RTW, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT is made as of the 24th day of November, 1997,
between RTW, INC., a Minnesota corporation (the "Company"), and Xxxx X.
Xxxxxxx (the "Optionee").
The Optionee has agreed to become employed by the Company on or about
January 15, 1998 (the "Employment Date") as its President and Chief Executive
officer under a written employment letter dated November 24, 1997 (the
"Employment Agreement") and has further agreed to serve as a director and as
a consultant to the Company prior thereto; and
In consideration for his services as a director, consultant and as an
executive employee, the Company desires to grant him options to purchase
shares of its common stock, no par value (the "Common Stock");
The Company desires, by affording the Optionee an opportunity to
purchase its Common Stock as hereinafter provided, to carry out the purpose
of the Amended 1994 Stock Plan of the Company approved by its shareholders
(the "Plan").
THEREFORE, the parties hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants to the Optionee the
right and option (hereinafter called the "Option") to purchase from the
Company all or any part of an aggregate amount of 500,000 shares of the
Common Stock of the Company (the "Option Shares") on the terms and conditions
herein set forth. If the Optionee elects, pursuant to the terms of Section
3(a) of his Employment Agreement, to reduce the number options to purchase
shares granted hereunder for options to purchase shares that qualify as
Incentive Stock Options under Internal Revenue Code Section 422, then and in
that event, the Optionee shall surrender for cancellation under this Option
that number of shares equal to the number of shares to which he is granted
under the Incentive Stock Option without regard to the exercise price of the
shares of each option. To the extent that the options awarded under the
Incentive Stock Option are exercisable in installments, the installments
under this Option shall be reduced accordingly. Other than the reduction in
the number of shares subject to this Option, the cancellation of shares shall
not affect any other term or condition of this Option.
2. PURCHASE PRICE. The purchase price of the Option Shares shall be
$6.75 per share, which shall be the closing price on the date of grant.
3. TERM OF OPTION. The term of the Option shall be for a period of
ten (10) years from November 24, 1997 (the "Option Date"), subject to earlier
termination as hereinafter provided.
4. EXERCISE OF OPTION. Thereafter, subject to the terms and
conditions hereof, the Option may be exercised as follows:
(a) From the Employment Date, the Option may be exercised as of
125,000 shares.
(b) From and after 12 months from the Option Date, the Option may be
exercised as
to an additional 125,000 shares.
(c) From and after 24 months from the Option Date, the Option may be
exercised as to an additional 125,000 shares.
(d) From and after 36 months from the Option Date, the Option may be
exercised as to an additional 125,000 shares.
5. NON-TRANSFERABILITY. The Option shall not be transferable
otherwise than by will or the laws of descent and distribution, and the
Option may be exercised, during the lifetime of the Optionee, only by the
Optionee.
6. TERMINATION OF EMPLOYMENT. If, after the date the Optionee
commences employment pursuant to the terms of the Employment Agreement, the
Optionee's employment with the Company shall be terminated other than (x) by
the Company for Cause (as defined in the Employment Agreement) or (y) by the
Optionee prior to the end of the Original Term of the Optionee's Employment
Agreement for other than Good Reason (as defined in the Employment
Agreement), the Option shall become exercisable in full to all the Option
Shares covered thereby. The Option may be exercised by the Optionee, his or
her legal representative, or, in the case of death, by the person to whom the
Option is transferred by will or the applicable laws of descent and
distribution for a period that shall extend to and shall expire immediately
upon the earlier of the expiration of the term specified in Section 3 hereof
or the date specified below:
(a) In the event of the death of Optionee, three (3) years from the
date of death; or
(b) In the event of termination of employment as a result of
Optionee's Disability, one (1) year from the date of the Disability; or
(c) In the event of termination of employment by the Company other
than for Cause or in the event of the termination of employment for Good
Reason, the later of November 24, 2003 or the date that is one (1) year
from the date of the Optionee's termination of employment.
7. TERMINATION OF EMPLOYMENT FOR CAUSE. If, after the date the
Optionee commences employment pursuant to the terms of the Employment Letter
and the employment of the Optionee shall be terminated for Cause (as defined
in the Employment Agreement) any unexercised Option shall terminate
immediately upon such termination of employment. In the event of termination
initiated by the Optionee prior to the end of the Original Term under the
Optionee's Employment Agreement, such Option shall be exercisable for the
period that shall extend to and shall expire immediately upon the earlier of
one (1) year after the date of the Optionee's termination of employment or
the term specified in Section 3 hereof as to only those shares as to which
the Option became exercisable prior to the termination of Optionee's
employment. So long as the Optionee shall continue to be an employee of the
Company or one or more of its subsidiaries, the Option shall not be affected
by any change of duties or position. Nothing in this Option Agreement shall
confer upon the Optionee any right to continue in the employ of the Company
or of any of its subsidiaries or interfere in any way with the rights of the
Company or any subsidiary to terminate the employment of the Optionee at any
time.
8. ACCELERATION IN EVENT OF CHANGE IN CONTROL. Notwithstanding the
provisions of Section
2
4, in the event of a Change in Control (as defined in this Section 8) after
the date the Optionee commences employment pursuant to the terms of the
Employment Letter, the Option shall become exercisable in full as to all the
Option Shares covered thereby and will remain exercisable for the full term
of the Option, without regard to any installment exercise or vesting
provisions and regardless of whether the Optionee remains in the employ or
service of the Company. In addition, if a Change in Control of the Company
occurs, the Committee (as defined in the Plan), in its sole discretion and
without the consent of the Optionee, may determine that the Optionee will
receive, with respect to some or all of the Option Shares, as of the
effective date of any such Change in Control of the Company, cash in an
amount equal to the excess of the fair market value of such Option Shares
immediately prior to the effective date of such Change in Control of the
Company over the option exercise price per share of this Option. For
purposes of this Agreement, "fair market value" shall be established in the
manner set forth in the Plan.
"Change in Control" shall mean a change in control which would be
required to be reported in response to item 6(e) on Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), whether or not the Company is then subject to
such reporting requirement, including, without limitation, if:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than a person that beneficially owns five
percent (5%) or more of the Company's Common Stock as of the date
immediately prior to the effective date of the Company's initial public
offering, becomes a "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's
then outstanding securities and is required to file a Schedule 13D under
the Exchange Act; or
(b) The Incumbent Directors cease for any reason to constitute at
least a majority of the Board of Directors. The term, "Incumbent
Directors," shall mean those individuals (other than Optionee) who are
members of the Board of Directors on the effective date of this
Agreement and any individual who subsequently becomes a member of the
Board of Directors whose election or nomination for election by the
Company's shareholders was approved by a vote of at least a majority of
the then Incumbent Directors; or
(c) (i) The Company consummates a merger, consolidation, share
exchange, division or other reorganization of the Company with any
corporation or entity, unless the shareholders of the Company
immediately prior to such transaction beneficially own, directly or
indirectly (A) if the Company's is the surviving corporation in such
transaction, 60% or more of the combined voting power of the Company's
outstanding voting securities as well as 60% or more of the total market
value of the Company's outstanding equity securities, (B) if the Company
is not the surviving corporation, 80% of the combined voting power of
the surviving entity's outstanding voting securities as well as 80% or
more of the total market value of such entity's outstanding equity
securities or (C) in the case of a division, 80% or more of the combined
voting power of the outstanding voting securities of each entity
resulting from the division as well as 80% or more of the total market
value of each such entity's outstanding equity securities, in each case
in substantially the same proportion as such shareholders owned shares
of the company prior to such transaction; (ii) the shareholders of the
Company approve an agreement for the sale or disposition (in one
transaction or a series of transactions) of all or
3
substantially all of the Company's assets, or (iii) the Company adopts a
plan of complete liquidation or winding-up of the Company.
(d) All or substantially all of the assets of the Company are
sold, leased, exchanged or otherwise transferred and immediately
thereafter, there is no substantial continuity of ownership with respect
to the Company and the entity to which such assets have been transferred.
9. METHOD OF EXERCISING OPTION. Subject to the terms and conditions
of this Option Agreement, the Option may be exercised by written notice to
the Board of Directors of the Company at the principal office of the Company.
Such notice shall state the election to exercise the Option and the number
of shares in respect of which it is being exercised, and shall be signed by
the person so exercising the Option. Such notice shall be accompanied by
payment of the full purchase price of such shares, which payment shall be
made in cash or by check or bank draft payable to the Company, or, provided
such form of payment does not result in a charge to earnings of the Company
for financial accounting purposes, by delivery of shares of Common Stock of
the Company with a fair market value equal to the purchase price or by a
combination of cash and such shares, whose fair market value shall equal the
purchase price. For purposes of this Agreement, the "fair market value" of
the Common Stock of the Company shall be established in the manner set forth
in the Plan. In the event the Option shall be exercised by any person other
than the Optionee, such notice shall be accompanied by appropriate proof of
such right of such person to exercise the Option.
10. FORFEITURE/REPURCHASE ON ENTERING INTO COMPETITION. In the event
the Optionee violates in any material respect the obligations under Section
10 of the Employment Agreement following termination of Optionee's employment
and during such period as such provisions remain in effect:
(a) The vested stock options granted to Optionee hereunder, to the
extent unexercised, shall immediately terminate and be without further
force or effect.
(b) The Company shall have the right to repurchase for cash any
shares of Company's stock acquired by Optionee as a result of the
exercise of any portion or all of the options and held by either
Optionee or by any member of Optionee's family or by any trust or other
entity in which Optionee or any member of Optionee's family has a
beneficial interest. The Company shall give Optionee written notice of
the exercise of its right to repurchase and shall close on the
repurchase no later than six months after the date of notice. The
purchase price for the shares shall be the option exercise price or the
closing bid price for shares of the Company's common stock on the date
of notice, whichever is lower.
(c) If Optionee sells or has sold any shares acquired by Optionee
as a result of the exercise of any portion or all of the options at any
time after the date which is 12 months prior to the date of the
termination of Optionee's employment, Optionee shall pay to the Company
in cash, upon demand, all gains or other economic value actually or
constructively received by Optionee, any member of Optionee's family or
any trust or other entity in which Optionee or any member of Optionee's
family has a beneficial interest, upon the sale of any such shares equal
to the difference between the option exercise price and the value
received. Notwithstanding the foregoing, the maximum value of the right
to repurchase under clause (b) above and the gain under clause (c) above
which the Company may recover shall be $1,000,000.
4
The foregoing limitation shall be applied first against the recovery of
gain on the sale of shares under clause (c) and then from the repurchase
of any shares under clause (b) based on the amount by which the closing
bid price on the date of notice exceeds the option exercise price. The
Company agrees that the $1,000,000 limit will be reduced to the extent
that the Optionee does not derive a federal income tax benefit from the
payments under this paragraph equal to the tax cost of the exercise of
the options and/or the sale of the shares.
11. OPTION PLAN. This Option is subject to certain additional terms
and conditions set forth in the Amended 1994 Stock Plan pursuant to which
this Option has been issued. A copy of the Plan is on file with the
Secretary of the Company and by acceptance hereof Optionee agrees to and
accepts this Option subject to the terms of the Plan. Any capitalized terms
in this Agreement that are not defined herein shall have the meaning set
forth in the Plan.
12. DISPUTES. As a condition of the granting of the Option herein
granted, the Optionee agrees, for the Optionee and the Optionee's personal
representatives, that any dispute or disagreement which may arise under or as
a result of or pursuant to this Agreement, shall be determined by the
Company, in its sole discretion, and that any interpretation by the Company
of the terms of this Agreement shall be final, binding and conclusive.
13. BINDING EFFECT. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date and year first above written.
RTW, INC.
/s/ Xxxx X. Xxxxxxx By: /s/ Xxxxx X. Xxxxxxx
------------------------ ---------------------------------------
Optionee Its: President
---------------------------------------
5
