calculation of the
Optionee After Tax Value. This example assumes that: (i) the "Closing Trading
Price" for a "Trading Day" equaled the "Share Price Threshold" of $10.00 on
July 1, 1999; (ii) the number of Basic Option Shares is 5,219,444; and (iii)
the Exercise Price is $3.00.
Assuming that the Basic Stock Options are exercised in full
on July 1, 1999, and the Option was exercised with respect to the Vested
Performance Shares on July 1, 1999, the effective Federal income tax rate
that would apply to the income that Optionee would have recognized upon such
purchases would be 39.6%. Accordingly, the "Optionee After Tax Value" would
equal:
(a) 1.000, less .396, multiplied by
(b) $10.00, less $3.00, multiplied by
(c) the sum of 5,219,444 and the Vested Performance Shares.
2.4 SHAREHOLDER AFTER TAX VALUE
The "Shareholder After Tax Value" on any Trading Day shall
mean the sum of:
(a) the factor equal to 1.000, less the "Shareholder Tax Rate"
on such Trading Day, multiplied by
12
(b) the Closing Trading Price for such Trading Day, multiplied
by
(c) the number of the Residual Shares, less the number of the
Vested Performance Shares.
2.5 SHAREHOLDER AFTER TAX VALUE EXAMPLE
The following example illustrates the calculation of the
"Shareholder After Tax Value." The example assumes that: (i) the "Closing
Trading Price" for a "Trading Day" equaled the "Share Price Threshold" of
$10.00 on July 1, 1999; (ii) the number of Residual Shares is 5,152,778; and
(iii) the Exercise Price is $3.00.
Assuming that the Residual Shares, reduced by the Vested
Performance Shares, are sold on July 1, 1999, the effective Federal income
tax rate that would apply to the income that Xxxxxxx Xxxxxxxxx would have
recognized upon such sale would be 20.00%. Accordingly, the "Shareholder
After Tax Value" would equal:
(a) 1.000, less .200, multiplied by
(b) $10.00, multiplied by
(c) 5,152,778, less the number of Vested Performance Shares.
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EXHIBIT B
ARTICLE I.
VESTED PERFORMANCE SHARE CALCULATION EXAMPLE
Using the examples described in Exhibit "A" and assuming an
Closing Trading Price of $10.00, the Vested Performance Shares would be
calculated as follows:
Optionee After Tax Value = Shareholder After Tax Value
(a) Optionee After Tax Value = (1.000-.396) x ($10.00-$3.00) x (5,219,444 +
Vested Performance Shares)
= (.604) x ($7.00) x (5,219,444 + Vested Performance Shares)
= 22,067,809 + (4.228 x Vested Performance Shares)
(b) Shareholder After Tax Value = (1.000-.200) x ($10.00) x (5,152,778 - Vested
Performance Shares)
= (.800) x ($10.00) x (5,152,778 - Vested Performance Shares)
= 41,222,224 - ($8.00 x Vested Performance Shares)
(c) (22,067,809) + (4.228 x Vested Performance Shares) = (41,222,224) - ($8.00
x Vested Performance Shares)
Vested Performance Shares = 1,566,439 shares of Common Stock.
As this example illustrates, upon a Vesting Date on which
the Share Price Threshold of $10.00 is attained, and assuming an Closing
Trading Price of $10.00, the number of Vested Performance Shares for such
Vesting Date as determined pursuant to the formulas under Exhibit "A" equals
1,566,439. The number of Vested Performance Shares determined pursuant to the
formulas under Exhibit "A" is greater than 216,667 (i.e., the number of
Vested Performance Shares for such Vesting Date determined under the schedule
set forth at Section 3.1(c) of this Agreement). Accordingly, pursuant to
Section 3.1(d) of this Agreement, the number of Vested Performance Shares as
of such Vesting Date will equal 216,667.
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