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EXHIBIT 10.4
OPTION AGREEMENT
BY AND BETWEEN
CMP MEDIA INC. AND XXXXXXX X. XXXXX
DL&A
NOVEMBER 27, 1996
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OPTION AGREEMENT
TABLE OF CONTENTS
PAGE
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ARTICLE I - OPTIONS
SECTION 1.1 Grant of Options.............................. 2
SECTION 1.2 Option Price.................................. 2
ARTICLE II - CONFIDENTIALITY; NON-COMPETITION
SECTION 2.1 Protection of Company's Business Interests.... 3
SECTION 2.2 Non-Disclosure and Non-Use of Confidential
Information................................. 3
SECTION 2.3 Protection from Unfair Competition............ 4
SECTION 2.4 Prior Notice; Opportunity to Cure............. 7
SECTION 2.5 Other Covenants............................... 9
SECTION 2.6 Confidentiality of Agreement.................. 9
SECTION 2.7 Relief for Breach............................. 10
SECTION 2.8 Separate Covenants............................ 10
ARTICLE III - VESTING OF OPTIONS
SECTION 3.1 Vesting on December 31, 2005.................. 11
SECTION 3.2 Acceleration of Vesting: First Series......... 11
SECTION 3.3 Acceleration of Vesting: Second Series........ 12
SECTION 3.4 Acceleration of Vesting: Third Series......... 13
SECTION 3.5 Acceleration of Vesting: Fourth Series........ 14
SECTION 3.6 Satisfaction of Conditions.................... 15
ARTICLE IV - EXERCISE OF OPTIONS
SECTION 4.1 Exercise of Options........................... 18
SECTION 4.2 Withholding Taxes............................. 19
SECTION 4.3 Determination of Fair Market Value............ 20
SECTION 4.4 Non-Transferability of Options................ 20
SECTION 4.5 Michael's Representative...................... 20
ARTICLE V - EXPIRATION OF OPTIONS
SECTION 5.1 Expiration of Options......................... 21
SECTION 5.2 Expiration upon Death, Permanent Disability,
Dismissal Without Cause or Resignation For
Good Reason................................. 22
SECTION 5.3 Expiration upon Voluntary Resignation,
Dismissal For Cause or Competition.......... 23
SECTION 5.4 Change in Control............................. 23
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ARTICLE VI - TRANSFERABILITY OF SHARES AT TIME WHEN COMPANY IS
PRIVATELY HELD AND THERE IS NO PUBLIC MARKET
SECTION 6.1 General Restriction on Transfer.....................24
SECTION 6.2 Sale to Satisfy Income Tax Liabilities..............25
SECTION 6.3 Sale After December 31, 2005........................26
SECTION 6.4 Sale After Death or Permanent Disability............26
SECTION 6.5 Sale After Dismissal Without Cause or
Resignation For Good Reason.......................27
SECTION 6.6 Sale After Voluntary Resignation, Dismissal For
Good Cause, or Competition........................28
SECTION 6.7 Purchase Price of Option Shares.....................29
(a) Price to be Paid for Option Shares..................29
(b) Determination of Fair Market Value..................29
(c) Payment of Purchase Price...........................30
(i) Lump Sum or Installments...................30
(ii) Initial Installment........................30
(iii) Cash Flow Limitations......................31
(d) Closing of Transaction..............................32
SECTION 6.8 Assignment and Delegation by the Company to
Class B Stockholders..............................33
SECTION 6.9 Tag-Along rights -- Drag-Along Rights...............33
ARTICLE VII - TRANSFERABILITY OF SHARES AT TIME COMPANY'S SHARES
ARE PUBLICLY TRADED
SECTION 7.1 General Restriction on Transfer.....................35
SECTION 7.2 Sale to Satisfy Income Tax Liabilities..............35
SECTION 7.3 Sale on or before December 31, 2005
(a) Minimum Market Capitalization.......................36
(b) Maximum Number of Shares............................36
SECTION 7.4 Sale After December 31, 2005........................37
SECTION 7.5 Sale After Death or Disability......................37
SECTION 7.6 Tender, Merger, Consolidation.......................38
SECTION 7.7 Compliance with Securities Laws.....................39
ARTICLE VIII - FUTURE CHANGES IN CAPITAL STRUCTURE AND REDEMPTION
OF SHARES
SECTION 8.1 Changes in Capital Structure........................39
SECTION 8.2 Redemption of Class B Stock.........................40
ARTICLE IX - PROCEDURE TO BE FOLLOWED IN CASE OF RESIGNATION FOR
GOOD REASON OR DISMISSAL FOR CAUSE
SECTION 9.1 Resignation for Good Reason.........................41
SECTION 9.2 Dismissal For Cause.................................42
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ARTICLE X - RESOLUTION OF DISPUTES
SECTION 10.1 Arbitration.........................................43
SECTION 10.2 Equitable Relief....................................43
ARTICLE XI - REPRESENTATIONS AND WARRANTIES
SECTION 11.1 Representations of the Company......................44
SECTION 11.2 Representations of Xxxxxxx..........................44
ARTICLE XII - DEFINITIONS...................................................45
ARTICLE XIII - MISCELLANEOUS PROVISIONS
SECTION 13.1 Legend on Certificates..............................51
SECTION 13.2 Permitted Transferees; Representative and
Successors in Interest............................52
SECTION 13.3 Further Assurances..................................53
SECTION 13.4 S Corporation.......................................54
SECTION 13.5 Credit Facilities...................................55
SECTION 13.6 Accelerated Vesting Chart...........................55
SECTION 13.7 Entire Agreement; Binding Effect....................55
SECTION 13.8 Amendment...........................................56
SECTION 13.9 Applicable Law......................................56
SECTION 13.10 Severability.......................................56
SECTION 13.11 No Waiver..........................................56
SECTION 13.12 Notices............................................57
SECTION 13.13 Assignment.........................................58
SECTION 13.14 Survival...........................................58
SECTION 13.15 Gender and Number..................................58
SECTION 13.16 Dates..............................................58
SECTION 13.17 Headings...........................................59
SECTION 13.18 Counterparts.......................................59
SCHEDULE 5.2(b)
Hypothetical Illustration of Calculation of Options Vesting
Under Section 5.2(b)..............................................60
SCHEDULE XI
Hypothetical Illustration of Calculation of Free Cash Flow..........61
SCHEDULE 13.6
Accelerated Vesting Chart...........................................62
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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 Xxxxxxx X. Xxxxx ("Xxxxxxx ).
W I T N E S S E T H:
WHEREAS, Xxxxxxx is a key senior executive of the Company; and
WHEREAS, the Company desires to create substantial incentives for
Xxxxxxx 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
Xxxxxxx with the opportunity to purchase shares of the Company's Class A Common
Stock, and Xxxxxxx 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:
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ARTICLE I
OPTIONS
SECTION 1.1. GRANT OF OPTIONS.
Subject to the terms and conditions of this Agreement, the Company
hereby grants Xxxxxxx the right to purchase from the Company up to two thousand
one hundred twelve (2,112) shares of the Class A Stock (which number of shares
equals approximately four percent (4%) 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 Xxxxxx Xxxx 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
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,
Xxxxxxx 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.
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SECTION 2.1. PROTECTION OF COMPANY'S BUSINESS INTERESTS.
As a Key Senior Executive, Xxxxxxx 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, Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx 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) Xxxxxxx represents, warrants, covenants and agrees that, without
the Company's express or implied consent while employed or, after termination,
without the
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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.
(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 Michael's custody or control shall be delivered to
the Company at the time Michael's employment with the Company terminates for any
reason. Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx or any Permitted Transferee owns any Option Shares,
Xxxxxxx shall not engage
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in competition with the CMP Group. For the purposes of this Agreement, Xxxxxxx
shall be deemed to engage in competition with the CMP Group if Xxxxxxx 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 Xxxxxxx has no responsibility for or participation or
involvement in any Indirectly Competitive Business of such Indirect Competitor,
provided, however, that Xxxxxxx xxx 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 Xxxxxxx has such responsibility represents no more than fifteen
percent (15%) of the total revenue over which Xxxxxxx has such responsibility.
(B) Solicits the service of any employee of the CMP Group for
Michael'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.
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(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 Xxxxxxx on behalf of such 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,
Xxxxxxx 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 Xxxxxxx communicates the fact that he
was formerly employed by the Company and identifies the positions he held and
the dates thereof.
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(b) Notwithstanding the provisions of paragraph (a) of this Section
2.3, Xxxxxxx shall not be deemed to be engaged in competition with the CMP Group
solely by reason of Michael'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 Xxxxxxx has no influence or control over the selection
of such fund's investment decisions.
SECTION 2.4. PRIOR NOTICE; OPPORTUNITY TO CURE.
(a) Xxxxxxx 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 Xxxxxxx
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 Section 2.3. In the event that, for reasons not within his
control, Xxxxxxx gives the Company less than twenty (20) Business Days' prior
written notice, the Company will endeavor in good faith to advise Xxxxxxx 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 Xxxxxxx in less
than ten (10) Business Days shall not be deemed to constitute consent to such
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relationship, transaction, activity, action or omission and shall not give rise
to any liability of the Company to Xxxxxxx or to any third party.
(b) Once the Company has advised Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx 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, Xxxxxxx 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 Xxxxxxx
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.
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SECTION 2.5. OTHER COVENANTS.
(a) For as long as Xxxxxxx or any Permitted Transferee owns any Option
Shares, Xxxxxxx 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 Xxxxxxx
for all reasonable out-of-pocket expenses he incurs in rendering such
assistance.
(b) For as long as Xxxxxxx or any Permitted Transferee owns any Option
Shares, Xxxxxxx 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.
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 Xxxxxxx, 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 Xxxxxxx or the Company. Except as provided in the
preceding sentence, and without limiting the generality of the foregoing,
Xxxxxxx 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
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events (including any negotiations) which led to its execution, and Xxxxxxx
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, Xxxxxxx xxx 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. Xxxxxxx 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 Xxxxxxx 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.
Xxxxxxx 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 Xxxxxxx 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.
Xxxxxxx 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
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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.
ARTICLE III
VESTING OF OPTIONS
SECTION 3.1. VESTING ON DECEMBER 31, 2003.
All Options granted under this Agreement shall vest and become fully
exercisable on December 31, 2003, provided only that Xxxxxxx 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 2002 (a) Xxxxxxx 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 two (2) of the full-time executives of the
Company reporting directly to Xxxxxxx for the entire year ending on such
December 31 were female or, if more than eight (8) full-time executives reported
directly to Xxxxxxx for the entire year, at least three (3) were female,
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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 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 2002 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, 2002 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 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.
(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
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 thirty-nine percent (39%) 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
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another twenty-five percent (25%) of the Unexercised Shares referred to in
paragraph (a) of this Section 3.4, 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.
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 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 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 five hundred twenty-eight
(528) Unexercised Shares (which number equals approximately one percent (1%) 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 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.
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(c) 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 exceeds $1.5 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 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.
(d) Notwithstanding the provisions of Section 3.1, if on December 31 of
any year from 1997 to and including 2002 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.
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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.
(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 Xxxxxxx 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 Michael's performance of his duties, and actions or
omissions by Xxxxxxx 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
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any year from 1997 through 2002 by reason of the fact that, during the year
ending on such December 31, the Company, over Michael's protest, removed a
qualified female executive from a position reporting directly to Xxxxxxx or,
during the final three (3) months of the preceding year, the Company, over
Michael'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 Michael'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 Michael'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.
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ARTICLE IV
EXERCISE OF OPTIONS
SECTION 4.1. EXERCISE OF OPTIONS.
Xxxxxxx xxx 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.
Xxxxxxx xxx exercise fewer than all the Options which are then exercisable, but
Xxxxxxx xxx not exercise a partial Option for less than a full Unexercised
Share. Xxxxxxx xxx pay the Option Price for Unexercised Shares to be acquired:
(a) by delivering to the Company United States dollars in cash or by
check, 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 Xxxxxxx 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.
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Upon receipt of payment for such Unexercised Shares, the Company shall
duly issue such Unexercised Shares to Xxxxxxx (whereupon such Unexercised Shares
shall become Option Shares), and the Company shall deliver to Xxxxxxx xxxxx
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 Xxxxxxx 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. Xxxxxxx xxx 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 xxxx Xxxxxxx 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 Xxxxxxx, 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 Xxxxx, Xxxxxxx 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 Xxxxxxx or, in the
event of Michael's death or incapacity, by the representative of Xxxxxxx 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 Xxxxxxx 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. MICHAEL'S REPRESENTATIVE.
Promptly following execution of this Agreement, Xxxxxxx shall give the
Company written notice designating one or more representatives who shall be
entitled, following Michael's death or incapacity, to exercise his rights under
this Agreement. Xxxxxxx xxx, from time to time, revoke or change his designation
of representatives, without the
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consent of any prior representative, by giving the Company notice of revocation
or change. The last notice duly given to the Company prior to Michael's death or
incapacity shall be controlling. If, at the time of his death or incapacity,
Xxxxxxx 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 Michael's representative
hereunder: (a) Michael's surviving spouse; (b) if there is no surviving spouse,
then Michael's children, PER STIRPES; (c) if there are no children, then
Michael's estate.
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.
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SECTION 5.2. EXPIRATION UPON DEATH, PERMANENT DISABILITY, DISMISSAL WITHOUT
CAUSE OR RESIGNATION FOR GOOD REASON.
In the event Michael'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 Michael'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 Michael'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.
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(c) Every Option which neither vested prior to such termination of
Michael'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.
SECTION 5.3. EXPIRATION UPON VOLUNTARY RESIGNATION, DISMISSAL FOR
CAUSE OR COMPETITION.
In the event that Michael's employment with the Company terminates as a
result of his Voluntary Resignation or Dismissal For Cause, or in the event that
Xxxxxxx 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 Xxxxxxx
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
Xxxxxxx 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 Xxxxxxx 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, Michael's employment with the Company
terminates as a result of his Dismissal Without Cause or Resignation For Good
Reason, then and in that event:
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(a) Every vested but unexercised Option shall remain exercisable in
accordance with the provisions of Section 5.1 as if Michael'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 Xxxxxxx be a Key Senior
Executive on December 31, 2003 and any requirement that the Conditions 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 Michael's employment as a Key Senior
Executive had not so terminated and as if the Conditions were fully satisfied at
all times through December 31, 2003; provided, however, that in the event of
Michael'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 Xxxxxxx had been employed as a Key Senior Executive on the date of
his death.
ARTICLE VI
TRANSFERABILITY OF SHARES AT TIME WHEN
COMPANY IS PRIVATELY HELD AND THERE IS NO 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 Xxxxx, Xxxxxxx 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
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attempt by Xxxxxxx 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, Xxxxxxx shall not have the right to require the Company to purchase any
Option Shares hereunder unless and until Xxxxxxx 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 Xxxxxxx hereunder, to defer the purchase of any such Option Shares until
such time as Xxxxxxx 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, Xxxxxxx 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
Michael'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 Michael'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 Xxxxxxx shall
be entitled to sell in any single calendar year under
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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.
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, Xxxxxxx 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
Michael'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 XXXXXXX TO SELL. Xxxxxxx 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
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purchase any or all of the Option Shares then owned by Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx or
his representative and/or successors in interest to sell to the Company any or
all of the Option Shares then owned by Xxxxxxx 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
Michael'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 XXXXXXX TO SELL. In addition to his rights under Section
6.3 with respect to sales after December 31, 2003, Xxxxxxx 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 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 Xxxxxxx given during the first three (3) months of
the third
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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 Xxxxxxx to sell to the Company any or
all of the Option Shares then owned by Xxxxxxx, at the price provided in Section
6.7(a). The death or Permanent Disability of Xxxxxxx 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)
Michael's employment with the Company terminates as a result of his Voluntary
Resignation or Dismissal For Cause or (b) Xxxxxxx 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 Xxxxxxx has under Section 6.2 and Section
6.3, the Company shall have the right, exercisable upon notice to Xxxxxxx given
at any time or times after such event occurs (whether before or after December
31, 2003), to require Xxxxxxx to sell to the Company any or all of the Option
Shares then owned by Xxxxxxx, at the price provided in Section 6.7(a). The death
or Permanent Disability of Xxxxxxx 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.
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SECTION 6.7. PURCHASE PRICE OF OPTION SHARES.
(a) PRICE TO BE PAID FOR OPTION SHARES. 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. Within the sixty (60) days
after Xxxxxxx has given the Company notice of intent to sell Option Shares or
the Company has given Xxxxxxx notice of intent to purchase Option Shares
pursuant to this Article VI, the Company and Xxxxxxx 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 Xxxxxxx are unable to reach agreement as to
the Fair Market Value of such Option Shares within 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 Xxxxxxx 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
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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 Xxxxxxx.
(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 Michael'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 Michael'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
Michael's tax accountant.
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(B) The initial installment for the first sale of shares of
Class A Stock that Xxxxxxx makes under this Agreement or the Stockholders'
Agreement, other than a sale occurring by reason of Michael'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 Michael'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 Michael'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 Michael's estate as
reasonably estimated by Michael's representative, all as certified to the
Company in writing by Michael'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
Michael'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
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to pay any persons or entities other than Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx 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, Xxxxxxx 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 Xxxxxxx the amount of the purchase price
then due, together with the Company's 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 Xxxxxxx hereunder shall be made in
cash or by Company check, bank draft or wire transfer.
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SECTION 6.8. ASSIGNMENT AND DELEGATION BY THE COMPANY TO CLASS
B STOCKHOLDERS.
The Company shall have the right, exercisable upon notice to Xxxxxxx,
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 Xxxxxxx 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 Xxxxxxx 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
Xxxxxxx (or within ten (10) days after any notice of a change in the Material
Terms is given to Xxxxxxx), the Company receives from Xxxxxxx 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 Xxxxxxx.
The Company shall give Xxxxxxx prompt notice
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of any change in the Material Terms and, in such event, Xxxxxxx shall have the
opportunity, for a period of ten (10) days after such notice has been given, to
submit a Tag-Along Request if Xxxxxxx did not previously submit a Tag-Along
Request or to withdraw or modify a Tag-Along Request previously made.
(b) Michael's rights hereunder to participate in a Tag-Along Sale shall
be contingent on Michael's compliance with each of the provisions hereof,
Michael's acceptance of a proportionate delegation of any duties or obligations
related to the Tag-Along Sale, including any indemnification obligations, and
Michael'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 Xxxxxxx has not exercised his rights to sell Option
Shares as contemplated under paragraph (a) of this Section 6.9, the Company
shall have the right, exercisable upon notice to Xxxxxxx, to require that
Xxxxxxx xxxx to the purchaser of the shares of the Controlling Stockholders the
same proportion of Option Shares owned by Xxxxxxx 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 Xxxxxxx. Xxxxxxx 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.
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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 Xxxxxxx 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 Xxxxxxx 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, Xxxxxxx 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 Michael'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 Michael'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
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of Class A Stock that Xxxxxxx 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.
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, Xxxxxxx shall have the right to sell
Option Shares on the public market, subject to the following conditions:
(a) MINIMUM MARKET CAPITALIZATION. Xxxxxxx xxx 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 Xxxxxxx xxx 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
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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,
Xxxxxxx 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 Xxxxxxx xxx 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
Michael'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
capitalization, shall not apply, and Xxxxxxx 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
Xxxxxxx
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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 Michael's employment terminates as a
result of his death, Michael'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 Michael'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 Michael's estate for such year as
reasonably estimated by Michael's representative, all as certified to the
Company in writing by Michael'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, Xxxxxxx 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.
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SECTION 7.7. COMPLIANCE WITH SECURITIES LAWS.
Neither Xxxxxxx 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.
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 Michael'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 Xxxxxxx 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 Xxxxxxx. Nothing in this
Agreement is intended to preserve Michael's
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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
Michael'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 Xxxxxxx 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 Xxxxxxx terminates his employment with the Company as a
Resignation For Good Reason, Xxxxxxx 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. Michael'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 Xxxxxxx 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, Xxxxxxx 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 Xxxxxxx and the Company for
all purposes. If the arbitrators determine that Xxxxxxx 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 Michael'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
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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 Michael's employment as a Dismissal
For Cause, the Company shall give Xxxxxxx at least ten (10) Business Days' prior
written notice specifying in reasonable detail the specific conduct of Xxxxxxx
that it considers grounds for Dismissal For Cause and the specific provision of
the definition of "Dismissal For Cause upon which it relies. Michael'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
Xxxxxxx 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 Michael's
notice is given. If they cannot so resolve the dispute within such twenty (20)
Business Days after Michael's notice is given, Xxxxxxx 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 Xxxxxxx
and the Company for all purposes. If the arbitrators determine that the Company
did not have a proper basis on which to terminate Michael's employment as a
Dismissal For Cause within the meaning of this Agreement, the termination of
Michael'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.
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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.
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ARTICLE XI
REPRESENTATIONS AND WARRANTIES
SECTION 11.1. REPRESENTATIONS OF THE COMPANY.
The Company hereby represents and warrants to Xxxxxxx 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 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 XXXXXXX.
Xxxxxxx 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 Xxxxxxx, 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 Xxxxxxx is
subject or by which he is bound.
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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.
"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.
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"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 Xxxxxxx 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 Michael's
employment with the Company by the Board of Directors for (i) the willful and
continued failure of
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Xxxxxxx 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 Xxxxxxx a written demand for substantial performance or compliance
that specifies such failure in reasonable detail; (ii) illegal conduct or gross
misconduct by Xxxxxxx, 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 Xxxxxxx 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 Xxxxxxx (other than
non-compliance with lawful instructions given to Xxxxxxx 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 Xxxxxxx in good faith and in the best
interests of the Company.
"Dismissal Without Cause" shall mean the termination of Michael'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.
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"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 Xxxxxx X. Xxxxx, Xxxxxxxxx X. Xxxxx, Xxxxxxx,
Xxxxxxx X. Leeds, Xxxxxx X. Xxxxx, Xxxx Xxxxx-Leeds and Xxxxxxxx Xxxxx-Xxxxxxxx.
"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 Xxxxxx X. Xxxxx,
Xxxx X. Xxxxx and Fleet National Bank (f/k/a/ Shawmut Bank Connecticut, National
Association), as most recently amended and confirmed by Xxxxxx X. Xxxxx, Xxxx X.
Xxxxx, Xxxxxx X. Xxxxx and Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx xxx purchase an
Option Share hereunder.
"Option Shares" shall mean the shares of Class A Stock issued to
Xxxxxxx pursuant to this Agreement, plus any additional shares of Class A Stock
that may be
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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 Xxxxxxx 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.
"Permitted Transferee" shall mean a spouse, child or grandchild of
Xxxxxxx, or an entity (e.g., a trust, corporation or partnership) in which
Xxxxxxx has the majority voting interest and of which the beneficiaries are a
spouse and/or one or more children or grandchildren of Xxxxxxx.
"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 Michael'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 Michael's compensation package made
pursuant to the written compensation plan between Xxxxxxx and the Company dated
as of the date hereof shall not be deemed grounds for Resignation For Good
Reason.
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"Restricted Shares" shall mean the shares of Class A Stock owned by
Xxxxxxx 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 Xxxxxx X. Xxxxx,
Xxxxxxxxx X. Xxxxx and Xxxxxxx.
"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, Xxxxxx X.
Xxxxx, Xxxxxxxxx X. Xxxxx and Xxxxxxx.
"Unexercised Shares" shall mean the authorized but unissued shares of
Class A Stock with respect to which Xxxxxxx is granted an Option under this
Agreement but with respect to which such Option has not yet been exercised.
"Voluntary Resignation" shall mean Michael'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
SECTION 13.1. LEGEND ON CERTIFICATES.
Upon the execution of this Agreement, each certificate evidencing any
of the Option Shares held by Xxxxxxx 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
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Agreement entered into by and between Xxxxxxx X. Xxxxx 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, Xxxxxxx 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 Xxxxxxx, 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 Xxxxxxx
transfers any Option Shares to a Permitted Transferee, and before any Permitted
Transferee transfers any Option Shares to another Permitted Transferee, Xxxxxxx
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
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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 Xxxxxxx 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 Xxxxxxx shall have a right
or obligation to sell in any calendar year shall apply to Xxxxxxx 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 Michael's
death or incapacity his representative and/or 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 Xxxxxxx 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
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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 Xxxxxxx 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 Xxxxxxx by action or inaction cause any
circumstances to exist, which would disqualify the Company as an S Corporation.
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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 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,
Xxxxxxx 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.
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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 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.
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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 Xxxxxxx 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.
000 Xxxxxxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Co-Chairpersons
Fax: (000) 000-0000
with a copy to:
CMP Media Inc.
000 Xxxxxxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: General Counsel
Fax: (000) 000-0000
If to Xxxxxxx:
Xxxxxxx X. Xxxxx
c/o CMP Media Inc.
000 Xxxxxxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Fax: (000)000-0000
with a copy to Xxxxxxx at his last known address as reflected on the
records of the Company
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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.
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.
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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.
IN WITNESS WHEREOF, Xxxxxxx 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/XXXXXXXXX X. XXXXX
----------------------------------
Name: Lilo J. Leeds
Title: Co-Chairperson
Attest:
/s/XXXXXX X. XXXXXXXXX
------------------------
[CORPORATE SEAL]
/s/XXXXXXX X. XXXXX
------------------------------
XXXXXXX X. XXXXX
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SCHEDULE 5.2(b)
HYPOTHETICAL ILLUSTRATION OF
CALCULATION OF OPTIONS VESTING
UNDER SECTION 5.2(b)
Assume Michael'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
--------
Note: Illustration assumes Company is an S Corporation.
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SCHEDULE 13.6
CMP Media Inc.
Option Agreement
Vesting Schedule
Xxxxxxx X. Xxxxx
----------------- ----------------- ---------------- ------------------------------------------------------------------
Accelerators Percentage Vested Years Applicable Description
---------------- ----------------- ---------------- ------------------------------------------------------------------
First Series 0.50% 12/31/97-12/31/02 .50% (264 shares) will vest as of the first December 31 on which
(section 3.2) the conditions set forth in section 3.2 are satisfied
Second Series 0.50% 12/31/99-12/31/02 .50% (264 shares) will vest as of the first December 31 on which
(section 3.3) the conditions set forth in section 3.2 are satisfied
12/31/97-12/31/98 Vesting of 50% of the Second Series shares (132 shares) will
accelerate as of the first December 31 on which the conditions
set forth in sections 3.2 and 3.3(b) are satisfied
Third Series 1.00% 12/31/01-12/31/02 1.00% (528 shares) will vest as of the first December 31 on which
(section 3.4) the conditions set forth in section 3.2 are satisfied
12/31/97-12/31/00 Vesting of 25% of the Third Series shares (132 shares) will
accelerate as of the first December 31 on which the conditions
set forth in sections 3.2 and 3.4(b) are satisfied
12/31/97-12/31/00 Vesting of 25% of the Third Series shares (132 shares) will
accelerate as of the first December 31 on which the conditions
set forth in sections 3.2 and 3.4(c) are satisfied
Fourth Series 1.00% 12/31/97-12/31/02 1.00% (528 shares) will vest as of the first December 31 on which
(section 3.5) the conditions set forth in sections 3.2, 3.4(c) and 3.5(a) are
satisfied
0.50% 12/31/97-12/31/02 .50% (264 shares) will vest as of the first December 31 on which
the conditions set forth in sections 3.2, 3.4(c) and 3.5(b) are
satisfied
0.25% 12/31/97-12/31/02 .25% (132 shares) will vest as of the first December 31 on which
the conditions set forth in sections 3.2, 3.4(c) and 3.5(c) are
satisfied
0.25% 12/31/97-12/31/02 .25% (132 shares) will vest as of the first December 31 on which
the conditions set forth in sections 3.2 and 3.5(d) are satisfied
Total 4.00%
Any shares which do not vest in accordance with the above schedule vest on
December 31, 2003 provided that Xxxxxxx is a Key Senior Executive as defined in
the agreement.
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