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EXHIBIT 10.12
OPTION AGREEMENT
BY AND BETWEEN
CMP MEDIA INC. AND XXXXXXX X. XXXX
DL&A
NOVEMBER 27, 1996
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OPTION AGREEMENT
TABLE OF CONTENTS
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ARTICLE I - OPTIONS
SECTION 1.1 Grant of Options.......................................... 2
SECTION 1.2 Option Price.............................................. 2
ARTICLE II - CONFIDENTIALITY; NON-COMPETITION
SECTION 2.1 Protection of Company's Business Interests................ 3
SECTION 2.2 Non-Disclosure and Non-Use of Confidential Information.... 3
SECTION 2.3 Protection from Unfair Competition........................ 4
SECTION 2.4 Prior Notice; Opportunity to Cure......................... 7
SECTION 2.5 Other Covenants........................................... 9
SECTION 2.6 Confidentiality of Agreement.............................. 10
SECTION 2.7 Relief for Breach......................................... 10
SECTION 2.8 Separate Covenants........................................ 10
ARTICLE III - VESTING OF OPTIONS
SECTION 3.1 Vesting on December 31, 2005.............................. 11
SECTION 3.2 Acceleration of Vesting: First Series..................... 11
SECTION 3.3 Acceleration of Vesting: Second Series.................... 12
SECTION 3.4 Acceleration of Vesting: Third Series..................... 12
SECTION 3.5 Acceleration of Vesting: Fourth Series.................... 13
SECTION 3.6 Acceleration of Vesting: Fifth Series..................... 14
SECTION 3.7 Satisfaction of Conditions................................ 15
ARTICLE IV - EXERCISE OF OPTIONS
SECTION 4.1 Exercise of Options....................................... 16
SECTION 4.2 Withholding Taxes......................................... 17
SECTION 4.3 Determination of Fair Market Value........................ 18
SECTION 4.4 Non-Transferability of Options............................ 19
SECTION 4.5 Ken's Representative...................................... 19
ARTICLE V - EXPIRATION OF OPTIONS
SECTION 5.1 Expiration of Options..................................... 20
SECTION 5.2 Expiration upon Death, Permanent Disability, Dismissal
Without Cause or Resignation For Good Reason.............. 20
SECTION 5.3 Expiration upon Voluntary Resignation, Dismissal
For Cause or Competition.................................. 21
SECTION 5.4 Change in Control......................................... 22
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ARTICLE VI - TRANSFERABILITY OF SHARES AT TIME WHEN COMPANY IS
PRIVATELY HELD AND THERE IS NO PUBLIC MARKET
SECTION 6.1 General Restriction on Transfer........................... 23
SECTION 6.2 Sale to Satisfy Income Tax Liabilities.................... 24
SECTION 6.3 Sale After December 31, 2005.............................. 24
SECTION 6.4 Sale After Death or Permanent Disability.................. 25
SECTION 6.5 Sale After Dismissal Without Cause or Resignation
For Good Reason........................................... 26
SECTION 6.6 Sale After Voluntary Resignation, Dismissal For
Good Cause, or Competition................................ 27
SECTION 6.7 Purchase Price of Option Shares........................... 27
(a) Price to be Paid for Option shares........................ 27
(b) Determination of Fair Market Value........................ 27
(c) Payment of Purchase Price................................. 28
(i) Lump Sum or Installments.......................... 28
(ii) Initial Installment............................... 29
(iii) Cash Flow Limitations............................. 30
(d) Closing of Transaction.................................... 31
SECTION 6.8 Assignment and Delegation by the Company to Class B
Stockholders.............................................. 31
SECTION 6.9 Tag-Along Rights -- Drag-Along Rights..................... 32
ARTICLE VII - TRANSFERABILITY OF SHARES AT TIME COMPANY'S SHARES
ARE PUBLICLY TRADED
SECTION 7.1 General Restriction on Transfer........................... 33
SECTION 7.2 Sale to Satisfy Income Tax Liabilities.................... 34
SECTION 7.3 Sale on or before December 31, 2005
(a) Minimum Market Capitalization............................. 35
(b) Maximum Number of Shares.................................. 35
SECTION 7.4 Sale After December 31, 2005.............................. 36
SECTION 7.5 Sale After Death or Disability............................ 36
SECTION 7.6 Tender, Merger, Consolidation............................. 37
SECTION 7.7 Compliance with Securities Laws........................... 37
ARTICLE VIII - FUTURE CHANGES IN CAPITAL STRUCTURE AND REDEMPTION OF SHARES
SECTION 8.1 Changes in Capital Structure.............................. 38
SECTION 8.2 Redemption of Class B Stock............................... 38
ARTICLE IX - PROCEDURE TO BE FOLLOWED IN CASE OF RESIGNATION FOR GOOD
REASON OR DISMISSAL FOR CAUSE
SECTION 9.1 Resignation for Good Cause................................ 39
SECTION 9.2 Dismissal For Cause....................................... 40
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ARTICLE X - RESOLUTION OF DISPUTES
SECTION 10.1 Arbitration............................................. 41
SECTION 10.2 Equitable Relief........................................ 42
ARTICLE XI - REPRESENTATIONS AND WARRANTIES
SECTION 11.1 Representations of the Company.......................... 42
SECTION 11.2 Representations of Xxx.................................. 43
ARTICLE XII - DEFINITIONS................................................... 43
ARTICLE XIII - MISCELLANEOUS PROVISIONS
SECTION 13.1 Legend on Certificates.................................. 50
SECTION 13.2 Permitted Transferees; Representative and
Successors in Interest.................................. 51
SECTION 13.3 Further Assurances...................................... 52
SECTION 13.4 S Corporation........................................... 53
SECTION 13.5 Credit Facilities....................................... 53
SECTION 13.6 Accelerated Vesting Chart............................... 54
SECTION 13.7 Entire Agreement; Binding Effect........................ 54
SECTION 13.8 Amendment............................................... 54
SECTION 13.9 Applicable Law.......................................... 55
SECTION 13.10 Severability............................................ 55
SECTION 13.11 No Waiver............................................... 55
SECTION 13.12 Notices................................................. 55
SECTION 13.13 Assignment.............................................. 57
SECTION 13.14 Survival................................................ 57
SECTION 13.15 Gender and Number....................................... 57
SECTION 13.16 Dates................................................... 57
SECTION 13.17 Headings................................................ 57
SECTION 13.18 Counterparts............................................ 58
SCHEDULE 5.2(B)
Hypothetical Illustration of Calculation of Options Vesting
Under Section 5.23(b).................................................... 59
SCHEDULE XI
Hypothetical Illustration of Calculation of Free Cash Flow............... 60
SCHEDULE 13.6
Accelerated Vesting Chart................................................ 61
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OPTION AGREEMENT
This Option Agreement, made and entered into as of this 27th day of
November, 1996, by and between CMP Media Inc., a Delaware corporation (the
"Company"), and Xxxxxxx X. Xxxx ("Xxx").
W I T N E S S E T H:
WHEREAS, Xxx is a key senior executive of the Company; and
WHEREAS, the Company desires to create substantial incentives for Xxx
to (i) cause the Company to grow continuously and successfully in sales, profits
and profitability, (ii) take a long-term view of the Company's future, (iii)
help the Company attain its long-term goals, including its diversity goals as
set forth in its corporate Principles, and (iv) remain with the Company for the
long term; and
WHEREAS, to create such incentives, the Company desires to provide Xxx
with the opportunity to purchase shares of the Company's Class A Common Stock,
and Xxx desires to have the opportunity to purchase shares of such Class A
Common Stock;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties, the parties
hereto hereby covenant and agree, as follows:
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ARTICLE I
OPTIONS
SECTION 1.1. GRANT OF OPTIONS.
Subject to the terms and conditions of this Agreement, the Company
hereby grants Xxx the right to purchase from the Company up to two thousand
six-hundred forty (2,640) shares of the Class A Stock (which number of shares
equals approximately five percent (5%) of the number of shares of the Company's
Common Stock issued and outstanding as of the date hereof).
SECTION 1.2. OPTION PRICE.
The Option Price shall be the fair market value of a share of the
Company's Common Stock at the date hereof. Such fair market value shall be
calculated by dividing the aggregate fair market value of all the Common Stock,
as determined by an independent appraisal conducted by Xxxxxx Xxxx L.L.C., by
the total number of shares of the Common Stock issued and outstanding as of the
date hereof.
ARTICLE II
CONFIDENTIALITY; NON-COMPETITION
In consideration of the grant of the Options by the Company hereunder,
and as a specific inducement to the Company to enter into this Agreement, Xxx
hereby accepts and agrees to the provisions of this Article II and acknowledges
that such provisions are necessary and appropriate for the reasonable protection
of the Company's property, investments, business relationships, economic
advantages and goodwill.
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SECTION 2.1. PROTECTION OF COMPANY'S BUSINESS INTERESTS.
As a Key Senior Executive, Xxx has been intimately involved in the
management of all aspects of the business of the Company and its Affiliates and
has been a major strategist in planning and implementing its business expansion.
In the course of his long employment with the Company, Xxx has developed special
skills, knowledge and abilities in the publishing field which are of a uniquely
personal nature. He has also acquired detailed knowledge of the internal
operations of the Company and its Affiliates and highly confidential information
concerning the national and international business of the Company and its
Affiliates. In addition, he has been afforded the opportunity to develop special
relationships of confidence and trust with the customers, suppliers,
consultants, employees, officers, directors and stockholders of the Company and
its Affiliates. Because of his continuing responsibilities with the Company and
its Affiliates, including his involvement in strategic planning and the
evaluation of proposed investments, it is expected that Xxx will continue to be
entrusted with confidential information and will continue to have the
opportunity to develop such special relationships. The parties acknowledge and
agree that the Company would be unfairly and irreparably damaged if Xxx were to
take any of such skills, knowledge, information or relationships, which he has
acquired and developed during the course of his employment with the Company, and
use them to the detriment of the Company and its Affiliates.
SECTION 2.2. NON-DISCLOSURE AND NON-USE OF CONFIDENTIAL INFORMATION.
(a) Xxx represents, warrants, covenants and agrees that, without the
Company's express or implied consent while employed or, after termination,
without the prior written
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consent of the Company's chief executive officer or the Board of Directors, he
will not willfully or knowingly at any time directly or indirectly disclose,
communicate or divulge, or use for the benefit of himself or of any third party,
any of the business or trade secrets or other confidential information of the
CMP Group including, solely by way of illustration but not of limitation, their
business strategies, business plans, budgets, pricing, selling techniques,
marketing techniques, operating systems, financial systems, financial data,
procedures, manuals, confidential reports, personnel records, potential
acquisitions, potential business expansions, credit and financial data of their
suppliers and of their present and prospective customers, data about
competitors, new product-development initiatives, custom research and new
product or service concepts and marketing strategy.
(b) Any and all materials of or concerning the CMP Group or their
business or affairs, including without limitation files, memoranda, notes,
correspondence, lists, records, video reproductions, computer tapes and disks,
design and other documents, and data storage and retrieval materials (and all
copies, compilations and summaries thereof), and any and all property of the CMP
Group, including without limitation equipment, software, keys, business cards
and credit cards, that are in Ken's custody or control shall be delivered to the
Company at the time Ken's employment with the Company terminates for any reason.
Xxx shall not destroy any such materials or property, shall not retain any
copies thereof and shall certify in writing to the Company upon request that all
such materials and property have been delivered to the Company.
SECTION 2.3. PROTECTION FROM UNFAIR COMPETITION.
(a) For as long as Xxx is employed by the CMP Group and for the greater
of (i) a period of five (5) years after termination of his employment or (ii) as
long as Xxx or any Permitted Transferee owns any Option Shares, Xxx shall not
engage in competition with the CMP Group. For the purposes of this Agreement,
Xxx shall be deemed to
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engage in competition with the CMP Group if Xxx does any of the following,
whether or not in exchange for consideration, without the Company's express or
implied consent while employed or without the Company's prior written consent
after termination:
(A) On his own behalf or on behalf of any other person or
entity, (1) participates or is involved in or has direct responsibility for the
day-to-day management or operation of a Directly Competitive Business, an
Indirectly Competitive Business or any material function thereof (E.G.,
advertising, circulation, production and the like); (2) owns, in whole or in
part, beneficially or of record, directly or indirectly, an equity interest (or
an interest convertible into equity) in a Directly Competitive Business or a
Direct Competitor; (3) renders services as a director, officer, employee,
consultant, advisor, agent or independent sales representative to a Direct
Competitor; or (4) renders services as a director, officer, employee,
consultant, advisor, agent or independent sales representative to an Indirect
Competitor unless Xxx has no responsibility for or participation or involvement
in any Indirectly Competitive Business of such Indirect Competitor, provided,
however, that Xxx xxx have supervisory, advisory, consulting or
sales-representative responsibility over an Indirectly Competitive Business if
the revenue of all Indirectly Competitive Businesses of such Indirect Competitor
over which Xxx has such responsibility represents no more than fifteen percent
(15%) of the total revenue over which Xxx has such responsibility.
(B) Solicits the service of any employee of the CMP Group for
Ken's own benefit or for the benefit of any person or entity other than the CMP
Group, or induces or helps to induce any such employee to leave employment with
the CMP Group.
(C) Assists, induces or helps any employee or former employee
of the CMP Group or any other person or entity to engage in competition with the
CMP Group
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or any of its business activities, provided that the giving of a favorable
reference by Xxx on behalf of such former employee shall not be prohibited by
this clause (C).
(D) Employs or causes any person or entity other than the CMP
Group to employ any former employee of the CMP Group within one (1) year after
the resignation of such former employee from the CMP Group.
(E) Willfully induces or attempts to induce any customer,
supplier or contractor of the Company to terminate any agreement or arrangement
with the Company, or willfully induces or attempts to induce any customer,
supplier or contractor, or any potential customer, supplier or contractor, of
the Company not to enter into any agreement or arrangement with the Company.
(F) Communicates publicly (other than pursuant to subpoena in
a legal proceeding) or to the press, or writes or produces for publication in
any medium, on the subject of, or with express or implied reference to, the CMP
Group or any of their former, current or future stockholders, directors,
officers or employees in their capacities as such. For the purpose hereof,
"implied reference" shall mean a reference that does not expressly name the CMP
Group or any of their former, current or future stockholders, directors,
officers or employees but that nevertheless would be understood by the average
reader or audience-member to refer thereto. It shall not be deemed a violation
of this clause (F) if, after the termination of his employment with the Company,
Xxx responds to inquiries from the public or the press solely by stating, in
form or substance, "I do not discuss any matters relating to CMP; please address
your inquiries directly to the company" or Xxx communicates the fact that he was
formerly employed by the Company and identifies the positions he held and the
dates thereof.
(b) Notwithstanding the provisions of paragraph (a) of this Section
2.3, Xxx shall not be deemed to be engaged in competition with the CMP Group
solely by reason of Ken's ownership of (i) an equity interest of less than
one-half of one percent (0.5%) in
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the securities of a Direct Competitor or Indirect Competitor listed for trading
on a national securities exchange or quoted in the National Market List of
NASDAQ or (ii) an interest in a mutual or other investment fund which owns an
interest in a Direct Competitor or Indirect Competitor, provided that Xxx has no
influence or control over the selection of such fund's investment decisions.
SECTION 2.4. PRIOR NOTICE; OPPORTUNITY TO CURE.
(a) Xxx shall give the Company written notice at least twenty (20)
Business Days before entering into any relationship or transaction, or engaging
in any activity, or taking or omitting to take any action, which might
reasonably be deemed a breach of any provision of Section 2.2 or Section 2.3,
such notice to include full and complete particulars as to the proposed
relationship, transaction, activity, action or omission, the services or duties
contemplated and such other facts and circumstances as are reasonably necessary
for the Company to make an informed decision. The Company shall advise Xxx in
writing, within ten (10) Business Days after such notice is given, of the Board
of Directors' determination as to whether such relationship, transaction,
activity, action or omission would materially breach any of the provisions of
Section 2.2 or Section 2.3. In the event that, for reasons not within his
control, Xxx gives the Company less than twenty (20) Business Days' prior
written notice, the Company will endeavor in good faith to advise Xxx of the
Board of Directors' determination in less than ten (10) Business Days after such
notice is given, provided that the Company's failure to advise Xxx in less than
ten (10) Business Days shall not be deemed to constitute consent to such
relationship, transaction, activity, action or omission and shall not give rise
to any liability of the Company to Xxx or to any third party.
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(b) Once the Company has advised Xxx in writing that the Board of
Directors has determined that a proposed relationship, transaction, activity,
action or omission would not materially breach any of the provisions of Section
2.2 or Section 2.3, and Xxx has thereupon entered into such relationship or
transaction or has begun to engage in such activity or to take or omit to take
such action, the Board of Directors shall have no right to reverse or otherwise
modify its determination; provided, however, that if the nature, scope or terms
of such relationship, transaction, activity, action or omission are to be
modified after such determination is made, then in accordance with paragraph (a)
hereof Xxx shall give the Company prior written notice of such modification and
the Company shall advise him in writing, within ten (10) Business Days after
such notice is given, of the Board of Directors' determination as to whether
such relationship, transaction, activity, action or omission, as so modified,
would materially breach any of the provisions of Section 2.2 or Section 2.3.
(c) In the event that, without having given the Company prior notice
pursuant to paragraphs (a) or (b) hereof, Xxx enters into any relationship or
transaction or begins to engage in any activity or to take or omit to take any
action that the Board of Directors determines is a material breach of any of the
provisions of Section 2.2 or Section 2.3, the Company shall give Xxx written
notice of such determination and, if such breach is continuing, an opportunity
to cure such breach before the Company seeks remedy or relief by judicial
process or arbitration or exercises its rights under Section 6.6(b) hereof. The
opportunity to cure shall be sixty (60) days to the extent such continuing
breach consists of holding an ownership interest in a competitive business and
fifteen (15) days with respect to any other continuing breach.
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SECTION 2.5. OTHER COVENANTS.
(a) For as long as Xxx or any Permitted Transferee owns any Option
Shares, Xxx shall, if requested by the Company, provide information, testimony
and assistance in connection with the prosecution or defense of any claims by or
against the Company arising out of matters of which he acquired knowledge while
an employee of the Company. The Company shall reimburse Xxx for all reasonable
out-of-pocket expenses he incurs in rendering such assistance.
(b) For as long as Xxx or any Permitted Transferee owns any Option
Shares, Xxx shall not willfully make any oral or written statement which
reflects adversely upon the character, honesty, credit, efficiency or business
practices of the CMP Group or its former, current or future stockholders,
directors, officers or employees in their capacities as such.
SECTION 2.6. CONFIDENTIALITY OF AGREEMENT.
The terms and conditions of this Agreement shall be kept confidential
by the parties, and none of the parties shall disclose them to any non-party
unless such disclosure is necessitated by (a) legal and/or financial
requirements of the Company, in which case the form of such disclosure shall
first be mutually agreed upon by the Company and Xxx, or (b) any arbitration or
other legal proceeding contesting or seeking to enforce any provision or
interpretation of this Agreement (including any deposition or testimony that
either party provides in connection therewith), regardless of whether such
proceeding is initiated by Xxx or the Company. Except as provided in the
preceding sentence, and without limiting the generality of the foregoing, Xxx
shall not respond to or in any way participate in or contribute to any public
discussion, notice or other publicity concerning or in any way relating to
execution of this Agreement or the events (including
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any negotiations) which led to its execution, and Xxx specifically agrees that
he shall not disclose information regarding this Agreement to any current or
former employees of the Company other than those expressly authorized by the
Company to have knowledge hereof. Without limiting the comprehensive
confidentiality agreed to, Xxx xxx disclose this Agreement to his attorneys,
financial advisors and members of his and his spouse's immediate families,
provided he informs them of this confidentiality provision and they agree to
abide by it. Xxx hereby agrees that any disclosure by him of any of the terms
and conditions of this Agreement in violation of the foregoing shall constitute
and be treated as a material breach of this Agreement and Xxx shall be
responsible for damages occasioned thereby, including but not limited to
reasonable attorneys' fees incurred by the Company to enforce this Section 2.6.
SECTION 2.7. RELIEF FOR BREACH.
Xxx acknowledges and agrees that any breach or anticipatory breach by
him of any of the provisions of this Article II would cause the Company
irreparable injury not compensable by monetary damages alone and that,
accordingly, in any such event, the Company shall be entitled to injunctions,
both preliminary and permanent, enjoining or restraining such breach or
anticipatory breach (and Xxx hereby consents to the issuance thereof without
bond by any court of competent jurisdiction), in addition to monetary damages in
such amount as the evidence may show and such other remedies as may be available
at law or in equity.
SECTION 2.8. SEPARATE COVENANTS.
Xxx understands and agrees that the covenants contained in this Article
II constitute a series of separate covenants, one for each applicable state in
the United States
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and the District of Columbia, and one for each applicable foreign country. If in
any judicial proceeding a court shall hold unenforceable any of the separate
covenants included in this Article II, then such unenforceable covenant or
covenants shall be deemed limited as necessary or eliminated from the provisions
of this Article II for the purpose of such proceeding to the extent necessary to
permit the remaining separate covenants of this Article II to be enforced in
such proceeding, and to permit such unenforceable covenant or covenants to be
enforced as limited.
ARTICLE III
VESTING OF OPTIONS
SECTION 3.1. VESTING ON DECEMBER 31, 2005.
All Options granted under this Agreement shall vest and become fully
exercisable on December 31, 2005, provided only that Xxx is a Key Senior
Executive on such date.
SECTION 3.2. ACCELERATION OF VESTING: FIRST SERIES.
Notwithstanding the provisions of Section 3.1, if on December 31 of any
year from 1997 to and including 2004 (a) Xxx is a Key Senior Executive, (b) the
Company's annual Pre-Tax Income was not less than five percent (5%) of its Net
Sales Revenue for both the year ending on such December 31 and the entire
preceding year, and (c) at least one (1) full-time female employee of the
Company reporting directly to Xxx has held a position of Vice President/Group
Publisher, or a comparable or higher level position, for the entire year ending
on such December 31, then and in that event Options with respect to one hundred
thirty-two (132) Unexercised Shares (which number equals approximately one
quarter of one percent (0.25%) of the number of shares of the Company's Common
Stock
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issued and outstanding as of the date hereof) shall vest and become exercisable
as of the first such December 31 on which all of the three (3) aforementioned
conditions (the "Conditions") are satisfied.
SECTION 3.3. ACCELERATION OF VESTING: SECOND SERIES.
(a) Notwithstanding the provisions of Section 3.1, if on December 31 of
any year from 1999 to and including 2004 the Conditions are satisfied, then and
in that event Options with respect to two hundred sixty-four (264) Unexercised
Shares (which number equals approximately one half of one percent (0.5%) of the
number of shares of the Company's Common Stock issued and outstanding as of the
date hereof) shall vest and become exercisable as of the first such December 31
on which the Conditions are satisfied.
(b) Notwithstanding the provisions of Section 3.1 and paragraph (a) of
this Section 3.3, if on December 31, 1997 or December 31, 1998 the Conditions
are satisfied and, in addition, (i) the Net Sales Revenue of the Company for the
year then ending exceeds $600 million and (ii) the Company's annual Pre-Tax
Income was not less than ten percent (10%) of its Net Sales Revenue for both the
year then ending and the entire preceding year, then and in that event Options
with respect to fifty percent (50%) of the Unexercised Shares referred to in
paragraph (a) of this Section 3.3, or one hundred thirty-two (132) Unexercised
Shares, shall accelerate and shall vest and become exercisable as of the first
such December 31 on which all the aforementioned conditions are satisfied.
SECTION 3.4. ACCELERATION OF VESTING: THIRD SERIES.
(a) Notwithstanding the provisions of Section 3.1, if on December 31 of
any year from 2001 to and including 2004 the Conditions are satisfied, then and
in that event
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Options with respect to five hundred twenty-eight (528) Unexercised Shares
(which number equals approximately one percent (1.0%) of the number of shares of
the Company's Common Stock issued and outstanding as of the date hereof) shall
vest and become exercisable as of the first such December 31 on which the
Conditions are satisfied.
(b) Notwithstanding the provisions of Section 3.1 and paragraph (a) of
this Section 3.4, if on December 31 of any year from 1997 to and including 2000
the Conditions are satisfied and, in addition, (i) the Net Sales Revenue of the
Company for the year then ending exceeds $800 million and (ii) the Company's
annual Pre-Tax Income was not less than ten percent (10%) of its Net Sales
Revenue for both the year then ending and the entire preceding year, then and in
that event Options with respect to fifty percent (50%) of the Unexercised Shares
referred to in paragraph (a) of this Section 3.4, or two hundred sixty-four
(264) Unexercised Shares, shall accelerate and shall vest and become exercisable
as of the first such December 31 on which all the aforementioned conditions are
satisfied.
SECTION 3.5. ACCELERATION OF VESTING: FOURTH SERIES.
(a) Notwithstanding the provisions of Section 3.1, if on December 31,
2003 or December 31, 2004 the Conditions are satisfied, then and in that event
Options with respect to six hundred sixty (660) Unexercised Shares (which number
equals approximately one and one quarter percent (1.25%) of the number of shares
of the Company's Common Stock issued and outstanding as of the date hereof)
shall vest and become exercisable as of the first such December 31 on which the
Conditions are satisfied.
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(b) Notwithstanding the provisions of paragraph (a) of this Section
3.5, if on December 31 of any year from 1997 to and including 2002 the
Conditions are satisfied and, in addition, (i) the Net Sales Revenue of the
Company for the year then ending exceeds $1 billion and (ii) the Company's
annual Pre-Tax Income was not less than ten percent (10%) of its Net Sales
Revenue for both the year then ending and the entire preceding year, then and in
that event Options with respect to forty percent (40%) of the Unexercised Shares
referred to in paragraph (a) of this Section 3.5, or two hundred sixty-four
(264) Unexercised Shares, shall accelerate and shall vest and become exercisable
as of the first such December 31 on which all the aforementioned conditions are
satisfied.
SECTION 3.6. ACCELERATION OF VESTING: FIFTH SERIES.
(a) Notwithstanding the provisions of Section 3.1, if on December 31 of
any year from 1997 to and including 2004 the Conditions are satisfied and, in
addition, (i) the Net Sales Revenue of the Company for the year then ending
exceeds $1.25 billion and (ii) the Company's annual Pre-Tax Income was not less
than ten percent (10%) of its Net Sales Revenue for both the year then ending
and the entire preceding year, then and in that event Options with respect to
two hundred sixty-four (264) Unexercised Shares (which number equals
approximately one half of one percent (0.5%) of the number of shares of the
Company's Common Stock issued and outstanding as of the date hereof) shall vest
and become exercisable as of the first such December 31 on which all the
aforementioned conditions are satisfied.
(b) Notwithstanding the provisions of Section 3.1, if on December 31 of
any year from 1997 to and including 2004 the Conditions are satisfied and, in
addition, (i) the Net Sales Revenue of the Company for the year then ending
exceeds $1.5 billion and (ii) the Company's annual Pre-Tax Income was not less
than ten percent (10%) of its Net
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Sales Revenue for both the year then ending and the entire preceding year, then
and in that event Options with respect to two hundred sixty-four (264)
Unexercised Shares (which number equals approximately one half of one percent
(0.5%) of the number of shares of the Company's Common Stock issued and
outstanding as of the date hereof) shall vest and become exercisable as of the
first such December 31 on which all the aforementioned conditions are satisfied.
SECTION 3.7. SATISFACTION OF CONDITIONS.
(a) Notwithstanding anything to the contrary contained in this Article
III, in the event that any of the Conditions set forth in Section 3.2, or any of
the conditions with respect to Net Sales Revenue or Pre-Tax Income set forth in
paragraph (b) of Section 3.3, Section 3.4, Section 3.5 or Section 3.6, is not
satisfied on December 31 of any year from 1997 through 2004 by reason of the
fact that the Company took or omitted to take an action for the purpose of
preventing or delaying the accelerated vesting of Options on such December 31 or
by reason of the fact that the Company willfully engaged in one or more
transactions for the direct benefit of any of the holders of the Class B Stock
or any affiliate thereof, which transaction was not on an arms-length basis,
commercially reasonable and in the ordinary course of business or consistent
with the Company's past practice, then and in that event such Condition or
condition shall nevertheless be deemed satisfied as of such December 31 for all
purposes of this Agreement.
(b) Notwithstanding anything to the contrary contained in this Article
III, in the event that the Condition set forth in Section 3.2(a) is not
satisfied on December 31 of any year from 1997 through 2004 by reason of the
fact that the Company demoted Xxx to a position lower than that of a Key Senior
Executive at the Company's initiative and without a bona fide business reason to
do so, then and in that event such Condition shall nevertheless be deemed
satisfied as of such December 31 for all purposes of this
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Agreement. As used herein, a "bona fide business reason" shall include but not
be limited to material deficiencies in Ken's performance of his duties, and
actions or omissions by Xxx that would constitute grounds for Dismissal For
Cause.
(c) Notwithstanding anything to the contrary contained in this Article
III, in the event that the Condition set forth in Section 3.2(c) is not
satisfied on December 31 of any year from 1997 through 2004 by reason of the
fact that, during the year ending on such December 31, the Company, over Ken's
protest, removed a qualified female from a position of Vice President/Group
Publisher reporting directly to Xxx or, during the final three (3) months of the
preceding year, the Company, over Ken's protest, refused to allow the
appointment of a qualified female to such position, then and in that event such
Condition shall nevertheless be deemed satisfied as of such December 31 for all
purposes of this Agreement. As used herein, a "qualified female" shall mean a
female reasonably qualified to perform the duties and discharge the
responsibilities of such position based on her abilities, experience and past
performance.
ARTICLE IV
EXERCISE OF OPTIONS
SECTION 4.1. EXERCISE OF OPTIONS.
Xxx xxx exercise a vested Option by giving the Company written notice
of exercise specifying the number of Unexercised Shares to be acquired together
with payment of the full Option Price for such Unexercised Shares. Xxx xxx
exercise fewer than all the Options which are then exercisable, but Xxx xxx not
exercise a partial Option for less than a full Unexercised Share. Xxx xxx pay
the Option Price for Unexercised Shares to be acquired:
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(a) by delivering to the Company United States dollars in cash or by
check, bank draft or wire transfer payable to the order of the Company;
(b) by transferring and delivering to the Company shares of Class A
Stock (to the extent their transfer is not otherwise restricted) having an
aggregate Fair Market Value as of the date of exercise equal to the aggregate
Option Price to be paid; provided that if Xxx originally acquired such shares of
Class A Stock pursuant to this Agreement or the Share Purchase Agreement, he may
use such shares to pay the Option Price for Unexercised Shares only if he has
then owned and been entitled to sell such shares of Class A Stock (subject only
to limitations set forth in such Agreements as to the maximum aggregate number
of such shares saleable in any single calendar year and to pre-conditions to
sale set forth in such Agreements as to the market capitalization of the
Company) for at least six (6) months; or
(c) by any combination of the above methods of payment.
Upon receipt of payment for such Unexercised Shares, the Company shall duly
issue such Unexercised Shares to Xxx (whereupon such Unexercised Shares shall
become Option Shares), and the Company shall deliver to Xxx stock certificates
representing such Option Shares and bearing the legends contemplated in Section
13.1.
SECTION 4.2. WITHHOLDING TAXES.
The Company may, in its discretion, require Xxx to pay to the Company
upon the exercise of any Option the amount that the Company reasonably deems to
be the minimum amount of tax that the Company is required by federal, state or
local statute to withhold (including FICA) in connection with such exercise,
using the method of calculating tax withholdings that results in the least
amount withheld. Xxx xxx pay the
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amount of his withholding tax liability by using any of the methods set forth in
Section 4.1. In addition, he may pay up to the minimum amount of such required
tax withholdings (but no more than such minimum amount):
(a) by transferring and delivering to the Company shares of Class A
Stock (to the extent their transfer is not otherwise restricted) having an
aggregate Fair Market Value as of the date of exercise equal to the amount of
such minimum required tax withholdings, regardless of how xxxx Xxx has then
owned or been entitled to sell such shares of Class A Stock or how he acquired
such shares of Class A Stock;
(b) with the prior approval of the Board of Directors, by authorizing
the Company in writing to deduct and retain, from the Unexercised Shares
otherwise to be issued to Xxx, Unexercised Shares having an aggregate Fair
Market Value as of the date of exercise equal to such minimum amount of required
tax withholdings; or
(c) by any combination of the above methods of payment.
SECTION 4.3. DETERMINATION OF FAIR MARKET VALUE.
In the event that, at a time when the Company is privately held and
there is no public market for the Class A Stock, Xxx elects to pay the Option
Price for any Unexercised Shares or to pay his withholding tax liability thereon
by transferring and delivering shares of Class A Stock to the Company, or to pay
such withholding tax liability by authorizing the Company to deduct and retain
Unexercised Shares, he shall so advise the Company in his notice of exercise and
the parties shall promptly determine the Fair Market Value of such shares of
Class A Stock pursuant to the procedure set forth in Section 6.7(b).
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SECTION 4.4. NON-TRANSFERABILITY OF OPTIONS.
Each vested Option shall be exercisable only by Xxx or, in the event of
Ken's death or incapacity, by the representative of Xxx duly authorized pursuant
to Section 4.4. No Option or any rights thereunder shall be transferable other
than by will, by the laws of descent and distribution, or for tax withholding
purposes pursuant to Section 4.2, or be subject to attachment, execution or
other similar process. Any attempt by Xxx to alienate, assign, pledge,
hypothecate or otherwise dispose of an Option or any right thereunder, except as
provided for herein, and any levy or attachment, execution or similar process
upon the rights or interest conferred under any Option, shall be null and void.
SECTION 4.5. KEN'S REPRESENTATIVE.
Promptly following execution of this Agreement, Xxx shall give the
Company written notice designating one or more representatives who shall be
entitled, following Ken's death or incapacity, to exercise his rights under this
Agreement. Xxx xxx, from time to time, revoke or change his designation of
representatives, without the consent of any prior representative, by giving the
Company notice of revocation or change. The last notice duly given to the
Company prior to Ken's death or incapacity shall be controlling. If, at the time
of his death or incapacity, Xxx has not properly designated a representative or
if the designated representative does not survive such event, then the following
persons or entity, in the following order, shall be deemed Ken's representative
hereunder: (a) Ken's surviving spouse; (b) if there is no surviving spouse, then
Ken's children, PER STIRPES; (c) if there are no children, then Ken's estate.
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ARTICLE V
EXPIRATION OF OPTIONS
SECTION 5.1. EXPIRATION OF OPTIONS.
Except as provided otherwise in this Article V, every vested but
unexercised Option shall expire and all rights thereunder shall be extinguished
upon the expiration of the later of (a) five (5) years after the date on which
such Option vested or (b) eighteen (18) months after the date on which the
Company makes an initial public offering of shares of the Class A Stock (unless
such Option has already expired by the date of such offering); provided that all
unexercised Options shall expire and be extinguished no later than the close of
business on December 31, 2010.
SECTION 5.2. EXPIRATION UPON DEATH, PERMANENT DISABILITY, DISMISSAL WITHOUT
CAUSE OR RESIGNATION FOR GOOD REASON.
In the event Ken's employment with the Company terminates as a result
of his death, Permanent Disability, Dismissal Without Cause or Resignation For
Good Reason, then and in that event:
(a) Every vested but unexercised Option shall remain exercisable for
one (1) year from the date of such termination of employment. Upon the
expiration of such 1-year period, any such Options that have not then been
exercised shall expire and all rights thereunder shall be extinguished.
(b) On the date of such termination of Ken's employment, such number of
unvested Options shall vest and become exercisable as shall equal the number of
Options that, but for such termination of employment, would have vested within
twenty-four (24) months after the date of such termination assuming the
Conditions were satisfied at all
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times during such 24-month period, multiplied by a fraction the numerator of
which shall equal the number of full months that, on the date of such
termination, have elapsed since the nearest preceding December 31 on which
Options vested under paragraph (a) of Section 3.2, Section 3.3, Section 3.4 or
Section 3.5, as the case may be (or could have vested under such paragraphs if
the Conditions had been satisfied on such preceding December 31), and the
denominator of which shall be twenty-four (24). (A hypothetical illustration of
the calculation of such number of Options is set forth on Schedule 5.2(b)
hereto.) All Options which vest pursuant to this paragraph (b) shall remain
exercisable for one (1) year from the date of such termination of Ken's
employment. Upon the expiration of such 1-year period, any such Options that
have not then been exercised shall expire and all rights thereunder shall be
extinguished.
(c) Every Option which neither vested prior to such termination of
Ken's employment nor vests pursuant to paragraph (b) of this Section 5.2 shall
expire and all rights thereunder shall be extinguished as of the date of such
termination of employment.
SECTION 5.3. EXPIRATION UPON VOLUNTARY RESIGNATION, DISMISSAL FOR CAUSE OR
COMPETITION.
In the event that Ken's employment with the Company terminates as a
result of his Voluntary Resignation or Dismissal For Cause, or in the event that
Xxx materially breaches any of the provisions of Section 2.2 or Section 2.3,
then and in that event all unvested Options and all vested Options that have not
yet been duly exercised shall expire and all rights thereunder shall be
extinguished as of the earlier of the date of such termination of employment or
the date of such breach of Section 2.2 or Section 2.3. In the event that Xxx
exercises any Option at a time when he has breached any of the provisions of
Section 2.2 or Section 2.3, such purported exercise shall be null and void,
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and Xxx shall return to the Company immediately upon demand any and all stock
certificates representing Option Shares issued to him upon exercise of such
Option, in exchange for which the Company shall return to Xxx any consideration
he paid for such Option Shares.
SECTION 5.4. CHANGE IN CONTROL.
Notwithstanding anything to the contrary contained in Article III or
this Article V, in the event that there is a Change in Control and, in
connection therewith or subsequently, Ken's employment with the Company
terminates as a result of his Dismissal Without Cause or Resignation For Good
Reason, then and in that event:
(a) Every vested but unexercised Option shall remain exercisable in
accordance with the provisions of Section 5.1 as if Ken's employment had not so
terminated.
(b) Every unvested Option shall vest in accordance with the provisions
of Article III except that the requirement that Xxx be a Key Senior Executive on
December 31, 2005 and the requirement that the Conditions be satisfied on any
December 31 shall be deemed eliminated from this Agreement as conditions to
vesting, and such unvested Options shall vest in accordance with the provisions
of Article III as if Ken's employment as a Key Senior Executive had not so
terminated and as if the Conditions were fully satisfied at all times through
December 31, 2005; provided, however, that in the event of Ken's death following
such termination of employment, Options then unvested shall vest and become
exercisable in accordance with the provisions of Section 5.2(b) as if Xxx had
been employed as a Key Senior Executive on the date of his death.
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ARTICLE VI
TRANSFERABILITY OF SHARES AT TIME WHEN
COMPANY IS PRIVATELY HELD AND THERE IS NO PUBLIC MARKET
SECTION 6.1. GENERAL RESTRICTION ON TRANSFER.
(a) At any time when the Company is privately held and there is no
public market for the Class A Stock, Xxx shall not, voluntarily or
involuntarily, by operation of law or otherwise, sell, mortgage, pledge,
hypothecate, assign as a security, grant or permit to exist or continue a
security interest in, or in any way transfer by gift, will, trust or intestate
succession any of the Option Shares, except to a Permitted Transferee as
provided in Section 13.2(a) or except as specifically provided in this Article
VI. Any attempt by Xxx to do any of the aforementioned acts or otherwise to
alienate or dispose of any Option Shares, except in accordance with this
Agreement, shall be null and void.
(b) Notwithstanding anything to the contrary contained in this Article
VI, Xxx shall not have the right to require the Company to purchase any Option
Shares hereunder unless and until Xxx has owned and been entitled to sell such
Option Shares (subject only to limitations set forth in this Agreement as to the
maximum aggregate number of such shares saleable in any single calendar year and
to pre-conditions to sale set forth in this Agreement as to the market
capitalization of the Company) for at least six (6) months prior to such
purchase, and the Company shall have the right, in purchasing Option Shares from
Xxx hereunder, to defer the purchase of any such Option Shares until such time
as Xxx has so owned and been entitled to sell them for six (6) months.
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SECTION 6.2. SALE TO SATISFY INCOME TAX LIABILITIES.
Subject to the provisions of Section 6.1(b), but notwithstanding the
limitations set forth in any other Section of this Article VI, Xxx shall have
the right, exercisable upon notice to the Company given no later than twelve
(12) months after the exercise of any Option, to require the Company to purchase
a number of Option Shares (and/or, to the extent their sale is not otherwise
restricted, Restricted Shares) at the price provided in Section 6.7, such that
the proceeds of such purchase shall equal the amount, if any, of Ken's
additional income tax liability (federal, state and local) actually occasioned
as a result of the exercise of such Option. Such notice shall include a written
certification of such amount by Ken's tax accountant. Any shares of Class A
Stock sold under this Section 6.2 shall be taken into account when calculating
the aggregate number of shares of Class A Stock that Xxx shall be entitled to
sell in any single calendar year under any other Section of this Article VI, it
being the intent of the parties that shares of Class A Stock sold under this
Section 6.2 shall be included in, and shall not be in addition to, such
aggregate number of shares permitted to be sold in any single calendar year
under any such other Section of this Article VI.
SECTION 6.3. SALE AFTER DECEMBER 31, 2005.
Subject to the provisions of Section 6.1(b), during each and any
calendar year beginning with the calendar year 2006, Xxx shall have the right,
exercisable upon notice to the Company given during the first three (3) months
of such calendar year, to require the Company to purchase up to five hundred
twenty-eight (528) shares of his Class A Stock (which number of shares equals
approximately one percent (1%) of the number of shares of the Company's Common
Stock issued and outstanding as of the date hereof),
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including both Option Shares and Restricted Shares, at the price provided in
Section 6.7(a).
SECTION 6.4. SALE AFTER DEATH OR PERMANENT DISABILITY.
Subject to the provisions of Section 6.1(b), in the event that Ken's
employment with the Company terminates as a result of his death or the Company
terminates his employment by reason of his Permanent Disability (whether before
or after December 31, 2005), then and in that event, notwithstanding the
provisions of Section 6.2 and Section 6.3, the parties shall have the following
rights:
(a) RIGHTS OF XXX TO SELL. Xxx or his representative and/or successors
in interest shall have the right, exercisable upon notice to the Company given
no later than one hundred eighty (180) days after such termination of employment
occurs, or during the first three (3) months of any succeeding calendar year, to
require the Company to purchase any or all of the Option Shares then owned by
Xxx or his successors in interest, at the price provided in Section 6.7(a).
(b) RIGHTS OF COMPANY TO PURCHASE. The Company shall have the right,
exercisable upon notice to Xxx or his representative and/or successors in
interest given during the first three (3) months of the third calendar year
after the year in which such termination of employment occurs and/or during the
first three (3) months of any succeeding calendar year, to require Xxx or his
representative and/or successors in interest to sell to the Company any or all
of the Option Shares then owned by Xxx or any successor in interest, at the
price provided in Section 6.7(a).
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SECTION 6.5. SALE AFTER DISMISSAL WITHOUT CAUSE OR RESIGNATION FOR GOOD
REASON.
Subject to the provisions of Section 6.1(b), in the event that Ken's
employment with the Company terminates as a result of his Dismissal Without
Cause or Resignation For Good Reason, then and in that event the parties shall
have the following rights:
(a) RIGHTS OF XXX TO SELL. In addition to his rights under Section 6.3
with respect to sales after December 31, 2005, Xxx shall also have the right
prior to December 31, 2005, exercisable upon notice to the Company given during
the first three (3) months of the calendar year after which such Dismissal
Without Cause or Resignation For Good Reason occurs and/or during the first
three (3) months of any succeeding calendar year, to require the Company to
purchase up to five hundred twenty-eight (528) of his Option Shares (which
number of shares equals approximately one percent (1%) of the number of shares
of the Company's Common Stock issued and outstanding as of the date hereof), at
the price provided in Section 6.7(a).
(b) RIGHTS OF COMPANY TO PURCHASE. The Company shall have the right,
exercisable upon notice to Xxx given during the first three (3) months of the
third calendar year after the year in which such Dismissal Without Cause or
Resignation For Good Reason occurs and/or during the first three (3) months of
any succeeding calendar year, to require Xxx to sell to the Company any or all
of the Option Shares then owned by Xxx, at the price provided in Section 6.7(a).
The death or Permanent Disability of Xxx occurring subsequent to his Dismissal
Without Cause or Resignation For Good Reason shall not modify or affect the
rights and obligations of the parties as set forth in this Section 6.5.
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SECTION 6.6. SALE AFTER VOLUNTARY RESIGNATION, DISMISSAL FOR CAUSE, OR
COMPETITION.
Subject to the provisions of Section 6.1(b), in the event that (a)
Ken's employment with the Company terminates as a result of his Voluntary
Resignation or Dismissal For Cause or (b) Xxx materially breaches any of the
provisions of Section 2.2 or Section 2.3 (whether before or after the
termination of his employment for any reason) and, if the Company has given him
notice to cure, fails to cure such breach on a timely basis, then and in that
event, in addition to any rights that Xxx has under Section 6.2 and Section 6.3
(but subject to the provisions of Section 4.2(c) of the Employment Agreement),
the Company shall have the right, exercisable upon notice to Xxx given at any
time or times after such event occurs (whether before or after December 31,
2005), to require Xxx to sell to the Company any or all of the Option Shares
then owned by Xxx, at the price provided in Section 6.7(a). The death or
Permanent Disability of Xxx occurring subsequent to his Voluntary Resignation,
Dismissal For Cause or material breach of any of the provisions of Section 2.2
or Section 2.3 shall not modify or affect the rights and obligations of the
parties as set forth in this Section 6.6.
SECTION 6.7. PURCHASE PRICE OF OPTION SHARES.
(a) PRICE TO BE PAID FOR OPTION SHARES. The purchase price for any
Option Shares to be purchased pursuant to this Article VI shall be the Fair
Market Value of such Option Shares.
(b) DETERMINATION OF FAIR MARKET VALUE. Within the sixty (60) days
after Xxx has given the Company notice of intent to sell Option Shares or the
Company has given Xxx notice of intent to purchase Option Shares pursuant to
this Article VI, the Company and Xxx shall negotiate in good faith in an effort
to reach mutual agreement as to the Fair Market Value of such Option Shares. If
the Company and Xxx are unable to reach
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agreement as to the Fair Market Value of such Option Shares within such 60-day
period, the Fair Market Value of such Option Shares shall be determined by an
appraisal process as follows. Each of the Company and Xxx shall designate,
within thirty (30) days after the conclusion of the 60-day negotiation period
referred to above, an independent and experienced appraiser familiar with the
business in which the Company is then engaged (each individually an "Appraiser"
and collectively the "Appraisers"). The Appraisers shall be instructed to
complete their respective determinations of the Fair Market Value of such Option
Shares and deliver their written reports on such determinations no later than
sixty (60) days after both of such Appraisers have been appointed. If the
determination of one of the Appraisers does not exceed the determination of the
other Appraiser by more than fifteen percent (15%) of the lower of the two
determinations, the Fair Market Value of such Option Shares shall be equal to
the average of the two determinations. If the higher determination exceeds the
lower determination by more than fifteen percent (15%) of the lower
determination, then the two Appraisers shall jointly appoint a third,
independent and similarly experienced Appraiser within fifteen (15) days after
both of such two Appraisers have delivered their reports. Such third Appraiser
shall deliver his report on his determination of the Fair Market Value of such
Option Shares within sixty (60) days after his appointment, and his
determination of Fair Market Value shall be conclusive and binding on the
parties for all purposes hereof. The cost of all such appraisals shall be borne
one-half by the Company and one-half by Xxx.
(c) PAYMENT OF PURCHASE PRICE.
(i) LUMP SUM OR INSTALLMENTS. The purchase price for Option Shares
shall be paid by the Company in full at the closing or, at the election of the
Company, in equal annual installments, together with interest payable quarterly
at the rate of interest announced publicly on the first day of each calendar
quarter by a major United States
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money market bank, selected by the Company, as such bank's base rate, over a
number of years to be determined by the Company but in no event exceeding five
(5) years if the purchase is pursuant to Section 6.3 or Section 6.5, or ten (10)
years if the purchase is pursuant to Section 6.4 or Section 6.6; provided,
however, that the purchase price for any Option Shares purchased by the Company
pursuant to Section 6.2 shall be paid in full at the closing.
(ii) INITIAL INSTALLMENT. In the event the Company elects to pay for
Option Shares hereunder on an installment basis, all annual installments shall
be equal in principal amount except as follows:
(A) The initial installment for any such sale of Option
Shares, other than a sale occurring by reason of Ken's death, Dismissal For
Cause or breach of any of the provisions of Section 2.2 or Section 2.3, shall be
not less than the amount, if any, of Ken's additional income tax liability
(federal, state and local) actually occasioned as a result of such sale,
provided that such amount shall have been certified to the Company in writing by
Ken's tax accountant.
(B) The initial installment for the first sale of shares of
Class A Stock that Xxx makes under this Agreement or the Stockholders'
Agreement, other than a sale occurring by reason of Ken's death, Dismissal For
Cause or breach of any of the provisions of Section 2.2 or Section 2.3, shall be
at least (1) the amount due under clause (A) above plus the amount of one
million dollars ($1,000,000) or (2) if less, the total purchase price for such
Option Shares.
(C) The initial installment for any sale of Option Shares
occurring by reason of Ken's death shall be not less than the amount of the
estate and succession tax liability (federal and state) occasioned as a result
of the inclusion of the Option Shares in Ken's estate (giving effect to any
deferral permitted by law or regulation in the payment
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thereof) together with any and all costs and expenses of administration of Ken's
estate as reasonably estimated by Ken's representative, all as certified to the
Company in writing by Ken's representative.
(iii) CASH FLOW LIMITATIONS. Notwithstanding any other provision of
this Article VI, in the event that the amount due from the Company in payment
for Option Shares purchased hereunder (including both principal and interest) in
any one fiscal year of the Company (other than a purchase occurring by reason of
Ken's death) exceeds fifty percent (50%) of the Company's Free Cash Flow for the
preceding year, then and in that event the Company in its sole discretion may
elect to defer payment of any portion of such principal and/or interest to the
extent that payment would require the Company to pay more than fifty percent
(50%) of its Free Cash Flow for such preceding year, provided that any such
deferred amounts shall continue to earn interest as described in Section 6.7
(c)(i) until paid; and provided further that in any event all principal and
interest shall be paid in full no later than five (5) years or ten (10) years,
as the case may be, after the date of the closing. If, in the same fiscal year,
the Company is also required to pay any persons or entities other than Xxx for
shares of Class A Stock that such persons or entities originally acquired from
other stockholders of the Company as of the date hereof or pursuant to options
granted by the Company and/or is required to make payment to Xxx and/or any
other persons under any comparable long-term senior executive compensation plan
in effect from time to time, the amounts due to such other persons or entities
in such fiscal year shall be aggregated with the amount due with respect to the
Option Shares in such fiscal year and, if the aggregate amount due exceeds fifty
percent (50%) of the Company's Free Cash Flow for the preceding fiscal year,
then and in that event the Company in its sole discretion may elect to defer
payment of any portion of such aggregate amount (principal and/or interest) to
the extent that it would
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exceed fifty (50%) of the Company's Free Cash Flow for the preceding year, and
payments and deferments shall be effected among Xxx and such other persons in
proportion to the amounts (both principal and interest) then due and owing to
each, subject to any provisions in such plans as to priority of payment.
(d) CLOSING OF TRANSACTION. The closing of any purchase of Option
Shares hereunder shall be held no later than ninety (90) days after the final
determination of the Fair Market Value of such Option Shares, at such time and
place as the Company may reasonably designate. At the closing, Xxx shall deliver
or cause to be delivered to the Company the stock certificates representing such
Option Shares, duly endorsed for transfer in blank or with duly executed stock
powers attached, and with signature guaranteed, in exchange for which the
Company shall deliver to Xxx the amount of the purchase price then due, together
with the Company's promissory note evidencing the Company's obligation to pay
the balance, if any, of the purchase price in accordance with the terms of
Section 6.7(c). All payments to Xxx hereunder shall be made in cash or by
Company check, bank draft or wire transfer.
SECTION 6.8. ASSIGNMENT AND DELEGATION BY THE COMPANY TO CLASS B
STOCKHOLDERS.
The Company shall have the right, exercisable upon notice to Xxx, to
assign any or all of its rights and/or delegate any or all of its obligations
under this Article VI to the holders of the Class B Stock, in proportion to
their respective ownership interests or as they may otherwise unanimously agree,
provided that the Company shall not be relieved of its obligation to purchase
from Xxx in accordance herewith any Option Shares duly tendered and not
purchased and paid for by such holders of Class B Stock.
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SECTION 6.9. TAG-ALONG RIGHTS -- DRAG-ALONG RIGHTS.
(a) In the event the Controlling Stockholders of the Company determine
to dispose of all or a portion of their shares of Common Stock, with the result
that they will no longer control the Company, then and in that event the Company
shall give Xxx a notice (a "Tag-Along Notice") of such proposed sale (a
"Tag-Along Sale") and the material terms of the Tag-Along Sale (the "Material
Terms") no later than thirty (30) days prior to the consummation of the
Tag-Along Sale. If, within twenty (20) days after a Tag-Along Notice is given to
Xxx (or within ten (10) days after any notice of a change in the Material Terms
is given to Xxx), the Company receives from Xxx a written request (a "Tag-Along
Request") to include in the Tag-Along Sale any of the Option Shares held by him,
such Option Shares (in the same proportion as the total number of shares of
Common Stock held by the Controlling Stockholders bears to the number of shares
being sold by the Controlling Stockholders) shall be included in the Tag-Along
Sale on the same terms and conditions and subject to the same obligations as the
sale by the Controlling Stockholders, taking into account the proportionate
ownership of the Controlling Stockholders and Xxx. The Company shall give Xxx
prompt notice of any change in the Material Terms and, in such event, Xxx shall
have the opportunity, for a period of ten (10) days after such notice has been
given, to submit a Tag-Along Request if Xxx did not previously submit a
Tag-Along Request or to withdraw or modify a Tag-Along Request previously made.
(b) Ken's rights hereunder to participate in a Tag-Along Sale shall be
contingent on Ken's compliance with each of the provisions hereof, Ken's
acceptance of a proportionate delegation of any duties or obligations related to
the Tag-Along Sale, including any indemnification obligations, and Ken's
execution of such documents in
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connection with the Tag-Along Sale as may be reasonably requested by the
Controlling Stockholders.
(c) In connection with any proposed sale of shares of Common Stock by
the Controlling Stockholders to a non-affiliated person or entity in an
arms-length transaction, if Xxx has not exercised his rights to sell Option
Shares as contemplated under paragraph (a) of this Section 6.9, the Company
shall have the right, exercisable upon notice to Xxx, to require that Xxx sell
to the purchaser of the shares of the Controlling Stockholders the same
proportion of Option Shares owned by Xxx as are being sold by the Controlling
Stockholders, on the same terms and conditions and subject to the same
obligations including any indemnification obligations, as the sale by the
Controlling Stockholders, taking into account the proportionate ownership of the
Controlling Stockholders and Xxx. Xxx agrees that he will cooperate with the
Company and the Controlling Stockholders in taking all such actions, including
executing all such documentation, as the Company and /or the Controlling
Stockholders may reasonably request.
ARTICLE VII
TRANSFERABILITY OF SHARES AT TIME COMPANY SHARES ARE PUBLICLY TRADED
SECTION 7.1. GENERAL RESTRICTION ON TRANSFER.
In the event that shares of the Class A Stock become listed on a
national securities exchange or quoted in the National Market List of NASDAQ,
then and in that event the provisions of Article VI shall cease to be operative,
and Xxx shall not, voluntarily or involuntarily, by operation of law or
otherwise, sell, mortgage, pledge, hypothecate, assign as a security, grant or
permit to exist or continue a security interest in, or in any
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way transfer by gift, will, trust or intestate succession any of the Option
Shares, except to a Permitted Transferee as provided in Section 12.2(a) or
except as specifically provided in this Article VII. Any attempt by Xxx to do
any of the aforementioned acts or otherwise to alienate or dispose of any Option
Shares, except in accordance with this Agreement, shall be null and void.
SECTION 7.2. SALE TO SATISFY INCOME TAX LIABILITIES.
Notwithstanding the limitations set forth in any other Section of this
Article VII, Xxx shall have the right, exercisable upon notice to the Company
given no later than twelve (12) months after the exercise of any Option, to sell
a number of Option Shares (and/or, to the extent their sale is not otherwise
restricted, Restricted Shares) on the public market, such that the proceeds of
such sale shall equal the amount, if any, of Ken's additional income tax
liability (federal, state and local) actually occasioned as a result of the
exercise of such Option. Such notice shall include a written certification of
such amount by Ken's tax accountant. Any shares of Class A Stock sold under this
Section 7.2 shall be taken into account when calculating the aggregate number of
shares of Class A Stock that Xxx shall be entitled to sell in any single
calendar year under any other Section of this Article VII, it being the intent
of the parties that shares of Class A Stock sold under this Section 7.2 shall be
included in, and shall not be in addition to, such aggregate number of shares
permitted to be sold in any single calendar year under any such other Section of
this Article VII.
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SECTION 7.3. SALE ON OR BEFORE DECEMBER 31, 2005.
Except as otherwise provided in Section 7.5 and Section 7.6, from
January 1, 1998 through December 31, 2005, Xxx shall have the right to sell
Option Shares on the public market, subject to the following conditions:
(a) MINIMUM MARKET CAPITALIZATION. Xxx xxx not sell any Option Shares
under this Section 7.3 unless the market capitalization of the Company as of the
Business Day immediately preceding the date of sale is greater than three
hundred forty million dollars ($340,000,000). The market capitalization of the
Company shall be determined by multiplying the Fair Market Value of a share of
Class A Stock by the total number of shares of the Common Stock then issued and
outstanding.
(b) MAXIMUM NUMBER OF SHARES.
(i) The maximum number of shares of Class A Stock (including both
Option Shares and Restricted Shares) that Xxx xxx sell in any single calendar
year shall be five hundred twenty-eight (528) shares of Class A Stock, (which
number of shares equals approximately one percent (1%) of the number of shares
of the Company's Common Stock issued and outstanding as of the date hereof); and
(ii) the maximum number of Restricted Shares that may be included in
such shares of Class A Stock sold in any single calendar year shall be the
smaller of (A) the number of Restricted Shares whose Fair Market Value as of the
Business Day immediately preceding the date of sale does not exceed $500,000 or
(B) fifty-three (53) Restricted Shares (which number equals approximately 1/10
of one percent (0.1%) of the number of shares of the Company's Common Stock
issued and outstanding as of the date hereof).
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SECTION 7.4. SALE AFTER DECEMBER 31, 2005.
Except as otherwise provided in Section 7.5, after December 31, 2005,
Xxx shall have the right to sell Option Shares on the public market, provided
only that the maximum number of shares of Class A Stock (including both Option
Shares and Restricted Shares) that Xxx xxx sell in any single calendar year
shall be five hundred twenty-eight (528) shares of Class A Stock (which number
of shares equals approximately one percent (1%) of the number of shares of the
Company's Common Stock issued and outstanding as of the date hereof).
SECTION 7.5. SALE AFTER DEATH OR PERMANENT DISABILITY.
(a) Notwithstanding the provisions of Section 7.3, in the event that
Ken's employment terminates as a result of his death or the Company terminates
his employment by reason of his Permanent Disability, then and in that event (i)
the pre-condition to sales on or before December 31, 2005, which is set forth in
Section 7.3(a) with respect to the Company's minimum market capitalization,
shall not apply, and Xxx and/or his representative and/or his successors in
interest shall have the right to sell Option Shares pursuant to Section 7.3 on
or before December 31, 2005 irrespective of the market capitalization of the
Company; and (ii) the limitation set forth in Section 7.3(b)(ii) shall not apply
and, instead, the maximum number of Restricted Shares that may be included in
the shares of Class A Stock sold in any calendar year by Xxx and/or his
representative and/or successors in interest, as a group, shall be two hundred
sixty-four (264) Restricted Shares.
(b) Notwithstanding the provisions of Section 7.3, Section 7.4 and
Section 7.5(a)(ii), in the event that Ken's employment terminates as a result of
his death, Ken's representative and/or successors in interest shall have the
right to sell in any calendar year
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up to such number of shares of Class A Stock (including both Option Shares and
Restricted Shares) as shall equal the greater of (i) the number of such shares
that is permitted to be sold under Section 7.3 or Section 7.4, as applicable, or
(ii) the number of such shares that is necessary in order for the proceeds of
such sale to equal the amount of the estate and succession tax liability
(federal and state) , including any interest thereon, due in such year as a
result of the inclusion of such shares of Class A Stock in Ken's estate (giving
effect to any deferral permitted by law or regulation in the payment thereof),
together with any and all costs and expenses of administration of Ken's estate
for such year as reasonably estimated by Ken's representative, all as certified
to the Company in writing by Ken's representative.
SECTION 7.6. TENDER, MERGER, CONSOLIDATION.
In the event the Controlling Stockholders of the Company determine to
dispose all or a portion of their shares of Common Stock in a tender, merger,
consolidation or similar type of transaction, with the result that they no
longer control the Company, then and in that event, Xxx shall have the right,
but not the obligation, to dispose of a proportionate number of shares of his
Class A Stock in any such transaction.
SECTION 7.7. COMPLIANCE WITH SECURITIES LAWS.
Neither Xxx nor his representative will sell or attempt to sell any
shares of Class A Stock under this Article VII except in accordance with all
applicable federal and state securities laws, all applicable rules and
regulations of the Securities and Exchange Commission, and any applicable
underwriters' limitations and restrictions.
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ARTICLE VIII
FUTURE CHANGES IN CAPITAL STRUCTURE AND REDEMPTION OF SHARES
SECTION 8.1. CHANGES IN CAPITAL STRUCTURE.
If the Company hereafter declares a dividend payable in, or subdivides
or combines, shares of the Class A Stock, or if the Company engages in a
recapitalization, reorganization, merger, consolidation, split-up, transfer of
assets, combination or exchange of shares of Common Stock, or if any other event
shall occur which in the judgment of the Board of Directors calls for action by
way of adjusting the terms of the unexercised Options hereunder or the number of
Option Shares, the Board of Directors shall forthwith take such action as in its
judgment shall be necessary or appropriate to preserve Ken's rights with respect
to such Options and Option Shares substantially proportionate to his rights
existing prior to such event, and to the extent that such action shall include
an increase or decrease in the number of Unexercised Shares hereunder, the
Option Price shall be adjusted inversely to the change in the number of
Unexercised Shares in order that the total amount payable by Xxx upon exercise
of all the Options granted under this Agreement shall remain unchanged. The
decision of the Board of Directors with respect to any matter referred to in
this Section 8.1 shall be conclusive and binding upon Xxx. Nothing in this
Agreement is intended to preserve Ken's equity interest in the Company against
dilution resulting from the issuance of securities by the Company in the future.
SECTION 8.2. REDEMPTION OF CLASS B STOCK.
If and when any shares of the Class B Stock owned by any member of the
Leeds Family are redeemed by the Company in accordance with the terms and
provisions of the
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Shareholders' Agreement, then, in order to ensure that Ken's percentage interest
in the Company will remain the same as his interest would have been but for such
redemption (the "Class B Stock Redemption"), the Company shall, promptly
following the Class B Stock Redemption, adjust the number of the Unexercised
Shares and, if Xxx then owns any Option Shares, redeem at a price equal to their
par value (currently $.10 per share) a number of such Option Shares such that
the adjustment of the number of the Unexercised Shares (the "Option Adjustment")
and the redemption of Option Shares (the "Class A Stock Redemption") shall
result in (a) the ratio of (i) the sum of the number of Unexercised Shares and
the number of Option Shares outstanding immediately after the Option Adjustment
and the Class A Stock Redemption to (ii) the total number of shares of Common
Stock outstanding immediately after the Class A Stock Redemption being the same
as (b) the ratio of (i) the sum of the number of Unexercised Shares and the
number of Option Shares outstanding immediately prior to the Class B Stock
Redemption to (ii) the total number of shares of Common Stock outstanding
immediately prior to the Class B Stock Redemption. In such event, the Option
Price shall also be adjusted so that the total amount payable upon exercise of
all the Options granted under this Agreement shall remain unchanged.
ARTICLE IX
PROCEDURE TO BE FOLLOWED IN CASE OF
RESIGNATION FOR GOOD REASON OR DISMISSAL FOR CAUSE
SECTION 9.1. RESIGNATION FOR GOOD REASON.
In the event Xxx terminates his employment with the Company as a
Resignation For Good Reason, Xxx shall give the Company at least ten (10)
Business Days' prior
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written notice specifying in reasonable detail the specific conduct of the
Company that he considers grounds for Resignation For Good Reason and the
specific provision of the definition of "Resignation For Good Reason" upon which
he relies. Ken's employment with the Company shall terminate as of the tenth
Business Day after such notice is given, or such other date as the parties
mutually agree. Should the Company dispute the basis for such resignation in a
written notice given to Xxx on or before his termination date, the parties shall
meet and endeavor to resolve the dispute amicably within the twenty (20)
Business Days after the Company's notice is given. If they cannot so resolve the
dispute within such twenty (20) Business Days after the Company's notice is
given, Xxx and the Company shall submit the dispute to binding arbitration in
accordance with Section 10.1. The decision rendered in such arbitration shall be
final and binding on both Xxx and the Company for all purposes. If the
arbitrators determine that Xxx did not have a proper basis on which to terminate
his employment as Resignation For Good Reason within the meaning of this
Agreement, the termination of Ken's employment shall be treated for all purposes
of this Agreement as a Voluntary Resignation. In addition to any other rights
which a party may have, the party prevailing in such arbitration proceeding
shall be entitled to recover from the losing party any and all of the expenses
incurred by the prevailing party in such proceeding, including reasonable
attorney's fees.
SECTION 9.2. DISMISSAL FOR CAUSE.
In the event the Company terminates Ken's employment as a Dismissal For
Cause, the Company shall give Xxx at least ten (10) Business Days' prior written
notice specifying in reasonable detail the specific conduct of Xxx that it
considers grounds for Dismissal For Cause and the specific provision of the
definition of "Dismissal For Cause" upon which it relies. Ken's employment with
the Company shall terminate as of the tenth
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Business Day after such notice is given, or such other date as the parties
mutually agree. Should Xxx dispute the basis for such termination in a written
notice given to the Company on or before his termination date, the parties shall
meet and endeavor to resolve the dispute amicably within twenty (20) Business
Days after Ken's notice is given. If they cannot so resolve the dispute within
such twenty (20) Business Days after Ken's notice is given, Xxx and the Company
shall submit the dispute to binding arbitration in accordance with Section 10.1.
The decision rendered in such arbitration shall be final and binding on both Xxx
and the Company for all purposes. If the arbitrators determine that the Company
did not have a proper basis on which to terminate Ken's employment as a
Dismissal For Cause within the meaning of this Agreement, the termination of
Ken's employment shall be treated for all purposes of this Agreement as a
Dismissal Without Cause. In addition to any other rights which a party may have,
the party prevailing in such arbitration proceeding shall be entitled to recover
from the losing party any and all of the expenses incurred by the prevailing
party in such proceeding, including reasonable attorney's fees.
ARTICLE X
RESOLUTION OF DISPUTES
SECTION 10.1. ARBITRATION.
Except as provided in Section 10.2, all controversies arising out of or
relating to this Agreement or the breach hereof shall be settled by arbitration
in the County of Nassau, State of New York, in accordance with the rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrators may be entered in
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any court having jurisdiction thereof. Any arbitration hereunder shall be before
three (3) arbitrators.
SECTION 10.2. EQUITABLE RELIEF.
Notwithstanding the provisions of Section 10.1, any proceeding for
injunctive relief or specific performance in connection with this Agreement
shall be commenced in Supreme Court of the State of New York, County of Nassau,
and each of the parties hereby accepts the exclusive jurisdiction of such Court
for such purpose; provided, however, that the petitioner may commence such
proceeding in such other court as may be necessary, in the petitioner's
judgment, in order to more effectively or expeditiously obtain personal
jurisdiction over the respondent.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
SECTION 11.1. REPRESENTATIONS OF THE COMPANY.
The Company hereby represents and warrants to Xxx that (a) it has full
legal right, power and authority to enter into this Agreement and to consummate
the transactions herein contemplated; (b) the execution and delivery of this
Agreement has been duly authorized by all necessary corporate action; (c) this
Agreement constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity; and
(d) neither this Agreement nor the consummation of the transactions herein
contemplated
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will conflict with, violate or infringe any legal restriction, contract or
instrument to which the Company is subject or by which it is bound.
SECTION 11.2. REPRESENTATIONS OF XXX.
Xxx hereby represents and warrants to the Company that (a) he has full
legal right, power and authority to enter into this Agreement and to consummate
the transactions herein contemplated; (b) this Agreement constitutes the valid
and binding obligation of Xxx, enforceable in accordance with its terms, except
to the extent that such enforcement may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally and by general
principles of equity; and (c) neither this Agreement nor the consummation of the
transactions herein contemplated will conflict with, violate or infringe any
legal restriction, contract or instrument to which Xxx is subject or by which he
is bound.
ARTICLE XII
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliates" shall mean all entities controlling, controlled by or
under common control with the Company.
"Appraiser" or "Appraisers" shall have the meaning specified in Section
6.7(b).
"Board of Directors" shall mean the Board of Directors of the Company.
"Business Day" shall mean any day on which the Company is scheduled to
be open for business.
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"Change in Control" shall mean a direct or indirect transfer of fifty
percent (50%) or more of the voting control of the Company or the sale of
substantially all of the assets of the Company, in one or more transactions, to
(a) one or more persons who are not (i) members of the Leeds Family or (ii)
spouses, children or grandchildren of members of the Leeds Family and/or (b) one
or more entities which are not controlled by (i) one or more members of the
Leeds Family or (ii) one or more of the spouses, children or grandchildren of
members of the Leeds Family.
"Class A Stock" shall mean the Class A Common Stock of the Company.
"Class A Stock Redemption" shall have the meaning specified in Section
8.2.
"Class B Stock" shall mean the Class B Common Stock of the Company.
"Class B Stock Redemption" shall have the meaning specified in Section
8.2.
"Closing Price" shall mean the last-quoted price at which shares of
Class A Stock were traded at the close of business on a national securities
exchange or NASDAQ on any day on which shares of the Class A Stock were publicly
held.
"CMP Business" shall mean any publication, product, service or business
(a) which the CMP Group publishes, produces, provides or engages in or (b) which
the CMP Group has a bona fide plan or intention to publish, produce, provide or
engage in within the succeeding 12-month period, the research and development of
which the CMP Group has devoted substantive time and attention to, and which
plan or intention Xxx has actual knowledge of before he engages in any activity
competitive with such CMP Business as contemplated by clause (A) of Section
2.3(a).
"CMP Group" shall mean the Company or any of its Affiliates.
"Common Stock" shall mean all the classes of the Common Stock of the
Company collectively.
"Conditions" shall have the meaning specified in Section 3.2.
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"Controlling Stockholders" shall mean the members of the Leeds Family
who hold shares of capital stock of the Company collectively representing a
majority of the votes that may be cast on any matter on which stockholders of
the Company shall be entitled to vote.
"Direct Competitor" shall mean a business enterprise that produces or
operates, or owns directly or indirectly an interest of twenty percent (20%) or
more in, one or more Directly Competitive Businesses.
"Directly Competitive Business" shall mean any competitive publication,
product, service or business (a) the target audience of which is substantially
the same as the target audience of a CMP Business or (b) forty percent (40%) or
more of the annual revenue of which is derived from substantially the same
customers as a CMP Business derives twenty percent (20%) or more of its annual
revenue.
"Dismissal For Cause" shall mean the termination of Ken's employment
with the Company by the Board of Directors for (i) the willful and continued
failure of Xxx substantially to perform his duties as an officer and employee of
the Company or comply with the written policies of the Company after the Company
has delivered to Xxx a written demand for substantial performance or compliance
that specifies such failure in reasonable detail; (ii) illegal conduct or gross
misconduct by Xxx, in either case that is willful and results (or is reasonably
likely to result) in material damage to the business or reputation of the
Company; or (iii) the resignation by Xxx from his employment following his act
or omission which would constitute grounds for Dismissal For Cause hereunder. No
act or failure to act on the part of Xxx (other than non-compliance with lawful
instructions given to Xxx by the Company) shall be considered "willful" unless
it is done or omitted to be done by him in bad faith or without reasonable
belief that his action or omission was in the best interests of the Company. Any
act or failure to act that
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is pursuant to resolution duly adopted by the Board of Directors shall be
conclusively presumed to be done or omitted to be done by Xxx in good faith and
in the best interests of the Company.
"Dismissal Without Cause" shall mean the termination of Ken's
employment by the Company on any grounds other than Dismissal For Cause or as a
result of his Permanent Disability.
"Employment Agreement" shall mean that certain Employment Agreement
entered into as of the date hereof by and between the Company and Xxx.
"Fair Market Value" shall mean the fair market value of a share of
Class A Stock, which shall be the Closing Price on the trading day immediately
preceding the date of determination of fair market value or, if the Company is
privately held, the best estimate of the fair market value of a share of Class A
Stock as of the last day of the month immediately preceding the month in which
notice to buy or sell a share of Class A Stock or exercise an Option is given,
as determined with reference to publicly held companies comparable to the
Company.
"Financial Statements" shall mean the combined or consolidated
financial statements of the Company and its Affiliates prepared in accordance
with generally accepted accounting principles and audited by the Company's
independent certified public accountants.
"Free Cash Flow" of the Company with respect to any fiscal year shall
mean the combined or consolidated net income of the Company for such year as
reflected in the Financial Statements, adjusted so as (a) to exclude the amount,
if any, that, in determining such combined or consolidated net income,
represented (i) an expense for depreciation and/or amortization or (ii) a
provision or credit for federal, state, local or foreign income taxes; and (b)
to include the amount, if any, of cash payments that the Company actually
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made in such fiscal year (i) for federal, state, local and foreign income taxes
owed by the Company (and, if the Company is an S Corporation, in distributions
to its stockholders for the payment of federal, state, local and foreign taxes
owed by such stockholders with respect to the Company's income), (ii) for
capital expenditures, (iii) pursuant to the Company's 1988 Equity Appreciation
Plan or (iv) as required under the terms of the Company's then-existing
financing arrangements to reduce the principal amount of indebtedness. The
Company's determination of Free Cash Flow shall be conclusive and binding for
all purposes of this Agreement provided that the Company's certified public
accountants render a written opinion that such determination presents fairly, in
all material respects, the Free Cash Flow of the Company as herein defined. (A
hypothetical illustration of the calculation of Free Cash Flow is set forth on
Schedule XI hereto.)
"Indirect Competitor" shall mean a business enterprise that does not
produce or operate, or own directly or indirectly an interest in, any Directly
Competitive Businesses but produces or operates, or owns directly or indirectly
an interest of twenty percent (20%) or more in, one or more Indirectly
Competitive Businesses.
"Indirectly Competitive Business" shall mean any competitive or
potentially competitive publication, product, service or business which derives
from twenty percent (20%) to but not including forty percent (40%) of its annual
revenue from substantially the same customers as a CMP Business derives twenty
percent (20%) or more of its annual revenue.
"Key Senior Executive" shall mean a Company employee holding a position
of responsibility no lower than that currently titled President of Publishing,
or a position with a comparable level of responsibility (but in any case a level
of responsibility higher than the position currently titled Senior Vice
President/Group Publisher).
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"Leeds Family" shall mean Xxxxxx X. Xxxxx, Xxxxxxxxx X. Xxxxx, Xxxxxxx
X. Xxxxx, Xxxxxxx X. Leeds, Xxxxxx X. Xxxxx, Xxxx Xxxxx-Leeds and Xxxxxxxx
Xxxxx-Xxxxxxxx.
"Negative Pledge Agreement" shall mean that certain Negative Pledge
Agreement originally dated as of July 15, 1993 by and among Xxxxxx X. Xxxxx,
Xxxx X. Xxxxx and Fleet National Bank (f/k/a/ Shawmut Bank Connecticut, National
Association), as most recently amended and confirmed by Xxxxxx X. Xxxxx, Xxxx X.
Xxxxx, Xxxxxxx X. Xxxxx and Xxxxxx X. Xxxxx to Fleet National Bank and The Chase
Manhattan Bank on November 14, 1996.
"Net Sales Revenue" of the Company with respect to any fiscal year
shall mean the combined or consolidated net sales of the Company and its
Affiliates as reflected in the Financial Statements for such year.
"Option" shall mean the right of Xxx to purchase any Option Share
hereunder.
"Option Adjustment" shall have the meaning specified in Section 8.2.
"Option Price" shall mean the price at which Xxx xxx purchase an Option
Share hereunder.
"Option Shares" shall mean the shares of Class A Stock issued to Xxx
pursuant to this Agreement, plus any additional shares of Class A Stock that may
be issued from time to time with respect to such Option Shares as a result of
any changes in the Company's capital structure as contemplated in Section 8.1,
and less any Option Shares that may be canceled or redeemed from time to time as
a result of any such changes in the Company's capital structure or of any stock
redemptions as contemplated in Section 8.2.
"Permanent Disability" shall mean a physical or mental impairment, as a
result of which Xxx shall have been unable, with or without reasonable
accommodation, to perform the essential functions of his employment position for
a period of at least sixteen (16) weeks during any 12-month period.
"Permitted Transferee" shall mean a spouse, child or grandchild of Xxx,
or an entity (e.g., a trust, corporation or partnership) in which Xxx has the
majority voting
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interest and of which the beneficiaries are a spouse and/or one or more children
or grandchildren of Xxx.
"Pre-Tax Income" of the Company with respect to any fiscal year shall
mean the combined or consolidated net income of the Company and its Affiliates
as reflected in the Financial Statements for such year plus the sum of all
federal, state, local and foreign income taxes that were deducted in determining
such combined or consolidated net income.
"Resignation For Good Reason" shall mean Ken's resignation from his
employment with the Company after the Company has, without his consent, (i)
materially reduced his package of compensation and benefits, (ii) materially
diminished his position, authority, duties or responsibilities, or (iii)
required him to report regularly to an office located more than fifty (50) miles
from Manhasset, New York. Any reduction in Ken's compensation package made
pursuant to the written compensation plan between Xxx and the Company dated as
of the date hereof shall not be deemed grounds for Resignation For Good Reason.
"Restricted Shares" shall mean the shares of Class A Stock owned by Xxx
that are subject to restrictions under the Stockholders' Agreement.
"Share Purchase Agreement" shall mean that certain Share Purchase
Agreement entered into as of the date hereof by and among Xxxxxx X. Xxxxx,
Xxxxxxxxx X. Xxxxx and Xxx.
"Shareholders' Agreement" shall mean that certain Shareholders'
Agreement entered into as of June 30, 1991 by and among the Company, certain of
the Affiliates and the members of the Leeds Family.
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"Stockholders' Agreement" shall mean that certain Stockholders'
Agreement entered into as of the date hereof by and among the Company, Xxxxxx X.
Xxxxx, Xxxxxxxxx X. Xxxxx and Xxx.
"Unexercised Shares" shall mean the authorized but unissued shares of
Class A Stock with respect to which Xxx is granted an Option under this
Agreement but with respect to which such Option has not yet been exercised.
"Voluntary Resignation" shall mean Ken's resignation from his
employment with the Company on any grounds other than grounds for Resignation
For Good Reason or as a result of his Permanent Disability.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.1. LEGEND ON CERTIFICATES.
Upon the execution of this Agreement, each certificate evidencing any
of the Option Shares held by Xxx shall be endorsed as follows:
The shares of stock evidenced by this certificate are subject to the
restrictions of and are transferable only upon compliance with the
provisions of a certain Option Agreement entered into by and between
Xxxxxxx X. Xxxx and the Company. A copy of such Agreement is on file in
the office of the Company.
In addition, all such certificates shall bear such other legends as, in the
opinion of the Company's counsel, are necessary or appropriate to ensure
compliance with all applicable federal and state securities laws.
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SECTION 13.2. PERMITTED TRANSFEREES; REPRESENTATIVE AND SUCCESSORS IN
INTEREST.
(a) PERMITTED TRANSFEREES. Subject to Section 12.4 but notwithstanding
any other provision of this Agreement, Xxx shall be permitted to sell, give or
bequeath all or any portion of the Option Shares or interest therein, or pass
such Option Shares or interest by means of intestate succession or otherwise,
either outright or in trust, to a Permitted Transferee, provided that such
transfer shall be implemented in a manner acceptable to legal counsel for the
Company. In case of any such transfer by Xxx, each Permitted Transferee shall
receive and hold the transferred Option Shares subject to all the terms and
conditions of this Agreement, and there shall be no further transfer of such
Option Shares except by such Permitted Transferee to another Permitted
Transferee in accordance with the terms of this Agreement. Before Xxx transfers
any Option Shares to a Permitted Transferee, and before any Permitted Transferee
transfers any Option Shares to another Permitted Transferee, Xxx or the
transferring Permitted Transferee, as the case may be, shall give the Company
written notice of such intended transfer. Any Permitted Transferee shall, to the
extent of the Option Shares transferred, succeed to all the rights and
obligations of the transferor under this Agreement and shall become bound by all
the terms and conditions hereof; provided that, as a condition precedent to a
Permitted Transferee's exercising any rights under this Agreement and to the
Company's obligation to change its records to reflect the record ownership of
such Option Shares in the name of such Permitted Transferee, the Permitted
Transferee shall execute such documents and instruments as may reasonably be
required by legal counsel to the Company. Unless otherwise expressly provided in
this Agreement, any reference herein to a right or obligation of Xxx to sell or
receive payment for any shares of Class A Stock shall be deemed to refer equally
to any Permitted Transferee, and any limitations herein with respect to the
number or category of shares of Class A Stock which Xxx shall have a right
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or obligation to sell in any calendar year shall apply to Xxx and all Permitted
Transferees as a group.
(b) REPRESENTATIVE AND SUCCESSORS IN INTEREST. Except as may be
otherwise specifically provided in this Agreement, in the event of Ken's death
or incapacity his representative and/or successors in interest shall succeed to
all his rights and obligations under this Agreement and be bound by all the
terms and conditions hereof, and they shall be entitled to exercise such rights,
and shall be required to fulfill such obligations, in the same manner and to the
same extent that Xxx would have been so entitled or required but for his death
or incapacity.
SECTION 13.3. FURTHER ASSURANCES.
Each of the parties hereto, upon request of another party, shall take
all such actions and execute and deliver all such further instruments of sale,
assignment, conveyance, transfer and exchange, and all such other documents and
agreements, as may be necessary or appropriate to assure, complete and evidence
the full and effective sale, assignment, transfer, conveyance and exchange of
the Option Shares as herein required and as may otherwise be necessary or
appropriate to comply with the terms and conditions of this Agreement. In the
event a party shall not take all such actions or execute or deliver all such
further instruments, then and in that event each such party hereby appoints the
Company such party's agent and attorney-in-fact for the purpose of executing and
delivering (a) any and all documents necessary to convey and/or exchange the
Option Shares pursuant to the provisions of this Agreement, any conveyance or
exchange so made fully divesting the party whose interest is so conveyed of all
right, title or equity in or to the Option Shares formerly owned by such party,
and (b) any and all other documents, instruments, agreements and other writings
necessary to effectuate the terms
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of this Agreement. The powers of attorney herein granted, being coupled with an
interest, are irrevocable and shall not be revoked by the death, dissolution or
incapacity of any party hereto or for any other reason. Each party hereto hereby
releases any other party who conveys or exchanges the Option Shares formerly
owned by such party as provided in this Section 13.3 from any and all claims and
liabilities for or resulting from the conveying or exchanging of such Option
Shares.
SECTION 13.4. S CORPORATION.
It is intended that for federal income tax purposes the Company will
continue to qualify as an "S Corporation" as defined in Section 1361 of the
Internal Revenue Code or any successor provision of the federal income tax laws.
Accordingly, the Company and Xxx shall execute and keep in full force and effect
the consent described in Section 1362(a)(2) of the Internal Revenue
Code or any successor provision until such time as the Company and the
Controlling Stockholders determine not to continue to qualify the Company as an
S Corporation. In addition, notwithstanding the provisions of any other Section
of this Agreement, no transfer of any shares of Class A Stock shall be made to
any person or entity, nor shall Xxx by action or inaction cause any
circumstances to exist, which would disqualify the Company as an S Corporation.
SECTION 13.5. CREDIT FACILITIES.
It is understood and acknowledged that one or more banks or lending
institutions of the Company may from time to time require, as a condition to
extending or continuing to extend credit to the Company, that persons who are
both stockholders and members of management of the Company execute and deliver
to such banks or lending institutions certain assurances and agreements such as
the Negative Pledge Agreement. For as long
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as he is a Key Senior Executive, Xxx shall, if requested by the Company,
promptly take all such actions and execute and deliver all such documents
containing such assurances and agreements (other than personal guarantees) as
may be reasonably required by such banks or lending institutions, on the same
basis and in substantially the same form and manner as other persons who are
both stockholders and members of management of the Company.
SECTION 13.6. ACCELERATED VESTING CHART.
For convenience of reference, a chart summarizing the accelerated
vesting provisions set forth in Article III of this Agreement is set forth on
Schedule 13.6 hereto.
SECTION 13.7. ENTIRE AGREEMENT; BINDING EFFECT.
This Agreement contains all of the terms agreed upon by the parties
with respect to the subject matter hereof and replaces and supersedes any and
all prior agreements, written or oral, between the parties relating to the
Option Shares (except for the Stockholders' Agreement to the extent its terms
are not inconsistent herewith). No promises, agreements or representations with
respect to the matters herein contained shall be binding upon any of the parties
unless set forth herein. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective heirs, representatives, successors
and permitted assigns.
SECTION 13.8. AMENDMENT.
No provision of this Agreement may be amended or waived except by a
writing making reference to this Agreement and signed by the party against whom
the enforcement of such amendment or waiver is sought.
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SECTION 13.9. APPLICABLE LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to its
principles regarding choice or conflicts of law, and in accordance with and
consistent with the Company's election to be treated as an S Corporation.
SECTION 13.10 SEVERABILITY.
Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law and
the Company's S Corporation election, but if any provisions hereof shall be
prohibited by or invalid under any such law or the Company's S Corporation
election, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating or nullifying the remainder of such
provision or any other provision of this Agreement.
SECTION 13.11. NO WAIVER.
No delay or omission by any party in exercising or enforcing any right
hereunder shall operate as a waiver of such right, and a waiver on one occasion
shall not be construed as a waiver of any right or remedy on any future
occasion.
SECTION 13.12. NOTICES.
All notices, requests, consents, designations and demands required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when personally delivered to Xxx or to an
authorized officer of the Company, whether by messenger, courier or other
person, (b) on the second Business Day after the date it is sent by certified or
registered mail, return receipt requested, or (c) on the next
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Business Day after the date it is sent via telefacsimile (provided it is
actually received and is not materially illegible), as follows:
If to the Company:
CMP Media Inc.
000 Xxxxxxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: President
Fax: (000) 000-0000
with a copy to:
CMP Media Inc.
000 Xxxxxxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: General Counsel
Fax: (000) 000-0000
If to Xxx:
Xxxxxxx X. Xxxx
x/x Xxxxxxxx, Xxxxxxx, Xxxxxx & Xxxxxxx
Xxx Xxxxxxx Xxxx Xxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
Fax: (000) 000-0000
with a copy to Xxx at his last known address as reflected on the
records of the company.
or to such other mail or facsimile address as the recipient party shall
have last designated by notice given to the other in accordance herewith.
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SECTION 13.13. ASSIGNMENT.
Except as expressly provided in this Agreement, no party may assign any
rights or delegate any obligations or liabilities hereunder without the prior
written consent of the other parties, except that the Company may assign any of
its rights and delegate any of its duties to an entity that controls, is
controlled by or is under common control with the Company; provided, however,
that no such assignment or delegation shall relieve the Company from its
obligations or liabilities hereunder.
SECTION 13.14. SURVIVAL.
This Agreement shall survive any merger, sale or other disposition of
the Company.
SECTION 13.15. GENDER AND NUMBER.
Except when otherwise indicated by the context, references herein to
one gender shall include the other genders, and references herein to the plural
shall include the singular.
SECTION 13.16. DATES.
If any date referred to in any provision of this Agreement falls on a
day that is not a Business Day, such provision shall be deemed to refer to the
next succeeding Business Day.
SECTION 13.17. HEADINGS.
The headings herein are for convenience of reference only and shall not
be considered in construing this Agreement.
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SECTION 13.18. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which shall together constitute one
and the same instrument.
IN WITNESS WHEREOF, Xxx has executed this Agreement and the Company has
caused this Agreement to be executed by an officer thereunto duly authorized on
the day and year first above written.
CMP MEDIA INC.
By /s/XXXXXXX X. XXXXX
-----------------------------
Name: XXXXXXX X. XXXXX
Title: President
Attest:
/s/XXXXXX X. XXXXXXXXX
--------------------------
[CORPORATE SEAL]
[Imprint on original]
/s/XXXXXXX X. XXXX
-------------------------------
XXXXXXX X. XXXX
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SCHEDULE 5.2(b)
HYPOTHETICAL ILLUSTRATION OF
CALCULATION OF OPTIONS VESTING
UNDER SECTION 5.2(b)
Assume Ken's employment with the Company terminates on May 10, 2001 and that all
shares that could have vested under Section 3.2 and Section 3.3 have vested.
The number of Options that would have vested within 24 months after such
termination date (i.e., on or before May 9, 2003) assuming the Conditions were
satisfied is 528 Options, pursuant to Section 3.4(a).
The nearest preceding December 31 on which Options vested or could have vested
under paragraph (a) of Sections 3.2, 3.3, 3.4 or 3.5 was December 31, 1999,
pursuant to Section 3.3(a).
The number of full months that, as of the date of termination, have elapsed
since December 31, 1999 is 16 (January 2000 through April 2001).
The numerator of the fraction is therefore 16 and the denominator is 24.
16/24 X 528 = 352 Options.
Therefore, 352 Options would vest and become exercisable on the date of
termination.
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SCHEDULE XI
HYPOTHETICAL ILLUSTRATION OF
CALCULATION OF FREE CASH FLOW
CMP MEDIA INC.
CALCULATION OF FREE CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, XXXX
(DOLLARS IN THOUSANDS)
Combined (or Consolidated) net income $ 25,000
Depreciation and amortization expense 7,500
Federal, foreign, state and local income tax
expense of the Company 650
Cash payments for federal, foreign, state and local
income taxes of the Company (750)
Cash distributions to the S Corporation stockholders
for payment of federal, foreign, state and local income
taxes owed by such stockholders on Company income (10,200)
Capital expenditures (8,500)
Cash payments under the Company's 1988 Equity
Appreciation Plan (250)
Debt payments to reduce principal (500)
--------
Free cash flow $ 12,950
--------
Note: Illustration assumes Company is an S Corporation.
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SCHEDULE 13.6
CMP Media Inc.
Option Agreement
Vesting Schedule
Xxxxxxx X. Xxxx
-------------- ----------------- ---------------- -----------------------------------------------------------------
Accelerators Percentage Vested Years Applicable Description
-------------- ----------------- ---------------- -----------------------------------------------------------------
First Series 0.25% 12/31/97-12/31/04 .25% (132 shares) will vest as of the first December 31 on which
(section 3.2) the conditions set forth in section 3.2 are satisfied
Second Series 0.50% 12/31/99-12/31/04 .50% (264 shares) will vest as of the first December 31 on which
(section 3.3) the conditions set forth in section 3.2 are satisfied
12/31/97-12/31/98 Vesting of 50% of the Second Series shares (132 shares) will
accelerate as of the first December 31 on which the conditions
set forth in sections 3.2 and 3.3(b) are satisfied
Third Series 1.00% 12/31/01-12/31/04 1.00% (528 shares) will vest as of the first December 31 on which
(section 3.4) the conditions set forth in section 3.2 are satisfied
12/31/97-12/31/00 Vesting of 50% of the Third Series shares (264 shares) will
accelerate as of the first December 31 on which the conditions
set forth in sections 3.2 and 3.4(b) are satisfied
Fourth Series 1.25% 12/31/03-12/31/04 1.25% (660 shares) will vest as of the first December 31 on which
(section 3.5) the conditions set forth in section 3.2 are satisfied
12/31/97-12/31/02 Vesting of 40% of the Fourth Series shares (264 shares) will
accelerate as of the first December 31 on which the conditions
set forth in sections 3.2 and 3.5(b) are satisfied
Fifth Series 0.50% 12/31/97-12/31/04 .50% (264 shares) will vest as of the first December 31 on which
(section 3.6) the conditions set forth in sections 3.2 and 3.6(a) are satisfied
0.50% 12/31/97-12/31/04 .50% (264 shares) will vest as of the first December 31 on which
---- the conditions set forth in sections 3.2 and 3.6(b) are satisfied
Total 4.00%
Any shares which do not vest in accordance with the above schedule vest on
December 31, 2005 provided that Xxx is a Key Senior Executive as defined in the
agreement.
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