THESE OPTIONS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR
STATE SECURITIES LAWS. THESE OPTIONS CANNOT BE SOLD, TRANSFERRED,
ASSIGNED
OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED BY THIS AGREEMENT
AND BY
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
CELTIC INVESTMENT INC.
STOCK OPTION AGREEMENT
This Agreement is entered into this 31st day of January, 1997,
by and between Celtic Investment, Inc., a Delaware corporation
("Corporation") and Xxxxx X. Xxxxx ("Employee").
RECITALS:
WHEREAS, Salt Lake Mortgage ("SLM") and Corporation have
entered into an Employment Agreement (the AEmployment
Agreement@) wherein there are jointly referred to as AEmployer@
whereby they have agreed to hire Employee and whereby Employee
has agreed to be employed by Employer pursuant to the terms and
conditions set forth therein; and approved by the Board of Directors of
Employer and meets the requirements of SEC Rule 16(b)(3)
promulgated under the Securities Exchange Act of 1934, as amended
(the AExchange Act@).
WHEREAS, under the Employment Agreement, the Corporation
has agreed to grant stock options to Employee entitling Employee to
purchase shares of the Corporation=s common stock ("Shares"); and
WHEREAS, the purpose of granting these options to Employee
is to promote the success of the Corporation and SLM and to advance
the interests of the Corporation and SLM by providing an additional
means, through the grant of these stock options, to motivate, retain
and reward Employee with an incentive for high levels of individual
performance and improved financial performance of the Corporation
and SLM;
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
1.1 Definitions. For the purposes of this Option Agreement,
the following terms shall have the following meanings:
1.1.1.Adjusted Pretax Profits. For purposes of this
Agreement, Adjusted Pretax Profits shall have the same meaning as
AAPI@ has in the Escrow Agreement (hereafter defined) and shall be
calculated in the same manner it is calculated in the Escrow
Agreement.
1.1.2.Bonus Period. ABonus Period shall have the
same meaning it does in the Employment Agreement.
1.1.3 Escrow Agreement. AEscrow Agreement@ shall
have the same meaning it does in the Employment Agreement.
1.1.4. Termination for Cause. "Termination For Cause"
shall have the same meaning it does in the Employment Agreement.
1.1.5.Voluntary Termination. AVoluntary Termination@
shall have the same meaning it does in the Employment Agreement.
1.1.6.Good Reason Resignation. "Good Reason
Resignation" shall have the same meaning it does in the Employment
Agreement.
1.1.7. Termination Without Cause. ATermination
Without Cause@ shall have the same meaning it does in the
Employment Agreement.
2. Grant of Option, Option Types and Exercise Period.
2.1 Grant of Options. Subject to the terms and
conditions of this Agreement, the Corporation hereby grants to the
Employee, options ("Options") to purchase from the Corporation up to
500,000 Shares ("Option Shares") at a price of $3.00 per Share
("Exercise Price"). The Options granted hereunder shall be allocated
between Time Based Options, as defined below, and Performance
Based Options, as defined below.
2.2. Time Based Options. Options to purchase
150,000 of the Option Shares (the ATime Based Options@) shall vest
in two equal installments (AVesting Periods@) each of which shall
entitle the Employee to purchase 75,000 Option Shares. The Time
Based Options shall vest as follows:
Number of
Vesting Date Option Shares
January 31, 1998 75,000
January 31, 1999 75,000
2.3. Performance Based Options. Options to
purchase the remaining 350,000 Option Shares (the APerformance
Based Options@) shall vest, if at all, over a period of three years and
five months commencing on January 31, 1999 and ending on June 30,
2002. The vesting schedule shall be based on four periods during
which the APerformance Based Options@ shall vest and such periods
are as follows:
Period 1 - Commencing January 31, 1999, ending June 30,
1999.
Period 2 - Commencing July 1, 1999, ending June 30, 2000.
Period 3 - Commencing July 1, 2000, ending June 30, 2001.
Period 4 - Commencing July 1, 2001, ending January 31,
2002.
(a) The first group (AFirst Option@) to purchase 48,611
Option Shares, shall vest, subject to the achievement of the
Performance Criteria for the First Option, on June 30, 1999. In order
for the First Option to vest, Adjusted Pretax Profits for the twelve month
period ending on June 30, 1999, must be not less than 118% of the
Adjusted Pretax Profits as stated in the June 30, 1998 fiscal year
ending audited financial statements.
(b) The second group (ASecond Option@) to purchase
116,667 Option Shares, shall vest, subject to the achievement of the
Performance Criteria for the Second Option, on June 30, 2000. In
order for the Second Option to vest, Adjusted Pretax Profits for the
twelve month period ending on June 30, 2000, must be not less than
118% of the Adjusted Pretax Profits as stated in the June 30, 1999
fiscal year ending audited financial statements.
(c) The third group (AThird Option@) to purchase 116,667
Option Shares, shall vest, subject to the achievement of the
Performance Criteria for the Third Option, on June 30, 2001. In order
for the Third Option to vest, Adjusted Pretax Profits for the twelve
month period ending on June 30, 2001, must be not less than 118%
of the Adjusted Pretax Profits as stated in the June 30, 2000 fiscal year
ending audited financial statements.
(d) The fourth group (AFourth Option@) to purchase 68,055
Option Shares, shall vest subject to the achievement of the
Performance Criteria for the Fourth Options, on June 30, 2002. In
order for the Fourth Option to vest, Adjusted Pretax Profits for the
twelve month period ending on June 30, 2002, must be not less than
118% of the Adjusted Pretax Profits as stated in the June 30, 2001
fiscal year ending audited financial statements.
An example of the operation of the Performance Criteria
is as follows: if the Adjusted Pretax Profits for the twelve month period
ending June 30, 1999 are $1,000,000, then in order for the Second
Option to vest, Adjusted Pretax Profits must be $1,180,000 for the 12
month period ending on June 30, 2000.
2.4. No Prorata Vesting For Performance Based
Options. Each group of Performance Based Options shall vest or be
void in total on a group basis and there shall be no prorata vesting of
Options within a group. If the Performance Criteria is not met for a
group of Performance Based Options, then no Options from that group
shall vest except for the provisions provided for in the employment
agreement.
2.5. Exercise Period. Once vested under paragraph
2.2 or 2.3, an Option shall be exercisable for a period of five years.
3. ISO's and NSO's. Each Option granted hereunder shall
be deemed to be an Incentive Stock Option (AISO@) to the maximum
amount allowed by the Internal Revenue Code ("IRC") and a Non-
Statutory Stock Option (ANSO=@) to the extent not deemed to be an
ISO.
4. Exercise of Option. Each Option shall become
exercisable by the Employee beginning on the date of vesting and must
be exercised, if at all prior to termination of such Option.
Notwithstanding the foregoing, if required in order to be deemed to be
an ISO, a Option shall not become exercisable until six months
following the date on which shareholder approval for this Agreement is
obtained. The Corporation shall seek shareholder approval of the grant
of these Options at its next meeting of shareholders.
4.1. Manner of Exercise. An Option granted
hereunder which has vested, may be exercised in whole or in part by
delivery to the Corporation, from time to time, of a written notice
signed by the Employee, specifying the number of Option Shares that
the Employee then desires to purchase, together with cash, certified
check, or bank draft payable to the order of the Corporation or with
some other form of payment acceptable to the Board of Directors of
the Corporation, for an amount equal to the Exercise Price of such
Option Shares. Employee may make payment of all or a portion of the
Exercise Price in installments over a period of not more than three (3)
years and in such event, the Employee shall deliver a promissory note,
in form satisfactory to the Corporation for the deferred portion of the
Exercise Price secured by a pledge, also in form satisfactory to the
Corporation, of the Option Shares purchased by such exercise of
Option. This pledge shall provide that any sale by pledgee shall be
conducted in a manner as to not give rise to any of the liability for the
pledgor under Section 16 of the Exchange Act. Employee may pay all
or a portion of the Exercise Price, and/or the tax withholding liability
with respect to the exercise of the Option either by surrendering shares
of stock already owned by Employee or by withholding Option Shares,
provided that the Board of Directors of the Corporation determines that
the fair market value of such surrendered stock or withheld Option
Shares is equal to the corresponding portion of such Exercise Price
and/or tax withholding liability, as the case may be, to be paid for
therewith.
4.2. Certificates. Promptly after any exercise in
whole or in part of the Option by the Employee, the Corporation shall
deliver to the Employee a certificate or certificates for the number of
Option Shares with respect to which the Option was so exercised,
registered in the Employee's name.
5. Representations and Warranties of Employee. Employee
hereby represents and warrants to the Corporation that:
5.1. Information. Employee has received and read all
reports filed by the Corporation with the Securities and Exchange
Commission (ASEC Reports@) during 1995 and 1996. Employee
acknowledges that all documents, records and books pertaining to an
investment in the Corporation have been made available to Employee.
5.2. Legal and Tax Counsel. Employee has
consulted with his own attorney and tax advisor regarding legal matters
concerning this Option and an investment in the Corporation and the
tax consequences of this Option and of such an investment.
5.3. No Guaranties. Employee acknowledges that he
is aware that there is no assurance with respect to the profitability of
the Corporation.
5.4. Knowledge. Employee is, by reason of his
business or financial experience, capable of evaluating the merits and
risks of an investment in the Corporation and of protecting Employee's
own interests in connection with his acquisition of this Option and an
investment in the Corporation.
5.5. Restricted Option and Shares. Employee
acknowledges that this Option and the Option Shares are restricted and
will be restricted unless registered under applicable securities laws.
Employee is aware that it may not be possible to liquidate his
investment in the Corporation. Employee agrees, that until registered,
certificates evidencing the Option Shares shall bear a legend restricting
the transfer thereof consistent with the foregoing and that stock transfer
instructions may be issued to the Corporation's transfer agent
restricting the transfer of the Option Shares.
6. Duration of Option. Each Option, granted hereunder, to
the extent vested and not previously exercised, shall terminate upon the
earliest of the following dates:
6.1. Five (5) years from the date of vesting;
6.2. If the Employment Agreement is terminated by the
Employer for cause, for reason of disability or for reason of death
pursuant to paragraphs 2.3, 2.5 or 2.6 of the Employment Agreement,
or if the Employment Agreement is voluntarily terminated by the
Employee pursuant to paragraph 2.7 of the Employment Agreement,
then:
(a) the Time Based Options for the year of
termination shall be accelerated and shall vest immediately
through the date of termination but shall be prorated. The
number of Time Based Option Shares which Employee shall be
entitled to purchase under this paragraph 6.2 shall be prorated
on the basis of the percentage of the Vesting Period which has
been completed as of the date of Termination for Cause. An
example of this provision, is as follows:
In the event Employee has a Time Based Option
to purchase 12,000 Time Based Option Shares which
Option vests on the first anniversary date of this
Agreement, and if Employee is terminated pursuant to
paragraphs 2.3, 2.5 or 2.6 of the Employment
Agreement or if there is a Voluntary Termination of the
Employment Agreement pursuant to paragraph 2.7
thereof, nine months after the date of of this
Agreement, then Employee shall have the right to
purchase 9,000 Time Based Option Shares immediately
after the date of such termination pursuant to the
applicable terms and conditions of this Agreement.
The right to purchase the remaining 3,000 Time Based
Option Shares shall be terminated immediately as of the
date of such termination. Employee shall have no right
to purchase Time Based Option Shares for any Vesting
Period which is subsequent to the Vesting Period in
which such termination occurred.
(b) all previously vested Time Based Options shall be
exercisable according to the terms of this Agreement;
(c) all Time Based Options which have not vested
prior to such termination or which do not vest pursuant to
paragraph 6.2 (a) hereof, shall immediately expire;
(d) the vesting of Performance Based Options shall
be accelerated. The number of Performance Based Option
Shares which Employee shall be entitled to purchase shall be
prorated on the basis of the percentage of the Bonus Period
which has been completed as of the date of such termination.
The Performance Based Option Shares which may be
purchased under this paragraph 6.2(d) will not be determinable
until the completion of the Corporation=s consolidated audited
financial statements for the Bonus Period in which such
termination occurs. An example of this provision is as
follows:
If, under this Agreement, Employee would be
entitled to purchase 150,000 Performance Based
Option Shares had he worked for the entire Bonus
Period, and if Employee=s employment was terminated
immediately after sixty percent (60%) of the Bonus
Period had been completed, then Employee shall be
entitled to purchase 90,000 of the Performance Based
Option Shares attributed to such Bonus Period.
Employee shall not be entitled to purchase any
Performance Based Option Shares which underlie
Performance Based Options for Bonus Periods which
are subsequent to the Bonus Period in which such
termination occurred.
(e) all previously vested Performance Based Options
shall be exercisable according to the terms of this Agreement;
and
(f) all Performance Based Options which have not
vested prior to such termination or which do not vest pursuant
to paragraph 6.2 (d), shall immediately expire.
6.3. if the Employee's employment is terminated by
Employer Without Cause pursuant to paragraph 2.4 of the Employment
Agreement or by the Good Reason Resignation by Employee pursuant
to paragraph 2.8 of the Employment Agreement, then:
(a) the Time Based Options for the Vesting Period in
which such termination occurred shall be accelerated and shall
vest immediately. An example of this provision, is as follows:
In the event Employee has a Time Based Option
to purchase 12,000 shares of Employers common
stock which vests on the first anniversary date of this
Agreement, and if Employee >s employment is
Terminated Without Cause or employment is terminated
by Employee pursuant to paragraph 2.8 of the
Employment Agreement nine months after the date of
this Agreement, then Employee shall have the right to
purchase all 12,000 shares of Employer=s common
stock immediately after the date of such termination
pursuant to the applicable terms and conditions of this
Agreement. Employee shall have no right to purchase
Time Based Option Shares for any Vesting Period
which is subsequent to the Vesting Period in which
such termination occurred ;
(b) all previously vested Time Based Options shall be
exercisable according to the terms of this Agreement;
(c) all Time Based Options which have not vested
prior to such termination or which do not vest pursuant to
Section 6.3 (a), shall immediately expire;
(d) the vesting of Performance Based Options shall
be accelerated and the number of Performance Based Option
shares which Employee is entitled to purchase shall be that
number of Performance Based Option Shares which Employee
would be entitled to purchase if he had been employed during
the entire Bonus Period. The Performance Based Option
Shares which may be purchased under this paragraph 6.3(d)
will not be determinable until the completion of the
Corporation=s consolidated audited financial statements for the
Bonus Period in which such termination occurred. An
example of this provision is as follows:
If, under this Agreement, Employee would be
entitled to purchase 150,000 Performance Based
Option Shares had he worked for the entire Bonus
Period, and if Employee=s employment was Terminated
without Cause or is terminated pursuant to paragraph
2.8 of the Employment Agreement immediately after
sixty percent (60%) of the Bonus Period had been
completed, then Employee shall be entitled to purchase
all 150,000 Performance Based Option Shares
attributed to such Bonus Period. Employee shall not be
entitled to purchase any Performance Based Option
Shares which underlie Performance Based Options for
Bonus Periods which are subsequent to the Bonus
Period in which such termination occurred.
(e) all previously vested Performance Based Options
shall be exercisable according to the terms of this Agreement;
and
(f) all Performance Based Options which have not
vested prior to such termination or which do not vest pursuant
to paragraph 6.3 (d) hereof shall immediately expire.
7. Restriction on Transfer. This Option is not transferable
by the Employee otherwise than by testamentary will or the laws of
descent and distribution and, during the Employee's lifetime, may be
exercised only by the Employee or the Employee's guardian or legal
representative. Except as permitted by the preceding sentence, neither
this Option nor any of the rights and privileges conferred thereby shall
be transferred, assigned, pledged, or hypothecated in any way (whether
by operation of law or otherwise), and no such option, right, or
privilege shall be subject to execution, attachment, or similar process.
Upon any attempt to transfer this Option, or of any right or privilege
conferred thereby, contrary to the provisions hereof, or upon the levy
of any attachment or similar process upon such option, right, or
privilege, this Option and any such rights and privileges shall
immediately become null and void.
8. Exercise in Event of Death or Disability. Whenever the
word "Employee" is used in any provision of this Agreement under
circumstances when the provision should logically be construed to
apply to the Employee's guardian, legal representative, executor,
administrator, or the person or persons to whom the Option may be
transferred by testamentary will or by the laws of descent and
distribution, the word "Employee" shall be deemed to include such
person or persons.
9. No Rights As Shareholder Prior To Exercise. The
Employee shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Corporation, either at law or equity. Prior to
exercise, the rights of the Employee are limited to those expressed in
this Option and are not enforceable against the Corporation except to
the extent set forth herein.
10. Registration of Option Shares. The Option Shares have
not been registered with the Securities and Exchange Commission.
The Company shall use its best efforts to register the the shares
underlying the options on Form S-8 and keep such Registration in
effect with the Securities and Exchange Commission as soon as
practical and not later than six months from the date hereof.
11. Anti-Dilution Provisions. The number and kind of
Shares purchasable upon the exercise of this Option and the exercise
price shall be subject to adjustment from time to time as follows:
11.1. In case the Corporation shall (i) pay a dividend or
make a distribution on the outstanding Shares payable in Shares,
(ii) subdivide the outstanding Shares into a greater number of Shares,
(iii) combine the outstanding Shares into a lesser number of Shares,
or (iv) issue by reclassification of the Shares any Shares of the
Corporation, the Employee shall thereafter be entitled, upon exercise,
to receive the number and kind of shares which, if this Option had
been exercised immediately prior to the happening of such event, the
Employee would have owned upon such exercise and been entitled to
receive upon such dividend, distribution, subdivision, combination, or
reclassification.
11.2. In case the Corporation shall consolidate or
merge into or with another corporation, or in case the Corporation shall
sell or convey to any other person or persons all or substantially all the
property of the Corporation, the Employee shall thereafter be entitled,
upon exercise, to receive the kind and amount of shares, other
securities, cash, and property receivable upon such consolidation,
merger, sale, or conveyance by a holder of the number of Shares
which might have been purchased upon exercise of this Option
immediately prior to such consolidation, merger, sale, or conveyance,
and shall have no other conversion rights. In any such event, effective
provision shall be made, in the certificate or articles of incorporation of
the resulting or surviving corporation, in any contracts of sale and
conveyance, or otherwise so that, so far as appropriate and as nearly
as reasonably may be, the provisions set forth herein for the protection
of the rights of the Employee shall thereafter be made applicable.
11.3. Whenever the number of Shares purchasable
upon exercise of this Option is adjusted pursuant to this Section, the
exercise price per Share shall be adjusted simultaneously by multiplying
that exercise price per Share in effect immediately prior to such
adjustment by a fraction, of which the numerator shall be the number
of Shares purchasable upon exercise of this Option immediately prior
to such adjustment, and of which the denominator shall be the number
of Shares so purchasable immediately after such adjustment, so that
the aggregate exercise price of this Option remains the same.
11.4. The existence of the Option shall not affect in
any way the right or power of the Corporation or its shareholders to
make or authorize any adjustments, recapitalization, reorganization, or
other changes in the Corporation's capital structure or its business, or
any merger or consolidation of the Corporation, or any issue of bonds,
debentures, preferred shares with rights greater than or affecting the
Shares, or the dissolution or liquidation of the Corporation, or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or
otherwise.
12. No Waiver of Corporation's Right to Terminate
Employment. Nothing in this Agreement shall affect in any manner
whatsoever the right or power of the Corporation or SLM to terminate
Employee's employment for any reason, with or without cause.
13. Notices. Any notices permitted or required under this
Agreement shall be deemed given upon the date of personal delivery
or 72 hours after deposit in the United States mail, postage fully
prepaid, return receipt requested, addressed to the Corporation at its
principal placement of business and to Employee at his residence.
14. Corporation's Right to Repurchase Shares. In the event
Employee=s employment is Terminated for Cause the Corporation may
repurchase from Employee any Option Shares purchased by Employee
hereunder. The purchase price to be paid for such shares shall be the
Exercise Price paid by the Employee for the Option Shares, plus an
eight percent (8%) carrying cost. The Corporation's right to repurchase
Option Shares pursuant to this Section 14, shall terminate ninety days
from the date of such Termination for Cause. Any Option Shares
repurchased by the Corporation hereunder shall be paid for by certified
funds. Any repurchase by the Corporation shall be conducted in a
manner as to not give rise to any liability for the employee under
Section 16 of the Exchange Act.
15. Right of First Refusal to Repurchase Shares. In the
event Employee=s employment is Terminated Without Cause and in the
event Employee desires to sell all or a portion of the Option Shares
within ninety days of such termination of employment, the Corporation
shall have the first right of refusal to purchase such shares. In such
event, the Employee shall give written notice to the Corporation of his
intent to sell all or a portion of the Option Shares. After receiving such
notice, the Corporation shall have twenty (20) days to purchase from
Employee all of the Option Shares which Employee intends to sell. Any
Option Shares purchased hereunder shall be paid for by certified funds
and the price per share shall be the "bid" price of the Company=s
common stock on the date of Employee=s notice of intent to sell,
provided, however, that if Employee has received and accepted a bona
fide offer for the purchase of the Option Shares, the price paid by the
Corporation shall be the offered price, rather the "bid" price.
16. Miscellaneous
16.1. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State
of Utah.
16.2. Titles and Captions. All section titles or
captions contained in this Agreement are for convenience only and
shall not be deemed part of the context nor effect the interpretation of
this Agreement.
. 16.3. Entire Agreement. This Agreement contains the
entire understanding between and among the parties and supersedes
any prior understandings and agreements among them respecting the
subject matter of this Agreement.
16.4. Binding Agreement. This Agreement shall be
binding upon the heirs, executors, administrators, successors and
assigns of the parties hereto.
16.5. Computation of Time. In computing any period
of time pursuant to this Agreement, the day of the act, event or default
from which the designated period of time begins to run shall be in-
cluded, unless it is a Saturday, Sunday, or a legal holiday, in which
event the period shall begin to run on the next day which is not a
Saturday, Sunday, or legal holiday. In the event that the last day of
any period falls on a Saturday, Sunday or legal holiday, such period
shall run until the end of the next day thereafter which is not a
Saturday, Sunday, or legal holiday.
16.6. Pronouns and Plurals. All pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular, or plural as the identity of the person or persons may
require.
16.7. Arbitration. If at any time during the term of this
Agreement any dispute, difference, or disagreement shall arise upon or
in respect of the Agreement, and the meaning and construction hereof,
every such dispute, difference, and disagreement shall be referred to
a single arbiter agreed upon by the parties, or if no single arbiter can
be agreed upon, an arbiter or arbiters shall be selected in accordance
with the rules of the American Arbitration Association and such dispute,
difference, or disagreement shall be settled by arbitration in accordance
with the then prevailing commercial rules of the American Arbitration
Association, and judgment upon the award rendered by the arbiter may
be entered in any court having jurisdiction thereof.
16.8. Presumption. This Agreement or any section
thereof shall not be construed against any party due to the fact that
said Agreement or any section thereof was drafted by said party.
16.9. Further Action. The parties hereto shall execute
and deliver all documents, provide all information and take or forbear
from all such action as may be necessary or appropriate to achieve the
purposes of the Agreement.
16.10. Parties in Interest. Nothing herein shall be
construed to be to the benefit of any third party, nor is it intended that
any provision shall be for the benefit of any third party.
16.11. Savings Clause. If any provision of this
Agreement, or the application of such provision to any person or
circumstance, shall be held invalid, the remainder of this Agreement,
or the application of such provision to persons or circumstances other
than those as to which it is held invalid, shall not be affected thereby.
IN WITNESS WHEREOF, the parties have executed this
Agreement the day and year first above-written.
Celtic Investment, Inc. Employee:
By /s/ Xxxxxxx X. Xxxxxx /s/ Xxxxx X. Xxxxx
Xxxxxxx X. Xxxxxx, President Xxxxx X. Xxxxx
