DOLLAR TREE STORES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT ("Agreement"), is effective as
of 5:00 p.m., Eastern Standard Time, on the 10th day of December, 1998, by and
among Xxxx Xxxx (the "Holder") and Dollar Tree Stores, Inc., a Virginia
corporation ("Dollar Tree").
W I T N E S S E T H:
WHEREAS, in connection with the merger of Dollar Tree West, Inc., a
California corporation and wholly owned subsidiary of Dollar Tree ("Merger
Sub"), with and into Step Ahead Investments, Inc., a California corporation
("SAI"), the Holder, Merger Sub and Dollar Tree have entered into a Non-
Competition and Consulting Agreement dated December 10, 1998 ("Non-Competition
Agreement"); and
WHEREAS, the parties to the Non-Competition Agreement agreed that the
Holder and certain affiliates as described therein shall not compete with Dollar
Tree and its wholly owned subsidiaries ("Company") because such competition may
cause irreparable damage to Company; and
WHEREAS, the parties to the Non-Competition Agreement agreed that
Dollar Tree would grant the Holder an option to purchase shares of common stock
of Dollar Tree as consideration for entering into the Non-Competition Agreement.
NOW, THEREFORE, in consideration of good and valuable consideration
described above and the covenants hereinafter set forth, the receipt and
sufficiency of which is hereby acknowledged by the Holder, it is agreed as
follows:
GRANT OF OPTION.
Subject to the terms and conditions set forth below, Dollar Tree hereby
grants to the Holder, a nonqualified stock option (meaning not qualified to be
treated as an incentive stock option under Section 422 of the Internal Revenue
Code of 1986, as amended) (the "Option") to purchase an aggregate of one hundred
fifty thousand (150,000) shares of Dollar Tree's common stock, par value, $.01
per share ("Common Stock") for the purchase price of __________ dollars ($_____)
per share (the "Exercise Price").
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MANNER OF EXERCISE.
The Holder may exercise the Option, to the extent vested and before
lapse (as described in Sections 3, 4 and 5 below), in whole or in part during
the term hereof by providing written notice to Dollar Tree which states the
number of shares of Common Stock with respect to which the Option is being
exercised. Such notice shall be delivered in person or through certified or
registered mail to Chief Financial Officer of Dollar Tree, 000 Xxxxx Xxxxxxx,
Xxxxxxxxxx, Xxxxxxxx 00000. The exercise of the Option, or any part thereof,
shall be deemed effective upon receipt of notice and payment complying with the
conditions set forth herein. The Option shall only be exercisable with respect
to whole shares.
Notice of exercise shall be accompanied by full payment of the
aggregate Exercise Price of the shares of Common Stock being purchased. Payment
may be made by either (i) delivering cash, check, bank draft, or money order
made payable to Dollar Tree in the amount equal to such aggregate Exercise
Price, (ii) surrendering to the Company shares of Common Stock already owned by
the Holder with an aggregate Fair Market Value (as defined in Section 9) equal
to such aggregate Exercise Price or (iii) electing to have the Company retain
shares of Common Stock subject to the portion of the Option being exercised with
an aggregate Fair Market Value equal to such aggregate Exercise Price
Promptly after Dollar Tree receives the notice of exercise and payment,
it shall deliver to the Holder a certificate evidencing the shares so purchased,
registered in the Holder's name.
VESTING OF OPTION.
Vesting Schedule. The Holder may exercise the Option
granted hereby only during the term hereof and only to the extent the Holder is
vested in such Option. The Holder shall vest in the Option based upon the
following schedule:
Number of Years from Date of Grant Cumulative Percentage Vested
One Year - December 10, 1999 20%
Two Years - December 10, 2000 40%
Three Years - December 10, 2001 60%
Four Years - December 10, 2002 80%
Five Years - December 10, 2003 100%
Acceleration. Anything in Section 3.1 to the contrary
notwithstanding, the Option shall become fully vested immediately upon the
consummation of any merger of Dollar Tree into or with, or sale of all or
substantially all of Dollar Tree's assets to, another person or entity, but only
if the beneficial owners of Dollar Tree immediately prior to the consummation of
such transaction do not constitute, directly or indirectly, a majority of the
beneficial owners of the successor entity.
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TERM OF OPTION.
Subject to the provisions of this Agreement, the Option granted
hereunder shall automatically lapse if not vested and exercised as permitted
hereby on or before the earliest of (i) the occurrence of any event of lapse
described in Section 5 of this Agreement, (ii) one year after the Holder's
death, or (iii) December 10, 2008.
LAPSE OF OPTION DUE TO COMPETITION, SOLICITATION OF
EMPLOYEES OR DISCLOSURE OF CONFIDENTIAL INFORMATION
Events of Lapse. The Holder acknowledges that Holder
(i) as a founder, director, officer and principal shareholder of SAI, has been
instrumental in the Business (as that term is defined in the Non-Competition
Agreement) of SAI and its success, (ii) has been privy to and had access to the
offices, personnel, technology, confidential and proprietary information of SAI
and (iii) as a consultant to the Company will be privy and have access to
offices, personnel, technology, confidential and proprietary information of the
Company. If Holder conducts or engages in any activities listed below during the
term of this Option, then the entire Option, whether vested or nonvested, shall
immediately lapse:
(a) engaging in Restricted Activities within the
Restricted Area (as defined below); or
(b) operating or promoting within the Restricted
Area a store using (or at least a 500 square foot area within a store dedicated
to) a single price point retail concept selling goods at a single price point at
or below $2.00;
(c) operating any variety, clearance, or close-
out retail store in the same shopping center as any retail location of SAI
existing as of the Effective Time (as defined below) or, in the case of an
existing store of SAI not in a shopping center, within one-quarter mile of such
retail location.
(d) operating any business (i) under the names
or names similar to "98(cent) Clearance Center," "Clearance 98(cent) Centers,"
"Everything 98(cent) ... or less," or "Step Ahead Investments"; (ii) advertising
or promoting outside or within a store using the terms, or terms similar to
"Everything 98(cent)," 98(cent) Clearance Centers," and "Clearance 98(cent)
Centers"; or (iii) under any name containing the words "98(cent)," "Tree," or
"Super Dollar," including their plurals.
(e) directly or indirectly, hiring or attempting
to hire any employee of Company or SAI, or soliciting, inducing, or attempting
to solicit or induce (other than through newspaper classified advertisements)
any employee of Company or SAI to leave his or her job for any reason whatsoever
without the written consent of Dollar Tree. For purposes of this paragraph, an
"employee" shall mean, as of any given date, anyone who has been an employee of
Company or SAI or any affiliate at any time during the four (4) month period
prior to such date.
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(f) intentionally copying, reproducing, disclos-
ing or divulging to any third party or using or permitting others to use any
material confidential information of SAI or the Company (including financial
information, sources of supplies and materials, prospective and existing
expansion programs, joint ventures and affiliate agreements, business systems,
marketing methods, business affairs, trade secrets, details of supplier
contracts, operational methods and marketing plans or strategies).
Notwithstanding the foregoing, use by the Holder of the confidential information
described in this Section 5.1(f) in the operation of or in the leasing of any
real property or in connection with a business not coming within the definition
of Restricted Activities or for other personal use (provided such personal use
does not conflict with any provision of this Agreement or the Non-Competition
Agreement) shall not be deemed an event of lapse. This Section 5.1(f) shall not
apply if (a) such information was already known to others not bound by a duty of
confidentiality or such information is or becomes publicly available through no
fault of Holder or Holder's affiliates, (b) the use of such information is
necessary or appropriate in making any filing or obtaining any consent or
approval required for the consummation of the closing under the Merger
Agreement, or (c) the furnishing or use of such information is required by legal
proceedings.
As used in this Agreement, the following terms have
the following meanings:
(a) "Restricted Area" shall mean each state in
which either Dollar Tree or SAI, as of the Effective Time, has a store or
otherwise carries on the Business.
(b) "Restricted Activities" means the operation
of (i) a wholesale merchandise business that supplies stores of the type
described in clause (ii) hereof, or (ii) any store engaged in the retail sale of
goods (e.g., toys, health and beauty aids, food, books, party goods, stationery,
hardware, housewares, jewelry, hair products, crafts, pet supplies, etc.) where
at least eighty percent (80%) of such goods are sold at or below $2.00.
(c) A "shopping center" means a group of at least
six (6) retail shops organized in a strip or mall configuration (but not
necessarily in attached or adjacent buildings) sharing common parking areas and
having the same landlord or leasing agent.
(d) "Effective Time" shall have the same
definition as contained in the Merger Agreement dated July 22, 1998 among Dollar
Tree, Merger Sub and SAI, as amended.
CERTAIN ADJUSTMENTS.
If the outstanding shares of Common Stock of Dollar Tree hereafter are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of Dollar Tree by reason of a
recapitalization, reincorporation, reclassification, stock split-up, reverse
stock split, combination of shares, other dividend or other distribution payable
in capital stock or other similar corporation transaction, then the Board shall
make an appropriate adjustment in the number and kind of shares which are
purchasable pursuant to the Option. Any adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option, but with a corresponding adjustment in the purchase price per share. In
the event of any merger of Dollar Tree into or with, or sale of all or
substantially all of Dollar Tree's assets to, another person or entity, the
Option shall continue in full force and effect (subject to Section 3.2 hereof)
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and shall thereafter represent the right to receive the kind and amount of
shares of stock and other securities and property (including cash) receivable in
connection with such transaction by a holder of the number of shares of Dollar
Tree Common Stock issuable upon exercise of this Option immediately prior to
such transaction.
COMPLIANCE WITH SECURITIES LAWS.
Representations and Warranties. Holder represents
and warrants as follows:
(a) Holder is experienced in investment and
business matters and understands fully the nature of the risks involved in his
investment in the Option.
(b) Holder is acquiring the Option and upon
exercise thereof will acquire the shares of Common Stock for his own account for
investment and not for distribution or resale to others.
(c) Holder is an "accredited investor" under the
Act. Holder is a natural person whose individual net worth, or joint net worth
with Holder's spouse, exceeds $1,000,000, Holder's individual income was in
excess of $200,000 (or jointly with Holder's spouse was in excess of $300,000)
in each of the two most recent years. Holder reasonably expects an income in
excess of such amount in the current year.
Indemnification. Holder agrees to indemnify the
Company and its agents for any and all losses (including attorneys' fees)
incurred by any of them as a result of their reliance on representations and
warranties contained herein or on information contained in Section 7.1 hereof,
including, but not limited to, claims arising under federal and state securities
laws, as well as common law claims.
LIMITATIONS ON TRANSFER OF OPTION.
The Holder may not transfer or assign the Option granted under this
Agreement except by will or the laws of descent and distribution. Transfer to
the parties identified in the preceding sentence may only be effected upon
written notice to Dollar Tree. The Holder may not pledge or hypothecate the
Option in any way, and such Option shall not be subject to execution,
attachment, or similar process. After the death of Holder, any exercisable
portion of the Option may, prior to the time when the Option lapses under
Section 4, be exercised by a Permitted Transferee, by the Holder's personal
representative or by any person empowered to do so under the Holder's will or
the applicable laws of descent and distribution. Notwithstanding any transfer
permitted by this Section 8, the Option shall be exercisable only during the
term stated in Section 4 hereof.
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FAIR MARKET VALUE. The phrase "Fair Market Value" means, with
respect to the Common Stock, the following:
if the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on The Nasdaq
National Market, the last sale price of the Common Stock on such exchange or
reported by The Nasdaq National Market as of such date (or if no shares were
traded on such day, as of the next preceding day on which there was such a
trade);
if the Common Stock is not so limited or admitted to
unlisted trading privileges or reported on The Nasdaq National Market, and
bid/asked prices therefor in the over-the-counter market are reported on the
Nasdaq Small-Cap Market or by the National Quotation Bureau, Inc. (or any
comparable reporting service), the average of the closing bid and asked prices
as of such date, as so reported on The Nasdaq Small-Cap Market or, if not so
reported thereon, as reported by the National Quotation Bureau, Inc. (or such
comparable reporting service); or
if the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on The Nasdaq National Market, and such
bid and asked prices are not so reported, such price as the Company's Board of
Directors determines in good faith in the exercise of its reasonable discretion.
RIGHT TO WITHHOLD.
The Company is entitled to (a) withhold and deduct from any amounts
which may be due and owing to the Holder from the Company or make other
arrangements for the collection of all legally required amounts necessary to
satisfy any and all federal, state and local withholding and employment-related
tax requirements attributable to the grant or exercise of the Option or
otherwise incurred with respect to the Option, or (b) require the Holder
promptly to remit the amount of such withholding liability to the Company before
taking any action with respect to the exercise of the Option or issuance of any
stock certificate either to the Holder or any transferee. The Board, in its sole
discretion, may permit a Holder to pay all or any portion of such withholding
liability either (i) by surrendering to the Company shares of Common Stock
already owned by the Holder or (ii) by electing to have the Company retain
shares of Common Stock subject to the portion of the Option being exercised. In
either case, the shares of Common Stock surrendered or retained shall have an
aggregate Fair Market Value that is no less than the amount of such required
withholding.
RIGHTS AS A SHAREHOLDER. The Holder shall have no rights as a
shareholder with respect to any shares of Common Stock covered by the Option
until such person shall have become the holder of record of such shares, and no
adjustments shall be made for dividends or other distributions or other rights
as to which there is a record date preceding the date the such person becomes
the holder of record of such shares, except as the Company may determine
pursuant to Section 6 hereof.
MISCELLANEOUS. This Agreement shall be governed by the
internal laws of the Commonwealth of Virginia. The Circuit Court of the City of
Norfolk and the United States District Court, Eastern District of Virginia,
Norfolk Division shall be the exclusive courts of jurisdiction and venue for any
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litigation, special proceeding or other proceeding as between the parties that
may be brought, or arise out of, in connection with, or by reason of this
Agreement. The parties hereby consent to the jurisdiction of such courts. This
Agreement shall be binding upon and inure to the benefit of each party hereto,
its successors and permitted assigns.
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IN WITNESS WHEREOF, the undersigned have hereunto affixed their
signatures.
DOLLAR TREE STORES, INC.
By:/s/ Xxxxxxxxx X. Xxxxx
-----------------------------------
Its: Senior Vice President-Chief Financial
Officer
HOLDER:
/s/ Xxxx Xxxx
--------------------------------------
Xxxx Xxxx
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