NONQUALIFIED 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, as of the date hereof, Xxxxxxx Xxxxxxxxx is the
legal and beneficial owner of 10,372,222 shares of the Common Stock, and is
not the beneficial owner of any additional shares of Common Stock;
WHEREAS, the Company wishes to carry out the terms of the
Plan and afford the Optionee the opportunity to purchase 5,152,778 shares of
its $.001 par value Common Stock;
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. BOARD
"Board" shall mean the Board of Directors of the Company.
1.3. CODE
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.4. COMMITTEE
"Committee" shall mean the Compensation Committee of the
Board, or such other committee appointed as provided in the Plan.
1.5. COMMON STOCK
"Common Stock" shall mean the Company's Common Stock, par
value $.001 per share.
1.6. COMPANY
"Company" shall mean Mossimo, Inc., a Delaware corporation.
1.7. EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.8. 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.
1.9. OPTION
"Option" shall mean the nonqualified option to purchase
Common Stock of the Company granted under this Agreement.
1.10. PLAN
"Plan" shall mean the Mossimo, Inc. Stock Option Plan for
Xxxxx Xxxxx.
1.11. 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.
1.12. SECRETARY
"Secretary" shall mean the Secretary of the Company.
1.13. SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as
amended.
2
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 to
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 5,152,778 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 to 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 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 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
3
(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; (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.
ARTICLE III.
PERIOD OF EXERCISABILITY
3.1. COMMENCEMENT OF EXERCISABILITY
Subject to Section 5.5, the Option shall become be
immediately exercisable in full upon the date of grant.
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.
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
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
(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
5
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.
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
6
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, 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.
7
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:
###-##-####
---------------------------------
8
