NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of February 2, 1998 is made by and
between Xxxxxxx'x Food Markets, Inc., a Texas corporation (hereinafter referred
to as the "Company"), and Xxxxxxx X. Xxxxxxx, an employee of the Company or a
Subsidiary (as defined below) or Affiliate (as defined below) of the Company,
hereinafter referred to as "Optionee".
WHEREAS, the Company wishes to afford the Optionee the opportunity
to purchase shares of its common stock, par value $.25 per share (the "Common
Stock");
WHEREAS, the Company wishes to carry out the Plan (as hereinafter
defined), the terms of which are hereby incorporated by reference and made a
part of this Agreement; and
WHEREAS, the Committee (as hereinafter defined), appointed to
administer the Plan, has determined that it would be to the advantage and best
interest of the Company and its shareholders to grant the Non-Qualified Options
provided for herein to the Optionee as an incentive for increased efforts during
his term of office with the Company or its Subsidiaries or Affiliates, and has
advised the Company thereof and instructed the undersigned officers to issue
said Options;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they
shall have the meaning specified in the Plan or below unless the context clearly
indicates to the contrary.
SECTION 1.1 - AFFILIATE
"Affiliate" shall mean, with respect to the Company, any
corporation directly or indirectly controlling, controlled by, or under common
control with, the Company or any other entity
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designated by the Board of Directors of the Company in which the Company or an
Affiliate has an interest.
SECTION 1.2 - CAUSE
"Cause" shall mean (i) Optionee's willful and continued failure to
perform Optionee's duties with respect to the Company or its subsidiaries which
continues beyond ten days after a written demand for substantial performance is
delivered to Optionee by the Company or (ii) misconduct by Optionee involving
(x) dishonesty or breach of trust in connection with Optionee's employment or
(y) conduct which would be a reasonable basis for an indictment of Optionee for
a felony or for a misdemeanor involving moral turpitude.
SECTION 1.3 - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.4 - COMMITTEE
"Committee" shall mean the Compensation Committee of the Company.
SECTION 1.5 - GRANT DATE
"Grant Date" shall mean the date on which the Options provided for
in this Agreement were granted.
SECTION 1.6 - MANAGEMENT GROUP
"Management Group" shall mean the group consisting of all or
certain Officers of the Company on the date hereof, whether or not such person
remains in that capacity.
SECTION 1.7 - MANAGEMENT STOCKHOLDER'S AGREEMENT
"Management Stockholder's Agreement" shall mean that certain
Management Stockholder's Agreement dated as of February 2, 1998 between the
Optionee and the Company.
SECTION 1.8 - OFFICER
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"Officer" shall mean the Chairman of the Board, the President, any
Executive Vice President, Senior Vice President or Vice President, the Treasurer
or the Secretary of the Company.
SECTION 1.9 - OPTIONS
"Options" shall mean the non-qualified options, which may include
a Time Option and/or a Performance Option, to purchase Common Stock granted
under this Agreement.
SECTION 1.10 - PERFORMANCE OPTION
"Performance Option" shall mean an Option with respect to which
the commencement of exercisability is governed by Section 3.1(b) hereof.
SECTION 1.11 - PERMANENT DISABILITY
The Optionee shall be deemed to have a "Permanent Disability"
when the majority of the Board of Directors of the Company shall, in good faith,
so determine.
SECTION 1.12 - PLAN
"Plan" shall mean the 1997 Stock Purchase and Option Plan for Key
Employees of Xxxxxxx'x Food Markets, Inc. and Subsidiaries.
SECTION 1.13 - PRONOUNS
The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates.
SECTION 1.14 - RETIREMENT
"Retirement" shall mean retirement (i) at age 65 or over (or such
other age as may be approved by the Board of Directors of the Company) after
having been employed by the Company or a Subsidiary for at least three years or
(ii) at age 55 or over (or such other age as may be approved by the Board of
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Directors of the Company) after having been employed by the Company or a
Subsidiary for at least 10 years.
SECTION 1.15 - SECRETARY
"Secretary" shall mean the Secretary of the Company.
SECTION 1.16 - SUBSIDIARY
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations, or group
of commonly controlled corporations, (other than the last corporation in the
unbroken chain), then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
SECTION 1.17 - TIME OPTION
"Time Option" shall mean an Option with respect to which the
commencement of exercisability is governed by Section 3.1(a) hereof.
SECTION 1.18 - TRIGGER DATE
"Trigger Date" shall mean the date hereof; provided that with
respect to Optionees who enter into this Agreement on February 2, 1998, the
Trigger Date shall mean June 29, 1997.
ARTICLE II
GRANT OF OPTIONS
SECTION 2.1 - GRANT OF OPTIONS
For good and valuable consideration, on and as of the date hereof
the Company irrevocably grants to the Optionee a Time Option and/or a
Performance Option to purchase any part or all of an aggregate of the number of
shares set forth with respect to each such Option on the signature page hereof
of its Common Stock upon the terms and conditions set forth in this Agreement.
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SECTION 2.2 - EXERCISE PRICE
Subject to Section 2.4, the exercise price of the shares of stock
covered by the Options shall be $12.11 per share without commission or other
charge.
SECTION 2.3 - CONSIDERATION TO THE COMPANY
In consideration of the granting of these Options by the Company,
the Optionee agrees to render faithful and efficient services to the Company or
a Subsidiary or Affiliate, with such duties and responsibilities as the Company
shall from time to time prescribe. Nothing in this Agreement or in the Plan
shall confer upon the Optionee any right to continue in the employ of the
Company or any Subsidiary or Affiliate or shall interfere with or restrict in
any way the rights of the Company and its Subsidiaries or Affiliates, which are
hereby expressly reserved, to terminate the employment of the Optionee at any
time for any reason whatsoever, with or without cause.
SECTION 2.4 - ADJUSTMENTS IN OPTIONS PURSUANT TO MERGER, CONSOLIDATION, ETC.
Subject to Section 9 of the Plan, in the event that the
outstanding shares of the stock subject to an Option are, from time to time,
changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of a merger, consolidation,
recapitalization, reclassification, stock split, stock dividend, combination of
shares, or otherwise, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares and/or the amount of consideration
as to which or for which, as the case may be, such Option, or portions thereof
then unexercised, shall be exercisable. Any such adjustment made by the
Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
SECTION 3.1 - COMMENCEMENT OF EXERCISABILITY
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(a) Time Options shall become exercisable as follows:
Percentage of Time Option
Date Time Option Shares Granted As to Which
Becomes Exercisable Time Option Is Exercisable
------------------- --------------------------
After the first anniversary
of the Trigger Date 20%
After the second anniversary
of the Trigger Date 40%
After the third anniversary
of the Trigger Date 60%
After the fourth anniversary
of the Trigger Date 80%
After the fifth anniversary
of the Trigger Date 100%
Notwithstanding the foregoing, the Time Option shall become
immediately exercisable as to 100% of the shares of Common Stock subject to such
Option immediately prior to a Change of Control (but only to the extent such
Option has not otherwise terminated or become exercisable). A "Change of
Control" means (i) a sale of all or substantially all of the assets of the
Company to a Person who is not an Affiliate of Kohlberg Kravis Xxxxxxx & Co.,
L.P. ("KKR"), (ii) a sale by KKR or any of its Affiliates resulting in more than
50% of the voting stock of the Company (on a fully diluted basis, including,
without limitation, after giving effect to the exercise of the option to
purchase 3,606,881 shares of Common Stock granted to RFM Acquisition LLC by the
Company) being held by a Person or Group that does not include KKR or any of its
Affiliates or the Management Group or (iii) a merger or consolidation of the
Company into another Person which is not an Affiliate of KKR. "Person" means an
individual, partnership, corporation, business trust, joint stock company,
trust, unincorporated association, joint venture, governmental authority or
other entity of whatever nature.
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"Group" means two or more Persons acting together as a partnership, limited
partnership, syndicate or other group for the purpose of acquiring, holding or
disposing of securities of the Company.
(b) The Performance Option shall become exercisable with
respect to 20% of the shares of Common Stock subject to such Option on each
Vesting Date following a Determination Date that the Company's Cumulative EBITDA
equals or exceeds the Cumulative EBITDA Target as of such Determination Date and
the actual EBITDA for that year equals or exceeds the EBITDA Target for that
year. If the Company's EBITDA for a Plan Year is less than 100% of the EBITDA
Target for such Plan Year (a "Missed Year"), no such Performance Option shall
become exercisable with respect to any additional shares of Common Stock on the
Vesting Date for such Plan Year. If, for any Plan Year subsequent to a Missed
Year, EBITDA exceeds the EBITDA Target AND Cumulative EBITDA exceeds the
Cumulative EBITDA Target, then any prior percentage of Performance Options in
respect of prior Missed Years shall become exercisable (but only to the extent
such Option has not otherwise terminated or become exercisable).
Notwithstanding the foregoing, the Performance Option shall become
exercisable as to 100% of the shares of Common Stock subject to such Option
after seven years and 11 months after the Trigger Date (but only to the extent
such Option has not otherwise terminated or become exercisable).
(c) For purposes of Section 3.1(b):
(i) "Cumulative EBITDA" means with respect to any Performance
Option, the sum of the EBITDA for the Company and its consolidated
subsidiaries during the period commencing on June 29, 1997 and ending on
the last day of the Plan Year preceding the Determination Date.
(ii) "Cumulative EBITDA Targets" means with respect to any
Performance Option, the sum of the EBITDA Targets for the period
commencing on June 29, 1997 and ending on the last day of the Plan Year
preceding the Determination Date.
(iii) "Determination Date" with respect to each Plan Year means
the September 30 following such Plan Year.
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(iv) "EBITDA" shall mean, with respect to the Company and its
consolidated subsidiaries, net income before net interest expense, income
taxes, depreciation and amortization, writedown of property and
securities, extraordinary loss on extinguishment of debt, loss on
disposal of discontinued operations and loss from operation of
discontinued operations.
(v) "EBITDA Target" shall have the meaning ascribed to such
term in Schedule I hereto for Plan Years 1998 through 2002 and such other
targets as are established by the Committee with respect to subsequent
Plan Years; PROVIDED, that to the extent that the Company or any of its
subsidiaries disposes or acquires assets out of the ordinary course of
business the Committee will decrease or increase, as the case may be, the
EBITDA Target for such dispositions or acquisitions.
(vi) "Plan Year" means (i) the period from June 29, 1997 to June
28, 1998 with respect to Plan Year 1998 and (ii) thereafter, the period
commencing on the day immediately succeeding the close of the prior Plan
Year until the Saturday closest to each June 30.
(vi) "Vesting Date" means three calendar days after the
relevant Determination Date.
(d) Notwithstanding the foregoing, no Option shall become
exercisable as to any additional shares of Common Stock following the
termination of employment of the Optionee for any reason other than a
termination of employment because of death, Permanent Disability or
Retirement of the Optionee (if such Optionee has been employed by the Company
or any subsidiary of the Company for at least three years after the Grant
Date) and any Option (other than as provided in the next succeeding sentence)
which is non-exercisable as of the Optionee's termination of employment shall
be immediately cancelled. In the event of a termination of employment because
of such death, Permanent Disability or Retirement, the Time Options (but not
the Performance Options) shall immediately become exercisable as to all
shares of Common Stock subject thereto.
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(e) In the event the Company elects to change its fiscal year,
the definitions of EBITDA Target and Plan Year shall be amended by the Committee
in good faith and in a manner consistent with such definitions included in this
Agreement on the date hereof.
SECTION 3.2 - EXPIRATION OF OPTIONS
Except as otherwise provided in Section 5 or 6 of the Management
Stockholder's Agreement, the Options may not be exercised to any extent by the
Optionee after the first to occur of the following events:
(a) The tenth anniversary of the Grant Date; or
(b) The first anniversary of the date of the Optionee's
termination of employment by reason of death, Permanent Disability or
Retirement; or
(c) The first business day which is fifteen calendar days
after the earlier of (i) 75 days after termination of employment of the
Optionee for any reason other than for Cause, death, Permanent
Disability or Retirement or (ii) the delivery of notice by the Company
that it does not intend to exercise its call right under Section 6 of
the Management Stockholder's Agreement; PROVIDED, HOWEVER, that in any
event the Options shall remain exercisable under this subsection 3.2(c)
until at least 45 days after termination of employment of the Optionee
for any reason other than for death, Permanent Disability or Retirement;
or
(d) The date the Option is terminated pursuant to Section 5, 6
or 8(b) of the Management Stockholder's Agreement;
(e) The date of an Optionee's termination of employment by the
Company for Cause (without regard to Sections 5 or 6 of the Management
Stockholder's Agreement); or
(f) If the Committee so determines pursuant to Section 9 of the
Plan, the effective date of either the merger or consolidation of the
Company into another Person, or the
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exchange or acquisition by another Person of all or substantially all of
the Company's assets or 80% or more of its then outstanding voting stock,
or the recapitalization, reclassification, liquidation or dissolution of
the Company. At least ten (10) days prior to the effective date of such
merger, consolidation, exchange, acquisition, recapitalization,
reclassification, liquidation or dissolution, the Committee shall give
the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 3.2.
ARTICLE IV
EXERCISE OF OPTIONS
SECTION 4.1 - PERSON ELIGIBLE TO EXERCISE
Except as otherwise provided in the Management Stockholder's
Agreement, during the lifetime of the Optionee, only he may exercise an Option
or any portion thereof. After the death of the Optionee, any exercisable portion
of an Option may, prior to the time when an Option becomes unexercisable under
Section 3.2, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
SECTION 4.2 - PARTIAL EXERCISE
Any exercisable portion of an Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.2; provided, however, that any partial exercise shall be for whole
shares of Common Stock only.
SECTION 4.3 - MANNER OF EXERCISE
An Option, or any exercisable portion thereof, may be exercised
solely by delivering to the Secretary or his office all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.2.:
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(a) Notice in writing signed by the Optionee or the other
person then entitled to exercise the Option or portion thereof, stating
that the Option or portion thereof is thereby exercised, such notice
complying with all applicable rules established by the Committee;
(b) Full payment (in cash, by check or by a combination
thereof) for the shares with respect to which such Option or portion
thereof is exercised;
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Optionee or other person
then entitled to exercise such Option or portion thereof, stating that
the shares of stock are being acquired for his own account, for
investment and without any present intention of distributing or reselling
said shares or any of them except as may be permitted under the
Securities Act of 1933, as amended (the "Act"), and then applicable rules
and regulations thereunder, and that the Optionee or other person then
entitled to exercise such Option or portion thereof will indemnify the
Company against and hold it free and harmless from any loss, damage,
expense or liability resulting to the Company if any sale or distribution
of the shares by such person is contrary to the representation and
agreement referred to above; provided, however, that the Committee
may, in its absolute discretion, take whatever additional actions it
deems appropriate to ensure the observance and performance of such
representation and agreement and to effect compliance with the Act and
any other federal or state securities laws or regulations;
(d) Full payment to the Company of all amounts which, under
federal, state or local law, it is required to withhold upon exercise of
the Option; and
(e) In the event the Option or portion thereof shall be
exercised pursuant to Section 4.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to
exercise the option.
Without limiting the generality of the foregoing, the Committee may require an
opinion of counsel acceptable to it to the effect that any subsequent transfer
of shares acquired on exercise of an
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Option does not violate the Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear and appropriate legend referring to the provisions of
subsection (c) above and the agreements herein. The written representation and
agreement referred to in subsection (c) above shall, however, not be required if
the shares to be issued pursuant to such exercise have been registered under the
Act, and such registration is than effective in respect of such shares.
SECTION 4.4 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock deliverable upon the exercise of an Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of an Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The obtaining of approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish
for reasons of administrative convenience.
SECTION 4.5 - RIGHTS AS STOCKHOLDERS
The holder of an Option shall not be, nor have any of the rights
or privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of the Option or any portion thereof unless and
until certificates representing such shares shall have been issued by the
Company to such holder.
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ARTICLE V
MISCELLANEOUS
SECTION 5.1 - ADMINISTRATION
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee shall be final and binding upon the Optionee, the Company
and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Options. In its absolute discretion, the
Board of Directors may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan and this Agreement.
SECTION 5.2 - OPTIONS NOT TRANSFERABLE
Except as provided in the Management Stockholder's Agreement,
neither the Options nor any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law
judgement, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof
shall be null and void and of no effect; provided, however, that this Section
5.2 shall not prevent transfers by will or by the applicable laws of descent
and distribution.
SECTION 5.3 - SHARES TO BE RESERVED
The Company shall at all times during the term of the Options
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
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SECTION 5.4 - NOTICES
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall,
if the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall
have been deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.
SECTION 5.5 - TITLES
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
SECTION 5.6 - APPLICABILITY
OF PLAN AND MANAGEMENT STOCKHOLDER'S AGREEMENT
The Options and the shares of Common Stock issued to the Optionee
upon exercise of the Options shall be subject to all of the terms and provisions
of the Plan and the Management Stockholder's Agreement, to the extent applicable
to the Options and such shares. In the event of any conflict between this
Agreement and the Plan, the terms of the Plan shall control. In the event of
any conflict between this Agreement or the Plan and the Management Stockholder's
Agreement, the terms of the Management Stockholder's Agreement shall control.
SECTION 5.7 - AMENDMENT
This Agreement may be amended only by a writing executed by the
parties hereto which specifically states that it is amending this Agreement.
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SECTION 5.8 - GOVERNING LAW
The laws of the State of Texas (or if the Company reincorporates
in another state, the laws of that state) shall govern the interpretation,
validity and performance of the terms of this Agreement regardless of the law
that might be applied under principles of conflicts of laws.
SECTION 5.9 - JURISDICTION
Any suit, action or proceeding against the Optionee with respect
to this Agreement, or any judgment entered by any court in respect of any
thereof, may be brought in any court of competent jurisdiction in the State of
Texas (or if the Company reincorporates in another state, in that state) or New
York, as the Company may elect in its sole discretion, and the Optionee hereby
submits to the non-exclusive jurisdiction of such courts for the purpose of any
such suit, action, proceeding or judgment. The Optionee hereby irrevocably
waives any objections which he may now or hereafter have to the laying of the
venue of any suit, action or proceeding arising out of or relating to this
Agreement brought in any court of competent jurisdiction in the State of Texas
(or if the Company reincorporates in another state, in that state) or New York,
and hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in any inconvenient forum.
No suit, action or proceeding against the Company with respect to this Agreement
may be brought in any court, domestic or foreign, or before any similar domestic
or foreign authority other than in a court of competent jurisdiction in the
State of Texas (or if the Company reincorporates in another state, in that
state) or New York, and the Optionee hereby irrevocably waives any right which
he may otherwise have had to bring such an action in any other court, domestic
or foreign, or before any similar domestic or foreign authority. The Company
hereby submits to the jurisdiction of such courts for the purpose of any such
suit, action or proceeding.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties hereto.
XXXXXXX'X FOOD MARKETS, INC.
By: /s/ R. Xxxxxxx Xxxxxxx, Xx.
----------------------------
R. Xxxxxxx Xxxxxxx, Xx.
President/C.E.O.
/s/ Xxxxxxx X. Xxxxxxx Aggregate number of shares of
------------------------------ Common Stock for which the Time
Option granted hereunder is
Optionee exercisable (50% of total
number of shares): 8,258
Aggregate number of shares of
Xxxxxxx X. Xxxxxxx Common Stock for which the
------------------------------ Performance Option granted
0000 Xxxxxxxxxx Xx. hereunder is exercisable (50%
Xxxxxxxx Xxxx, XX 00000 of total number of shares):
------------------------------ 8,257
Address
Optionee's Taxpayer
Identification Number:
###-##-####
------------------------------
Schedule I
Plan Year EBITDA Target
--------- -------------
1998 $101.5 million
1999 $118.9 million
2000 $181.3 million
2001 $207.6 million
2002 $221.4 million
