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EXHIBIT 10.20
THE X.X. XXXXXXX COMPANY, INC.
STOCK OPTION AGREEMENT
Number of shares subject to option: 200,000
This Agreement (the "Agreement") made this 24th day of May, 1999,
between The X.X. Xxxxxxx Company, Inc., a North Carolina corporation (the
"Company"), and Xxxxxx X. Roof (the "Optionee").
W I T N E S S E T H:
1. Grant of Option.
Pursuant to the provisions of The X.X. Xxxxxxx Company, Inc. 1999 Stock
Option Plan (the "Plan"), the Company hereby grants to the Optionee, subject to
the terms and conditions of the Plan and subject further to the terms and
conditions herein set forth, the right and option (the "Option") to purchase
from the Company all or any part of an aggregate of 200,000 shares of the Class
A Common Stock, par value $0.01 per share, of the Company (the "Common Stock" or
the "Shares") at a purchase price of $9.00 per Share (the "Exercise Price"),
such Option to be exercised as hereinafter provided.
2. Terms and Conditions.
It is understood and agreed that the Option evidenced hereby is subject
to the following terms and conditions:
(a) Expiration Date. The Option shall expire on the tenth
anniversary of the date hereof (the "Expiration Date").
(b) Type of Option. This Option is eligible to be an incentive
stock option (an "Incentive Stock Option") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"); provided that to the
extent this Option does not qualify as an Incentive Stock Option under the Code,
it shall constitute a nonqualified stock option.
(c) Exercise of Option. (i) The shares subject to this Option
shall be divided into three separate pools, "Tier 1 Options," "Tier 2 Options"
and "Tier 3 Options," and the Options in each pool shall vest and be exercisable
according to the terms and conditions applicable to such pool as set forth
below. For purposes of this Agreement, "Option" shall mean, collectively, the
Tier 1 Options, the Tier 2 Options and the Tier 3 Options granted pursuant to
this Agreement.
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(A) Tier 1 Options. The Company hereby grants to the Optionee
50,000 Tier 1 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 1 Options will vest and be
exercisable in accordance with the following schedule:
Options Exercisable with respect to
On or After Cumulative Number of Shares
----------- ---------------------------
May 24, 2000 12,500
May 24, 2001 25,000
May 24, 2002 37,500
May 24, 2003 50,000
Notwithstanding the foregoing, all of the Tier 1 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (x) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 1 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 1 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (y) the
termination of Optionee's employment (1) by the Company without Cause (as
defined below) or by the Optionee for Good Reason (as defined below) at any time
after a Change in Control or (2) by the Company or the Optionee for any reason
other than a Specified Cause Event (as defined below) more than six months after
a Change in Control.
"Change in Control" means the first to occur of any
of the following: (i) the sale (including by merger, consolidation or
sale of stock of subsidiaries or any other method) of all or
substantially all of the assets of the Company and its consolidated
subsidiaries (taken as a whole) to any person or entity not directly or
indirectly controlled by the holders of at least 50% of the Combined
Voting Power (as defined in the Plan) of the then outstanding shares of
capital stock of the Company (excluding shares owned by employees of
the Company as of the date of determination), (ii) at any time prior to
the consummation of an initial public offering of Common Stock of the
Company or other common stock of the Company having the voting power to
elect directors, a transaction (except pursuant to such initial public
offering) resulting in the Principal Shareholders (as defined in the
Plan) owning, collectively, less than 50% of the Combined Voting Power
of the then outstanding shares of capital stock of the Company
(excluding shares owned by employees of the Company as of the date of
determination), (iii) at any time after the consummation of an initial
public offering of Common Stock of the Company or other common stock of
the Company having the voting power to elect directors, the acquisition
(except pursuant to such initial public offering) by any person or
entity (other than the Principal Shareholders) not directly or
indirectly controlled by the Company's
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stockholders of more than 30% of the Combined Voting Power of the then
outstanding shares of capital stock of the Company (excluding shares
owned by employees of the Company as of the date of determination),
(iv) individuals serving as directors of the Company on the Effective
Date (as defined in the Plan) and who were nominated or selected to
serve as directors by one or more Principal Shareholders (together with
any new directors whose election was approved by a vote of (A) such
individuals or directors whose election was previously so approved or
(B) Principal Shareholders holding a majority of the aggregate voting
power of the capital stock of the Company held by all Principal
Shareholders) cease for any reason to constitute a majority of the
Board of Directors of the Company (the "Board"), (v) the adoption of a
plan relating to the liquidation or dissolution of the Company in
connection with an equity investment or sale or a business combination
transaction or (vi) any other event or transaction that the Board deems
to be a Change in Control.
"Specified Cause Event" means (1) a proven or
admitted act of fraud, misappropriation or embezzlement by the Optionee
that is detrimental to the Company or (2) the Optionee's conviction of
or plea of guilty or nolo contendere to a felony that is related to the
Company or the performance of the Optionee's services for the Company.
(B) Tier 2 Options. The Company hereby grants to the Optionee
50,000 Tier 2 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 2 Options will vest and be
exercisable annually as of December 31 of each fiscal year of the Company with
respect to a cumulative number of shares in an amount equal to the product of
(i) a fraction, the denominator of which is 278,658,000 (the "Aggregate EBITDA
Target") and the numerator of which is the aggregate EBITDA of the Company for
all fiscal years following the date hereof, beginning with the 1999 fiscal year,
multiplied by (ii) the total number of shares subject to Tier 2 Options,
provided that the maximum cumulative number of shares subject to Tier 2 Options
that shall be vested in any fiscal year shall not exceed the product of (1) the
Applicable Percentage for such fiscal year multiplied by (2) the total number of
shares subject to Tier 2 Options. This calculation shall be made with respect to
each fiscal year, beginning with the 1999 fiscal year, based on the Company's
audited financial statements for such year. Notwithstanding the foregoing, (x)
if the Optionee's employment with the Company shall terminate because of death,
disability, termination by the Company without Cause (as defined below) or
termination by the Optionee for Good Reason (as defined below), the aggregate
cumulative number of shares subject to Tier 2 Options that shall be vested as of
the termination date shall not be subject to any limitations imposed by the
Applicable Percentage and shall be equal to the product of (1) a fraction, the
denominator of which is the Aggregate EBITDA Target and the numerator of which
is the aggregate EBITDA of the Company for all fiscal years following the date
hereof, beginning with the 1999 fiscal year, multiplied by (2) the total number
of shares subject to Tier 2 Options, and (y) all of the Tier 2 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (1) any or all of the
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Tier 3 Options becoming fully vested and exercisable, provided that if only 50%
of the Tier 3 Options have vested and become exercisable, then only 50% of the
then unvested Tier 2 Options shall vest and become exercisable, and the
remaining 50% of the unvested Tier 2 Options shall vest and become exercisable
immediately upon the vesting and exercisability of the remaining 50% of the Tier
3 Options, and (2) the seventh anniversary of the date hereof.
"Applicable Percentage" means with respect to (i) fiscal
year 1999, 20%, (2) fiscal year 2000, 40%, (3) fiscal year 2001, 60%,
(4) fiscal year 2002, 80%, and (5) fiscal year 2003, 100%, provided,
however, that the Applicable Percentage shall be 100% if following any
fiscal year prior to the fifth anniversary hereof, the aggregate EBITDA
of the Company for the fiscal years following the date hereof equals or
exceeds the Aggregate EBITDA Target.
"EBITDA" means earnings before interest, taxes,
depreciation, and amortization as reflected in the Company's audited
financial statements. Adjustments for unusual items will be made in the
reasonable discretion of the Board, after consultation with the Chief
Executive Officer of the Company.
(C) Tier 3 Options. The Company hereby grants to the Optionee
100,000 Tier 3 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 3 Options will vest and be
exercisable (except as provided below) only upon the first to occur of (x) a
Change in Control that satisfies the CIC Return Hurdle and (y) an Actual Sale or
Deemed Sale following a Qualified Public Offering that satisfies the QPO Return
Hurdle as hereinafter described. If on any date beginning six months after a
Qualified Public Offering the QPO Return Hurdle has been satisfied based on a
Deemed Sale at Fair Market Value as of such date, 50% of the Tier 3 Options will
vest and be immediately exercisable, and if on any date beginning 24 months
after a Qualified Public Offering the QPO Return Hurdle has been satisfied based
on a Deemed Sale at Fair Market Value as of such date, the additional 50% of the
Tier 3 Options will vest and be immediately exercisable, except that, if at any
time after a Qualified Public Offering the QPO Return Hurdle is satisfied based
on an Actual Sale, 100% of the Tier 3 Options will vest and be immediately
exercisable. Notwithstanding the foregoing, the Tier 3 Options shall become
fully vested and exercisable upon the seventh anniversary of the date hereof.
"Actual Sale" means a sale following a Qualified Public
Offering by Charlesbank Equity Fund IV, Limited Partnership of its
shares in the Company in consideration for cash or freely tradable
securities or a combination thereof.
"Charlesbank Investment" means the total amount of capital
expended to acquire Common Stock or warrants to acquire Common Stock of
the Company or capital contributed to the Company (including capital
provided in the form of an extension of credit or an advance of funds)
by Charlesbank Equity Fund IV,
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Limited Partnership, commencing on the date of the original investment
by Charlesbank Equity Fund IV, Limited Partnership.
"CIC Return Hurdle" means (i) if the Change in Control
occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x,
and (ii) if the Change in Control occurs more than 18 months after the
original investment by Charlesbank Equity Fund IV, Limited Partnership
a Return on Investment of 3.0x and a 30% IRR.
"Deemed Sale", as of any date, means the deemed sale
following a Qualified Public Offering by Charlesbank Equity Fund IV,
Limited Partnership of its shares in the Company at the Fair Market
Value in effect on such date.
"Fair Market Value", as of any date, means (i) with
respect to any freely tradeable security, the closing market price for
such security on the day immediately preceding such date as determined
from the principal trading market for such security on such date, (ii)
with respect to any publicly traded security of the Company, the
average of the closing market prices of such security for the 30
consecutive trading days immediately prior to such date to be
determined from the principal trading market for such security during
such period, and (iii) with respect to any other property, such value
determined as of such date by such methods or procedures as established
in the good faith discretion of the Board.
"IRR" means an internal rate of return to Charlesbank
Equity Fund IV, Limited Partnership on the Charlesbank Investment as
calculated by the use of an HP12c financial calculator, taking into
account the timing and amount (based on the Fair Market Value thereof)
of all contributions to capital and investments in the Company and the
timing and amount (based on the Fair Market Value thereof) of all
dividends, interest payments or other distributions or payments
(whether in cash or other property), from the Company or any other
person or entity in respect of the Charlesbank Investment, through the
date of determination, and subject to adjustment in the good faith
discretion of the Board in the event of any merger, acquisition,
consolidation, sale of assets, recapitalization, contribution of
capital to, or redemption of stock of, the Company, or any other event
that the Board deems relevant to the calculation of such return.
"QPO Return Hurdle" means (i) if the Actual Sale or Deemed
Sale occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x and
(ii) if the Actual Sale or Deemed Sale occurs more than 18 months after
the original investment by Charlesbank Equity Fund IV, Limited
Partnership, a Return on Investment of 3.0x and a 30% XXX.
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"Xxxxxxxxx Xxxxxx Xxxxxxxx" means a public offering of the
Company's Class A Common Stock or other common stock of the Company
with a minimum offering size of $50,000,000.
"Return on Investment" means (i) in the case of a Change
in Control, the quotient of (A) the total amount of cash and freely
tradable securities and based on the Fair Market Value thereof received
by Charlesbank Equity Fund IV, Limited Partnership upon such Change in
Control, together with all dividends, interest payments and other
distributions or payments (whether in cash or other property and based
on the Fair Market Value thereof) received from the Company or any
other person or entity in respect of the Charlesbank Investment prior
to such Change in Control, divided by (B) the Charlesbank Investment,
and (ii) in the case of an Actual Sale or Deemed Sale following a
Qualified Public Offering, the quotient of (A) the total amount of cash
and freely tradeable securities (based on the Fair Market Value
thereof) received in such Actual Sale, or the aggregate Fair Market
Value of all shares in the Company owned at the time of such Deemed
Sale, by Charlesbank Equity Fund IV, Limited Partnership, together with
all dividends, interest payments and other distributions or payments
(whether in cash or other property and based on the Fair Market Value
thereof) received from the Company or any other person or entity in
respect of the Charlesbank Investment prior to such Actual Sale or
Deemed Sale, as the case may be, divided by (B) the Charlesbank
Investment.
(ii) Options exercised in any one year shall be deducted from
the number of Options exercisable in any future year. Once vested, this Option
shall be exercisable at the following times prior to the expiration date: (A) if
the Optionee is employed by the Company at the time of exercise, at any time by
giving the Company 45 days' advance written notice or (B) if the Optionee is not
employed by the Company at the time of exercise but has the right to exercise
after termination in accordance with Section 2(d) of this Agreement, by giving
the Company written notice at any time during the period specified in Section
2(d) of this Agreement, in which case the Option shall be deemed exercised as of
the end of the calendar month in which the Company received notice of exercise
of the Option. In either case, the notice of exercise shall specify the number
of Shares as to which the Option is being exercised.
(iii) Upon receipt of written notice of exercise by the
Company, the Company shall, upon full payment in cash to the Company of the
Exercise Price of the Shares as to which the Option shall be exercised and upon
receipt of a duly executed shareholders agreement (in the form attached hereto
as Exhibit A or in such other form as the Company may reasonably require), issue
to the Optionee the Shares subject to the Option. Any issuance of Shares to an
Optionee pursuant to the preceding sentence shall be made by the Company within
90 days after the date of exercise. For purposes of this Agreement, the fair
market value of Shares shall be determined by such methods or procedures as
shall be established from time to time by the Board acting in its sole
discretion and in good faith. In making such determinations, the Board may rely
on a
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valuation report by an investment banking or valuation firm selected by the
Board. The Committee established by the Board to administer the Plan (the
"Committee") may, in its sole discretion, permit the Optionee to pay the
Exercise Price in previously acquired Shares rather than in cash.
(d) Exercise Upon Death or Termination of Employment.
(i) If the Optionee dies while an employee of the
Company, the Optionee's Designee may exercise the Option, to the extent it was
vested on the date of termination, by giving the Company written notice of such
exercise within 12 months after the date of Optionee's death, but in no event
later than the Expiration Date. An Optionee's "Designee" means the person
designated by the Optionee in his or her most recently filed beneficiary
designation filed with the Company to receive the Optionee's rights under the
Plan upon the Optionee's death, or if there is no such designation or no such
designated person survives the Optionee, by the person or persons to whom the
Optionee's rights pass by will or applicable law, or if no such person has such
right, by his executors or administrators.
(ii) If the Company shall terminate Optionee's
employment with the Company because of disability, the Optionee may exercise the
Option to the extent it was vested on the date of termination, by giving the
Company written notice of such exercise within 12 months after the date of
termination of employment, but in no event later than the Expiration Date.
(iii) If the Optionee terminates his employment with
the Company other than for Good Reason, the Optionee may exercise the Option to
the extent it was vested on the date of termination, by giving the Company
written notice of such exercise within 90 days after the date of termination of
employment, but in no event later then the Expiration Date. For purposes of this
Agreement, "Good Reason" has the meaning set forth in the executive severance or
employment agreement, if any, then in effect between the Company and the
Optionee or, in the absence of such agreement shall mean, if the basis for such
Good Reason is not cured within a reasonable period of time (determined in light
of the cure appropriate to the basis of such Good Reason, but in no event less
than 15 days), the failure of the Company to pay any undisputed amount due to
the Optionee in connection with his employment by the Company.
(iv) If the Optionee's employment shall terminate for
any reason other than death, disability or Cause (as hereinafter defined), or if
the Optionee shall terminate his employment with the Company for Good Reason,
the Optionee may exercise the Option to the extent it was vested on the date of
termination or, otherwise would have vested in the 12 months thereafter, in
either event according to the applicable vesting schedule in Section 2(c)(i), by
giving the Company written notice of such exercise within 18 months after the
date of termination of employment, but in no event later than the Expiration
Date. Notwithstanding the foregoing, the Optionee shall forfeit
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his right to exercise any Options that would have vested within the 12 months
after termination, if the Optionee violates the terms regarding non-competition
set forth in the Optionee's executive severance or employment agreement.
(v) If the Optionee's employment shall terminate for
Cause, all right to exercise the Option shall terminate at the date of such
termination of employment. For purposes of this Agreement, "Cause" has the
meaning set forth in the executive severance or employment agreement, if any,
then in effect between the Company and the Optionee or, in the absence of such
agreement, shall mean (i) the Optionee's conviction of, or plea of guilty or
nolo contendere to, a felony, (ii) the Optionee's gross negligence in the
performance of his duties and obligations to the Company, which is not corrected
within 15 business days after written notice, (iii) the Optionee's knowingly
dishonest act, or knowing bad faith or willful misconduct in the performance of
his duties and obligations to the Company to the material detriment of the
Company, which is not corrected within 15 business days after written notice, or
(iv) the Optionee's other material breach of his obligations under this
Agreement, which is not corrected within a reasonable period of time (determined
in light of the cure appropriate to such material breach, but in no event less
than 15 business days) after written notice.
(vi) In the event of termination of employment, if
an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purpose of Section 422 of the Code, such stock option
shall thereafter be treated as a nonqualified stock option.
(e) Transferability. Except as otherwise provided in this
Section, the Option is not transferable other than as designated by the Optionee
in his or her most recently filed Beneficiary designation filed with the
Company, or if there is no such designation or no such designated person
survives the Optionee, as designated by the Optionee, by will or by the laws of
descent and distribution, and during the Optionee's life, may be exercised only
by the Optionee. However, an Optionee, with the approval of the Committee, may
transfer the Option for no consideration to or for the benefit of the Optionee's
Immediate Family or to a partnership or limited liability company for one or
more members of the Optionee's Immediate Family, subject to such limits as the
Committee may establish, and the transferee shall remain subject to all the
terms and conditions applicable to Options prior to such transfer. The foregoing
right to transfer the Option shall apply to the right to consent to amendments
to this Agreement and, in the discretion of the Committee, shall also apply to
the right to transfer ancillary rights associated with the Option. The term
"Immediate Family" shall mean the Optionee's spouse, parents, children,
stepchildren, adoptive relationships, sisters, brothers, nieces, nephews and
grandchildren (and, for this purpose, shall also include the Optionee).
(f) Adjustments. In the event of any change in corporate
capitalization (including, but not limited to, a change in the number of shares
of Common Stock outstanding), such as a stock split or a corporate transaction,
such as any merger,
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consolidation, separation, including a spin-off, or other distribution of stock
or property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or any partial or complete liquidation of the Company, the Committee or
Board may make such substitution or adjustments in the number, kind and option
price of shares subject to the Option and/or such other equitable substitution
or adjustments as it may determine to be appropriate in its sole discretion;
provided, however, that the number of shares subject to the Option shall always
be a whole number. In the event of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation, the
Board shall be authorized to cause the Company to issue or assume stock options,
whether or not in transaction to which Section 424(a) of the Code applies, by
means of substitution of new stock options for previously issued stock options
or an assumption of previously issued stock options.
(g) No Rights as Stockholder. The Optionee shall have no
rights as a stockholder with respect to any Shares subject to the Option prior
to the date of issuance to the Optionee of a certificate or certificates for
such Shares.
(h) Optionee Acknowledgement. The Optionee acknowledges that:
(i) the future value of the Company is highly
speculative;
(ii) the Optionee is not relying on the value of this
Option as current compensation;
(iii) the Company has no obligation to the Optionee
to sell the Company or to sell Shares publicly (which may have the effect of
reducing the value of the Company);
(iv) upon exercise of this Option, unless the Shares
issuable upon exercise of the Options have been registered under applicable
securities laws, there will be substantial restrictions on the transferability
of the Shares; and
(v) the past performance or experience of the
Company, the Company's officers, directors, agents, or employees, will not in
any way indicate or predict the results of the ownership of Shares or of the
Company's activities.
(i) No Right to Continued Employment. The Option shall not
confer upon the Optionee any right with respect to continuance of employment by
the Company, nor shall it interfere in any way with the right of the Optionee's
employer to terminate the Optionee's employment at any time.
(j) Compliance With Law and Regulations. The Option herein
granted and the obligation of the Company to sell and deliver shares hereunder,
shall be subject to all applicable Federal and State laws, rules and regulations
and to such approvals by any
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government or regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for Shares prior to (i) the
listing of such Shares on any stock exchange or national market quotations
system on which the Shares may then be listed and (ii) the completion of any
registration or qualification of such Shares under any Federal or State law, or
any rule or regulation of any government body which the Company shall, in its
sole discretion, determine to be necessary or advisable. Moreover, the Option
herein granted may not be exercised if its exercise, or the receipt of Shares
pursuant hereto, would be contrary to applicable law.
3. Optionee Bound by Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
4. Notices.
All notices or any other communications hereunder shall be in writing
and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to The X.X. Xxxxxxx Company, Inc., 0000
Xxxxx Xxxxx Xxxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxx Xxxxxxxx 00000; Attention:
Chairman, and if to the Optionee, at the address set forth below, subject to the
right of either party to designate at any time hereafter in writing some other
address.
5. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina without regard to conflicts of laws
principles.
6. No Assignment.
Except as provided in Section 2(e), neither this Agreement nor any of
the rights or obligations of the Optionee hereunder may be transferred or
assigned by the Optionee.
7. Benefits.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto. This Agreement is for the sole benefit of the parties hereto and
not for the benefit of any other party.
8. Severability.
If any provision of this Agreement shall be determined to be illegal
and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms.
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9. Amendments.
No modification, amendment or waiver of any provision of this
Agreement, other than as required under Section 2(f), shall be effective unless
it is in writing and signed by the parties hereto.
10. Counterparts.
This Agreement has been executed in two counterparts each of which
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its Chairman, Chief Executive Officer, Chief Operating Officer,
President or a Vice President and Optionee has executed this Agreement, both as
of the day and year first above written.
THE X.X. XXXXXXX COMPANY, INC.
By: /s/ J. Xxxxxxx Xxxxxxx
-----------------------------------------
J. Xxxxxxx Xxxxxxx
Executive Vice President,
General Counsel and Secretary
/s/ Xxxxxx X. Roof
-------------------------------
Xxxxxx X. Roof
0000 Xxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
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THE X.X. XXXXXXX COMPANY, INC.
STOCK OPTION AGREEMENT
Number of shares subject to option: 75,000
This Agreement (the "Agreement") made this 24th day of May, 1999,
between The X.X. Xxxxxxx Company, Inc., a North Carolina corporation (the
"Company"), and J. Xxxxxxx Xxxxxxx (the "Optionee").
W I T N E S S E T H:
1. Grant of Option.
Pursuant to the provisions of The X.X. Xxxxxxx Company, Inc. 1999 Stock
Option Plan (the "Plan"), the Company hereby grants to the Optionee, subject to
the terms and conditions of the Plan and subject further to the terms and
conditions herein set forth, the right and option (the "Option") to purchase
from the Company all or any part of an aggregate of 75,000 shares of the Class A
Common Stock, par value $0.01 per share, of the Company (the "Common Stock" or
the "Shares") at a purchase price of $9.00 per Share (the "Exercise Price"),
such Option to be exercised as hereinafter provided.
2. Terms and Conditions.
It is understood and agreed that the Option evidenced hereby is subject
to the following terms and conditions:
(a) Expiration Date. The Option shall expire on the tenth
anniversary of the date hereof (the "Expiration Date").
(b) Type of Option. This Option is eligible to be an incentive
stock option (an "Incentive Stock Option") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"); provided that to the
extent this Option does not qualify as an Incentive Stock Option under the Code,
it shall constitute a nonqualified stock option.
(c) Exercise of Option. (i) The shares subject to this Option
shall be divided into three separate pools, "Tier 1 Options," "Tier 2 Options"
and "Tier 3 Options," and the Options in each pool shall vest and be exercisable
according to the terms and conditions applicable to such pool as set forth
below. For purposes of this Agreement, "Option" shall mean, collectively, the
Tier 1 Options, the Tier 2 Options and the Tier 3 Options granted pursuant to
this Agreement.
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(A) Tier 1 Options. The Company hereby grants to the Optionee
25,000 Tier 1 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 1 Options will vest and be
exercisable in accordance with the following schedule:
Options Exercisable with respect to
On or After Cumulative Number of Shares
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May 24, 2000 6,250
May 24, 2001 12,500
May 24, 2002 18,750
May 24, 2003 25,000
Notwithstanding the foregoing, all of the Tier 1 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (x) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 1 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 1 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (y) the
termination of Optionee's employment (1) by the Company without Cause (as
defined below) or by the Optionee for Good Reason (as defined below) at any time
after a Change in Control or (2) by the Company or the Optionee for any reason
other than a Specified Cause Event (as defined below) more than six months after
a Change in Control.
"Change in Control" means the first to occur of any of
the following: (i) the sale (including by merger, consolidation or sale
of stock of subsidiaries or any other method) of all or substantially
all of the assets of the Company and its consolidated subsidiaries
(taken as a whole) to any person or entity not directly or indirectly
controlled by the holders of at least 50% of the Combined Voting Power
(as defined in the Plan) of the then outstanding shares of capital
stock of the Company (excluding shares owned by employees of the
Company as of the date of determination), (ii) at any time prior to the
consummation of an initial public offering of Common Stock of the
Company or other common stock of the Company having the voting power to
elect directors, a transaction (except pursuant to such initial public
offering) resulting in the Principal Shareholders (as defined in the
Plan) owning, collectively, less than 50% of the Combined Voting Power
of the then outstanding shares of capital stock of the Company
(excluding shares owned by employees of the Company as of the date of
determination), (iii) at any time after the consummation of an initial
public offering of Common Stock of the Company or other common stock of
the Company having the voting power to elect directors, the acquisition
(except pursuant to such initial public offering) by any person or
entity (other than the Principal Shareholders) not directly or
indirectly controlled by the Company's stockholders of more than 30% of
the Combined Voting Power of the then outstanding shares of capital
stock of the Company (excluding shares owned by employees of the
2
15
Company as of the date of determination), (iv) individuals serving as
directors of the Company on the Effective Date (as defined in the Plan)
and who were nominated or selected to serve as directors by one or more
Principal Shareholders (together with any new directors whose election
was approved by a vote of (A) such individuals or directors whose
election was previously so approved or (B) Principal Shareholders
holding a majority of the aggregate voting power of the capital stock
of the Company held by all Principal Shareholders) cease for any reason
to constitute a majority of the Board of Directors of the Company (the
"Board"), (v) the adoption of a plan relating to the liquidation or
dissolution of the Company in connection with an equity investment or
sale or a business combination transaction or (vi) any other event or
transaction that the Board deems to be a Change in Control.
"Specified Cause Event" means (1) a proven or
admitted act of fraud, misappropriation or embezzlement by the Optionee
that is detrimental to the Company or (2) the Optionee's conviction of
or plea of guilty or nolo contendere to a felony that is related to the
Company or the performance of the Optionee's services for the Company.
(B) Tier 2 Options. The Company hereby grants to the Optionee
25,000 Tier 2 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 2 Options will vest and be
exercisable annually as of December 31 of each fiscal year of the Company with
respect to a cumulative number of shares in an amount equal to the product of
(i) a fraction, the denominator of which is 278,658,000 (the "Aggregate EBITDA
Target") and the numerator of which is the aggregate EBITDA of the Company for
all fiscal years following the date hereof, beginning with the 1999 fiscal year,
multiplied by (ii) the total number of shares subject to Tier 2 Options,
provided that the maximum cumulative number of shares subject to Tier 2 Options
that shall be vested in any fiscal year shall not exceed the product of (1) the
Applicable Percentage for such fiscal year multiplied by (2) the total number of
shares subject to Tier 2 Options. This calculation shall be made with respect to
each fiscal year, beginning with the 1999 fiscal year, based on the Company's
audited financial statements for such year. Notwithstanding the foregoing, (x)
if the Optionee's employment with the Company shall terminate because of death,
disability, termination by the Company without Cause (as defined below) or
termination by the Optionee for Good Reason (as defined below), the aggregate
cumulative number of shares subject to Tier 2 Options that shall be vested as of
the termination date shall not be subject to any limitations imposed by the
Applicable Percentage and shall be equal to the product of (1) a fraction, the
denominator of which is the Aggregate EBITDA Target and the numerator of which
is the aggregate EBITDA of the Company for all fiscal years following the date
hereof, beginning with the 1999 fiscal year, multiplied by (2) the total number
of shares subject to Tier 2 Options, and (y) all of the Tier 2 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (1) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 2 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 2 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (2) the seventh
anniversary of the date hereof.
3
16
"Applicable Percentage" means with respect to (i) fiscal
year 1999, 20%, (2) fiscal year 2000, 40%, (3) fiscal year 2001, 60%,
(4) fiscal year 2002, 80%, and (5) fiscal year 2003, 100%, provided,
however, that the Applicable Percentage shall be 100% if following any
fiscal year prior to the fifth anniversary hereof, the aggregate EBITDA
of the Company for the fiscal years following the date hereof equals or
exceeds the Aggregate EBITDA Target.
"EBITDA" means earnings before interest, taxes,
depreciation, and amortization as reflected in the Company's audited
financial statements. Adjustments for unusual items will be made in the
reasonable discretion of the Board, after consultation with the Chief
Executive Officer of the Company.
(C) Tier 3 Options. The Company hereby grants to the Optionee
25,000 Tier 3 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 3 Options will vest and be
exercisable (except as provided below) only upon the first to occur of (x) a
Change in Control that satisfies the CIC Return Hurdle and (y) an Actual Sale or
Deemed Sale following a Qualified Public Offering that satisfies the QPO Return
Hurdle as hereinafter described. If on any date beginning six months after a
Qualified Public Offering the QPO Return Hurdle has been satisfied based on a
Deemed Sale at Fair Market Value as of such date, 50% of the Tier 3 Options will
vest and be immediately exercisable, and if on any date beginning 24 months
after a Qualified Public Offering the QPO Return Hurdle has been satisfied based
on a Deemed Sale at Fair Market Value as of such date, the additional 50% of the
Tier 3 Options will vest and be immediately exercisable, except that, if at any
time after a Qualified Public Offering the QPO Return Hurdle is satisfied based
on an Actual Sale, 100% of the Tier 3 Options will vest and be immediately
exercisable. Notwithstanding the foregoing, the Tier 3 Options shall become
fully vested and exercisable upon the seventh anniversary of the date hereof.
"Actual Sale" means a sale following a Qualified Public
Offering by Charlesbank Equity Fund IV, Limited Partnership of its
shares in the Company in consideration for cash or freely tradable
securities or a combination thereof.
"Charlesbank Investment" means the total amount of capital
expended to acquire Common Stock or warrants to acquire Common Stock of
the Company or capital contributed to the Company (including capital
provided in the form of an extension of credit or an advance of funds)
by Charlesbank Equity Fund IV, Limited Partnership, commencing on the
date of the original investment by Charlesbank Equity Fund IV, Limited
Partnership.
"CIC Return Hurdle" means (i) if the Change in Control
occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x,
and (ii) if the Change in Control occurs more than 18
4
17
months after the original investment by Charlesbank Equity Fund IV,
Limited Partnership a Return on Investment of 3.0x and a 30% IRR.
"Deemed Sale", as of any date, means the deemed sale
following a Qualified Public Offering by Charlesbank Equity Fund IV,
Limited Partnership of its shares in the Company at the Fair Market
Value in effect on such date.
"Fair Market Value", as of any date, means (i) with
respect to any freely tradeable security, the closing market price for
such security on the day immediately preceding such date as determined
from the principal trading market for such security on such date, (ii)
with respect to any publicly traded security of the Company, the
average of the closing market prices of such security for the 30
consecutive trading days immediately prior to such date to be
determined from the principal trading market for such security during
such period, and (iii) with respect to any other property, such value
determined as of such date by such methods or procedures as established
in the good faith discretion of the Board.
"IRR" means an internal rate of return to Charlesbank
Equity Fund IV, Limited Partnership on the Charlesbank Investment as
calculated by the use of an HP12c financial calculator, taking into
account the timing and amount (based on the Fair Market Value thereof)
of all contributions to capital and investments in the Company and the
timing and amount (based on the Fair Market Value thereof) of all
dividends, interest payments or other distributions or payments
(whether in cash or other property), from the Company or any other
person or entity in respect of the Charlesbank Investment, through the
date of determination, and subject to adjustment in the good faith
discretion of the Board in the event of any merger, acquisition,
consolidation, sale of assets, recapitalization, contribution of
capital to, or redemption of stock of, the Company, or any other event
that the Board deems relevant to the calculation of such return.
"QPO Return Hurdle" means (i) if the Actual Sale or Deemed
Sale occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x and
(ii) if the Actual Sale or Deemed Sale occurs more than 18 months after
the original investment by Charlesbank Equity Fund IV, Limited
Partnership, a Return on Investment of 3.0x and a 30% IRR.
"Qualified Public Offering" means a public offering of the
Company's Class A Common Stock or other common stock of the Company
with a minimum offering size of $50,000,000.
"Return on Investment" means (i) in the case of a Change
in Control, the quotient of (A) the total amount of cash and freely
tradable securities and based on the Fair Market Value thereof received
by Charlesbank Equity Fund IV, Limited Partnership upon such Change in
Control, together with all dividends, interest payments and other
distributions or payments (whether in cash or other property and based
on the Fair Market
5
18
Value thereof) received from the Company or any other person or entity
in respect of the Charlesbank Investment prior to such Change in
Control, divided by (B) the Charlesbank Investment, and (ii) in the
case of an Actual Sale or Deemed Sale following a Qualified Public
Offering, the quotient of (A) the total amount of cash and freely
tradeable securities (based on the Fair Market Value thereof) received
in such Actual Sale, or the aggregate Fair Market Value of all shares
in the Company owned at the time of such Deemed Sale, by Charlesbank
Equity Fund IV, Limited Partnership, together with all dividends,
interest payments and other distributions or payments (whether in cash
or other property and based on the Fair Market Value thereof) received
from the Company or any other person or entity in respect of the
Charlesbank Investment prior to such Actual Sale or Deemed Sale, as the
case may be, divided by (B) the Charlesbank Investment.
(ii) Options exercised in any one year shall be deducted from
the number of Options exercisable in any future year. Once vested, this Option
shall be exercisable at the following times prior to the expiration date: (A) if
the Optionee is employed by the Company at the time of exercise, at any time by
giving the Company 45 days' advance written notice or (B) if the Optionee is not
employed by the Company at the time of exercise but has the right to exercise
after termination in accordance with Section 2(d) of this Agreement, by giving
the Company written notice at any time during the period specified in Section
2(d) of this Agreement, in which case the Option shall be deemed exercised as of
the end of the calendar month in which the Company received notice of exercise
of the Option. In either case, the notice of exercise shall specify the number
of Shares as to which the Option is being exercised.
(iii) Upon receipt of written notice of exercise by the
Company, the Company shall, upon full payment in cash to the Company of the
Exercise Price of the Shares as to which the Option shall be exercised and upon
receipt of a duly executed shareholders agreement (in the form attached hereto
as Exhibit A or in such other form as the Company may reasonably require), issue
to the Optionee the Shares subject to the Option. Any issuance of Shares to an
Optionee pursuant to the preceding sentence shall be made by the Company within
90 days after the date of exercise. For purposes of this Agreement, the fair
market value of Shares shall be determined by such methods or procedures as
shall be established from time to time by the Board acting in its sole
discretion and in good faith. In making such determinations, the Board may rely
on a valuation report by an investment banking or valuation firm selected by the
Board. The Committee established by the Board to administer the Plan (the
"Committee") may, in its sole discretion, permit the Optionee to pay the
Exercise Price in previously acquired Shares rather than in cash.
(d) Exercise Upon Death or Termination of Employment.
(i) If the Optionee dies while an employee of the
Company, the Optionee's Designee may exercise the Option, to the extent it was
vested on the date of termination, by giving the Company written notice of such
exercise within 12 months after the date of Optionee's death, but in no event
later than the Expiration Date. An Optionee's "Designee"
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19
means the person designated by the Optionee in his or her most recently filed
beneficiary designation filed with the Company to receive the Optionee's rights
under the Plan upon the Optionee's death, or if there is no such designation or
no such designated person survives the Optionee, by the person or persons to
whom the Optionee's rights pass by will or applicable law, or if no such person
has such right, by his executors or administrators.
(ii) If the Company shall terminate Optionee's
employment with the Company because of disability, the Optionee may exercise the
Option to the extent it was vested on the date of termination, by giving the
Company written notice of such exercise within 12 months after the date of
termination of employment, but in no event later than the Expiration Date.
(iii) If the Optionee terminates his employment with
the Company other than for Good Reason, the Optionee may exercise the Option to
the extent it was vested on the date of termination, by giving the Company
written notice of such exercise within 90 days after the date of termination of
employment, but in no event later then the Expiration Date. For purposes of this
Agreement, "Good Reason" has the meaning set forth in the executive severance or
employment agreement, if any, then in effect between the Company and the
Optionee or, in the absence of such agreement shall mean, if the basis for such
Good Reason is not cured within a reasonable period of time (determined in light
of the cure appropriate to the basis of such Good Reason, but in no event less
than 15 days), the failure of the Company to pay any undisputed amount due to
the Optionee in connection with his employment by the Company.
(iv) If the Optionee's employment shall terminate for
any reason other than death, disability or Cause (as hereinafter defined), or if
the Optionee shall terminate his employment with the Company for Good Reason,
the Optionee may exercise the Option to the extent it was vested on the date of
termination or, otherwise would have vested in the 12 months thereafter, in
either event according to the applicable vesting schedule in Section 2(c)(i), by
giving the Company written notice of such exercise within 18 months after the
date of termination of employment, but in no event later than the Expiration
Date. Notwithstanding the foregoing, the Optionee shall forfeit his right to
exercise any Options that would have vested within the 12 months after
termination, if the Optionee violates the terms regarding non-competition set
forth in the Optionee's executive severance or employment agreement.
(v) If the Optionee's employment shall terminate for
Cause, all right to exercise the Option shall terminate at the date of such
termination of employment. For purposes of this Agreement, "Cause" has the
meaning set forth in the executive severance or employment agreement, if any,
then in effect between the Company and the Optionee or, in the absence of such
agreement, shall mean (i) the Optionee's conviction of, or plea of guilty or
nolo contendere to, a felony, (ii) the Optionee's gross negligence in the
performance of his duties and obligations to the Company, which is not corrected
within 15 business days after written notice, (iii) the Optionee's knowingly
dishonest act, or knowing bad faith or willful misconduct in the performance of
his duties and obligations to the Company to the material detriment of the
7
20
Company, which is not corrected within 15 business days after written notice, or
(iv) the Optionee's other material breach of his obligations under this
Agreement, which is not corrected within a reasonable period of time (determined
in light of the cure appropriate to such material breach, but in no event less
than 15 business days) after written notice.
(vi) In the event of termination of employment, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purpose of Section 422 of the Code, such stock option shall
thereafter be treated as a nonqualified stock option.
(e) Transferability. Except as otherwise provided in this
Section, the Option is not transferable other than as designated by the Optionee
in his or her most recently filed Beneficiary designation filed with the
Company, or if there is no such designation or no such designated person
survives the Optionee, as designated by the Optionee, by will or by the laws of
descent and distribution, and during the Optionee's life, may be exercised only
by the Optionee. However, an Optionee, with the approval of the Committee, may
transfer the Option for no consideration to or for the benefit of the Optionee's
Immediate Family or to a partnership or limited liability company for one or
more members of the Optionee's Immediate Family, subject to such limits as the
Committee may establish, and the transferee shall remain subject to all the
terms and conditions applicable to Options prior to such transfer. The foregoing
right to transfer the Option shall apply to the right to consent to amendments
to this Agreement and, in the discretion of the Committee, shall also apply to
the right to transfer ancillary rights associated with the Option. The term
"Immediate Family" shall mean the Optionee's spouse, parents, children,
stepchildren, adoptive relationships, sisters, brothers, nieces, nephews and
grandchildren (and, for this purpose, shall also include the Optionee).
(f) Adjustments. In the event of any change in corporate
capitalization (including, but not limited to, a change in the number of shares
of Common Stock outstanding), such as a stock split or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Section 368
of the Code) or any partial or complete liquidation of the Company, the
Committee or Board may make such substitution or adjustments in the number, kind
and option price of shares subject to the Option and/or such other equitable
substitution or adjustments as it may determine to be appropriate in its sole
discretion; provided, however, that the number of shares subject to the Option
shall always be a whole number. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to cause the Company to issue or
assume stock options, whether or not in transaction to which Section 424(a) of
the Code applies, by means of substitution of new stock options for previously
issued stock options or an assumption of previously issued stock options.
(g) No Rights as Stockholder. The Optionee shall have no
rights as a stockholder with respect to any Shares subject to the Option prior
to the date of issuance to the Optionee of a certificate or certificates for
such Shares.
8
21
(h) Optionee Acknowledgement. The Optionee acknowledges that:
(i) the future value of the Company is highly
speculative;
(ii) the Optionee is not relying on the value of this
Option as current compensation;
(iii) the Company has no obligation to the Optionee
to sell the Company or to sell Shares publicly (which may have the effect of
reducing the value of the Company);
(iv) upon exercise of this Option, unless the Shares
issuable upon exercise of the Options have been registered under applicable
securities laws, there will be substantial restrictions on the transferability
of the Shares; and
(v) the past performance or experience of the
Company, the Company's officers, directors, agents, or employees, will not in
any way indicate or predict the results of the ownership of Shares or of the
Company's activities.
(i) No Right to Continued Employment. The Option shall not
confer upon the Optionee any right with respect to continuance of employment by
the Company, nor shall it interfere in any way with the right of the Optionee's
employer to terminate the Optionee's employment at any time.
(j) Compliance With Law and Regulations. The Option herein
granted and the obligation of the Company to sell and deliver shares hereunder,
shall be subject to all applicable Federal and State laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for
Shares prior to (i) the listing of such Shares on any stock exchange or national
market quotations system on which the Shares may then be listed and (ii) the
completion of any registration or qualification of such Shares under any Federal
or State law, or any rule or regulation of any government body which the Company
shall, in its sole discretion, determine to be necessary or advisable. Moreover,
the Option herein granted may not be exercised if its exercise, or the receipt
of Shares pursuant hereto, would be contrary to applicable law.
9
22
3. Optionee Bound by Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
4. Notices.
All notices or any other communications hereunder shall be in writing
and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to The X.X. Xxxxxxx Company, Inc., 0000
Xxxxx Xxxxx Xxxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxx Xxxxxxxx 00000; Attention:
Chairman, and if to the Optionee, at the address set forth below, subject to the
right of either party to designate at any time hereafter in writing some other
address.
5. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina without regard to conflicts of laws
principles.
6. No Assignment.
Except as provided in Section 2(e), neither this Agreement nor any of
the rights or obligations of the Optionee hereunder may be transferred or
assigned by the Optionee.
7. Benefits.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto. This Agreement is for the sole benefit of the parties hereto and
not for the benefit of any other party.
8. Severability.
If any provision of this Agreement shall be determined to be illegal
and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms.
9. Amendments.
No modification, amendment or waiver of any provision of this
Agreement, other than as required under Section 2(f), shall be effective unless
it is in writing and signed by the parties hereto.
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10. Counterparts.
This Agreement has been executed in two counterparts each of which
shall constitute one and the same instrument.
11
24
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its Chairman, Chief Executive Officer, Chief Operating Officer,
President or a Vice President and Optionee has executed this Agreement, both as
of the day and year first above written.
THE X.X. XXXXXXX COMPANY, INC.
By: /s/ Xxxxxx X. Roof
------------------------------------------
Xxxxxx X. Roof
President and Chief Executive Officer
/s/ J. Xxxxxxx Xxxxxxx
-----------------------------
J. Xxxxxxx Xxxxxxx
000 Xxxx 0xx Xxxxxx
Xxxxxx, XX 00000
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THE X.X. XXXXXXX COMPANY, INC.
STOCK OPTION AGREEMENT
Number of shares subject to option: 75,000
This Agreement (the "Agreement") made this 24th day of May, 1999,
between The X.X. Xxxxxxx Company, Inc., a North Carolina corporation (the
"Company"), and Xxxxxx X. Xxxxx (the "Optionee").
W I T N E S S E T H:
1. Grant of Option.
Pursuant to the provisions of The X.X. Xxxxxxx Company, Inc. 1999 Stock
Option Plan (the "Plan"), the Company hereby grants to the Optionee, subject to
the terms and conditions of the Plan and subject further to the terms and
conditions herein set forth, the right and option (the "Option") to purchase
from the Company all or any part of an aggregate of 75,000 shares of the Class A
Common Stock, par value $0.01 per share, of the Company (the "Common Stock" or
the "Shares") at a purchase price of $9.00 per Share (the "Exercise Price"),
such Option to be exercised as hereinafter provided.
2. Terms and Conditions.
It is understood and agreed that the Option evidenced hereby is subject
to the following terms and conditions:
(a) Expiration Date. The Option shall expire on the tenth
anniversary of the date hereof (the "Expiration Date").
(b) Type of Option. This Option is eligible to be an incentive
stock option (an "Incentive Stock Option") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"); provided that to the
extent this Option does not qualify as an Incentive Stock Option under the Code,
it shall constitute a nonqualified stock option.
(c) Exercise of Option. (i) The shares subject to this Option
shall be divided into three separate pools, "Tier 1 Options," "Tier 2 Options"
and "Tier 3 Options," and the Options in each pool shall vest and be exercisable
according to the terms and conditions applicable to such pool as set forth
below. For purposes of this Agreement, "Option" shall mean, collectively, the
Tier 1 Options, the Tier 2 Options and the Tier 3 Options granted pursuant to
this Agreement.
26
(A) Tier 1 Options. The Company hereby grants to the Optionee
25,000 Tier 1 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 1 Options will vest and be
exercisable in accordance with the following schedule:
Options Exercisable with respect to
On or After Cumulative Number of Shares
----------- -----------------------------------
May 24, 2000 6,250
May 24, 2001 12,500
May 24, 2002 18,750
May 24, 2003 25,000
Notwithstanding the foregoing, all of the Tier 1 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (x) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 1 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 1 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (y) the
termination of Optionee's employment (1) by the Company without Cause (as
defined below) or by the Optionee for Good Reason (as defined below) at any time
after a Change in Control or (2) by the Company or the Optionee for any reason
other than a Specified Cause Event (as defined below) more than six months after
a Change in Control.
"Change in Control" means the first to occur of any
of the following: (i) the sale (including by merger, consolidation or
sale of stock of subsidiaries or any other method) of all or
substantially all of the assets of the Company and its consolidated
subsidiaries (taken as a whole) to any person or entity not directly or
indirectly controlled by the holders of at least 50% of the Combined
Voting Power (as defined in the Plan) of the then outstanding shares of
capital stock of the Company (excluding shares owned by employees of
the Company as of the date of determination), (ii) at any time prior to
the consummation of an initial public offering of Common Stock of the
Company or other common stock of the Company having the voting power to
elect directors, a transaction (except pursuant to such initial public
offering) resulting in the Principal Shareholders (as defined in the
Plan) owning, collectively, less than 50% of the Combined Voting Power
of the then outstanding shares of capital stock of the Company
(excluding shares owned by employees of the Company as of the date of
determination), (iii) at any time after the consummation of an initial
public offering of Common Stock of the Company or other common stock of
the Company having the voting power to elect directors, the acquisition
(except pursuant to such initial public offering) by any person or
entity (other than the Principal Shareholders) not directly or
indirectly controlled by the Company's stockholders of more than 30% of
the Combined Voting Power of the then outstanding shares of capital
stock of the Company (excluding shares owned by employees of the
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27
Company as of the date of determination), (iv) individuals serving as
directors of the Company on the Effective Date (as defined in the Plan)
and who were nominated or selected to serve as directors by one or more
Principal Shareholders (together with any new directors whose election
was approved by a vote of (A) such individuals or directors whose
election was previously so approved or (B) Principal Shareholders
holding a majority of the aggregate voting power of the capital stock
of the Company held by all Principal Shareholders) cease for any reason
to constitute a majority of the Board of Directors of the Company (the
"Board"), (v) the adoption of a plan relating to the liquidation or
dissolution of the Company in connection with an equity investment or
sale or a business combination transaction or (vi) any other event or
transaction that the Board deems to be a Change in Control.
"Specified Cause Event" means (1) a proven or
admitted act of fraud, misappropriation or embezzlement by the Optionee
that is detrimental to the Company or (2) the Optionee's conviction of
or plea of guilty or nolo contendere to a felony that is related to the
Company or the performance of the Optionee's services for the Company.
(B) Tier 2 Options. The Company hereby grants to the Optionee
25,000 Tier 2 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 2 Options will vest and be
exercisable annually as of December 31 of each fiscal year of the Company with
respect to a cumulative number of shares in an amount equal to the product of
(i) a fraction, the denominator of which is 278,658,000 (the "Aggregate EBITDA
Target") and the numerator of which is the aggregate EBITDA of the Company for
all fiscal years following the date hereof, beginning with the 1999 fiscal year,
multiplied by (ii) the total number of shares subject to Tier 2 Options,
provided that the maximum cumulative number of shares subject to Tier 2 Options
that shall be vested in any fiscal year shall not exceed the product of (1) the
Applicable Percentage for such fiscal year multiplied by (2) the total number of
shares subject to Tier 2 Options. This calculation shall be made with respect to
each fiscal year, beginning with the 1999 fiscal year, based on the Company's
audited financial statements for such year. Notwithstanding the foregoing, (x)
if the Optionee's employment with the Company shall terminate because of death,
disability, termination by the Company without Cause (as defined below) or
termination by the Optionee for Good Reason (as defined below), the aggregate
cumulative number of shares subject to Tier 2 Options that shall be vested as of
the termination date shall not be subject to any limitations imposed by the
Applicable Percentage and shall be equal to the product of (1) a fraction, the
denominator of which is the Aggregate EBITDA Target and the numerator of which
is the aggregate EBITDA of the Company for all fiscal years following the date
hereof, beginning with the 1999 fiscal year, multiplied by (2) the total number
of shares subject to Tier 2 Options, and (y) all of the Tier 2 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (1) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 2 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 2 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (2) the seventh
anniversary of the date hereof.
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28
"Applicable Percentage" means with respect to (i) fiscal
year 1999, 20%, (2) fiscal year 2000, 40%, (3) fiscal year 2001, 60%,
(4) fiscal year 2002, 80%, and (5) fiscal year 2003, 100%, provided,
however, that the Applicable Percentage shall be 100% if following any
fiscal year prior to the fifth anniversary hereof, the aggregate EBITDA
of the Company for the fiscal years following the date hereof equals or
exceeds the Aggregate EBITDA Target.
"EBITDA" means earnings before interest, taxes,
depreciation, and amortization as reflected in the Company's audited
financial statements. Adjustments for unusual items will be made in the
reasonable discretion of the Board, after consultation with the Chief
Executive Officer of the Company.
(C) Tier 3 Options. The Company hereby grants to the Optionee
25,000 Tier 3 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 3 Options will vest and be
exercisable (except as provided below) only upon the first to occur of (x) a
Change in Control that satisfies the CIC Return Hurdle and (y) an Actual Sale or
Deemed Sale following a Qualified Public Offering that satisfies the QPO Return
Hurdle as hereinafter described. If on any date beginning six months after a
Qualified Public Offering the QPO Return Hurdle has been satisfied based on a
Deemed Sale at Fair Market Value as of such date, 50% of the Tier 3 Options will
vest and be immediately exercisable, and if on any date beginning 24 months
after a Qualified Public Offering the QPO Return Hurdle has been satisfied based
on a Deemed Sale at Fair Market Value as of such date, the additional 50% of the
Tier 3 Options will vest and be immediately exercisable, except that, if at any
time after a Qualified Public Offering the QPO Return Hurdle is satisfied based
on an Actual Sale, 100% of the Tier 3 Options will vest and be immediately
exercisable. Notwithstanding the foregoing, the Tier 3 Options shall become
fully vested and exercisable upon the seventh anniversary of the date hereof.
"Actual Sale" means a sale following a Qualified Public
Offering by Charlesbank Equity Fund IV, Limited Partnership of its
shares in the Company in consideration for cash or freely tradable
securities or a combination thereof.
"Charlesbank Investment" means the total amount of capital
expended to acquire Common Stock or warrants to acquire Common Stock of
the Company or capital contributed to the Company (including capital
provided in the form of an extension of credit or an advance of funds)
by Charlesbank Equity Fund IV, Limited Partnership, commencing on the
date of the original investment by Charlesbank Equity Fund IV, Limited
Partnership.
"CIC Return Hurdle" means (i) if the Change in Control
occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x,
and (ii) if the Change in Control occurs more than 18
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29
months after the original investment by Charlesbank Equity Fund IV,
Limited Partnership a Return on Investment of 3.0x and a 30% IRR.
"Deemed Sale", as of any date, means the deemed sale
following a Qualified Public Offering by Charlesbank Equity Fund IV,
Limited Partnership of its shares in the Company at the Fair Market
Value in effect on such date.
"Fair Market Value", as of any date, means (i) with
respect to any freely tradeable security, the closing market price for
such security on the day immediately preceding such date as determined
from the principal trading market for such security on such date, (ii)
with respect to any publicly traded security of the Company, the
average of the closing market prices of such security for the 30
consecutive trading days immediately prior to such date to be
determined from the principal trading market for such security during
such period, and (iii) with respect to any other property, such value
determined as of such date by such methods or procedures as established
in the good faith discretion of the Board.
"IRR" means an internal rate of return to Charlesbank
Equity Fund IV, Limited Partnership on the Charlesbank Investment as
calculated by the use of an HP12c financial calculator, taking into
account the timing and amount (based on the Fair Market Value thereof)
of all contributions to capital and investments in the Company and the
timing and amount (based on the Fair Market Value thereof) of all
dividends, interest payments or other distributions or payments
(whether in cash or other property), from the Company or any other
person or entity in respect of the Charlesbank Investment, through the
date of determination, and subject to adjustment in the good faith
discretion of the Board in the event of any merger, acquisition,
consolidation, sale of assets, recapitalization, contribution of
capital to, or redemption of stock of, the Company, or any other event
that the Board deems relevant to the calculation of such return.
"QPO Return Hurdle" means (i) if the Actual Sale or Deemed
Sale occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x and
(ii) if the Actual Sale or Deemed Sale occurs more than 18 months after
the original investment by Charlesbank Equity Fund IV, Limited
Partnership, a Return on Investment of 3.0x and a 30% IRR.
"Qualified Public Offering" means a public offering of the
Company's Class A Common Stock or other common stock of the Company
with a minimum offering size of $50,000,000.
"Return on Investment" means (i) in the case of a Change
in Control, the quotient of (A) the total amount of cash and freely
tradable securities and based on the Fair Market Value thereof received
by Charlesbank Equity Fund IV, Limited Partnership upon such Change in
Control, together with all dividends, interest payments and other
distributions or payments (whether in cash or other property and based
on the Fair Market
5
30
Value thereof) received from the Company or any other person or entity
in respect of the Charlesbank Investment prior to such Change in
Control, divided by (B) the Charlesbank Investment, and (ii) in the
case of an Actual Sale or Deemed Sale following a Qualified Public
Offering, the quotient of (A) the total amount of cash and freely
tradeable securities (based on the Fair Market Value thereof) received
in such Actual Sale, or the aggregate Fair Market Value of all shares
in the Company owned at the time of such Deemed Sale, by Charlesbank
Equity Fund IV, Limited Partnership, together with all dividends,
interest payments and other distributions or payments (whether in cash
or other property and based on the Fair Market Value thereof) received
from the Company or any other person or entity in respect of the
Charlesbank Investment prior to such Actual Sale or Deemed Sale, as the
case may be, divided by (B) the Charlesbank Investment.
(ii) Options exercised in any one year shall be deducted from
the number of Options exercisable in any future year. Once vested, this Option
shall be exercisable at the following times prior to the expiration date: (A) if
the Optionee is employed by the Company at the time of exercise, at any time by
giving the Company 45 days' advance written notice or (B) if the Optionee is not
employed by the Company at the time of exercise but has the right to exercise
after termination in accordance with Section 2(d) of this Agreement, by giving
the Company written notice at any time during the period specified in Section
2(d) of this Agreement, in which case the Option shall be deemed exercised as of
the end of the calendar month in which the Company received notice of exercise
of the Option. In either case, the notice of exercise shall specify the number
of Shares as to which the Option is being exercised.
(iii) Upon receipt of written notice of exercise by the
Company, the Company shall, upon full payment in cash to the Company of the
Exercise Price of the Shares as to which the Option shall be exercised and upon
receipt of a duly executed shareholders agreement (in the form attached hereto
as Exhibit A or in such other form as the Company may reasonably require), issue
to the Optionee the Shares subject to the Option. Any issuance of Shares to an
Optionee pursuant to the preceding sentence shall be made by the Company within
90 days after the date of exercise. For purposes of this Agreement, the fair
market value of Shares shall be determined by such methods or procedures as
shall be established from time to time by the Board acting in its sole
discretion and in good faith. In making such determinations, the Board may rely
on a valuation report by an investment banking or valuation firm selected by the
Board. The Committee established by the Board to administer the Plan (the
"Committee") may, in its sole discretion, permit the Optionee to pay the
Exercise Price in previously acquired Shares rather than in cash.
(d) Exercise Upon Death or Termination of Employment.
(i) If the Optionee dies while an employee of the
Company, the Optionee's Designee may exercise the Option, to the extent it was
vested on the date of termination, by giving the Company written notice of such
exercise within 12 months after the date of Optionee's death, but in no event
later than the Expiration Date. An Optionee's "Designee"
6
31
means the person designated by the Optionee in his or her most recently filed
beneficiary designation filed with the Company to receive the Optionee's rights
under the Plan upon the Optionee's death, or if there is no such designation or
no such designated person survives the Optionee, by the person or persons to
whom the Optionee's rights pass by will or applicable law, or if no such person
has such right, by his executors or administrators.
(ii) If the Company shall terminate Optionee's
employment with the Company because of disability, the Optionee may exercise the
Option to the extent it was vested on the date of termination, by giving the
Company written notice of such exercise within 12 months after the date of
termination of employment, but in no event later than the Expiration Date.
(iii) If the Optionee terminates his employment with
the Company other than for Good Reason, the Optionee may exercise the Option to
the extent it was vested on the date of termination, by giving the Company
written notice of such exercise within 90 days after the date of termination of
employment, but in no event later then the Expiration Date. For purposes of this
Agreement, "Good Reason" has the meaning set forth in the executive severance or
employment agreement, if any, then in effect between the Company and the
Optionee or, in the absence of such agreement shall mean, if the basis for such
Good Reason is not cured within a reasonable period of time (determined in light
of the cure appropriate to the basis of such Good Reason, but in no event less
than 15 days), the failure of the Company to pay any undisputed amount due to
the Optionee in connection with his employment by the Company.
(iv) If the Optionee's employment shall terminate for
any reason other than death, disability or Cause (as hereinafter defined), or if
the Optionee shall terminate his employment with the Company for Good Reason,
the Optionee may exercise the Option to the extent it was vested on the date of
termination or, otherwise would have vested in the 12 months thereafter, in
either event according to the applicable vesting schedule in Section 2(c)(i), by
giving the Company written notice of such exercise within 18 months after the
date of termination of employment, but in no event later than the Expiration
Date. Notwithstanding the foregoing, the Optionee shall forfeit his right to
exercise any Options that would have vested within the 12 months after
termination, if the Optionee violates the terms regarding non-competition set
forth in the Optionee's executive severance or employment agreement.
(v) If the Optionee's employment shall terminate for
Cause, all right to exercise the Option shall terminate at the date of such
termination of employment. For purposes of this Agreement, "Cause" has the
meaning set forth in the executive severance or employment agreement, if any,
then in effect between the Company and the Optionee or, in the absence of such
agreement, shall mean (i) the Optionee's conviction of, or plea of guilty or
nolo contendere to, a felony, (ii) the Optionee's gross negligence in the
performance of his duties and obligations to the Company, which is not corrected
within 15 business days after written notice, (iii) the Optionee's knowingly
dishonest act, or knowing bad faith or willful misconduct in the performance of
his duties and obligations to the Company to the material detriment of the
7
32
Company, which is not corrected within 15 business days after written notice, or
(iv) the Optionee's other material breach of his obligations under this
Agreement, which is not corrected within a reasonable period of time (determined
in light of the cure appropriate to such material breach, but in no event less
than 15 business days) after written notice.
(vi) In the event of termination of employment, if
an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purpose of Section 422 of the Code, such stock option
shall thereafter be treated as a nonqualified stock option.
(e) Transferability. Except as otherwise provided in this
Section, the Option is not transferable other than as designated by the Optionee
in his or her most recently filed Beneficiary designation filed with the
Company, or if there is no such designation or no such designated person
survives the Optionee, as designated by the Optionee, by will or by the laws of
descent and distribution, and during the Optionee's life, may be exercised only
by the Optionee. However, an Optionee, with the approval of the Committee, may
transfer the Option for no consideration to or for the benefit of the Optionee's
Immediate Family or to a partnership or limited liability company for one or
more members of the Optionee's Immediate Family, subject to such limits as the
Committee may establish, and the transferee shall remain subject to all the
terms and conditions applicable to Options prior to such transfer. The foregoing
right to transfer the Option shall apply to the right to consent to amendments
to this Agreement and, in the discretion of the Committee, shall also apply to
the right to transfer ancillary rights associated with the Option. The term
"Immediate Family" shall mean the Optionee's spouse, parents, children,
stepchildren, adoptive relationships, sisters, brothers, nieces, nephews and
grandchildren (and, for this purpose, shall also include the Optionee).
(f) Adjustments. In the event of any change in corporate
capitalization (including, but not limited to, a change in the number of shares
of Common Stock outstanding), such as a stock split or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Section 368
of the Code) or any partial or complete liquidation of the Company, the
Committee or Board may make such substitution or adjustments in the number, kind
and option price of shares subject to the Option and/or such other equitable
substitution or adjustments as it may determine to be appropriate in its sole
discretion; provided, however, that the number of shares subject to the Option
shall always be a whole number. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to cause the Company to issue or
assume stock options, whether or not in transaction to which Section 424(a) of
the Code applies, by means of substitution of new stock options for previously
issued stock options or an assumption of previously issued stock options.
(g) No Rights as Stockholder. The Optionee shall have no
rights as a stockholder with respect to any Shares subject to the Option prior
to the date of issuance to the Optionee of a certificate or certificates for
such Shares.
8
33
(h) Optionee Acknowledgement. The Optionee acknowledges that:
(i) the future value of the Company is highly
speculative;
(ii) the Optionee is not relying on the value of this
Option as current compensation;
(iii) the Company has no obligation to the Optionee
to sell the Company or to sell Shares publicly (which may have the effect of
reducing the value of the Company);
(iv) upon exercise of this Option, unless the Shares
issuable upon exercise of the Options have been registered under applicable
securities laws, there will be substantial restrictions on the transferability
of the Shares; and
(v) the past performance or experience of the
Company, the Company's officers, directors, agents, or employees, will not in
any way indicate or predict the results of the ownership of Shares or of the
Company's activities.
(i) No Right to Continued Employment. The Option shall not
confer upon the Optionee any right with respect to continuance of employment by
the Company, nor shall it interfere in any way with the right of the Optionee's
employer to terminate the Optionee's employment at any time.
(j) Compliance With Law and Regulations. The Option herein
granted and the obligation of the Company to sell and deliver shares hereunder,
shall be subject to all applicable Federal and State laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for
Shares prior to (i) the listing of such Shares on any stock exchange or national
market quotations system on which the Shares may then be listed and (ii) the
completion of any registration or qualification of such Shares under any Federal
or State law, or any rule or regulation of any government body which the Company
shall, in its sole discretion, determine to be necessary or advisable. Moreover,
the Option herein granted may not be exercised if its exercise, or the receipt
of Shares pursuant hereto, would be contrary to applicable law.
9
34
3. Optionee Bound by Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
4. Notices.
All notices or any other communications hereunder shall be in writing
and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to The X.X. Xxxxxxx Company, Inc., 0000
Xxxxx Xxxxx Xxxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxx Xxxxxxxx 00000; Attention:
Chairman, and if to the Optionee, at the address set forth below, subject to the
right of either party to designate at any time hereafter in writing some other
address.
5. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina without regard to conflicts of laws
principles.
6. No Assignment.
Except as provided in Section 2(e), neither this Agreement nor any of
the rights or obligations of the Optionee hereunder may be transferred or
assigned by the Optionee.
7. Benefits.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto. This Agreement is for the sole benefit of the parties hereto and
not for the benefit of any other party.
8. Severability.
If any provision of this Agreement shall be determined to be illegal
and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms.
9. Amendments.
No modification, amendment or waiver of any provision of this
Agreement, other than as required under Section 2(f), shall be effective unless
it is in writing and signed by the parties hereto.
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35
10. Counterparts.
This Agreement has been executed in two counterparts each of which
shall constitute one and the same instrument.
11
36
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its Chairman, Chief Executive Officer, Chief Operating Officer,
President or a Vice President and Optionee has executed this Agreement, both as
of the day and year first above written.
THE X.X. XXXXXXX COMPANY, INC.
By: /s/ Xxxxxx X. Roof
------------------------------------------
Xxxxxx X. Roof
President and Chief Executive Officer
/s/ Xxxxxx X. Xxxxx
-------------------------------
Xxxxxx X. Xxxxx
00000 Xxxxxx Xxxx
Xxxxxxxxx, XX 00000
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37
THE X.X. XXXXXXX COMPANY, INC.
STOCK OPTION AGREEMENT
Number of shares subject to option: 75,000
This Agreement (the "Agreement") made this 24th day of May, 1999,
between The X.X. Xxxxxxx Company, Inc., a North Carolina corporation (the
"Company"), and Xxxxxxx X. Xxxxxxx (the "Optionee").
W I T N E S S E T H:
1. Grant of Option.
Pursuant to the provisions of The X.X. Xxxxxxx Company, Inc. 1999 Stock
Option Plan (the "Plan"), the Company hereby grants to the Optionee, subject to
the terms and conditions of the Plan and subject further to the terms and
conditions herein set forth, the right and option (the "Option") to purchase
from the Company all or any part of an aggregate of 75,000 shares of the Class A
Common Stock, par value $0.01 per share, of the Company (the "Common Stock" or
the "Shares") at a purchase price of $9.00 per Share (the "Exercise Price"),
such Option to be exercised as hereinafter provided.
2. Terms and Conditions.
It is understood and agreed that the Option evidenced hereby is subject
to the following terms and conditions:
(a) Expiration Date. The Option shall expire on the tenth
anniversary of the date hereof (the "Expiration Date").
(b) Type of Option. This Option is eligible to be an incentive
stock option (an "Incentive Stock Option") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"); provided that to the
extent this Option does not qualify as an Incentive Stock Option under the Code,
it shall constitute a nonqualified stock option.
(c) Exercise of Option. (i) The shares subject to this Option
shall be divided into three separate pools, "Tier 1 Options," "Tier 2 Options"
and "Tier 3 Options," and the Options in each pool shall vest and be exercisable
according to the terms and conditions applicable to such pool as set forth
below. For purposes of this Agreement, "Option" shall mean, collectively, the
Tier 1 Options, the Tier 2 Options and the Tier 3 Options granted pursuant to
this Agreement.
38
(A) Tier 1 Options. The Company hereby grants to the Optionee
25,000 Tier 1 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 1 Options will vest and be
exercisable in accordance with the following schedule:
Options Exercisable with respect to
On or After Cumulative Number of Shares
----------- -----------------------------------
May 24, 2000 6,250
May 24, 2001 12,500
May 24, 2002 18,750
May 24, 2003 25,000
Notwithstanding the foregoing, all of the Tier 1 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (x) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 1 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 1 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (y) the
termination of Optionee's employment (1) by the Company without Cause (as
defined below) or by the Optionee for Good Reason (as defined below) at any time
after a Change in Control or (2) by the Company or the Optionee for any reason
other than a Specified Cause Event (as defined below) more than six months after
a Change in Control.
"Change in Control" means the first to occur of any
of the following: (i) the sale (including by merger, consolidation or
sale of stock of subsidiaries or any other method) of all or
substantially all of the assets of the Company and its consolidated
subsidiaries (taken as a whole) to any person or entity not directly or
indirectly controlled by the holders of at least 50% of the Combined
Voting Power (as defined in the Plan) of the then outstanding shares of
capital stock of the Company (excluding shares owned by employees of
the Company as of the date of determination), (ii) at any time prior to
the consummation of an initial public offering of Common Stock of the
Company or other common stock of the Company having the voting power to
elect directors, a transaction (except pursuant to such initial public
offering) resulting in the Principal Shareholders (as defined in the
Plan) owning, collectively, less than 50% of the Combined Voting Power
of the then outstanding shares of capital stock of the Company
(excluding shares owned by employees of the Company as of the date of
determination), (iii) at any time after the consummation of an initial
public offering of Common Stock of the Company or other common stock of
the Company having the voting power to elect directors, the acquisition
(except pursuant to such initial public offering) by any person or
entity (other than the Principal Shareholders) not directly or
indirectly controlled by the Company's stockholders of more than 30% of
the Combined Voting Power of the then outstanding shares of capital
stock of the Company (excluding shares owned by employees of the
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39
Company as of the date of determination), (iv) individuals serving as
directors of the Company on the Effective Date (as defined in the Plan)
and who were nominated or selected to serve as directors by one or more
Principal Shareholders (together with any new directors whose election
was approved by a vote of (A) such individuals or directors whose
election was previously so approved or (B) Principal Shareholders
holding a majority of the aggregate voting power of the capital stock
of the Company held by all Principal Shareholders) cease for any reason
to constitute a majority of the Board of Directors of the Company (the
"Board"), (v) the adoption of a plan relating to the liquidation or
dissolution of the Company in connection with an equity investment or
sale or a business combination transaction or (vi) any other event or
transaction that the Board deems to be a Change in Control.
"Specified Cause Event" means (1) a proven or
admitted act of fraud, misappropriation or embezzlement by the Optionee
that is detrimental to the Company or (2) the Optionee's conviction of
or plea of guilty or nolo contendere to a felony that is related to the
Company or the performance of the Optionee's services for the Company.
(B) Tier 2 Options. The Company hereby grants to the Optionee
25,000 Tier 2 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 2 Options will vest and be
exercisable annually as of December 31 of each fiscal year of the Company with
respect to a cumulative number of shares in an amount equal to the product of
(i) a fraction, the denominator of which is 278,658,000 (the "Aggregate EBITDA
Target") and the numerator of which is the aggregate EBITDA of the Company for
all fiscal years following the date hereof, beginning with the 1999 fiscal year,
multiplied by (ii) the total number of shares subject to Tier 2 Options,
provided that the maximum cumulative number of shares subject to Tier 2 Options
that shall be vested in any fiscal year shall not exceed the product of (1) the
Applicable Percentage for such fiscal year multiplied by (2) the total number of
shares subject to Tier 2 Options. This calculation shall be made with respect to
each fiscal year, beginning with the 1999 fiscal year, based on the Company's
audited financial statements for such year. Notwithstanding the foregoing, (x)
if the Optionee's employment with the Company shall terminate because of death,
disability, termination by the Company without Cause (as defined below) or
termination by the Optionee for Good Reason (as defined below), the aggregate
cumulative number of shares subject to Tier 2 Options that shall be vested as of
the termination date shall not be subject to any limitations imposed by the
Applicable Percentage and shall be equal to the product of (1) a fraction, the
denominator of which is the Aggregate EBITDA Target and the numerator of which
is the aggregate EBITDA of the Company for all fiscal years following the date
hereof, beginning with the 1999 fiscal year, multiplied by (2) the total number
of shares subject to Tier 2 Options, and (y) all of the Tier 2 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (1) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 2 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 2 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (2) the seventh
anniversary of the date hereof.
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40
"Applicable Percentage" means with respect to (i) fiscal
year 1999, 20%, (2) fiscal year 2000, 40%, (3) fiscal year 2001, 60%,
(4) fiscal year 2002, 80%, and (5) fiscal year 2003, 100%, provided,
however, that the Applicable Percentage shall be 100% if following any
fiscal year prior to the fifth anniversary hereof, the aggregate EBITDA
of the Company for the fiscal years following the date hereof equals or
exceeds the Aggregate EBITDA Target.
"EBITDA" means earnings before interest, taxes,
depreciation, and amortization as reflected in the Company's audited
financial statements. Adjustments for unusual items will be made in the
reasonable discretion of the Board, after consultation with the Chief
Executive Officer of the Company.
(C) Tier 3 Options. The Company hereby grants to the Optionee
25,000 Tier 3 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 3 Options will vest and be
exercisable (except as provided below) only upon the first to occur of (x) a
Change in Control that satisfies the CIC Return Hurdle and (y) an Actual Sale or
Deemed Sale following a Qualified Public Offering that satisfies the QPO Return
Hurdle as hereinafter described. If on any date beginning six months after a
Qualified Public Offering the QPO Return Hurdle has been satisfied based on a
Deemed Sale at Fair Market Value as of such date, 50% of the Tier 3 Options will
vest and be immediately exercisable, and if on any date beginning 24 months
after a Qualified Public Offering the QPO Return Hurdle has been satisfied based
on a Deemed Sale at Fair Market Value as of such date, the additional 50% of the
Tier 3 Options will vest and be immediately exercisable, except that, if at any
time after a Qualified Public Offering the QPO Return Hurdle is satisfied based
on an Actual Sale, 100% of the Tier 3 Options will vest and be immediately
exercisable. Notwithstanding the foregoing, the Tier 3 Options shall become
fully vested and exercisable upon the seventh anniversary of the date hereof.
"Actual Sale" means a sale following a Qualified Public
Offering by Charlesbank Equity Fund IV, Limited Partnership of its
shares in the Company in consideration for cash or freely tradable
securities or a combination thereof.
"Charlesbank Investment" means the total amount of capital
expended to acquire Common Stock or warrants to acquire Common Stock of
the Company or capital contributed to the Company (including capital
provided in the form of an extension of credit or an advance of funds)
by Charlesbank Equity Fund IV, Limited Partnership, commencing on the
date of the original investment by Charlesbank Equity Fund IV, Limited
Partnership.
"CIC Return Hurdle" means (i) if the Change in Control
occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x,
and (ii) if the Change in Control occurs more than 18
4
41
months after the original investment by Charlesbank Equity Fund IV,
Limited Partnership a Return on Investment of 3.0x and a 30% IRR.
"Deemed Sale", as of any date, means the deemed sale
following a Qualified Public Offering by Charlesbank Equity Fund IV,
Limited Partnership of its shares in the Company at the Fair Market
Value in effect on such date.
"Fair Market Value", as of any date, means (i) with
respect to any freely tradeable security, the closing market price for
such security on the day immediately preceding such date as determined
from the principal trading market for such security on such date, (ii)
with respect to any publicly traded security of the Company, the
average of the closing market prices of such security for the 30
consecutive trading days immediately prior to such date to be
determined from the principal trading market for such security during
such period, and (iii) with respect to any other property, such value
determined as of such date by such methods or procedures as established
in the good faith discretion of the Board.
"IRR" means an internal rate of return to Charlesbank
Equity Fund IV, Limited Partnership on the Charlesbank Investment as
calculated by the use of an HP12c financial calculator, taking into
account the timing and amount (based on the Fair Market Value thereof)
of all contributions to capital and investments in the Company and the
timing and amount (based on the Fair Market Value thereof) of all
dividends, interest payments or other distributions or payments
(whether in cash or other property), from the Company or any other
person or entity in respect of the Charlesbank Investment, through the
date of determination, and subject to adjustment in the good faith
discretion of the Board in the event of any merger, acquisition,
consolidation, sale of assets, recapitalization, contribution of
capital to, or redemption of stock of, the Company, or any other event
that the Board deems relevant to the calculation of such return.
"QPO Return Hurdle" means (i) if the Actual Sale or Deemed
Sale occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x and
(ii) if the Actual Sale or Deemed Sale occurs more than 18 months after
the original investment by Charlesbank Equity Fund IV, Limited
Partnership, a Return on Investment of 3.0x and a 30% IRR.
"Qualified Public Offering" means a public offering of the
Company's Class A Common Stock or other common stock of the Company
with a minimum offering size of $50,000,000.
"Return on Investment" means (i) in the case of a Change
in Control, the quotient of (A) the total amount of cash and freely
tradable securities and based on the Fair Market Value thereof received
by Charlesbank Equity Fund IV, Limited Partnership upon such Change in
Control, together with all dividends, interest payments and other
distributions or payments (whether in cash or other property and based
on the Fair Market
5
42
Value thereof) received from the Company or any other person or entity
in respect of the Charlesbank Investment prior to such Change in
Control, divided by (B) the Charlesbank Investment, and (ii) in the
case of an Actual Sale or Deemed Sale following a Qualified Public
Offering, the quotient of (A) the total amount of cash and freely
tradeable securities (based on the Fair Market Value thereof) received
in such Actual Sale, or the aggregate Fair Market Value of all shares
in the Company owned at the time of such Deemed Sale, by Charlesbank
Equity Fund IV, Limited Partnership, together with all dividends,
interest payments and other distributions or payments (whether in cash
or other property and based on the Fair Market Value thereof) received
from the Company or any other person or entity in respect of the
Charlesbank Investment prior to such Actual Sale or Deemed Sale, as the
case may be, divided by (B) the Charlesbank Investment.
(ii) Options exercised in any one year shall be deducted from
the number of Options exercisable in any future year. Once vested, this Option
shall be exercisable at the following times prior to the expiration date: (A) if
the Optionee is employed by the Company at the time of exercise, at any time by
giving the Company 45 days' advance written notice or (B) if the Optionee is not
employed by the Company at the time of exercise but has the right to exercise
after termination in accordance with Section 2(d) of this Agreement, by giving
the Company written notice at any time during the period specified in Section
2(d) of this Agreement, in which case the Option shall be deemed exercised as of
the end of the calendar month in which the Company received notice of exercise
of the Option. In either case, the notice of exercise shall specify the number
of Shares as to which the Option is being exercised.
(iii) Upon receipt of written notice of exercise by the
Company, the Company shall, upon full payment in cash to the Company of the
Exercise Price of the Shares as to which the Option shall be exercised and upon
receipt of a duly executed shareholders agreement (in the form attached hereto
as Exhibit A or in such other form as the Company may reasonably require), issue
to the Optionee the Shares subject to the Option. Any issuance of Shares to an
Optionee pursuant to the preceding sentence shall be made by the Company within
90 days after the date of exercise. For purposes of this Agreement, the fair
market value of Shares shall be determined by such methods or procedures as
shall be established from time to time by the Board acting in its sole
discretion and in good faith. In making such determinations, the Board may rely
on a valuation report by an investment banking or valuation firm selected by the
Board. The Committee established by the Board to administer the Plan (the
"Committee") may, in its sole discretion, permit the Optionee to pay the
Exercise Price in previously acquired Shares rather than in cash.
(d) Exercise Upon Death or Termination of Employment.
(i) If the Optionee dies while an employee of the
Company, the Optionee's Designee may exercise the Option, to the extent it was
vested on the date of termination, by giving the Company written notice of such
exercise within 12 months after the date of Optionee's death, but in no event
later than the Expiration Date. An Optionee's "Designee"
6
43
means the person designated by the Optionee in his or her most recently filed
beneficiary designation filed with the Company to receive the Optionee's rights
under the Plan upon the Optionee's death, or if there is no such designation or
no such designated person survives the Optionee, by the person or persons to
whom the Optionee's rights pass by will or applicable law, or if no such person
has such right, by his executors or administrators.
(ii) If the Company shall terminate Optionee's
employment with the Company because of disability, the Optionee may exercise the
Option to the extent it was vested on the date of termination, by giving the
Company written notice of such exercise within 12 months after the date of
termination of employment, but in no event later than the Expiration Date.
(iii) If the Optionee terminates his employment with
the Company other than for Good Reason, the Optionee may exercise the Option to
the extent it was vested on the date of termination, by giving the Company
written notice of such exercise within 90 days after the date of termination of
employment, but in no event later then the Expiration Date. For purposes of this
Agreement, "Good Reason" has the meaning set forth in the executive severance or
employment agreement, if any, then in effect between the Company and the
Optionee or, in the absence of such agreement shall mean, if the basis for such
Good Reason is not cured within a reasonable period of time (determined in light
of the cure appropriate to the basis of such Good Reason, but in no event less
than 15 days), the failure of the Company to pay any undisputed amount due to
the Optionee in connection with his employment by the Company.
(iv) If the Optionee's employment shall terminate for
any reason other than death, disability or Cause (as hereinafter defined), or if
the Optionee shall terminate his employment with the Company for Good Reason,
the Optionee may exercise the Option to the extent it was vested on the date of
termination or, otherwise would have vested in the 12 months thereafter, in
either event according to the applicable vesting schedule in Section 2(c)(i), by
giving the Company written notice of such exercise within 18 months after the
date of termination of employment, but in no event later than the Expiration
Date. Notwithstanding the foregoing, the Optionee shall forfeit his right to
exercise any Options that would have vested within the 12 months after
termination, if the Optionee violates the terms regarding non-competition set
forth in the Optionee's executive severance or employment agreement.
(v) If the Optionee's employment shall terminate for
Cause, all right to exercise the Option shall terminate at the date of such
termination of employment. For purposes of this Agreement, "Cause" has the
meaning set forth in the executive severance or employment agreement, if any,
then in effect between the Company and the Optionee or, in the absence of such
agreement, shall mean (i) the Optionee's conviction of, or plea of guilty or
nolo contendere to, a felony, (ii) the Optionee's gross negligence in the
performance of his duties and obligations to the Company, which is not corrected
within 15 business days after written notice, (iii) the Optionee's knowingly
dishonest act, or knowing bad faith or willful misconduct in the performance of
his duties and obligations to the Company to the material detriment of the
7
44
Company, which is not corrected within 15 business days after written notice, or
(iv) the Optionee's other material breach of his obligations under this
Agreement, which is not corrected within a reasonable period of time (determined
in light of the cure appropriate to such material breach, but in no event less
than 15 business days) after written notice.
(vi) In the event of termination of employment, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purpose of Section 422 of the Code, such stock option shall
thereafter be treated as a nonqualified stock option.
(e) Transferability. Except as otherwise provided in this
Section, the Option is not transferable other than as designated by the Optionee
in his or her most recently filed Beneficiary designation filed with the
Company, or if there is no such designation or no such designated person
survives the Optionee, as designated by the Optionee, by will or by the laws of
descent and distribution, and during the Optionee's life, may be exercised only
by the Optionee. However, an Optionee, with the approval of the Committee, may
transfer the Option for no consideration to or for the benefit of the Optionee's
Immediate Family or to a partnership or limited liability company for one or
more members of the Optionee's Immediate Family, subject to such limits as the
Committee may establish, and the transferee shall remain subject to all the
terms and conditions applicable to Options prior to such transfer. The foregoing
right to transfer the Option shall apply to the right to consent to amendments
to this Agreement and, in the discretion of the Committee, shall also apply to
the right to transfer ancillary rights associated with the Option. The term
"Immediate Family" shall mean the Optionee's spouse, parents, children,
stepchildren, adoptive relationships, sisters, brothers, nieces, nephews and
grandchildren (and, for this purpose, shall also include the Optionee).
(f) Adjustments. In the event of any change in corporate
capitalization (including, but not limited to, a change in the number of shares
of Common Stock outstanding), such as a stock split or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Section 368
of the Code) or any partial or complete liquidation of the Company, the
Committee or Board may make such substitution or adjustments in the number, kind
and option price of shares subject to the Option and/or such other equitable
substitution or adjustments as it may determine to be appropriate in its sole
discretion; provided, however, that the number of shares subject to the Option
shall always be a whole number. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to cause the Company to issue or
assume stock options, whether or not in transaction to which Section 424(a) of
the Code applies, by means of substitution of new stock options for previously
issued stock options or an assumption of previously issued stock options.
(g) No Rights as Stockholder. The Optionee shall have no
rights as a stockholder with respect to any Shares subject to the Option prior
to the date of issuance to the Optionee of a certificate or certificates for
such Shares.
8
45
(h) Optionee Acknowledgement. The Optionee acknowledges that:
(i) the future value of the Company is highly
speculative;
(ii) the Optionee is not relying on the value of this
Option as current compensation;
(iii) the Company has no obligation to the Optionee
to sell the Company or to sell Shares publicly (which may have the effect of
reducing the value of the Company);
(iv) upon exercise of this Option, unless the Shares
issuable upon exercise of the Options have been registered under applicable
securities laws, there will be substantial restrictions on the transferability
of the Shares; and
(v) the past performance or experience of the
Company, the Company's officers, directors, agents, or employees, will not in
any way indicate or predict the results of the ownership of Shares or of the
Company's activities.
(i) No Right to Continued Employment. The Option shall not
confer upon the Optionee any right with respect to continuance of employment by
the Company, nor shall it interfere in any way with the right of the Optionee's
employer to terminate the Optionee's employment at any time.
(j) Compliance With Law and Regulations. The Option herein
granted and the obligation of the Company to sell and deliver shares hereunder,
shall be subject to all applicable Federal and State laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for
Shares prior to (i) the listing of such Shares on any stock exchange or national
market quotations system on which the Shares may then be listed and (ii) the
completion of any registration or qualification of such Shares under any Federal
or State law, or any rule or regulation of any government body which the Company
shall, in its sole discretion, determine to be necessary or advisable. Moreover,
the Option herein granted may not be exercised if its exercise, or the receipt
of Shares pursuant hereto, would be contrary to applicable law.
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46
3. Optionee Bound by Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
4. Notices.
All notices or any other communications hereunder shall be in writing
and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to The X.X. Xxxxxxx Company, Inc., 0000
Xxxxx Xxxxx Xxxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxx Xxxxxxxx 00000; Attention:
Chairman, and if to the Optionee, at the address set forth below, subject to the
right of either party to designate at any time hereafter in writing some other
address.
5. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina without regard to conflicts of laws
principles.
6. No Assignment.
Except as provided in Section 2(e), neither this Agreement nor any of
the rights or obligations of the Optionee hereunder may be transferred or
assigned by the Optionee.
7. Benefits.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto. This Agreement is for the sole benefit of the parties hereto and
not for the benefit of any other party.
8. Severability.
If any provision of this Agreement shall be determined to be illegal
and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms.
9. Amendments.
No modification, amendment or waiver of any provision of this
Agreement, other than as required under Section 2(f), shall be effective unless
it is in writing and signed by the parties hereto.
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10. Counterparts.
This Agreement has been executed in two counterparts each of which
shall constitute one and the same instrument.
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48
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its Chairman, Chief Executive Officer, Chief Operating Officer,
President or a Vice President and Optionee has executed this Agreement, both as
of the day and year first above written.
THE X.X. XXXXXXX COMPANY, INC.
By: /s/ Xxxxxx X. Roof
------------------------------------------
Xxxxxx X. Roof
President and Chief Executive Officer
/s/ Xxxxxxx X. Xxxxxxx
-----------------------------
Xxxxxxx X. Xxxxxxx
00000 Xxxxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
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THE X.X. XXXXXXX COMPANY, INC.
STOCK OPTION AGREEMENT
Number of shares subject to option: 75,000
This Agreement (the "Agreement") made this 24th day of May, 1999,
between The X.X. Xxxxxxx Company, Inc., a North Carolina corporation (the
"Company"), and P. Xxxxxxx Xxxxxxx (the "Optionee").
W I T N E S S E T H:
1. Grant of Option.
Pursuant to the provisions of The X.X. Xxxxxxx Company, Inc. 1999 Stock
Option Plan (the "Plan"), the Company hereby grants to the Optionee, subject to
the terms and conditions of the Plan and subject further to the terms and
conditions herein set forth, the right and option (the "Option") to purchase
from the Company all or any part of an aggregate of 75,000 shares of the Class A
Common Stock, par value $0.01 per share, of the Company (the "Common Stock" or
the "Shares") at a purchase price of $9.00 per Share (the "Exercise Price"),
such Option to be exercised as hereinafter provided.
2. Terms and Conditions.
It is understood and agreed that the Option evidenced hereby is subject
to the following terms and conditions:
(a) Expiration Date. The Option shall expire on the tenth
anniversary of the date hereof (the "Expiration Date").
(b) Type of Option. This Option is eligible to be an incentive
stock option (an "Incentive Stock Option") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"); provided that to the
extent this Option does not qualify as an Incentive Stock Option under the Code,
it shall constitute a nonqualified stock option.
(c) Exercise of Option. (i) The shares subject to this Option
shall be divided into three separate pools, "Tier 1 Options," "Tier 2 Options"
and "Tier 3 Options," and the Options in each pool shall vest and be exercisable
according to the terms and conditions applicable to such pool as set forth
below. For purposes of this Agreement, "Option" shall mean, collectively, the
Tier 1 Options, the Tier 2 Options and the Tier 3 Options granted pursuant to
this Agreement.
50
(A) Tier 1 Options. The Company hereby grants to the Optionee
25,000 Tier 1 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 1 Options will vest and be
exercisable in accordance with the following schedule:
Options Exercisable with respect to
On or After Cumulative Number of Shares
----------- -----------------------------------
May 24, 2000 6,250
May 24, 2001 12,500
May 24, 2002 18,750
May 24, 2003 25,000
Notwithstanding the foregoing, all of the Tier 1 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (x) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 1 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 1 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (y) the
termination of Optionee's employment (1) by the Company without Cause (as
defined below) or by the Optionee for Good Reason (as defined below) at any time
after a Change in Control or (2) by the Company or the Optionee for any reason
other than a Specified Cause Event (as defined below) more than six months after
a Change in Control.
"Change in Control" means the first to occur of any of the following:
(i) the sale (including by merger, consolidation or sale of stock of
subsidiaries or any other method) of all or substantially all of the
assets of the Company and its consolidated subsidiaries (taken as a
whole) to any person or entity not directly or indirectly controlled by
the holders of at least 50% of the Combined Voting Power (as defined in
the Plan) of the then outstanding shares of capital stock of the
Company (excluding shares owned by employees of the Company as of the
date of determination), (ii) at any time prior to the consummation of
an initial public offering of Common Stock of the Company or other
common stock of the Company having the voting power to elect directors,
a transaction (except pursuant to such initial public offering)
resulting in the Principal Shareholders (as defined in the Plan)
owning, collectively, less than 50% of the Combined Voting Power of the
then outstanding shares of capital stock of the Company (excluding
shares owned by employees of the Company as of the date of
determination), (iii) at any time after the consummation of an initial
public offering of Common Stock of the Company or other common stock of
the Company having the voting power to elect directors, the acquisition
(except pursuant to such initial public offering) by any person or
entity (other than the Principal Shareholders) not directly or
indirectly controlled by the Company's stockholders of more than 30% of
the Combined Voting Power of the then outstanding shares of capital
stock of the Company (excluding shares owned by employees of the
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51
Company as of the date of determination), (iv) individuals serving as
directors of the Company on the Effective Date (as defined in the Plan)
and who were nominated or selected to serve as directors by one or more
Principal Shareholders (together with any new directors whose election
was approved by a vote of (A) such individuals or directors whose
election was previously so approved or (B) Principal Shareholders
holding a majority of the aggregate voting power of the capital stock
of the Company held by all Principal Shareholders) cease for any reason
to constitute a majority of the Board of Directors of the Company (the
"Board"), (v) the adoption of a plan relating to the liquidation or
dissolution of the Company in connection with an equity investment or
sale or a business combination transaction or (vi) any other event or
transaction that the Board deems to be a Change in Control.
"Specified Cause Event" means (1) a proven or
admitted act of fraud, misappropriation or embezzlement by the Optionee
that is detrimental to the Company or (2) the Optionee's conviction of
or plea of guilty or nolo contendere to a felony that is related to the
Company or the performance of the Optionee's services for the Company.
(B) Tier 2 Options. The Company hereby grants to the Optionee
25,000 Tier 2 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 2 Options will vest and be
exercisable annually as of December 31 of each fiscal year of the Company with
respect to a cumulative number of shares in an amount equal to the product of
(i) a fraction, the denominator of which is 278,658,000 (the "Aggregate EBITDA
Target") and the numerator of which is the aggregate EBITDA of the Company for
all fiscal years following the date hereof, beginning with the 1999 fiscal year,
multiplied by (ii) the total number of shares subject to Tier 2 Options,
provided that the maximum cumulative number of shares subject to Tier 2 Options
that shall be vested in any fiscal year shall not exceed the product of (1) the
Applicable Percentage for such fiscal year multiplied by (2) the total number of
shares subject to Tier 2 Options. This calculation shall be made with respect to
each fiscal year, beginning with the 1999 fiscal year, based on the Company's
audited financial statements for such year. Notwithstanding the foregoing, (x)
if the Optionee's employment with the Company shall terminate because of death,
disability, termination by the Company without Cause (as defined below) or
termination by the Optionee for Good Reason (as defined below), the aggregate
cumulative number of shares subject to Tier 2 Options that shall be vested as of
the termination date shall not be subject to any limitations imposed by the
Applicable Percentage and shall be equal to the product of (1) a fraction, the
denominator of which is the Aggregate EBITDA Target and the numerator of which
is the aggregate EBITDA of the Company for all fiscal years following the date
hereof, beginning with the 1999 fiscal year, multiplied by (2) the total number
of shares subject to Tier 2 Options, and (y) all of the Tier 2 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (1) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 2 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 2 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (2) the seventh
anniversary of the date hereof.
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52
"Applicable Percentage" means with respect to (i) fiscal
year 1999, 20%, (2) fiscal year 2000, 40%, (3) fiscal year 2001, 60%,
(4) fiscal year 2002, 80%, and (5) fiscal year 2003, 100%, provided,
however, that the Applicable Percentage shall be 100% if following any
fiscal year prior to the fifth anniversary hereof, the aggregate EBITDA
of the Company for the fiscal years following the date hereof equals or
exceeds the Aggregate EBITDA Target.
"EBITDA" means earnings before interest, taxes,
depreciation, and amortization as reflected in the Company's audited
financial statements. Adjustments for unusual items will be made in the
reasonable discretion of the Board, after consultation with the Chief
Executive Officer of the Company.
(C) Tier 3 Options. The Company hereby grants to the Optionee
25,000 Tier 3 Options. Subject to the other terms of this Agreement regarding
the exercisability of this Option, the Tier 3 Options will vest and be
exercisable (except as provided below) only upon the first to occur of (x) a
Change in Control that satisfies the CIC Return Hurdle and (y) an Actual Sale or
Deemed Sale following a Qualified Public Offering that satisfies the QPO Return
Hurdle as hereinafter described. If on any date beginning six months after a
Qualified Public Offering the QPO Return Hurdle has been satisfied based on a
Deemed Sale at Fair Market Value as of such date, 50% of the Tier 3 Options will
vest and be immediately exercisable, and if on any date beginning 24 months
after a Qualified Public Offering the QPO Return Hurdle has been satisfied based
on a Deemed Sale at Fair Market Value as of such date, the additional 50% of the
Tier 3 Options will vest and be immediately exercisable, except that, if at any
time after a Qualified Public Offering the QPO Return Hurdle is satisfied based
on an Actual Sale, 100% of the Tier 3 Options will vest and be immediately
exercisable. Notwithstanding the foregoing, the Tier 3 Options shall become
fully vested and exercisable upon the seventh anniversary of the date hereof.
"Actual Sale" means a sale following a Qualified Public
Offering by Charlesbank Equity Fund IV, Limited Partnership of its
shares in the Company in consideration for cash or freely tradable
securities or a combination thereof.
"Charlesbank Investment" means the total amount of capital
expended to acquire Common Stock or warrants to acquire Common Stock of
the Company or capital contributed to the Company (including capital
provided in the form of an extension of credit or an advance of funds)
by Charlesbank Equity Fund IV, Limited Partnership, commencing on the
date of the original investment by Charlesbank Equity Fund IV, Limited
Partnership.
"CIC Return Hurdle" means (i) if the Change in Control
occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x,
and (ii) if the Change in Control occurs more than 18
4
53
months after the original investment by Charlesbank Equity Fund IV,
Limited Partnership a Return on Investment of 3.0x and a 30% IRR.
"Deemed Sale", as of any date, means the deemed sale
following a Qualified Public Offering by Charlesbank Equity Fund IV,
Limited Partnership of its shares in the Company at the Fair Market
Value in effect on such date.
"Fair Market Value", as of any date, means (i) with
respect to any freely tradeable security, the closing market price for
such security on the day immediately preceding such date as determined
from the principal trading market for such security on such date, (ii)
with respect to any publicly traded security of the Company, the
average of the closing market prices of such security for the 30
consecutive trading days immediately prior to such date to be
determined from the principal trading market for such security during
such period, and (iii) with respect to any other property, such value
determined as of such date by such methods or procedures as established
in the good faith discretion of the Board.
"IRR" means an internal rate of return to Charlesbank
Equity Fund IV, Limited Partnership on the Charlesbank Investment as
calculated by the use of an HP12c financial calculator, taking into
account the timing and amount (based on the Fair Market Value thereof)
of all contributions to capital and investments in the Company and the
timing and amount (based on the Fair Market Value thereof) of all
dividends, interest payments or other distributions or payments
(whether in cash or other property), from the Company or any other
person or entity in respect of the Charlesbank Investment, through the
date of determination, and subject to adjustment in the good faith
discretion of the Board in the event of any merger, acquisition,
consolidation, sale of assets, recapitalization, contribution of
capital to, or redemption of stock of, the Company, or any other event
that the Board deems relevant to the calculation of such return.
"QPO Return Hurdle" means (i) if the Actual Sale or Deemed
Sale occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x and
(ii) if the Actual Sale or Deemed Sale occurs more than 18 months after
the original investment by Charlesbank Equity Fund IV, Limited
Partnership, a Return on Investment of 3.0x and a 30% IRR.
"Qualified Public Offering" means a public offering of the
Company's Class A Common Stock or other common stock of the Company
with a minimum offering size of $50,000,000.
"Return on Investment" means (i) in the case of a Change
in Control, the quotient of (A) the total amount of cash and freely
tradable securities and based on the Fair Market Value thereof received
by Charlesbank Equity Fund IV, Limited Partnership upon such Change in
Control, together with all dividends, interest payments and other
distributions or payments (whether in cash or other property and based
on the Fair Market
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Value thereof) received from the Company or any other person or entity
in respect of the Charlesbank Investment prior to such Change in
Control, divided by (B) the Charlesbank Investment, and (ii) in the
case of an Actual Sale or Deemed Sale following a Qualified Public
Offering, the quotient of (A) the total amount of cash and freely
tradeable securities (based on the Fair Market Value thereof) received
in such Actual Sale, or the aggregate Fair Market Value of all shares
in the Company owned at the time of such Deemed Sale, by Charlesbank
Equity Fund IV, Limited Partnership, together with all dividends,
interest payments and other distributions or payments (whether in cash
or other property and based on the Fair Market Value thereof) received
from the Company or any other person or entity in respect of the
Charlesbank Investment prior to such Actual Sale or Deemed Sale, as the
case may be, divided by (B) the Charlesbank Investment.
(ii) Options exercised in any one year shall be deducted from
the number of Options exercisable in any future year. Once vested, this Option
shall be exercisable at the following times prior to the expiration date: (A) if
the Optionee is employed by the Company at the time of exercise, at any time by
giving the Company 45 days' advance written notice or (B) if the Optionee is not
employed by the Company at the time of exercise but has the right to exercise
after termination in accordance with Section 2(d) of this Agreement, by giving
the Company written notice at any time during the period specified in Section
2(d) of this Agreement, in which case the Option shall be deemed exercised as of
the end of the calendar month in which the Company received notice of exercise
of the Option. In either case, the notice of exercise shall specify the number
of Shares as to which the Option is being exercised.
(iii) Upon receipt of written notice of exercise by the
Company, the Company shall, upon full payment in cash to the Company of the
Exercise Price of the Shares as to which the Option shall be exercised and upon
receipt of a duly executed shareholders agreement (in the form attached hereto
as Exhibit A or in such other form as the Company may reasonably require), issue
to the Optionee the Shares subject to the Option. Any issuance of Shares to an
Optionee pursuant to the preceding sentence shall be made by the Company within
90 days after the date of exercise. For purposes of this Agreement, the fair
market value of Shares shall be determined by such methods or procedures as
shall be established from time to time by the Board acting in its sole
discretion and in good faith. In making such determinations, the Board may rely
on a valuation report by an investment banking or valuation firm selected by the
Board. The Committee established by the Board to administer the Plan (the
"Committee") may, in its sole discretion, permit the Optionee to pay the
Exercise Price in previously acquired Shares rather than in cash.
(d) Exercise Upon Death or Termination of Employment.
(i) If the Optionee dies while an employee of the
Company, the Optionee's Designee may exercise the Option, to the extent it was
vested on the date of termination, by giving the Company written notice of such
exercise within 12 months after the date of Optionee's death, but in no event
later than the Expiration Date. An Optionee's "Designee"
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means the person designated by the Optionee in his or her most recently filed
beneficiary designation filed with the Company to receive the Optionee's rights
under the Plan upon the Optionee's death, or if there is no such designation or
no such designated person survives the Optionee, by the person or persons to
whom the Optionee's rights pass by will or applicable law, or if no such person
has such right, by his executors or administrators.
(ii) If the Company shall terminate Optionee's
employment with the Company because of disability, the Optionee may exercise the
Option to the extent it was vested on the date of termination, by giving the
Company written notice of such exercise within 12 months after the date of
termination of employment, but in no event later than the Expiration Date.
(iii) If the Optionee terminates his employment with
the Company other than for Good Reason, the Optionee may exercise the Option to
the extent it was vested on the date of termination, by giving the Company
written notice of such exercise within 90 days after the date of termination of
employment, but in no event later then the Expiration Date. For purposes of this
Agreement, "Good Reason" has the meaning set forth in the executive severance or
employment agreement, if any, then in effect between the Company and the
Optionee or, in the absence of such agreement shall mean, if the basis for such
Good Reason is not cured within a reasonable period of time (determined in light
of the cure appropriate to the basis of such Good Reason, but in no event less
than 15 days), the failure of the Company to pay any undisputed amount due to
the Optionee in connection with his employment by the Company.
(iv) If the Optionee's employment shall terminate for
any reason other than death, disability or Cause (as hereinafter defined), or if
the Optionee shall terminate his employment with the Company for Good Reason,
the Optionee may exercise the Option to the extent it was vested on the date of
termination or, otherwise would have vested in the 12 months thereafter, in
either event according to the applicable vesting schedule in Section 2(c)(i), by
giving the Company written notice of such exercise within 18 months after the
date of termination of employment, but in no event later than the Expiration
Date. Notwithstanding the foregoing, the Optionee shall forfeit his right to
exercise any Options that would have vested within the 12 months after
termination, if the Optionee violates the terms regarding non-competition set
forth in the Optionee's executive severance or employment agreement.
(v) If the Optionee's employment shall terminate for
Cause, all right to exercise the Option shall terminate at the date of such
termination of employment. For purposes of this Agreement, "Cause" has the
meaning set forth in the executive severance or employment agreement, if any,
then in effect between the Company and the Optionee or, in the absence of such
agreement, shall mean (i) the Optionee's conviction of, or plea of guilty or
nolo contendere to, a felony, (ii) the Optionee's gross negligence in the
performance of his duties and obligations to the Company, which is not corrected
within 15 business days after written notice, (iii) the Optionee's knowingly
dishonest act, or knowing bad faith or willful misconduct in the performance of
his duties and obligations to the Company to the material detriment of the
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Company, which is not corrected within 15 business days after written notice, or
(iv) the Optionee's other material breach of his obligations under this
Agreement, which is not corrected within a reasonable period of time (determined
in light of the cure appropriate to such material breach, but in no event less
than 15 business days) after written notice.
(vi) In the event of termination of employment, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purpose of Section 422 of the Code, such stock option shall
thereafter be treated as a nonqualified stock option.
(e) Transferability. Except as otherwise provided in this
Section, the Option is not transferable other than as designated by the Optionee
in his or her most recently filed Beneficiary designation filed with the
Company, or if there is no such designation or no such designated person
survives the Optionee, as designated by the Optionee, by will or by the laws of
descent and distribution, and during the Optionee's life, may be exercised only
by the Optionee. However, an Optionee, with the approval of the Committee, may
transfer the Option for no consideration to or for the benefit of the Optionee's
Immediate Family or to a partnership or limited liability company for one or
more members of the Optionee's Immediate Family, subject to such limits as the
Committee may establish, and the transferee shall remain subject to all the
terms and conditions applicable to Options prior to such transfer. The foregoing
right to transfer the Option shall apply to the right to consent to amendments
to this Agreement and, in the discretion of the Committee, shall also apply to
the right to transfer ancillary rights associated with the Option. The term
"Immediate Family" shall mean the Optionee's spouse, parents, children,
stepchildren, adoptive relationships, sisters, brothers, nieces, nephews and
grandchildren (and, for this purpose, shall also include the Optionee).
(f) Adjustments. In the event of any change in corporate
capitalization (including, but not limited to, a change in the number of shares
of Common Stock outstanding), such as a stock split or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Section 368
of the Code) or any partial or complete liquidation of the Company, the
Committee or Board may make such substitution or adjustments in the number, kind
and option price of shares subject to the Option and/or such other equitable
substitution or adjustments as it may determine to be appropriate in its sole
discretion; provided, however, that the number of shares subject to the Option
shall always be a whole number. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to cause the Company to issue or
assume stock options, whether or not in transaction to which Section 424(a) of
the Code applies, by means of substitution of new stock options for previously
issued stock options or an assumption of previously issued stock options.
(g) No Rights as Stockholder. The Optionee shall have no
rights as a stockholder with respect to any Shares subject to the Option prior
to the date of issuance to the Optionee of a certificate or certificates for
such Shares.
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(h) Optionee Acknowledgement. The Optionee acknowledges that:
(i) the future value of the Company is highly
speculative;
(ii) the Optionee is not relying on the value of this
Option as current compensation;
(iii) the Company has no obligation to the Optionee
to sell the Company or to sell Shares publicly (which may have the effect of
reducing the value of the Company);
(iv) upon exercise of this Option, unless the Shares
issuable upon exercise of the Options have been registered under applicable
securities laws, there will be substantial restrictions on the transferability
of the Shares; and
(v) the past performance or experience of the
Company, the Company's officers, directors, agents, or employees, will not in
any way indicate or predict the results of the ownership of Shares or of the
Company's activities.
(i) No Right to Continued Employment. The Option shall not
confer upon the Optionee any right with respect to continuance of employment by
the Company, nor shall it interfere in any way with the right of the Optionee's
employer to terminate the Optionee's employment at any time.
(j) Compliance With Law and Regulations. The Option herein
granted and the obligation of the Company to sell and deliver shares hereunder,
shall be subject to all applicable Federal and State laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for
Shares prior to (i) the listing of such Shares on any stock exchange or national
market quotations system on which the Shares may then be listed and (ii) the
completion of any registration or qualification of such Shares under any Federal
or State law, or any rule or regulation of any government body which the Company
shall, in its sole discretion, determine to be necessary or advisable. Moreover,
the Option herein granted may not be exercised if its exercise, or the receipt
of Shares pursuant hereto, would be contrary to applicable law.
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3. Optionee Bound by Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
4. Notices.
All notices or any other communications hereunder shall be in writing
and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to The X.X. Xxxxxxx Company, Inc., 0000
Xxxxx Xxxxx Xxxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxx Xxxxxxxx 00000; Attention:
Chairman, and if to the Optionee, at the address set forth below, subject to the
right of either party to designate at any time hereafter in writing some other
address.
5. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina without regard to conflicts of laws
principles.
6. No Assignment.
Except as provided in Section 2(e), neither this Agreement nor any of
the rights or obligations of the Optionee hereunder may be transferred or
assigned by the Optionee.
7. Benefits.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto. This Agreement is for the sole benefit of the parties hereto and
not for the benefit of any other party.
8. Severability.
If any provision of this Agreement shall be determined to be illegal
and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms.
9. Amendments.
No modification, amendment or waiver of any provision of this
Agreement, other than as required under Section 2(f), shall be effective unless
it is in writing and signed by the parties hereto.
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10. Counterparts.
This Agreement has been executed in two counterparts each of which
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its Chairman, Chief Executive Officer, Chief Operating Officer,
President or a Vice President and Optionee has executed this Agreement, both as
of the day and year first above written.
THE X.X. XXXXXXX COMPANY, INC.
By: /s/ Xxxxxx X. Roof
-----------------------------------------
Xxxxxx X. Roof
President and Chief Executive Officer
/s/ P. Xxxxxxx Xxxxxxx
-----------------------------
P. Xxxxxxx Xxxxxxx
0000 Xxxx Xxxxxx Xxxxx
Xxxxxxxx Xxxxxxx, XX 00000
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